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Operator: Greetings. Welcome to MIND Technology, Inc. Fiscal Fourth Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, Zach. You may begin. Zach Vaughan: Thank you, operator. Good morning, and welcome to the MIND Technology, Inc. 2026 Fourth Quarter Earnings Conference Call. We appreciate all of you joining us today. With me are Robert P. Capps, President and Chief Executive Officer, and Mark Alan Cox, Vice President and Chief Financial Officer. Before I turn the call over to Robert P. Capps, I have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website at mine-technology.com or via recorded instant replay until April 23. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Thursday, 04/16/2026, and therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties, and other factors, many of which the company is unable to predict or control, that may cause the company's actual future results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk disclosed by the company from time to time in its filings with the SEC, including in its Annual Report on Form 10-K for the year ended 01/31/2026. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. Now I would like to turn the call over to Robert P. Capps. Robert P. Capps: Hey. Thanks, Zach, and thank you all for joining us today. Today, I will touch on our results for the fourth quarter and the full year and discuss the current market environment. Mark will then provide a more detailed update on our financials and I will return to wrap things up with some remarks about our outlook. A lot has transpired since our last earnings call. As you all know, we are a global company. Our customers work all around the world. We have not experienced any material impact to our operations or prospects due to the current conflict in the Middle East. However, this is a situation that we are following closely. Overall, our performance in fiscal 2026 reflects our ability to deliver resilient results despite the evolving and highly turbulent macro environment. All things considered, I am pleased to report another year of meaningful cash flow from operations and positive earnings and adjusted EBITDA. We are capitalizing on pockets of demand, maintaining our consistent execution, and benefiting from production efficiencies. There has been a good bit of uncertainty in the market for some time now, but our CMAP revenues remain elevated compared to historical levels and were essentially flat in the fourth quarter compared to the third quarter. As we discussed last quarter, overall interest and engagement remains positive, but we have seen some customers defer new order commitments given commodity price volatility and the current state of geopolitical affairs. This is not uncommon in periods of broad economic uncertainty. However, as the password indicate, we continue to view this as a short-term disruption and expect that customers will resume normal activities once conditions stabilize. Our long-term growth trajectory and operational momentum are still intact, and our large pipeline of opportunities supports our optimism for the future. Our backlog of firm orders as of 01/31/2026 was approximately $13.9 million compared to $727.2 million as of 10/31/2025 and approximately $16.2 million as of 01/31/2025. As a reminder, during the fourth quarter, we received long-anticipated orders totaling about $9.5 million. We were able to deliver roughly half of these orders during the fourth quarter and expect to make the remaining deliveries early in fiscal 2027. Our backlog is only down slightly year over year. We are finding that many customers, regardless of industry or end use, are taking a wait-and-see approach to larger system orders given the current climate. For the reasons I mentioned, this is not unexpected. However, there are signs of recovery, and the long-term outlook for exploration and survey work is trending in the right direction. We believe this bodes well for additional orders in future periods as the geopolitical instability in the Middle East may well drive exploration activity in other parts of the world. We have yet to see any immediate impacts from the dramatic increase in oil prices. That is something our customers are monitoring closely and has the potential to drive incremental activity. As a reminder, aside from the protracted customer decision-making process stemming from macro uncertainty and geopolitical turmoil, it is also not uncommon to see pauses in order activity throughout the year in a normal environment. We continue to monitor various external factors that might impact our business, but we maintain our belief that the long-term outlook in the marine exploration and survey industry is very positive and an uptick in activity is inevitable. Outside of our backlog, which is defined as orders for which we have a purchase order or a signed contract in hand, the pipeline of potential orders remains solid and is several times greater than our firm backlog. We are pursuing certain significant projects. Some of these opportunities involve new vessels for governmental organizations. These projects are often relatively large, $10 million or more to us, and require that successful bidders provide security bonds. You may have noted that we recently entered into a trade finance facility with HSBC. This facility provides flexibility to help pursue these more significant projects. We remain cautiously optimistic in our ability to convert opportunities into firm orders in coming periods. Our backlog and pipeline of potential orders consist primarily of our three main product lines: FinLink source controllers, BuoyLink positioning systems, and CLINX streamer systems. However, our backlog also contains some aftermarket orders. Together, these services are the foundation for our business. As a whole, our CMAT business continues to enjoy a strong market position. We have worked hard to carve out a niche within the marine technology industry and have established strong relationships with our customers. We also pride ourselves in finding innovative ways to capture demand. Growing contributions from our aftermarket activities are also providing a stable and recurring revenue stream that is supporting our overall results. This component of our business has become increasingly important. This aftermarket activity consists of spare parts, repairs, service, and other support activities. While this business is influenced to some degree by general activity level within the industry, it is more recurring in nature than orders for new systems. Customers might be slow to purchase new systems, but their existing equipment will need maintenance to keep operating. This benefits MIND Technology, Inc. We have established ourselves as a company that can do this kind of service and repair work quickly, efficiently, and reliably. Additionally, expenditures for aftermarket activity are generally operating costs, as opposed to capital expenditures. Therefore, customers will allocate funds for these activities differently than they might for a new system. Contribution of this activity as a percentage of revenue fluctuates from quarter to quarter based on product mix and the timing of larger system deliveries. However, in fiscal 2026, aftermarket business accounted for about 60% of our total revenues. Margins for this business also tend to be better than large system sales that might attract discounts. The installed base of CMAP products continues to expand, and with it comes the prospect for increased aftermarket activity. Additionally, we continue to ramp up activity at our newly expanded Hessville facility. Additional floor space at this facility enables us to efficiently take on larger manufacturing and product repair projects. This increased capacity will be used to further support our existing CMAT products, newly developed products, and services to third parties. Turning to our results, marine technology product revenues for the fourth quarter and full year 2026 were $9.8 million and $40.9 million, respectively. Quarterly revenue was flat sequentially and slightly lower than our internal expectations due to delivery of a few orders being pushed into fiscal 2027. But we continue to find ways to generate resilient results. I am pleased with our ability to navigate uncertainty within the market. We believe MIND Technology, Inc. remains well positioned to capitalize on opportunities in future periods to stimulate order flow and generate sustainable results. We have a differentiated approach, a best-in-class suite of products, and a unique aftermarket business that will continue to give us a competitive advantage and support our financial results for years to come. Now I will let Mark walk you through our fourth quarter and full year financial results in a bit more detail. Mark Alan Cox: Thanks, Rob, and good morning, everyone. Revenues from marine technology product sales totaled approximately $9.8 million for the quarter. Full year revenue amounted to approximately $40.9 million. As Rob mentioned, the delivery of about half of the orders that we received in December were pushed into fiscal 2027, and this had an impact on our results for the quarter and full year. Despite this, and the general uncertainty that persists in the market, customer interest and engagement remain strong, and our aftermarket business continues to provide significant recurring revenue that is supporting our results. Full year gross profit was approximately $18.7 million. This represents a gross profit margin of 46% for the year compared to 45% for fiscal 2025. The year-over-year margin improvement was primarily attributable to product mix, which included a greater proportion of spare parts and other aftermarket activity. We also continue to benefit from our cost structure optimization, which includes greater production efficiencies, and we expect these efforts to help maintain favorable gross profit and margins in future quarters. Our general and administrative expenses were $3.3 million for 2026. This was up both sequentially and when compared to the same quarter a year ago. The sequential and year-over-year increases are due primarily to higher stock-based compensation. Our research and development expense for the fourth quarter was approximately $389 thousand, which was down both sequentially and compared to 2025. Consistent with prior periods, these costs were largely directed toward the development and enhancement of our streamer systems and source controller offerings. Operating income for the fourth quarter and full year 2026 was approximately $78.0029 billion, respectively. Fourth quarter adjusted EBITDA was $1.1 million and full year adjusted EBITDA was $5.3 million. Net loss for the fourth quarter was approximately $271 thousand after income tax expense of $471 thousand. This resulted in net income for fiscal 2026 of approximately $750 thousand after income tax expense of $2.2 million. Our income tax expense results primarily from our operations in Singapore. As of January 31, 2026, we had significant working capital of approximately $37 million, including $19.1 million of cash on hand. The company continues to maintain a clean, debt-free balance sheet with a simplified capital structure. We believe our solid footing, significant liquidity, and operational flexibility will allow us to make moves in the coming quarters that will enhance stockholder value in future periods. I will now pass it back over to Rob for some concluding comments. Robert P. Capps: Thanks, Mark. We are operating in a complicated market environment that has fostered uncertainty. In some ways, that uncertainty creates opportunity for us going forward, but for now, it has slowed customer decision-making and delayed order commitments for larger systems. Despite this temporary pause in order activity, the underlying fundamentals for the marine technology industry remain intact. The long-term pipeline of opportunities continues to be very positive. Our prospects are plentiful; this presents compelling opportunities for MIND Technology, Inc. to address demand, capitalize on new areas of focus within the market, and deliver improved financial results. We remain very well positioned for the future, and I am optimistic that any near-term softness will abate in coming months. We remain focused on controlling what we can. In recent years, we have strategically structured the company so that we are operating lean and efficiently. This allows us to be more responsive to changing market conditions. As a reminder, it really does not take much to move our needle in a positive direction. As one or two large orders materialize, we can have a very different outlook. We continue to drive technological innovation and expand our capabilities to address new opportunities. We are also constantly evaluating ways to repurpose our existing technology for new applications. Given our current visibility, we expect our results for fiscal 2027 to be down when compared to fiscal 2026. Despite this view, we believe this will still be a positive year for MIND Technology, Inc. We may grow in other ways that may not immediately present themselves in our financial results. We recognize it will be difficult to replicate the systems order volume that we have enjoyed over the past two years given our recent customer discussions and their prevalent uncertainty. However, I believe we will be cash flow positive for the year even with lower revenue. We have built a better, more resilient business with a solid foundation and simplified capital structure that is equipped to weather periods of reduced order activity. We have also meaningfully grown our installed base over the last few years, which lends itself to our aftermarket activity and provides a substantial stream of recurring revenue. We will use our enhanced liquidity to position the business for improved financial results as activity across our end market returns. For the last year or so, you have heard me talk about the need for MIND Technology, Inc. to add scale. We recognize that we are a small company and that this presents challenges. I firmly believe that we need to be bigger to realize our full potential and enhance shareholder value. That being said, there are different ways we can achieve this growth. We can execute identified organic growth opportunities. We can acquire assets or businesses that are similar to our existing business. We can combine with other organizations. These are all options that we are considering and actively pursuing. While we are motivated to add scale and we have ample ability to act quickly and efficiently should an opportunity arise, we will not jeopardize the immense progress that we have made at MIND Technology, Inc. to chase an opportunity that does not fit with what we do. Our significant liquidity has broadened our opportunity set. However, we intend to be very disciplined in our approach to our capital allocation, weighing the expected return with the cost of capital. That brings me to our capital allocation strategy. The goal of this strategy is to add accretive scale and expand our offerings in order to enhance our value to our shareholders. I have outlined the various levers for growth that we have at our disposal. These include mergers and acquisitions, investments in organic growth opportunities such as the expansion of existing product lines, and strategic alliances with other industry partners. These levers are intended to be tools that we can use to create or enhance value. We can lean on any of these or a combination thereof as market conditions permit and the return on investment meets our threshold for value creation. Our view is that the marine technology industry is highly fragmented. This creates an opportunity for us to add products and services that fit MIND Technology, Inc.’s strategic capabilities and scale our business. We have a robust manufacturing footprint that is capable of producing sophisticated, technologically diverse products. This makes MIND Technology, Inc. a natural production partner or buyer for innovative technologies that can be sold alongside our existing suite of products. We continue to evaluate a number of such opportunities. We believe we are unique for a small public company. We have positive earnings and cash flow. We have no debt, and a simple streamlined capital structure and no material contingent liabilities. And we have liquidity. We think this positions us well to weather any storm and take advantage of the opportunities ahead of us. In closing, we remain committed to positioning MIND Technology, Inc. for future success, taking steps to strengthen the company and build a resilient platform with a solid foundation and a growing opportunity set. Our differentiated and market-leading suite of products gives us a competitive advantage as we partner with our customers to address various demand trends, such as power generation, energy transition, and subsea exploration. Going forward, we intend to use our liquidity to augment our business through additional investments with a focus on developing the next generation of marine technology products to meet the evolving needs of our customers. We also plan to be active participants in the industry consolidation, whether that be adding product lines or something more transformative. These efforts will help us realize meaningful financial improvement as market conditions normalize, which we expect to drive enhanced stockholder value. With that, operator, I think we can now open the call up for some questions. Operator: Thank you. To ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, it is 1 on your telephone keypad to ask a question. Our first question is from Ross Taylor with ARS Investment Partners. Please proceed. Ross Taylor: Talk to us about what you see, where the financing is coming from for your customers. You said you have seen kind of a push off, a delay. What do you think is really driving this? We are seeing a lot more interest in subsea mining. We are obviously seeing, with the Strait of Hormuz, the need for being able to detect mines and other items underwater and things like that. I read somewhere the Chinese have aggressively mapped around Guam, around Taiwan, around the Philippines, and the like, and I would assume the US Navy probably needs to do something similar. Where is the capital coming from? And you said you are seeing a pullback on your buyers and it seems like the demand should be growing meaningfully given what is happening around the world right now. Robert P. Capps: I think that is right, Ross, in that what our customers have been doing—the people who have been buying from us recently—they have certainly been impacted. The pause last year in the energy markets or the uncertainty in the energy markets had an impact. And therefore, there was some M&A activity in the market as well. So some companies were consolidating and, frankly, looking to conserve cash just from a fiscally conservative basis. In talking to them now, they are seeing improvements in activity. For a while, they saw their customers were not placing orders. They were not entering new projects—just being more cautious. Some of the uncertainty in the wind markets caused some of that. That seems to be returning a bit, especially outside of North America. So I think it was, again, a pause for them trying to be fiscally conservative and fiscally responsible. But they see that on a longer-term basis, there is that need. That is the reason we think that as they see their pricing improve, they see their prospects improve, they are going to be coming back to us for the fixed-vane capacity. We see new entrants into the market, some new vessels as we alluded to earlier, which is a bit unusual for these past few years. So, again, I think longer term it looks pretty darn positive. But, again, if you go back to the energy side of it, ironically, the situation in the Middle East is probably a positive in that a lot of people think this is going to drive increased exploration activity outside of the Middle East, which is a positive for our customers and for us. As it goes into the military and maritime security side, that has less direct impact on us today, but I think that is also starting to expand the opportunities for our technology being used more and more for ocean-bottom survey and not just for exploration activity. It is tough to say when this hits, but I think if you look from a macro standpoint, it has got to turn around. Does that happen in two months or six months or nine months? I do not know the answer to that for sure. I do not think anyone does. Everyone I talk to in the industry is pretty bullish long term, but cautious in the near term. Ross Taylor: A couple different things. Looking at—you talk about having a year that is going to be somewhat under what you saw last year. I assume that is assuming that you do not see any of the improvements in any of the things that are kind of prospects become backlog. Robert P. Capps: Correct. That is right. Ross Taylor: You are talking about being able to generate free cash flow during the course of the year. Am I correct in that assumption that you said you will obviously be able to have EBITDA, but we should expect cash flow to be positive in the year? Robert P. Capps: We do expect that, yes. Ross Taylor: With your acquisition or your strategy to enhance value, it strikes me as one of the natural things is finding a division of a public company or something, and in essence, almost them using the MIND Technology, Inc. platform as a way to get public to gain value out of it—an acquisition that would effectively be able to pay for itself given its economics. Is that the type of thing that we should be looking to see out of you as we look ahead? And then also comment on, because you mentioned, some of what you are thinking about doing is building for others. What are the economics when you build for someone else as opposed to for yourself? Robert P. Capps: Sure. Let me take those in reverse order. Being a contract manufacturer—those margins are not very good historically. But if we can partner with someone and have more of an impact and more of an input into the technology itself, so we are bringing more to the table, that is the sort of thing we are looking for from a partnership standpoint—where we can sell to our customer base, produce out of our facilities, things like that. We are also looking at whether we can acquire technology or product lines from someone. That might entail actually acquiring an entity—the company—maybe a one- or two-product company, or it might entail acquiring just the technology from someone. So we are looking at all of those. But the key there is things that are close to what we do now that we can lever our existing capabilities and get those economies of scale and really drive the return on that. That is really important to us. We do not want to do something where we have to do a step-out and replicate production facilities somewhere else. That is not the sort of thing we are looking for. To the first point you raised, we are a bit of a unicorn for small public companies. As I said in my comments, we forecast positive results. We have no debt. We have a pristine capital structure and balance sheet. That enables us to do some things that I think make us an attractive vehicle for some entities to monetize what they have. Maybe there is a venture capital firm who has an investment they would like to monetize and this is a way they could do that. So I think there are some opportunities there. That is the sort of thing that we are looking to do. Ross Taylor: That would fit with how I would think—a big part of what I would be thinking—an acquisition that basically pays for itself and you allow an exit strategy, but also a way of that entity perhaps going public. Robert P. Capps: Exactly right. Ross Taylor: Obviously, at this stage, difficult outlook as we push ahead. Can you talk about—you have talked about having a number of these very large prospects. Could you talk a little bit more? Give us what is for you a very large prospect, and how long lead time do you need to fill it? Robert P. Capps: Call it $10 million-plus as a large prospect. We have done several $5 million to $6 million orders, but $10 million is large for us. From receipt of order to delivery, call it 16 to 24 weeks, something like that. Frankly, the process from when the bid is let until actually getting the award can be a longer process. You can very well chase these things for a year and a half before you actually make delivery. I would not expect that we would win and deliver a project of that size in this fiscal year. Possible, but it would have to happen pretty quickly. Ross Taylor: So you could win it this year, but given the other factors, it is unlikely that you would be able to fulfill it fully this year. Robert P. Capps: Right. Not impossible, but unlikely at this stage. Ross Taylor: And at what price in the stock do you actually consider the company itself to be a worthy investment? Robert P. Capps: I am not going to touch that. That is something we think about, and certainly we have said publicly, if our stock is the best use of capital, that will be our use of capital. But I do not think I want to touch that point. Ross Taylor: Okay. I will pass it on to others. Thank you. Good luck. Operator: Our next question is from Tyson Lee Bauer with Casey Capital. Please proceed. Tyson Lee Bauer: Good morning, gentlemen. Interesting that you had talked about new vessels possibly for government entities that could be up to $10 million. Would that be more scientific, or what portion of a government structure would that be geared toward? And that $10 million number seems rather large given that 40% of your overall revenues in fiscal 2026—$16 million of that—was system sales. One order could account for 60% of what you did the prior fiscal year. Were you hopeful that you may have something in place before this call? Did you expect it? Is there something in the hopper that may or may not materialize? Robert P. Capps: That is right. To answer your direct question, this is more scientific research-type institutes that we are looking at. That is the type of vessel and entity that is involved. They are multipurpose vessels and do lots of different things, so we are delivering lots of different stuff beyond just standard streamer systems and gun control systems for these things. You are exactly right—those are large—and as I said in my comments, it does not take a lot to move our needle. I am always hopeful, Tyson. I did not expect it, though. These things do take some time. They happen when they happen. There are more than one opportunities active right now that may or may not materialize. Tyson Lee Bauer: On the deals or potential deals, how important is your tax-loss carryforward asset in consideration as far as the payback of doing a deal or somebody with a related business being able to utilize that? Is the fact that you are US-domiciled a benefit in some of these assets that may want to have that location as opposed to maybe a foreign entity that may want to enter the US market? Robert P. Capps: It really depends on the nature of the counterparty and the structure of the deal, but it could be meaningful, and you could have a tax-neutral transaction fairly easily, I think. But, as you will appreciate, that is a complex situation which may or may not work out, but it potentially could have significant value. I would say being US-domiciled is probably a net positive for a couple of reasons. Number one, the US capital markets are available to us, so that is attractive to people as opposed to other capital markets. From an export or control standpoint, it is probably a positive overall. So I think it is a net positive for sure. Tyson Lee Bauer: In the quarter, of that $9.8 million, what percentage was parts, services, and repair versus system delivery? You are trending around that $6.0–$6.5 million per quarter—obviously can have some lumpiness—but is that recurring base revenue as we go forward? And given your comments before the Q&A, it sounds like $4 million or $5 million may have gotten pushed into fiscal 2027. Is the current backlog that you disclose made up entirely of systems? Robert P. Capps: Off the top of my head, it would have been probably 55%–60% aftermarket. I do not have the exact number in front of me, but it is in that ballpark. We have seen over the last year—really the last five quarters—that trend pick up, so I think that is right. Of course, the caveat is that can always switch a bit. Spares orders can be lumpy too, so that can switch, but it has definitely been trending up, and it makes sense as the installed base has been going up. On the push, yes, that is about right—about half of that large order we got in the fourth quarter did not get out the door. We had hoped at one point that we would be able to, but it did not come in soon enough, and there were lots of factors as to when the customer could pick it up and things like that. So we just did not get it out the door. The current backlog is not entirely systems—there is some aftermarket stuff in there too. Again, I do not have the breakdown in front of me, but it is a combination. Tyson Lee Bauer: SG&A—obviously we had stock comp of $714 thousand a quarter. You typically have some additional professional fees to start the year. Is a level closer to $2.08 million going to be a good modeling number as we go forward? Robert P. Capps: Probably ballpark, again, with some variations from quarter to quarter. The stock-based comp is going to continue for a while and then start to trend off over the coming quarters. We did have some unusual things last year early in the year which skewed the full-year amounts—some tax analysis, some franchise tax adjustments—things like that, which will not be recurring. So I think if you factor out the stock-based comp, you will see things stabilize and maybe trend down just a bit. Tyson Lee Bauer: Order timing—typically, capital budgets are set at the end of calendar years and then are gradually released the following year. Are those what give you cause for concern, or is it that the capital budgets have been allocated or they are not appropriated and you do not know if they will get fully appropriated as we go through this fiscal year? Robert P. Capps: I would caution that the budgets are not set in stone and then done. In this environment, you see things change during the course of a year. Capital budgets can go up or down. We certainly saw them go down last year during the year, so they can go both directions. Also, as we are dealing with some of these governmental agencies, they work on a different calendar than we do—often not the natural calendar year—so I would be cautious to put too much into that. Having said that, the general trend I am seeing is an uptick in inquiries and interest in additional equipment. What is uncertain to us right now—we have tried to emphasize—is how quickly those opportunities materialize. Does it happen next month, or is that nine months down the road? Hard to say right now. I think everyone is being cautious still, but I think they are making some preparations to maybe turn things loose a bit when things are a bit more certain. Tyson Lee Bauer: One thing I find interesting when you talked about the possibility of new vessels is, given your competitive dominance in certain niches of the industry, new vessels require long lead times and dry dock space. If you are the only game in town for some of these technologies or systems for those vessels, to procure it is almost a function of when, not if, for those orders. Am I framing that scenario correctly? Robert P. Capps: To a point, you are correct that there are certain aspects of the technology that are unique to us, so we are going to get that business almost certainly. There are other parts of those projects that we pursue that we do have some competition on, so those are not a foregone conclusion. Also, especially with foreign governmental entities, there sometimes are contractual requirements that we may not find palatable, so we may walk away from an opportunity because we just do not like the terms—they are too onerous. So you are right in that to some degree, if a project happens, we are going to get it, but not necessarily to the same magnitude of a $10 million order. Tyson Lee Bauer: Are you able to work directly with Chinese customers, or do you have to work with intermediaries such that the ultimate end does not really impact where your product ultimately ends up? Robert P. Capps: There are some things we cannot sell to the Chinese. There are some things where we have to limit the capabilities of what we sell to the Chinese. Other things, there are no limits at all. But yes, we deal directly with Chinese customers. Tyson Lee Bauer: The last question—probably the most important question for shareholders—is, how do we keep 2027 from becoming a lost year for shareholders? You may have expectations as of today of a lower fiscal 2027 compared to fiscal 2026 on financials, but if you grow the backlog throughout the year or if you do other activities that are favorable for shareholder value, obviously the investor community will look forward, which would give us a return and a reason to basically wait out this pause that you are seeing currently. Are you seeing that scenario where you are not saying that fiscal 2027 is a lost year for shareholders? You are, at this point, saying that financials look like they will be down, but as we progress through the year, we are going to see that your value proposition is actually growing as we traverse fiscal 2027? Robert P. Capps: Tyson, that is absolutely correct. We tried to allude to that—that there may be some things that happen that just do not reflect themselves in the financials right away. But I think there are lots of opportunities for us to create value, and that is what we are all about. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Robert P. Capps: I would like to thank everyone for joining us today and look forward to talking to you again at the end of our first quarter in a few weeks. Thanks very much. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Welcome to ManpowerGroup's First Quarter Earnings Results Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. If you care to drop off now, please do so. I would now like to turn the call over to ManpowerGroup's Chair and CEO, Mr. Jonas Prising. Sir, you may begin. Jonas Prising: Good morning, and thank you for joining us for our first quarter 2026 conference call. our Chief Financial Officer, Jack McGinnis; and our President and Chief Strategy Officer, Becky Frankiewicz, are both with me today. For your convenience, our prepared remarks are available in the Investor Relations section of our website at manpowergroup.com. I'll begin with a brief overview of the quarter, including how we're seeing conditions evolve across our markets, and then I'll share a few updates on how we're positioning Manpower Group to win in any environment. Becky will then provide an update on how we are driving commercial excellence and the opportunities for capturing with the eye, followed by Jack who will walk through the detailed financial results and our guidance for the second quarter of 2026. I'll close with a few comments before we open the line for Q&A. And Jack will now cover the safe harbor language. John McGinnis: Good morning, everyone. This conference call includes forward-looking statements, including statements concerning economic and geopolitical uncertainty, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures. Jonas Prising: Thanks, Jack. Our Q1 results reflect disciplined execution and continued stabilization of revenue trends across key markets. In the first quarter, we delivered reported revenues of $4.5 billion representing an organic constant currency growth of 3%. System-wide revenue, which includes our expanding franchise revenue base, was $5 billion. Adjusted EBITDA margin of 1.4% reflects improving demand trends as well as P&L leverage. We're also encouraged that top line growth exceeded our expectations, reflecting strong execution of our commercial initiatives. We are expanding our new business pipeline, increasing client engagement and continue to win in the areas where growth is strongest and most resilient. At the same time, the manufacturing environment is strengthening, particularly across Europe. Taken together, this is enabling us to drive continued momentum across the portfolio with strong manpower performance among key markets, including France, U.S. and Italy. We're also seeing stable underlying trends in Experis and solid performance in talent solutions, Papin MSP and Right Management, even as RPO remains more challenged. Our diversified portfolio, global scale and specialized brand expertise continue to position us well to win in the marketplace. As we move down the P&L, we have continued our relentless focus on driving operating leverage. During Q1, we reduced SG&A as adjusted by 4% in constant currency, while delivering continued top line growth reflecting the impact of our ongoing efficiency efforts, something I'll share more detail on shortly. Finally, we're closely monitoring developments related to the conflict in the Middle East. While it is still too early to assess if there will be a broader impact, like many global companies, we have become accustomed to navigating a fast-changing environment that includes geopolitical developments, alongside economic and labor market shifts. In the meantime, we have been focused on staying close to our clients and their evolving needs while managing the business with discipline. Against this backdrop, we're encouraged by the developing short-term momentum and equally excited by the long-term market opportunity. This is supported by improving business confidence in the U.S. as evidenced by the increase in CEO confidence reported by the conference board, rising manufacturing PMLA in the U.S. and Europe and strong business resilience. As conditions improve, we expect sustainable organic revenue growth to build progressively. Our intent is to be the architects of our own future and to proactively take actions that will position Manpower Group to lead the industry, win in any environment and drive long-term value creation. We are transforming our business model to drive growth and expand margins over time. As part of this commitment, we are announcing a transformation initiative that will reimagine how we operate and deliver value to our clients and candidates and provide significant cost optimization. Over the past year, we have been doing significant planning to launch this work, and we are pleased to share more details with you today. We have made targeted investments in automation and AI and build a modern global technology infrastructure, including our PowerSuite platform, which now serves as the backbone of our digitization strategy. With nearly 90% of our global business operating on this platform, we have created a unified technology stack with access to global data across all of our global businesses, enabling us to operate at the unique data scale, strengthen our insights and be better partners to our clients. As a result of these investments, we are launching a strategic global transformation program that we expect will deliver in permanent cost savings in 2028. There are 2 major components to our plan. The first, which I've talked about before, is the complete redesign of our back office operation, which is progressing well. The second is taking best practices and key learnings from our back-office transformation and executing a similar program for the front office. These redesign processes will be industry-leading and enable us to execute more effectively and move faster to fill roles. In addition to reducing our cost structure, this transformation will improve both client and candidate experience, positioning our brands to win in market share and better serve clients in a highly fragmented marketplace. We have begun this work in North America, redesigning end-to-end processes, embedding automation and AI where it simplifies work, creating best-in-class local world blueprints before extending globally. The goal is clear: Connect more people to work by selling more orders to drive growth while structurally lowering our cost to serve. I am also pleased to announce that we have recently hired a dedicated Chief Enterprise Transformation Officer who has joined our executive leadership team to drive the execution of this plan across the enterprise. At the same time, we continue to thoughtfully review our global portfolio to ensure that we have the right mix of businesses and brands across key markets. Prioritizing investments in core, higher return opportunities while evaluating opportunities to divest noncore assets to strengthen our financial position and support our long-term growth and margin ambitions. Ultimately, these actions will accelerate our path back to our historical margin profile and create a structural cost basis to expand margins further over time. Now before I hand it over to Becky, let me just say one more time how excited we are about the transformation underway to improve efficiency, reduce costs and create capacity to invest in growth. Core elements of this transformation is building new capabilities that align with where the market is heading. And this includes evolving how we bring innovative service to market, particularly with AI. We're also encouraged by the immense opportunities AI is creating as it enables us to shape the future of our industry, including how it is influencing client behavior and how they buy more for solutions. This shift creates a meaningful opportunity for us to evolve our business model so that AI becomes a sustainable tailwind by operating in new ways and developing new products for our clients. And with that context, let me turn it over to Becky to go deeper into our commercial initiatives and how we are leveraging AI. Becky Frankiewicz: Thank you, Jonas. Last quarter, I shared that my remit is focused on driving commercial excellence strengthening and expanding our core capabilities and accelerating AI across the business. Today, I am pleased to share more on how we are embedding AI as a growth multiplier and we'll highlight where AI is already driving measurable value in 3 areas: unlocking effective commercial scale, creating new ways to deliver a best-in-class talent experience and finally, monetizing new human plus agentic solutions for our clients through strategic AI partnerships. Let me start with how we are embedding AI into our processes to unlock effective commercial scale. The teams can focus on coverage where sales conversion and revenue impact are the highest. We expect this incremental revenue to increase significantly as we scale. Second, let me share how we are creating a differentiated talent experience. One that is critical to attracting and retaining the skilled associates and consultants our clients value most. To strengthen our talent experience, we recently announced an expansion of our PowerSuite technology platform to include our partnership with hubert.ai to deliver AI-powered screening and interview experiences. In the past 6 months, we've completed over 25,000 AI-led interviews and reduced screening time by 67%. The Automating early-stage interviews helps improve fill rates and time to hire and freeze our recruiters and talent agents to focus on higher-value relationship-driven work. At the same time, we are achieving 87% candidate satisfaction as more than half of this activity takes place outside of traditional working hours, meeting talent when and where works for them. These responsible, transparent AI capabilities now support markets, representing 40% of our global revenue with plans to scale to 70% by year-end. And third, monetization. I am delighted to share how we are bringing AI capabilities to market and creating a future where people can build more impactful careers and where companies can achieve greater profitable growth. Human plus agentic workforces are not a future concept. They are already here. In March, we announced a breakthrough partnership with Sound hold AI, a global leader in voice and conversational AI. Our Experis U.S. business is already helping companies across industries to review and redesign workflows and accelerate the adoption of AI and intelligent automation. This is the lead offering in our Accelerate AI services suite built on a simple and powerful premise that humans and agents can deliver more when working side by side. This partnership expands our presence in the human plus AI space, which is central to our strategy. We are starting in the U.S. to drive scale and market leadership and plans expand globally. Finally, we know we capture the impact of AI by ensuring that our teams are equipped to use it. We are pleased that tens of thousands of our employees around the world. have completed AI fundamentals training and over 80% of our workforce is already using AI in their workflows. Our approach is simple. Automate which should be automated, augment what should stay human and create entirely new ways to deliver workforce solutions to our clients. We are in progress to capture the full value of these initiatives and we expect AI to become an increasingly meaningful driver of growth, productivity and differentiation over time. We look forward to continuing to update you on our strategic progress and how we will move at pace. I will now turn it back over to Jack. John McGinnis: Thanks, Becky. I'll quickly first touch on the headline quarterly results, and I'm excited to give more details on our expanded transformation savings, Jonas announced at the beginning of the call. In the first quarter, we delivered reported revenues of $4.5 billion. System-wide revenue, including franchises was $5 billion. Our first quarter revenue results represented constant currency growth of 3%. The U.S. dollar reported revenues after adjusting for currency impacts, came in at the top of our constant currency guidance range. I will talk more about the revenue trend drivers in the business and geographic segment summaries. Gross profit margin came in below the low end of our guidance range, driven by lower bench utilization in Europe and mix shifts impacting staffing margin, while permanent recruitment came in as expected with sequential improvement. As adjusted, EBITDA was $61 million, representing a 5% increase in constant currency compared to the prior year period. As adjusted, EBITDA margin was 1.4%, up 10 basis points year-over-year and came in at the midpoint of our guidance range. Organic days adjusted constant currency revenue increased 3% in the quarter, which was favorable to our midpoint guidance range of 1% growth. Coming back to our transformation programs that Jonas referenced, we are excited to announce our path to expected savings of $200 million in 2028. We have previously discussed the implementation of our leading cloud-enabled power suite front and back-office technology platforms. These platforms are now being complemented with best-in-class end-to-end processes. We started with back office processes and are flipping to run rate savings in IT and finance costs during 2026, which build through 2028, representing 25% of the total cost savings. The strategic transformation will expand to the rest of the world in 2027 to drive expected net savings in 2028. The front office transformation, like the back office will include standardized processes, infused with leading automation and Agentic AI across all major businesses driving significant structural savings. We will continue to break out restructuring and strategic transformation program charges as we progress the program. We expect the ongoing 2026 run rate of these charges to be lower than the first quarter amount and estimate a range of $10 million to $15 million on average per quarter through the end of the year. Moving to the EPS bridge. Reported earnings per share for the quarter was $0.05. Adjusted EPS was $0.51 and came in just above our guidance midpoint. Walking from our guidance midpoint of $0.50. Our results included a slightly lower operational performance of $0.02 and a slightly lower tax rate, which had a positive $0.01 impact. A foreign currency impact, it was $0.01 worse and improved interest and other expenses, which was $0.03 better than our guidance. Restructuring costs and strategic transformation program costs represented $0.46. Next, let's review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand had strong growth of 6% in the quarter, up sequentially from the 5% growth in the fourth quarter. The Experis brand declined by 9%, an expected decrease from the 6% decline in the fourth quarter, largely driven by the timing of health care IT projects in the U.S. The Talent Solutions brand declined by 1%, an improvement from the fourth quarter decline of 4%. Within Talent Solutions, our RPO business continues to experience a sluggish permanent hiring environment, but did see sequential revenue trend improvement. Our MSP business saw continued revenue growth and Right Management also grew during the quarter. Looking at our gross profit margin in detail, our gross margin came in at 16% for the quarter. Staffing margin contributed a 70 basis point reduction due to mix shifts in bench utilization in the first quarter. Permanent recruitment activity resulted in a 20 basis point decline. Other services resulted in a 20 basis point margin decrease. Moving on to our gross profit by business line. During the quarter, the Manpower brand comprised 62% of gross profit. Our Experis Professional business comprised 21%, and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit decreased by 3% on an organic constant currency basis year-over-year, stable from the 3% decline in the fourth quarter. Our Manpower brand was flat in organic constant currency gross profit year-over-year relatively stable considering rounding from the 1% growth in the fourth quarter year-over-year trend. Gross profit in our Experis brand decreased 11% in organic constant currency year-over-year a decline from the 5% decrease in the fourth quarter, largely driven by the timing of health care IT projects in the U.S. Gross profit in Talent Solutions declined 5% in organic constant currency year-over-year, which was an improvement from the 12% decrease in the fourth quarter. The improvement in trend was driven by RPO as the rate of decline narrowed significantly. MSP rends also improved from the fourth quarter and Right Management had solid gross profit growth in the quarter on increased outplacement activity. Reported SG&A expense in the quarter was $695 million. as adjusted, was down 4% on a constant currency basis. The year-over-year constant currency SG&A decreases largely consisted of reductions in operational costs of $23 million. Dispositions were very minor and represented a decrease of $1 million, while currency changes contributed to a $38 million increase. Adjusted SG&A expenses as a percentage of revenue represented 15% in constant currency in the first quarter. Adjustments representing restructuring and strategic transformation program charges were $26 million. Balancing gross profit trends with strong cost actions while funding ongoing transformation to enhance EBITDA margin in both the short and long term remains one of our highest priorities. The Americas segment comprised 25% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing an increase of 4% year-over-year on a constant currency basis. As adjusted, OUP was $26 million and OUP margin was 2.3%. Restructuring charges of $7 million largely represented actions in the U.S. The U.S. is the largest country in the Americas segment, comprising 59% of segment revenues. Revenue in the U.S. was $655 million during the quarter, representing a 5% days adjusted decrease compared to the prior year. as adjusted for our U.S. business was $9 million in the quarter. OUP margin as adjusted was 1.3%. Within the U.S., the Manpower brand comprised 26% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 5% on a days adjusted basis during the quarter, which represented strong market performance with 7 consecutive quarters of growth and a slight change from the 7% increase in the fourth quarter as we anniversary strong growth in the prior year. The Experis brand in the U.S. comprised 39% of gross profit in the quarter. Within Experis in the U.S., IT skills comprise approximately 90% of revenues. Experis U.S. revenue decreased 15% on a days adjusted basis during the quarter, down from the 10% decline in the fourth quarter as the business anniversaried strong health care IT projects in the prior year. Excluding the impact of health care IT project volumes in the prior year, Experis U.S. revenue decreased 9% on a days adjusted basis during the quarter, largely in line with the fourth quarter trend. Talent Solutions in the U.S. contributed 35% of gross profit and saw a 2% decrease in revenue year-over-year in the quarter compared to a 2% increase in the fourth quarter, driven by lower sequential MSP activity. This was partially offset by strong growth in Right Management outplacement activity and improving RPO year-over-year trends. We expect the U.S. business to flip to low single-digit percentage revenue growth in the second quarter on an improved Experis revenue trend. Southern Europe revenue comprised 47% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.1 billion, representing 3% growth in constant currency during the first quarter. As adjusted OUP for our Southern Europe business was $58 million in the quarter, and OUP margin was 2.8%. Restructuring charges of $4 million represented actions in France. France revenue equaled $1.1 billion and comprised 51% of the Southern Europe segment in the quarter and was flat on a constant currency basis. As adjusted, OUP for our France business was $21 million in the quarter. Adjusted OUP margin was 2%. France revenue trends improved during the first quarter, and we expect a similar rate of revenue trend of flat to slight growth in the second quarter. Revenue in Italy equaled $475 million in the first quarter, reflecting an increase of 8% on a days adjusted constant currency basis. OUP as adjusted equaled $29 million and OUP margin was 6%. Our Italy business is executing well, and we estimate mid-single-digit percentage revenue growth in the second quarter. Our Northern Europe segment comprised 17% of consolidated revenue in the quarter. Revenue up $790 million represented a 1% decline in organic constant currency. As adjusted, OUP was negative $3 million in the quarter. This represents year-over-year OUP improvement during the last 2 quarters reflecting cost actions taken to date. The restructuring charges of $5 million primarily represent actions in the Nordics and the U.K. Our largest market in the Northern Europe segment is the U.K. which represents 34% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 2% on a days adjusted constant currency basis, representing ongoing stabilization. The remaining countries in the region progressed as expected with largely stable to improving revenue trends. The Asia Pacific Middle East segment comprises 11% of total company revenue. In the quarter, revenues equaled $510 million, representing an increase of 8% in constant currency. As adjusted, OUP was $22 million and OUP margin was 4.3%. Our largest market in the APME segment is Japan, which represented 57% of segment revenues in the quarter. Revenue in Japan grew 4% on a days adjusted constant currency basis. We remain pleased with the consistent performance of our Japan business, and we expect continued solid revenue growth in the second quarter. I'll now turn to cash flow and balance sheet. In the first quarter, free cash flow represented an outflow of $135 million compared to an outflow of $167 million in the prior year. The cash outflow was negatively impacted by the end of the first quarter payment timing involving our MSP business and to a lesser extent, some isolated working capital utilization, and we expect these items to reverse in the second quarter. We expect free cash flow to be negative in the first half of 2026, which will be offset by strong free cash flow during the second half. At quarter end, days sales outstanding was 59 days, up 4 days from the prior year reflecting enterprise mix shifts and isolated quarter end timing on certain receivables. During the first quarter, capital expenditures represented $9 million, and we did not repurchase any shares. Our balance sheet ended the quarter with cash of $225 million and total debt of $1.1 billion. Net debt equaled $922 million at quarter end, an increase from year-end, reflecting first quarter seasonality. Our adjusted debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of $2.86 and total debt to total capitalization at 36%. Detail of our debt and credit facility arrangements are included in the appendix of the presentation. Next, I'll review our outlook for the second quarter of 2026. Our forecast anticipates a continuation of existing trends, with that said, we are forecasting earnings per share for the second quarter to be in the range of $0.91 to $1.01. Guidance range also includes favorable foreign currency impact of $0.05 per share and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide. Our constant currency revenue guidance range is between a 1% increase and a 5% increase, and at the midpoint is a 3% increase. Considering business days are equal year-over-year and the impact of dispositions is very small. Our organic days adjusted constant currency revenue increase also represents 3% growth at the midpoint. EBITDA margin for the second quarter is projected to be up 10 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the second quarter will be 43%. I will continue to carve out any restructuring and global strategic transformation program costs incurred, and they are not included in the underlying guidance. In addition, we estimate our weighted average shares to be 47.7 million. I will now turn it back to Jonas. Jonas Prising: Thanks, Jack. In closing, as the market continues to stabilize, we're operating well, staying focused and executing with discipline. Our team remains hyper-focused on delivering for the now while a dedicated group advances our transformation initiatives to position us for future opportunities. I look forward to keeping you updated on our continued execution as we build on the progress we've made and capture the momentum ahead. As always, thank you to our talented team for their relentless focus and to our candidates and clients for your continued trust. Operator, please open the line for questions. Operator: [Operator Instructions]. Our first question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: So it's good to be back to growth here and thinking about the guide of organic constant currency, same-day basis of 3%, it's pretty similar to the first quarter. So would you call Manpower business in a recovery mode, like leaning towards acceleration here? Would you more call it at a point of a stable growth? Jonas Prising: Good morning, Andrew. Yes. No, I think we're very pleased with the improving momentum in the Manpower business. You saw an acceleration between Q4 into Q1. We're now anniversary-ing strong growth again. And as Jack said, we've had 7 quarters of growth in manpower in the U.S., 4 quarters globally. So it's really nice to see the manpower business performing better and with momentum. And it's great to notice that despite all of the uncertainty and the volatility in the markets, the underlying economic activity is resilient, yet uncertain, and that is, as we know, a good opportunity for us to provide our services and workforce solutions to our clients under the Manpower brand. Andrew Steinerman: Can I just ask a follow-up to that unit. So obviously, moving forward in the still uncertain environment leans towards flexible labor solutions. One of the things I heard about when I presented at the Staffing Industry Analyst Conference is that companies are unsure of their medium-term plans for their workforce because of AI. And that might lean currently towards more flexible solutions as that's figured out. Do you think that's just a theory -- or do you think that's happening in the marketplace and kind of part of the growth leaning forward for manpower? Jonas Prising: From Manpower, that would not really be a factor because it's very resilient to any AI impact, and I'm sure we'll talk later on around the impact in other areas and the opportunities above all that we see with AI. I think it's basically an uncertainty related to the economic environment and outlook. Employers are getting buffeted by geopolitical events, tariffs, wars that are ongoing or started, and that clearly drives employer hesitation. So in our mind, the client hesitation is more related to those events than any particular concerns or possible impact of AI into their workforce. Operator: Our next question comes from Jeff Silber with BMO. Jeffrey Silber: Wanted to shift gears and focus on some of the transformation savings that you talked about. Is it possible to give us a bit more color either by geographic regions where we might see more of those transformation services and also the timing by geographic regions? Are there certain regions we're going to see it ahead of others. Jonas Prising: Thanks, Jeff. Yes, let me just before I hand it over to Jack to provide some more of the details, maybe take a step back and provide a bit of context around this global strategic transformation program. As we've talked about over a number of quarters, we've been investing very heavily in a digitization strategy that impacts all of our operations. So we're deploying global applications across our operations. We have also engaged in a significant back office transformation program and based on those investments and the experience and capabilities that we're accumulating, and as Becky mentioned in the prepared remarks, the increased confidence that we see in the role that AI can play in improving our operations and delivering better services and solutions to our clients and candidates we have been planning for a year now to really broaden this transformation program to also include our front office and really redesign our processes in a way that leads the industry and enables us to do things and drive our business in a very different way in the future. But so maybe, Jack, you could now give a little bit more detail around the announcement we made this morning. John McGinnis: Yes. And specific to your question, Jeff, on geography impact. So I think the way I talk about it, as you see, this is both the back office program, which we progressed nicely and as Jonas said, building on that, moving that to the front office processes. So you see in the chart that we provided on Slide 7 that the initial savings are coming through the back office. So that majority of the savings is coming from the European region, where we started a lot of our back office processes first. And that's both finance and IT coming through in terms of the standardization and centralization we've seen there on the technology, of course, that we've been talking about for quite some time. And as we move forward now with the front office, we're actually starting in North America. And so as you see the geography impact and you see the green in that bar chart, moving to front office savings, you'll see North America come through first in 2027. We're doing all that work now in 2026, and it's launched very well, and we're very excited about the progress so far. And then as we go to the rest of the world in 2027 following that blueprint from North America, you'll see more broader savings in the rest of the regions coming through in 2028. So and that's on the front office side. On the back office side, as I mentioned, starting in Europe, we're actually in the process of doing North America and wrapping up North America on the back office process now. And so that will contribute to some of those additional savings on the blue component of that bar chart into 2027. Operator: Our next question comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Jack, if you just look at the gross margin trends, you talked about maybe the impact staffing it's having on it. And I'm wondering how much of that is just mix? Is it just enterprise demand versus SMB demand that you've seen in the past? Or is pricing having an impact now? John McGinnis: Yes. Thanks, Kartik. So let me talk to that. I guess what I'd take you back to is the second half of 2025. And at that time, we were seeing enterprise mix shift continue to have an average and have an impact on the overall staffing margin. And when we show the staffing margin walk, year-over-year, you can see that having an impact. And as we went from the third quarter to the fourth quarter, we actually saw that stabilize the level of staffing margin decrease from the enterprise mix kind of held steady and the issue at that time was more perm. Perm was coming in softer and was driving a bit of that GP margin decrease -- further decrease year-over-year. And so as we walk into the first quarter here, I think the story is perm actually has stabilized. Perm actually came in a little bit better sequentially than the fourth quarter. So that really wasn't the driver getting back to the staffing, really what happened in the first quarter. And the first quarter is traditionally when you will start to see maybe some of the bench impacts from the bench countries, and that's where absenteeism and sickness has a bit of a role. And we saw an outsized impact on that in the first quarter. So that went against us on the staffing line that drove roughly somewhere 10 to 20 bps of additional headwind. And as Jonas said, our growth was very strong. So that growth is predominantly enterprise. And so that growth came in a bit stronger and drove a little bit more pressure on just the averaging of the mix shift. But I'd say that's really what's happening, and that's what we're seeing right now. Enterprise continues to be the strongest part of the demand. And that's how I'd characterize what we're seeing. I do -- as you do see in my guide going from Q1 to Q2, we do see it strengthening. And that is after we removed the drag associated with the bench issues in the first quarter, which are traditionally more of a winter phenomenon as we move into the second quarter. Kartik Mehta: So Jack, just to make sure. So you don't think it's a structural issue right now. It's just more of a timing issue and maybe seasonality issue because of the bench countries.. John McGinnis: That's correct. That's correct, Kartik. At this point, pricing is always very competitive. But at this point, we continue to think pricing is rational. It's predominantly a mix shift with enterprise being the strongest demand at the current time. Operator: Our next question comes from Mark Marcon with Baird. Mark Marcon: Early in your remarks, you talked about the strengthening that you're seeing in Europe. I'm wondering if you could just provide a little bit more color and also what you're hearing from your European colleagues with regards to any concerns around the impact of the war and whether you think that continued that strengthening can continue? And then I've got a follow-up on the restructuring. Jonas Prising: Good morning Mark, yes. No, we've been very encouraged with the improvement that we've seen in a number of or countries in Europe. And largely, you could say that Southern Europe continues to be very strong in a number of markets. You've seen our results in Italy, again, the market-leading very strong growth. It's our third biggest market globally. So we're very pleased with that, but also other countries and very pleased also to see France come back to flat. And Northern Europe continued to improve. Still a lot of work to do for us in Northern Europe, but we're encouraged with the progress that we're making. And I think as you see our guide into the second quarter, you see we expect that improvement to continue. And a lot of that is underpinned by what we briefly mentioned earlier, which is this economic resilience, the labor market resilience, the improvement in PMIs in all of our major markets today, PMI is above the expansionary levels, so above 50%, which has been a long time coming, and we can see that. So despite the uncertainty that despite the volatility that companies are experiencing, they have become adapt to be agile in this environment. They are interested and believe that this volatility and these uncertainties will subside and they need to continue to move their business forward. And we're very pleased to see that they're doing that with us to a greater degree in the first quarter as well and looking good also into the second quarter. As it relates to the events in the Middle East this time, it's really too early to assess if there will be a broader impact. Today, we don't see an effect on customers, and we've been really encouraged by the resilience and adaptation to the rapidly changing environment more broadly. So companies have gotten used to a volatile environment, and they are looking past the noise to the signals, what they need to achieve as a business and they are moving forward. So, so far, as you can tell from our guide, we're not seeing and including any other effects, which, of course, we're monitoring. And should anything happen, of course, we will take the actions that you've seen us take in the past. We have an experienced management team. We are used to managing in this environment. And as you can see from our results, we're executing with discipline and adjusting to any changes that we see happen. But you had a follow-up question for Jack. Mark Marcon: Yes, over for you. In terms of just the restructuring, you mentioned the charges that you're anticipating through the end of this year. Would those do you foresee further restructuring charges going into '27 and '28. How should investors think about the cash flow impacts of those restructuring charges and the timing of those. And then as it relates to the savings, from a timing perspective, would -- when we talk about the $200 million, would that basically be kind of a run rate savings toward the end of '28? Or could we expect all of those savings to actually hit in '28? And what percentage of that would you actually expect to drop down to the EBITA line as opposed to being, potentially being redeployed for other uses? Jonas Prising: Mark, that is definitely a Jack question. You managed to work in 5 questions into that swap. So Jack... John McGinnis: No, thanks for the question, Mark. And so obviously, this is a big program for us. So I understand the questions on the charges. So the way I would answer it is, if you look at that split that I provided for 2026, yes, there is severance in the restructuring in the mix. A part of it and a big part of it is the program transformation costs, right, as well. So as we look at the rest of 2026, it's basically 1/3 restructuring and 2/3 program. And as I mentioned, that's lower than the run rate in the first quarter. The first quarter, we had a bit more restructuring that included Europe, of course, and some other things. As you think ahead to 2027 I would say, in terms of the program costs, that will continue, maybe even be a bit slightly higher restructuring at this stage is a little too early to tell. And I'll give further guidance on that as we get through 2026. There's a couple of different variables there. So if the environment stays very static and stable as it is today, then you should expect restructuring will increase. If we start to see some good recovery trends, then it could be very different as we redeploy people into higher growth processes, so that will -- that could reduce restructuring as we go to the rest of the world after 2026. So a bit too early, but with all of that kind of getting at the heart of your question, we're managing this very carefully based on cash and resources and we will continue to do that. So we continue to be very focused on improved free cash flow for the full year, and we're going to balance that, as I said in the prepared remarks, the ongoing cost reduction savings are going a long way to fund these activities, and that's going to continue to be our playbook as we go forward. So a very careful balance. Mark Marcon: I guess, getting to the heart of the question, like we would -- let's say we're in a constant run rate by the end of 28 with these programs being put in place, how should investors think about like what's a reasonable EBITDA margin target for Obviously, you're not giving guidance. But just if we're just taking a look at this program, how -- theoretically, how should we think about it? John McGinnis: Yes. And good point. I meant to answer that part of the question as well, Mark. So thanks for the reminder. So to answer your question, we anticipate the full $200 million coming in, in 2028. So not run rate in the fourth quarter of 28% for the full year based on the work we're doing this year and next year. That will flip to a $200 million run rate savings in 2028. And as I mentioned, a little too early to anticipate if there's additional restructuring that runs into 2028. We'll give updates on that in the future. But as we think about the impact of the program, that is what we anticipate to be the benefit to the cost structure. So in terms of the guide on, I guess, the financial target that we continue to be firmly committed to the 4.5% to 5%. As we've said in the past, you can do the math on this, but if you just apply the $200 million to where we've been in the last 4 quarters on a run rate basis, basically, that adds 110 basis points to our EBITDA margin in isolation. So right away, running -- if I look at last year, we're running at about 2% adjusted EBITDA margin at 110 basis points. So that, just in this environment, in this current environment, if we get operational leverage on a stronger recovery, our track record shows that if we start to get a strong recovery, we get very, very good additional operational leverage and we saw that going from '20 to '21 where our EBITDA margin expanded 90 basis points and then expanded another 40 basis points the year after as the recovery to coal. So that is -- that's the operational leverage additional part of it. But in isolation, this will go a long way into accelerating our path towards that EBITDA margin commitment. Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: I wanted to touch on the manufacturing environment specifically. You highlighted how manufacturing is strengthening, particularly across Europe. Can you provide country-specific details on the manufacturing landscape and drivers of the improvement in those countries? Jonas Prising: Thanks, George. Yes, as you heard me say earlier, you can see the manufacturing environment improving across both the U.S. and Europe by looking at the PMI, and we've really seen that be a positive evolution over the last 3 months or so. So I think that gives you an idea that there are different sectors, of course, that are stronger than others, one sector that we feel very good about is the aerospace and defense where we have a very strong position in Europe, and we expect that this is going to grow in terms of the share of our business with the increased spending on defense. So you can see a number of areas that are doing better. There are a number of industries that are struggling a bit, like automotive, logistics has been a bit weak in some of the markets across Europe. But more broadly speaking, the economy is resilient. The labor markets are resilient, and PMI from a manufacturing perspective is improving both in Europe and in the United States. John McGinnis: George, you asked about it at a little bit so maybe -- I'll give really take some color on the geography. So if I just look at our manpower business, which obviously, is very tied to manufacturing. As we talked about, the U.S. was up 5% and in the quarter, actually a bit impacted by weather, extreme weather in the quarter, probably was about a 1% drag, so it would have been about 6%. So the punch line, there's continued strong progress, momentum on manufacturing sector. France, as we mentioned, moved this predominantly Manpower business moved to flat Italy, very strong manufacturing concentration, up 8%. And Spain, very, very strong growth. You see the double-digit growth that we had in Spain as well. So I'd say pretty broad-based, as Jonas said, from a geography standpoint as well. And that's what's really contributing to that global Manpower business, 6% growth in the quarter overall. Operator: Our next question comes from Manav Patnaik with Barclays. John Ronan Kennedy: This is Ronan Kennedy on for Manav. If not mistaken, you referenced $200 million of incremental revenue in France from AI-powered sales -- how scalable is this globally and which markets represent the next largest opportunity? And then beyond that top line contribution, how is AI changing win rates, pricing discipline customer lifetime values. And when can we expect to see this reflected in margins? Becky Frankiewicz: Thanks, Ronan, this is Becky, and I'll take that for you. First, to France specifically, -- so we launched an AI-powered sales targeting engine that basically says what's happening in the market in real time, where do we have strength and our capabilities. We match the 2, and that's what has demonstrated our revenue growth there. We will scale to 50% roughly of our markets by year-end. So you'll see that sequence come out as we have future earnings calls. To your next question around how AI overall, as you heard in my prepared remarks, we are very active in that space in 2 parts. One, internally applying it to our processes, as you heard me talk about with very new strategic partnerships in the AI space with Hubert.AI embedded in our power suite and our recruiting processes, sales targeting, but also how we apply AI externally to create net new products. And so the SoundHound partnership I talked about that's focused on Experis in the U.S. is really breakthrough in our industry. So we're leveraging the fact I mentioned on the last earnings call that we have limited exposure to coders, which is a place that has been impacted. We are shifting that limited exposure to a tailwind for AI in our business by bringing agents and humans together to deliver value for our clients. And so we're active on a 2-part view with AI in our business and for our clients for new products. John Ronan Kennedy: That's very helpful, Becky. And then may I confirm the element of question on expectations for margin implications. Becky Frankiewicz: Yes. Thank you, Ronan, I mean to answer that for you. Yes, it's early, Ronan, and so early days for us. We're very encouraged, one, by our capabilities to bring these tools in quickly to form strategic partnerships in the AI space. We're encouraged by the margin potential that our early deals have shown, but early days, and we expect us to be able to scale, and I'll keep you updated as it does. Operator: Our next question comes from Tobey Sommer with Truist. Tobey Sommer: I wanted to ask you a relative question on your AI targeting tool as well as your systems investments and reimagining. Where do you think this puts you in terms of market share and, let's say, the lead on reimagining versus others after 3 or 4 years of declining market there are probably a lot of boards and management teams in front of a whiteboard trying to reimagine and where do you think you are relative to their visions of the future and actions? Jonas Prising: Well, thanks, Tobey. So as we talked about, we started this journey of creating a global data infrastructure really clearing our technological debt and replacing it with modern cloud-based SaaS platforms that we have now deployed globally, covering 90% of our revenues and 80% of our back office transformation. That is unique in our industry at our scale because we're doing this on single platforms. We have a global data lake that is covering 100 billion data points, and all of our applications are putting the data into the same data lake. And that has opened up this opportunity for us to really think about our business and how we run our business in a very different way. We have built experience and capability, of course, going through the back office transformation and reengineering processes there. as Becky will talk more about in a minute, how we're now starting to see AI has a bigger impact, both in terms of how we interact with clients, how we interact with the talent the kind of insights that we can now bring to our clients that provides added value is what's really, really exciting to us. And that's what's given us the confidence to say that this is something that we think can really reshape our industry can drive faster and higher fill rates and also drive further efficiencies. So Becky, if you take it from there. Becky Frankiewicz: Yes. Thanks, Tobey. So I lasted a little bit on how you asked the question about white boards because I spent a lot of time on whiteboards lately. Reimagining how this business can run in a totally different way. So the question is, how do we do what we do in a totally different way and add more value to our candidates and our talent and our clients. And so we are looking at AI as a growth and productivity multiplier. Like we need that 2-party equation, we're looking to automate what we can and should and keep human what we know our clients and our candidates want to keep human with a very heavy dose of governance on top of it to make sure that we meet the needs and demands of our clients and our candidates. And so we're encouraged. You asked about where we are in leadership. Obviously, we're not privy to what everyone is doing, but we feel very good that we are moving with speed in months versus years, and we've been doing this for a horizon. Tobey Sommer: And then if I could ask, if you feel like you're in a good spot relative to speed and sort of the pace in which you're executing against your own vision, who's losing if you, in fact, are winning? Becky Frankiewicz: Yes. So I would say, again, I don't quite know how to answer that question directly because what we focus on is our winning versus other people losing and winning to us is actually delivering more value to our clients and keeping our candidates central to our efforts. At the same time, making sure our employees are prepared for this new horizon. So you heard me say in our prepared remarks, we've invested significantly internally in time and of our people to make sure they're trained on using AI tools you've not heard a number from us on 80% of our workforce is now using AI on a regular basis. And so I would say to us, that feels like winning. Operator: Our next question comes from Trevor Romeo with William Blair. Trevor Romeo: Just one quick one for me. I was wondering if you could talk about whether you're seeing erosion get overall... Jonas Prising: Trevor, sorry, we could not hear any of that question. Could you please repeat the question? You were breaking up. No, we can't hear you. Trevor Romeo: Sorry -- is that here? Becky Frankiewicz: A little better. Trevor Romeo: Hopefully, this is better. I was trying to ask about the overall environment for Experis in the U.S., it sounds like you're expecting things to get that really professional.... Becky Frankiewicz: Yes. So Trevor, this is Becky. Unfortunately, you dropped out again after a very strong few words. But I believe you're asking about the environment for Experis in the U.S., and so I'll answer that, and you might try to move to a better place that we can hear you better. For Experis in the U.S., first, let me take a step back on the question that's top of mind, which is impact of AI on that business. So overall, for AI, we feel continued encouragement by the resilience of our manpower business, as you heard both Jack and Jonas refer to in the face of a lot of AI conversations. -- for our tech clients, they are cautious on AI spend. They're being careful about where -- are on their project spend. They're being careful about where they're investing their money and thoughtful and cautious and a little slow to say yes. But for Experis specifically to your question, we've been very encouraged. We have seen our pipeline grow specifically in health care, in life sciences over the quarter. So we exit the quarter with a robust pipeline we have seen our clients turn to us for advisory. And again, as mentioned, when we talked about the partnership with SoundHound, we're turning AI into a tailwind for us. So we are actually in a product now. We are selling a product that is agents plus humans. And so that is the future that we see for experience here in the U.S. Trevor Romeo: Right. I think that was basically the spirit of my question. Hopefully, you can hear me better now. Maybe just -- maybe just a very quickly follow-up. It sounds like you're expecting the U.S. to go back to positive year-over-year. Are you also expecting experience to go back to positive year-over-year? Or would that still be slightly down in Q2? John McGinnis: Trevor, great question. So you're right. In the guide, I have the U.S. I said, going to positive growth. And so that is definitely part of the Americas revenue growth that we're seeing. Experis, we see getting very close to flattish, so revenue trend in Q2 overall. And as I mentioned, what's really happening there is you see the health care project work, those go-lives. I've created a lot of bumpiness year-over-year, that pretty much works its way through as we go into the second quarter. And as I mentioned, on an underlying basis, the business actually has been quite stable. So we start to anniversary some of that and move closer to a flattish type result in Q2. So we have seen some good stability in the business. Looking at the weeklies, we're encouraged by some of the consultant headcount increases and we're taking that into Q2. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: So on the savings, could you just give more color in terms of what is actually being saved to result in the dollar savings? And then relatedly, kind of conceptually, why would the savings be higher in the front office and the back office. John McGinnis: Yes. So happy to talk about that. I think if you think about the savings, it's going to really follow a lot of what we've already done on the back office. So -- what -- the way to think about it, Josh, is if we had separate streams and workflow activities in every major business in terms of some of the historical back-office processes, and then we move into global business service centers, like we've talked about with our Porto center in Europe for our European locations. What we're able to do is centralize a lot of work into those hubs, and that is reducing a lot of the infrastructure that we need in country. And that's going to continue to be that model on the back office applied to the front office processes. So on the back office, it's been the finance and IT related functions that have improved their efficiency as a result of this centralization and standardization. And on the front office side, it's going to be recruiting. It's going to be sales. It's going to be service delivery. And when you look at the size of those functions, they're bigger. I mean it's 1 of the biggest parts of the business, right, as we think about the front office opportunity. So that's what's going to drive it. And so you're going to hear us talk a lot more about, you've heard us talk a lot about our back office, global business service centers. You're going to hear us talk more and more. That's going to be a really critical important part of our centralization of the standardization going forward, and that's going to benefit our efficiency in our major businesses going forward. So -- that's the way to think about it. It's continuing what we've already done on the back office through similar themes and applying that to big populations of the front office. And then of course, underlying all of that, as you heard from Jonas and Becky will be automation. Automation is a key element to all of this. and the opportunity of genic AI being infused in that is going to be a real efficiency driver on top of that. So all of that is how we get to those significant front office costs that you've seen broken out. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Jonas Prising, for closing remarks. Jonas Prising: Thanks, Michelle, and thanks, everyone, for participating in our earnings call this morning. We look forward to speaking with you again at our Q2 earnings call in July. And until then, thanks very much. Look forward to speaking with all of you again soon. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corporation Fourth Quarter 2026 Earnings Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead. Earl Armstrong: Thank you, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 fourth quarter and full year. Our 2026 fiscal year began on 02/03/2025, and the fourth quarter began on 11/03/2025, both periods ending on 02/01/2026. Joining me today is Jeremy Hoff, our chief executive officer. We appreciate your participation today. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from our expectations is contained in our press release and SEC filing announcing our fiscal 2026 results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. During the fourth quarter, we completed the previously announced sale of the Pulaski Furniture and Samuel Lawrence Furniture Casegoods brands, part of our former Home Meridian segment. Consolidated net sales from continuing operations were $67 million, a decrease of $17.2 million, or 21%, compared to the prior-year period. The decline was partially attributable to the current fourth quarter being one week shorter than the prior-year period, which reduced net sales by approximately $5.5 million based on average daily sales. The decrease also reflects lower sales in our Hospitality business due to its project-based nature, as several large projects shipped in the prior year did not recur in the current year. Additionally, we estimate severe winter weather experienced in January 2026 in a significant part of the United States and in most of our largest markets reduced net sales for the quarter by $3 million to $4 million. Despite lower net sales, we reported operating income of $629,000 for the quarter. This was driven by operating income of $1.2 million in Hooker Branded and $617,000 in All Other, partially offset by an operating loss of $1.2 million in Domestic Upholstery. Notably, despite one week less of sales and severe winter weather, Domestic Upholstery reduced its operating loss by more than half compared to a $2.5 million loss in the prior-year fourth quarter. Hooker Branded operating income was consistent with the prior-year period despite fewer selling days and the weather disruptions. Net income from continuing operations for the fourth quarter was $874,000, or $0.08 per diluted share. Following the divestiture of Pulaski and Samuel Lawrence on 12/12/2025, results of these businesses are reported through that date. Discontinued operations incurred a net loss of $330,000 in the quarter. Consolidated net income for the fourth quarter was $536,000, or $0.05 per diluted share. For the full fiscal year of 2026, net sales from continuing operations were $278.1 million, a decrease of $39.2 million, or 12.4%, compared to the prior year. This decline was primarily driven by lower sales in the Hospitality business within All Other and, to a lesser extent, a shorter fiscal year and the severe winter weather we mentioned earlier. Gross profit declined in absolute dollars due to lower sales; however, gross margin improved by 180 basis points, reflecting margin improvements in the Hooker Branded and Domestic Upholstery segments. Continuing operations reported an operating loss of $16.5 million for fiscal 2026, primarily due to $15.6 million in noncash intangible asset impairment charges reported in the third quarter triggered by our stock price as of the end of the third quarter. These included $14.5 million related to goodwill in the Sunset West division and $556,000 related to the Braddington-Young trade name, both within Domestic Upholstery, as well as $558,000 related to the remaining HMI business in All Other. Additionally, continuing operations incurred approximately $2 million in restructuring costs primarily related to severance and, to a lesser extent, warehouse consolidation, all as part of our completed cost reduction initiatives. Net loss from continuing operations was $12.8 million, or $1.20 per diluted share. Discontinued operations included approximately ten months of activity in fiscal 2026. Sales declined due to ongoing macro pressures and tariff-related purchasing hesitancy among its customers, particularly large furniture retailers. Discontinued operations incurred a pretax loss of $19 million, including $3.9 million in restructuring costs, of which $2.4 million related to the Savannah warehouse exit, a $6.9 million loss from classification as held for sale, which included $2.6 million of trade name impairment, $3.5 million in fair value write-downs, and $735,000 in selling costs. Discontinued operations also incurred $1 million in bad debt expense related to a customer bankruptcy. Consolidated net loss for fiscal 2026 was $27 million, or $2.54 per diluted share. Now I will turn the call over to Jeremy for his comments on our fiscal 2026 fourth quarter and full year results. Jeremy Hoff: Thank you, Earl, and good morning, everyone. We are encouraged to report net income of $536,000 for the quarter. Fiscal 2026 was incredibly transformative as we navigated significant disruptive tariffs on our imports, opened a successful fulfillment warehouse in Asia, and exited two unprofitable divisions, all while reducing fixed costs by about $26.3 million, or 25%, of which approximately $17.5 million in fixed cost savings is related to continuing operations. At the same time, we delivered slight market share growth overall with key strength in key businesses offsetting isolated softness and launched our Margaritaville line, which is delivering on our expectations to be the most impactful product launch in company history. Today, we move forward as a leaner, higher margin business with a much lower breakeven point and the potential for significant profitability as demand returns. We believe we are positioned for a significant improvement in earnings in fiscal 2027, with our expectations bolstered by the early indications of strength within our Margaritaville product line, and we see a clear path to sustain profitable growth by focusing on our core expertise of better-to-best home furnishings. Despite significant headwinds, we are encouraged to report that the Hooker Branded segment reported $1.9 million in operating income for the year compared to a prior-year operating loss of $433,000. Additionally, despite a significant charge in the third quarter, the Domestic Upholstery segment showed improvements in the fourth quarter, reducing its operating loss by more than 50% as compared to the prior-year quarter due to cost reduction initiatives and operational improvements. I would like to also comment on import tariffs, which were a significant disruptor for Hooker and the industry in fiscal 2026. After our fiscal year-end in February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act were not authorized by statute. In March 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection to implement a refund process for previously collected duties. We are evaluating the potential recovery of these amounts. Additionally, the administration appears poised to pivot to new tariffs under different legal authority within the next few months. We continue to monitor developments in this area. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments along with our cash, debt, inventory, and capital allocation strategies. Earl Armstrong: Thank you, Jeremy. At Hooker Branded, net sales decreased 2.9% for fiscal 2026, with the decline entirely driven by a $5.5 million decrease in the fourth quarter, primarily due to one fewer selling week as well as supplier delays and weather-related shipping disruptions. Unit volume declined, partially offset by a 5.7% increase in average selling price implemented to mitigate higher costs and tariffs. Despite lower sales, full-year gross margin expanded by 200 basis points, driven primarily by lower freight costs and pricing actions. Operating income improved to $1.9 million for the year compared to an operating loss in the prior year. Our fourth quarter operating income of $1.2 million was consistent with the prior year despite reduced selling days. Incoming orders were flat year over year, while backlog increased nearly 26%. Domestic Upholstery net sales decreased 2.7% for fiscal 2026, reflecting lower unit volumes in certain divisions, partially offset by growth in contract, private label, and outdoor channels. Gross margin improved by 230 basis points for the full year, driven by lower material costs, reduced labor and overhead expenses, and benefits from cost reduction initiatives. The segment reported an operating loss of $16.9 million for the year, largely due to $15 million in noncash impairment charges, compared to an operating loss of $5.4 million in the prior year. In the fourth quarter, operating loss was $1.2 million, reduced by more than half from the prior year, reflecting cost reduction actions despite lower sales. Incoming orders decreased slightly by about 2%, while backlog increased about 8% year over year. Regarding cash, debt, and inventory, as of the fiscal year-end, cash and cash equivalents stood at $1.1 million, a decrease of $5.2 million from prior year-end. However, amounts due under our revolver decreased by $18 million to $3.6 million at year-end. Cash generated from operations was used to repay $18.5 million of our former term loan, distribute $8.8 million in cash dividends, and fund $3.2 million in capital expenditures. Inventory levels decreased by $17.5 million from $66.2 million at prior year-end to $48.7 million at fiscal year-end. We received approximately $5.5 million in cash proceeds from the sale of the discontinued operations. Despite these outflows, we have maintained financial flexibility with $62.8 million available in borrowing capacity under our amended and restated loan agreement as of fiscal year-end; this is net of standby letters of credit. As of yesterday, we had over $12 million in cash on hand with over $64 million in available borrowing capacity, net of standby letters of credit, with $0 outstanding on our credit facility. Regarding capital allocation, late last year, we announced that our board authorized a new share repurchase program under which the company intends to repurchase up to $5 million of our outstanding common shares beginning in fiscal 2027. In connection with the repurchase authorization, the board recalibrated the annual dividend to $0.46 per share, which began with the company's 12/31/2025 dividend payment. As Hooker Furnishings Corporation transitions to a more focused growth-oriented company, the new share repurchase program together with the adjusted dividend enables us to return capital to shareholders while maintaining the balance sheet flexibility needed to invest in the business. We believe these actions appropriately balance capital returns with liquidity while supporting long-term shareholder value. I will turn the discussion back to Jeremy for his outlook. Jeremy Hoff: In the Hooker Branded and Domestic Upholstery segments, incoming orders have increased year over year for three consecutive quarters, adjusted for the extra week in last year's fourth quarter. Housing activity and consumer confidence remain weak, and the Department of Commerce's February advanced monthly estimates reflect that reality, showing that retail sales for furniture and home furnishings decreased by 5.6% as compared to the prior year and were lower than January 2026. We do not anticipate near-term meaningful improvement in conditions; however, with a more efficient cost structure and a streamlined portfolio, we believe we are positioned to report improved results even if current market conditions persist. Our advantage is a clear focus on our core businesses with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time. Margaritaville product and gallery commitments continue to scale, with shipments expected to begin in 2027. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator for questions. Operator: We will now open the call for questions. Certainly. Press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. And our first question will come from the line of Anthony Lebiedzinski of Sidoti. Your line is open. Anthony Lebiedzinski: Thank you, and good morning, everyone. Thanks for taking the questions. It is certainly nice to see the return to profitability in the fourth quarter. So first, looking at the Hooker Branded segment, you had a gross margin of over 39%, which was certainly much better than what we had expected. Was there anything unusual that helped the quarter in terms of the gross margin, and how should we think about the sustainability of your gross margin at Hooker Branded? Earl Armstrong: On sustainability, I believe we said in the call just now gross margin was 200 basis points better year over year. So your question was how do we look at it going forward? Anthony Lebiedzinski: You are saying the 39% was—was there anything unusual in the fourth quarter, 39% versus 32% a year ago for the quarter? Earl Armstrong: No. We cannot think of anything unusual for the quarter that would be driving that, other than the things we have mentioned. Anthony Lebiedzinski: And then going forward, it sounds like you expect continued strong margins at Hooker Branded, right? Earl Armstrong: Yes. Anthony Lebiedzinski: Okay. Sounds good. Switching gears to the Domestic Upholstery segment, you had a nice year-over-year improvement there, though it was lower than what it was in the third quarter. Maybe if you could talk about the various puts and takes impacting the gross margin in Domestic Upholstery, and are you seeing any increases in cost there? There has been some talk of foam prices going up. Please touch on what you are seeing as it relates to foam and other raw material costs. Jeremy Hoff: On the foam—when we talk about Domestic Upholstery, I am going to talk about Bedford and Hickory, which has been Sam Moore and Braddington-Young. Shenandoah is a different part of that, of course, and then you get Sunset West, which is under that same reporting name. Regarding Braddington-Young and Sam Moore, we announced recently that we are combining both of those to become Hooker Custom Upholstery, which is part of a larger strategic initiative that is part of collective living, which means putting everything together and showing all of our strengths in one collection, for example. We believe we have figured out this is a much more powerful stance moving forward. As we have done that, we are combining things like frames that can cross over from fabric to leather across different factories. So factories have become a capability that can be utilized for the strength of the Hooker Custom line versus a silo here that makes leather and another that makes fabric. It is a very powerful unified message. In doing that, we have changed such a big part of that strategic direction that, with the timing of revenue and what is going on macro, revenue is really our only challenge in those divisions. The efficiencies of those factories are significantly improved, which is why you are seeing the improvements in the profit. We are not there yet, and we need more revenue, which we are working on, and that is why we are executing the entire strategy I just described. We feel really good about the direction, and we feel as good as we have felt about that part of our Domestic Upholstery since we purchased them. The additional costs are definitely coming at the industry. Foam, specifically, has seen some disruption. There was a fire in a major Texas facility that affected much of the industry supplied by that provider. There are things driving costs up in that way. And then, of course, the Middle East war has driven different chemicals and oil up, which flow through to raw materials, and that affects not just foam but overseas as well. There are a lot of moving parts with different costs that are rising, but we do not have enough data right now to tell you exactly what that could be, though it is definitely a factor. Anthony Lebiedzinski: Understood. With respect to Margaritaville, it sounds like you are still on track to start shipments in the back half of the year. Can you expand on the interest level you are seeing from retailers since your last call? Has it increased or been as expected, and could placements be even better than originally expected? Earl Armstrong: I believe we reported that we had over 50 committed galleries last call, and that number has grown, so we feel even better than we did about where it is positioned and how it is going to impact our organic growth in the second half and beyond of this year. When you think about the fact that at High Point Market not all dealers come to every market—it is probably a little over half who come to each market—a good number have not even seen Margaritaville yet in our showroom. We continue to be even more optimistic about where that is going to go and how it is going to help our growth. Anthony Lebiedzinski: Sounds good. Best of luck, and thank you very much. Jeremy Hoff: We appreciate it, Anthony. Thank you. Operator: And our next question will come from the line of Dave Storms of Stonegate. Your line is open, Dave. Dave Storms: Good morning, and thank you for taking my questions. I want to start with the weather disruptions that you mentioned. How much of that is recoverable, or does it just change the timing and maybe make Q1 look a little stronger than it normally would seasonally? Earl Armstrong: We had the same experience in Q1, unfortunately, in early February with a storm that was a little more severe than this. I would expect by the end of Q1 that backlog should be mostly caught up—the shipping backlog at least. Dave Storms: Great, thank you. And with shipping, given all the conflicts, are you seeing any second-order impacts to your shipping lanes, and any commentary around the general supply chain environment? Jeremy Hoff: We really are not. Dave Storms: Thank you. Lastly, on tariffs—you touched on this in your prepared remarks. With some of these Section 301/IEEPA-related tariffs, my understanding is they only have a 150-day runway. Are you seeing participants in the industry look through this, or did you see a bunch of ordering ahead? Any thoughts on what you saw on the ground regarding this change in the tariff environment? Jeremy Hoff: Due to the somewhat obvious nature of what has happened, people unfortunately have become used to the up and down. Our industry is somewhat used to disruption, if that makes sense. It is what it is, so we are managing through it as an industry, and none of us pretend to know what is going to happen next. We think something is brewing for how they will replace the tariffs that the Supreme Court shot down, but obviously no one knows what that is. Dave Storms: Understood. Thank you for taking my questions. Jeremy Hoff: Thank you. Operator: As a reminder, if you would like to ask a question, please press *11. Our next question will come from the line of Analyst from Pinnacle. Your line is open. Analyst: Good morning. Thanks for taking my questions. It seems like a lot of heavy lifting was done over the past year or so. Is there any other potential divestiture, plant closure, or warehouse closure that might be forthcoming in the future? Jeremy Hoff: Thank you. No. We feel very good about our position and the companies that we have at this point and the capabilities that we have. When you look at our overall strategic focus on better-to-best in the home furnishings industry, the companies we have are exactly that. We feel good about where we are. We do not feel like we have anything that is not eventually sustainably profitable and a great part of our strategic direction. Analyst: Regarding the tariffs, some companies have disclosed the amount of the rebate they are seeking. Could you put a number on the rebate that you might be attempting to recoup? Jeremy Hoff: It is material. We are not going to disclose that at this point. Analyst: Finally, what was the backlog at the end of the year, and what was the total number of orders for the year versus a year ago? Earl Armstrong: Order backlog at the end of the year was roughly $36 million. What was the second question? Analyst: Total orders for the year versus a year ago. Earl Armstrong: I do not have that in front of me. Analyst: Do you have orders for this order? Earl Armstrong: Actually, yes. Total orders in 2026 were $256 million, just slightly lower than the prior year at approximately $257 million. Analyst: Great. Thank you, and good luck. Earl Armstrong: Thank you. Operator: I am showing no further questions at this time. I would now like to turn the conference back over to Jeremy Hoff for closing remarks. Jeremy Hoff: I would like to thank everyone on the call for their interest in Hooker Furnishings Corporation. We look forward to sharing our fiscal 2027 first quarter results in June. Take care. Operator: This concludes today's program. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome, everyone. Welcome to the Insteel Industries, Inc. Second Quarter 2026 Earnings Call. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. I will now turn the call over to your host, H.O. Woltz III, to begin. Please go ahead. H.O. Woltz III: Good morning, and thank you for your interest in Insteel Industries, Inc. Welcome to our second quarter 2026 conference call, which will be conducted by Scot R. Jafroodi, our Vice President, CFO, and Treasurer. Before we begin, let me remind you that some of the comments made in our call are considered to be forward-looking statements that are subject to various risks and uncertainties which could cause results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. Despite falling well short of our expected financial performance in Q2, we believe the upturn in business activity we reported previously is still intact. Winter weather is a fact of life in our business; it happens that during Q2, conditions were severe and prolonged in many geographies, particularly compared to recent years. Project delays, while undesirable, are common in the industry. We are confident that short-term weather conditions and project delays do not create or destroy demand, and that postponed demand will be realized during the balance of fiscal 2026. I will now turn the call over to Scot to comment on our financial results, and then following his comments, I will return to discuss our business outlook. Scot R. Jafroodi: Thank you, H. Good morning to everyone joining us on the call. As we reported earlier this morning, our second quarter results were weaker than expected, reflecting the combined impact of winter weather disruptions, lower spreads, and higher unit conversion costs. Net earnings for the quarter were $5.2 million, or $0.27 per diluted share, compared with $10.2 million, or $0.52 per diluted share, in the same period last year. Shipments for the quarter declined 5.9% year-over-year but increased 6.9% sequentially from the first quarter. While the second quarter typically reflects some seasonal softness, conditions this year were significantly more severe. Following a solid start in January, we experienced extended periods of winter weather across most of our markets, which reduced construction activity and disrupted operating schedules for both customers and Insteel Industries, Inc., weighing on order flow and shipments. In addition, certain projects originally scheduled for delivery during the quarter were deferred to later in the year for reasons unrelated to weather. Although we are still early in the third quarter, recent order activity has been solid, with April shipments trending above forecasted levels. With that backdrop on volumes, let me turn to pricing. Average selling prices were up 14.2% year-over-year, driven by the pricing actions we put in place throughout fiscal 2025 and into the current year to offset raw material cost increases, Section 232 tariffs, and rising operating expenses. Sequentially, average selling prices were up 1% from the first quarter even as wire rod costs continued to move higher. For context, published prices for steel wire rod, our primary raw material, rose $90 per ton during the quarter. Although we implemented additional price increases during Q2, limited sequential improvement in average selling prices was influenced by product mix, existing contractual pricing, and softer volumes. We expect these recent pricing actions, along with the additional price increase implemented in April, to provide further benefit in the coming periods as they are more fully reflected in our realized pricing. Gross profit declined $8 million year-over-year to $16.5 million, and gross margin narrowed to 9.6%. The decline primarily reflects lower shipment volumes, reduced spreads between selling prices and raw material costs, and higher unit conversion costs resulting from lower production levels and weather-related operational inefficiencies. Sequentially, gross profit declined $1.6 million and gross margin contracted by 170 basis points as the slowdown in shipments delayed the tailwinds of recent price increases and extended the lag between raw material cost increases and realized pricing. As we enter the third quarter, we expect several factors to support a recovery in gross margin. Demand is improving as we move into the seasonally stronger portion of the year. Recent price increases are beginning to gain traction, and our current raw material carrying values are more favorable. In addition, higher operating rates across our facilities should enhance fixed cost absorption. Taken together, these factors are expected to support a gradual improvement in margin performance as the quarter progresses. SG&A expense for the quarter decreased to $9.7 million, or 5.6% of net sales, compared to $10.8 million, or 6.7% of net sales, in the prior-year period. The decline was primarily driven by a $1.1 million reduction in compensation costs tied to our return-on-capital-based incentive plan, reflecting weaker financial performance this year. SG&A expense was also affected by a $203,000 unfavorable year-over-year change in the cash surrender value of life insurance policies, reflecting the downturn in financial markets and its effect on the underlying investments. Our effective tax rate for the quarter was 23.3%, which is up slightly from 23.2% last year. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, subject to the level of pretax earnings, book-to-tax differences, and the other assumptions and estimates underlying our tax provision calculation. Turning to the cash flow statement and balance sheet, operating cash flow provided $4.8 million in the current quarter, compared with using $3.3 million of cash in the prior-year period, driven primarily by the change in net working capital. Working capital used $1.4 million of cash in the second quarter, reflecting a $6.8 million increase in receivables resulting from higher sales and average selling prices, partially offset by a $13.3 million reduction in inventory as we scaled back raw material purchases. Our quarter-end inventory position represented approximately 3.4 months of shipments on a forward-looking basis, calculated off of our third quarter forecast, down from 3.9 months at the end of the first quarter. As we mentioned on our Q1 call, we increased inventory levels early in the year as we supplemented domestic bar rod with offshore material, and that build naturally eased as we moved through the second quarter. Looking ahead, we expect a modest increase in inventory as we move into the seasonal busy period, positioning us to support higher shipment volumes. Additionally, our inventories at the end of the second quarter were valued at an average unit cost that approximates our second quarter cost of sales and remains favorable relative to current replacement cost, which will have a positive impact on spreads and margins as we move through the third quarter. We incurred $4.4 million in capital expenditures in the quarter for a total of $5.9 million through the first half of our fiscal year, and we remain committed to our full-year target of $20 million. Finally, from a liquidity perspective, we ended the quarter with $15.1 million of cash on hand and no borrowings outstanding on our $100 million revolving credit facility, providing us ample liquidity and financial flexibility going forward. Turning to the macroeconomic indicators for our construction end markets, the latest readings from our two leading measures—the Architectural Billing Index and the Dodge Momentum Index—point to an environment that remains uneven but generally stable. The Architectural Billing Index, which typically leads nonresidential construction activity by approximately 9 to 12 months, improved to 49.4 in February from 43.8 in January. While the index remained below the breakeven level of 50, the improvement indicates that the rate of contraction moderated, with fewer firms reporting declining billings compared with the prior month. Additionally, the Dodge Momentum Index, which tracks nonresidential building projects entering the planning phase, increased 1.8% in March. The gain was driven by a 7% improvement in commercial planning activity, which continues to be supported by strong data center construction. Monthly construction spending from the U.S. Department of Commerce suggests only modest growth in overall activity. In January, total construction spending on a seasonally adjusted annualized basis increased approximately 1% year-over-year. Nonresidential spending was essentially flat during the period, with public highway and street construction—one of our key end-use markets—remaining comparatively stronger, increasing around 4% from the prior year. As we close out the second quarter, we remain encouraged by the demand trends we are seeing across our core end markets, while the broader macroeconomic backdrop continues to evolve, including the risk of renewed inflation, uncertainty around the timing of interest rate cuts, potential changes in tariff policy, and geopolitical developments affecting energy and shipping costs. Our customers remain engaged, and projects continue to move forward. Our ongoing dialogue with customers, combined with recent improvements in several leading indicators, supports our confidence in the direction of the business. At the same time, we recognize that these external factors could influence the pace of activity in the near term. Even so, underlying demand conditions remain healthy, and we believe we are well positioned as we move through the second half of the fiscal year. That concludes my prepared remarks. I will now turn the call back over to H. H.O. Woltz III: Thank you, Scot. As I noted in my opening comments, we were affected during Q2 by weather-related and non-weather-related circumstances that resulted in our operating rate, shipments, and financial performance falling short of expectations. Making matters worse, we had staffed up at certain facilities ahead of the seasonally more active part of our year in anticipation of expanding operating hours, which would reduce lead times and result in increased shipments. We carried the cost of ramping up through the quarter but were unable to operate at expected levels. While we continue to believe that demand will be solid during 2026, we will reduce costs if this forecast fails to materialize. At this point, however, we do not expect to be in a cost-reduction mode driven by demand-related concerns. Turning to another subject, the steel industry may have been more affected by the administration's tariff policy than any other industry. The Section 232 tariff of 50% on imports of steel has caused market prices in the U.S. for hot-rolled wire rod, our primary raw material, to rise to a level that is 50% to 100% over the global market price. While last summer we questioned the effect of the derivative products tariff strategy implemented by the administration, we are glad to report a significant decline in the volume of imported PC strand that has entered the U.S. since the tariff was increased to 50% and derivative products, including PC strand, were covered. From August to December, the five-month period following the changes the administration made to the Section 232 tariff regime, PC strand imports fell by more than 50%. The application of the Section 232 tariff to PC strand, together with global uncertainty and higher transportation and insurance costs related to the conflict with Iran, clearly works in favor of domestic industry. Turning to the raw material environment, investors should understand that Insteel Industries, Inc. operates in a small segment of the domestic hot-rolled carbon steel market. Domestic production of steel wire rod, our primary raw material, is approximately 3.5 million tons per year, while U.S. production of all hot-rolled carbon steel is roughly 100 million tons per year. Difficult economic conditions in recent years for producers of hot-rolled wire rod resulted in the permanent closure of two producing mills and financial struggles together with significantly diminished output for a third producer. Altogether, these curtailments reduced actual domestic production of wire rod by more than 800,000 tons per year and reduced domestic capacity to produce wire rod by nearly 1.2 million tons per year relative to apparent domestic consumption of wire rod of approximately 5 million tons per year. By our calculation, capacity equal to nearly 20% of apparent domestic consumption is offline, most of it permanently. These capacity curtailments, together with changes to the Section 232 tariff, caused the U.S. market for wire rod to tighten significantly and created serious questions about the adequacy of domestic supply. Insteel Industries, Inc. therefore was forced to turn to the offshore market for a portion of its supply. The economics of offshore transactions, which include substantial freight costs, require the purchase of large quantities, with resulting impact on inventories and net working capital requirements as reflected on our balance sheet. Net working capital rose approximately $45 million over the last twelve months. We will continue to import a portion of our raw material requirements until such time as domestic availability improves, and we will incur excess net working capital requirements as compared to purchasing domestically, although we have some options to mitigate this adverse impact. Finally, turning to CapEx, as mentioned in the release, we expect to invest approximately $20 million in our plants and information systems infrastructure during 2026. Our investments will support the growth of our engineered structural mesh business, reduce our cash production costs, and enhance the robustness of our information systems. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses. Looking ahead, we are aware of the substantial risks related to the state of the economy and the administration's tariff policies. Regardless of developments in these areas, we are well positioned to pursue growth-related activities, both organic and through acquisition, and to pursue actions to optimize our costs. We will now open the call for questions. Becky, would you please explain the procedure for asking questions? Operator: Of course. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star followed by two. When asking your question, ensure your device is unmuted locally. Our first question comes from Julio Alberto Romero from Sidoti. Julio Alberto Romero: Thanks. Hey, good morning, H and Scot. Good morning. Could we start on volumes a bit and talk about the projects originally scheduled for the quarter that were delayed into later quarters? Any way you can help us better understand how much of this may have weighed on your shipments? And secondly, could you expand on the drivers of the project delays? I think you mentioned they were unrelated to weather. Just hoping you could elaborate a little. H.O. Woltz III: If you can envision a construction project, the owner and contractor would like to start the project and operate continuously until the finish of the project or a portion of the project, but they do not want to open up the site months ahead of having all of their other needed materials and suppliers in line. Therefore, the project that we are involved in was delayed, and we should begin shipping it in the current quarter. The delays are unfortunate, but they are not surprising at all. As we have emphasized, this is a delay of business; it is not a cancellation. We will sit tight and see that come to fruition in the current quarter, and this project will go through our fiscal year and end in 2027. Julio Alberto Romero: Okay, great. Very helpful. You talked about April shipments trending above forecasted levels. How much are those shipments related to project delays pushed to the right—maybe some catch-up from the February weather delays—or any other underlying demand trends at play? H.O. Woltz III: I do not think any of it is related to the project delay because it is still delayed, and we should see some benefits later in the quarter from that. The current shipping performance is solid relative to our expectations, and our pricing actions are taking effect as we expected them to. Julio Alberto Romero: Last one for me: you talked about project mix impacting the average selling price and maybe the spread. Can you talk about whether engineered structural mesh is playing a factor in that at all and, broadly, where ESM mix stands at the moment? Scot R. Jafroodi: Please ask that question again, Julio. Julio Alberto Romero: Sure. You have noted project mix impacting ASP and spreads. Is engineered structural mesh affecting that, and where does ESM mix stand now? H.O. Woltz III: Let me start at the beginning so you understand the difficulty we have in trying to quantify some of these things and why we do not spend a lot of time dissecting the reality of the market. In February, the adverse winter weather began in Texas and ended up in New England. It affected 9 of our 11 facilities, which is unfortunate, but that is how it happened. We had issues in various geographies of various types. In some cases, roads were not passable or stayed hazardous for extended periods. Setting aside road conditions, when it is very cold, you cannot pour concrete. People have various opinions about the temperature at which hydration becomes a concern, but at low temperatures, pouring concrete becomes not feasible. In North Carolina, for instance, we had multiple weeks of cold weather where the temperature did not break freezing. While roads were unpassable for a period, the sustained low temperature was probably of more significance. We did not go through every customer and every plant and try to quantify the impact; we are more concerned about getting our plants operating and covering the eventual demand that comes back as weather conditions improve. Operator: Our next question comes from Tyson Lee Bauer from KC Capital. H.O. Woltz III: Good morning, Tyson. Tyson Lee Bauer: Good morning. When you talk about freight expenses, are there two considerations? Increased freight costs to get your imported supplies in on the inbound side that you have to absorb, as opposed to making shipments from your facilities where you can do surcharges and recoup those freight costs, even if it may be at zero margin but recovered on the revenue line? In other words, is there one bucket you must absorb and another you can pass along? H.O. Woltz III: I would not look at it that way, Tyson. In terms of the raw materials we are importing, we are very well located for inbound freight cost purposes compared to our locations relative to domestic supplies, so I do not think we incur excess inbound freight cost because we are importing. Freight costs, whether inbound or outbound, have risen substantially following the conflict with Iran, and it happened extremely quickly. It coincided with other factors that reduced driver availability. The practical impact is much higher diesel costs and fewer drivers, which means our costs have gone up, and many of our loads have been rejected by carriers who can find loads that pay more. We are working through those issues. I was reading that in the flatbed sector, more than 40% of loads tendered to carriers have been rejected across the economy. We are dealing with something out of our control, but it is our responsibility to manage it from a cost point of view. We debated surcharges versus price increases, and we have elected to increase our prices. Tyson Lee Bauer: So you are recovering those now? H.O. Woltz III: I would not say we have recovered them retroactively. We absorb some of those costs until the effective date of price increases that will, among other things, serve to recover those higher costs. Tyson Lee Bauer: Regarding price increases, you did some early in Q1 and announced another in April. Any idea of the magnitude, and are we expecting additional price increases to get you whole? H.O. Woltz III: Our price increases are implemented to reflect what is happening in our marketplace, both with our raw material costs and with other operating costs. While official inflation statistics may look modest, the impact on our operations has been much more significant. Everything we consume—labor, chemicals, electricity, natural gas—has gone up substantially. Wire rod has continued to increase substantially as well. We are primarily looking to recover our costs by implementing price increases, and we have implemented three since the first of the year. When volume falls, as it did in Q2, we honor the commitments we have made to customers; we are not operating on the basis of price in effect at time of shipment. The next orders are affected by price increases. That is the way the business is done, and that is how Insteel Industries, Inc. is operating. Tyson Lee Bauer: On April 2, there was clarification on Section 232 for steel and aluminum. Would you provide your view on whether that provided clarity regarding foreign content, U.S. content, and different baskets that imports fall into at different rates? H.O. Woltz III: We are affected by two different types of tariffs. Section 232 is the primary effect on our business. There was confusion created by the administration's inclusion of derivative products last summer, and that confusion related to how you calculate the tariff on the product. To know for sure how the tariffs were being calculated, we went back to the entry documents and confirmed that in practically all cases, PC strand that was entering was being assessed a 50% tariff rate. We did not pick up that many importers of record were minimizing their tariff exposure, so the recent clarifications do not have much impact on us because we do not believe we were being under-assessed to begin with. So now any questions about how the values are calculated have been put to rest; we were not really a victim of that. On the other side, over the AIBA tariffs, the AIBA tariffs would have affected any capital equipment that we purchased as well as, primarily, our purchases of spare parts. Purchases of spare parts are not discretionary; we have to do it. The importer of record declares the value of that part and applies the tariff rate to it. In most cases, the tariff was a line item on our invoices. We are studying now the implications of the Supreme Court’s action on AIBA tariffs and the Court of International Trade requirement that those tariffs are rebated to the importers of record. That is not Insteel Industries, Inc., so we will be talking with our vendors about, first, their obligation to recover those tariffs, and second, what to do with any refunds that they obtain, because we actually paid those tariffs but will not be rebated by the government; that goes to the importer of record. All of that is overlaid by the question of where the money will come from. I understand that they have collected $160 billion of AIBA tariffs, and ostensibly all that has to go back to the people who paid it. I would bet a lot that it will not happen that simply. We will not be booking any receivables for tariff collections because it is highly improbable that it will happen in a simplistic way. Tyson Lee Bauer: Understood. Last question: data centers are a headline catalyst for nonres, but they seem prone to delays due to transformers, switches, and power-related components. There are a lot of announcements and expectations, but many have been pushed to the right for permitting and supply issues. Is this a great opportunity that may still be ripe for ongoing delays? H.O. Woltz III: I would look at it from a broader perspective. The good news is that we do not think the data center phenomenon goes away in 2026 or 2027. I think you have five solid years of data center activity. As we pointed out in our last earnings release and conference call, it is really good that it is here because the rest of the private nonres market seems to be weak. A delay is a delay. My guess is that, when we look back at it, it will be reasonably insignificant. The better news is that this will be a solid marketplace for a while. While we are doing business on-site with some of these projects, it is hard to tell how much data center business is included in our legacy business. We sell reinforcing products to customers who make wall panels or double tees, but we do not always know where those are going. There are more references in call reports to data centers that are consuming products out of our legacy business as well as from our cast-in-place business. Tyson Lee Bauer: That sounds good. Thanks a lot, gentlemen. H.O. Woltz III: Thank you, Tyson. Operator: Just as a reminder, if you would like to ask a question, please press star followed by one. We currently have no further questions, so I will hand back over to H for closing remarks. H.O. Woltz III: Thank you. We appreciate your interest in Insteel Industries, Inc. We look forward to talking to you next quarter and encourage you to call us if you have questions in the meantime. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Co Limited's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host today, for today's call, Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella. Stella Wang: Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Fourth Quarter 2025 Earnings Conference Call. The company's results were released earlier today and available on the company's IR website at www.jinkosolar.com as well as on Newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Xiande Li, Chairman and CEO of JinkoSolar Holding Company Limited; Mr. Pan Li, CFO of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, CEO of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar's business operations and company highlights. Since our CMO, Mr. Gener Miao, is currently on a business trip, I will deliver the remarks on sales and marketing in his behalf. Following that, Mr. Pan Li will walk through the financials. After that, we will open the call for questions. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements, except as required under the applicable law. It's now my pleasure to introduce Mr. Li, Xiande, Chairman and CEO of JinkoSolar Holdings. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li. Xiande Li: [Interpreted] The global PV industry continued to experience volatility due to structural imbalances and shifting trade environment in 2025 impacting financials across the industrial chain. In this entering environment, we maintained disciplined operations and our technological leadership continuously driving upgrades of our n-type TOPCon technology and iterating our high-efficiency products. For the full year 2025, total module shipments reached 86 gigawatts ranking first globally for the seventh consecutive year, impacted by persistently low module prices, the elimination of obsolete production capacity and still evolving product mix and high-efficiency products ramp up. We incurred a net loss for the full year. In the fourth quarter, gross margin decreased sequentially, and our net loss expanded due to rising costs of raw materials such as polysilicon and silver as well as foreign exchange rate fluctuations. However, our energy storage business maintained its rapid growth trajectory, marking an important step in our ongoing transformation into an integrated energy solutions provider. Shipments of ESS grew significantly year-over-year to 5.2 gigawatts in 2025. This approximately 1.7 gigawatts hours recognized as revenue. Our deepening penetration into high-value markets is expected to more than double ESS shipments in 2026, serving as a primary driver for enhancing our profitability profile. Since the fourth quarter, government guidance supporting the high-quality development of the TV industry has continued to strengthen. A series of policy measures have steadily accelerated the phasing out of outdated capacity and the normalization of market competition. guiding the industry to gradually transition from competing on scale and price to quality and value. Leading companies have actively responded to this high-quality development directive pushing module prices back to reasonable levels. In the first quarter of 2026, driven by the pass-through of cost pressures from rising commodity prices, such as silver coupled with the impact of export tax rebates on demand, module prices rebounded significantly sequentially. As the industry's competitive landscape continues to normalize, and supply and demand dynamics marginally improved. Module prices are expected to remain relatively stable with high efficiency and differentiated products continue to command a premium. We continue to drive technological breakthroughs and lead the direction of industry innovation. As of the end of 2025, the maximum lab efficiency of our anti TOPCon cells reached 27.99% while conversion efficiency of our anti TOPCon-based perovskite tandem cell reached 34.76%. As a global leader for TOPCon technology, we held over 700 TOPCon patents by the end of the fourth quarter, surpassing most of our competitors. Furthermore, we partnered with Crystalline to provide the application of AI in R&D of perovskite tandem cell and accelerate the commercialization of next-generation technologies. We continue to drive product upgrades and performance iterations consistently enhancing product competitiveness. In the fourth quarter, shipments of high-efficiency products that exceed 640 wattP increased sequentially to approximately 3 gigawatts, a USD 0.01 premium compared to our conventional products. As our Tiger Neo, the third generation of Tiger Neo series which delivers maximum power output of 670wattp sequentially scales up production volume and shipments this year and accelerate market penetration across diverse application scenarios. The value proposition of our high-performance products will increasingly stand out and is expected to command a higher premium. We continued to enhance our cost control capabilities across market cycles offsetting the impact from raw material price fluctuations through supply chain optimization and technology core upgrades. Development of silver coated copper technology is progressing as planned with large-scale production expected to gradually ramp up in 2026. Our initiatives in smart manufacturing have already begun to generate initial results. Through our lighthouse projects represented by Shanxi Super Factory, our vertically integrated production model continues to improve production efficiency and cost competitiveness providing a replicable blueprint for our global manufacturing footprint. We view our energy storage business as a strategically vital second growth engine. We continue to strengthen our R&D for our core technologies, enhance our system solution capabilities and improved localized customer service and life cycle support, leveraging our global PV distribution channels, we are steadily scaling east shipments and greater synergies between our solar and storage solutions are increasingly materializing. Currently, our sign and high potential ESS orders exceeded 10 gigawatt hour in total. As the global energy transition advances and the demand for great flexibility increases, the role of energy storage with the renewable energy system continues to strengthen. Looking ahead to 2026, we will continue to deepen penetration into high-value markets and explore application scenarios, including 0 carbon industrial parks and data centers. We continue to optimize our global manufacturing and supply chain footprint, enhancing our ability to adapt to diverse market policies and customer needs. Our 2 gigawatts N-type module facility in the U.S. maintained high utilization rates as we continue to strengthen local manufacturing and service capabilities. We are also actively developing new models for long-term engagement in key markets to better address customer demand for high-efficiency products and solutions. 2025 mark the final year of the 14th 5-year plan during which cumulative installed capacity of wind and solar power surpassed the coal-fired power for the first time, becoming the largest source of electricity generation. At the same time, solar power generation has fully entered a market driving phase. The industry's development framework is shifting from scaled expansion towards greater emphasis on operational capabilities and comprehensive value creation, which read is the competitive bar for technology and products. At the same time, recent volatility in global energy markets has highlighted the critical need for energy security, we're enforcing the long-term value of renewable energy. Looking forward to the medium to long-term as the construction of new power systems advances and the new load demand growth from data centers, for example, application scenarios for solar and storage will continue to broaden, enhancing the value of the green power. Industry competition will gradually transition from being cost and skill driven to a model centered on technology called innovation, product competitiveness and the ability to deliver integrated solar/storage solution. We will continue to consolidate our technological leadership, deepening our global footprint accelerate the development of our integrated solar plus storage strategy and consistently improve our capabilities to deliver comprehensive solutions. This will steadily strengthen our long-term competitiveness and profitability at an industry landscape reship. Before turning over to Gener, I would like to go over our guidance for the full year of 2026. We expect a new integrated production capacity to reach approximately 100 gigawatts by the end of 2026, including 14 gigawatts from overseas facilities. We expect module shipments to be between 13 gigawatts and 14 gigawatts for the fourth quarter of 2026 and between 75 gigawatts and 85 gigawatts for the full year 2026. Gener Miao: Thank you, Mr. Li. We are pleased to report that both our robust global sales network and strong product competitiveness drove quarterly and annual module shipments to once again ranking first across the industry. Total shipments were 26 gigawatts in the fourth quarter with total motor accounting for nearly 93% of the mix. For full year, total module shipments were 86 gigawatts. Geographically, overseas markets remained our primary driver accounting for about 60% of total module shipments in 2025. We actively capitalized on growing demand across Asia Pacific and emerging markets, which together accounted for nearly 40% Shipments to the U.S. were in line with our expectations and accounted for approximately 5%. We continue to optimize our product mix increasing the proportion of high-efficiency product shipments and focusing on high-value application scenarios. This high efficiency models highlighted by the Tiger Neo, the third generation of Tiger Neo series have earned widespread recognition for their higher power generation and better LCOE. The order book for these modules has grown steadily since the fourth quarter, allowing us to command a premium over conventional products. As we continue to enhance our product competitiveness, our brand reputation and the customer recognition has strengthened in tandem. Internet's latest global energy storage Tier 1 list for the first quarter of 2026, we are recognized as a Tier 1 energy storage provider for eighth consecutive quarter. Furthermore, we achieved an S&P Global CSE score of 78 points, the highest one among PV module companies. And we were included in the 2026 surtainability year book. On the demand side, recent policy guidance and the discussions during China's 2 sessions and the subsequent industry forums have reinforced the strategic focus on energy efficiency carbon reduction and zero-carbon industrial parts. This provides a solid foundation for the continued growth in Chinese solar market during the 5-year plan. Globally, the ongoing global electrification process, the continuous growth of new power loads from data centers and increased focus on energy security following recent energy crisis are collectively driving demand. Local solar and solar plus storage solutions and their deployment flexibility are ideally positioned to address these issues. In healthy energy system resilience and facilitating seamless incremental power demand for countries. By the end of the fourth quarter of 2025, cumulative global module shipments surpassed 390 gigawatts with other sales network covering nearly to 100 countries and regions. Notably, total cumulative shipments of our Tiger Neo series exceeded 220 gigawatts ranking first in the industry as we continue to reinforce our global market leadership and a strong customer base. 2026 marks our 20th anniversary, and we are using this milestone as an opportunity to further strengthen our product, brand and customer service systems to continuously enhance our competitiveness in the global market. With that, I will turn the call over to Pan. Mengmeng Li: Thank you, Stella. In the challenging fourth quarter, we achieved a 20.9% sequential increase in solar module shipments and a slight sequential increase in total revenues. Our operating efficiency improved significantly from last quarter Operating cash flow was approximately $470 million in the fourth quarter and $280 million for the full year, $25 million hitting the target we set at the beginning of the year to reach positive full year operating cash flow. Looking ahead to we expect full year operating cash flow to remain positive. Looking at our fourth quarter financials in more detail. Total revenue was $2.5 billion, up 8.3% sequentially and down 15% year-over-year. The sequential increase was probably driven by increase in solar motor shipments, while the year-over-year decrease was mainly due to a decrease in average selling price of modules. Gross margin was 0.3% compared with 7.3% in the third quarter and 3.8% in the fourth quarter '24. The sequential decrease was mainly due to a higher revenue cost for products sold while the year-over-year decrease was mainly due to a decrease in average selling price of modules. Total operating expenses were $473.6 million up 28% sequentially and 21% year-over-year. The sequential and year-over-year increases were mainly due to an increase in the impairment of long-lived assets in the fourth quarter of '25. Total operating expenses accounted for 18.9% of total revenues compared to 16% in the third quarter. Operating loss margin was 18.6% compared with 8.7% in the third quarter. Now let me briefly review our '25 full year financial results. total module shipments were 86 gigawatts, down 7.3% year-over-year. Total revenues were about $9.4 billion, down 29% year-over-year. The decrease was mainly attributed to the decrease in the average selling price of solar modules. For the full year, gross profit was USD 201 million, a decrease of 86% year-over-year. Gross margin was 2.2% compared to 10.9% in '24, primarily due to a decrease in average selling price of modules. Total operating expenses were $1.48 billion, down 23% year-on-year, primarily due to a reduction in shipping costs driven by lower volumes of solar module shipments and declining average freight rate in 25 as well as lower employee compensation cost. Operating loss margin for full year of '25 was 13.6% compared with 3.6% for the full year of '24. Excluding the impact of the changes in fair value of convertible notes issued by JinkoSolar in '23, changes in the fair value of the long-term investments, share-based compensation expenses, the net loss resulting from a 5 incident at one of our production facilities in Shanxi province in 2024. And the impairment of the long-lived assets, adjusted net loss attribute to JinkoSolar Holdings ordinary shareholders were about for $8 million in 2025. Moving to the balance sheet. At the end of the fourth quarter, our cash and cash equivalents were $3.3 billion compared even at the end of the third quarter of '25 at $3.8 billion at the end of fourth quarter of '24. AR turnover days were 94 days compared with 105 days in the third quarter. Inventory turnover days was 75 days compared to 90 days in the third quarter. As these metrics show, operating efficiency is steadily improving. At the end of the fourth quarter, total debt was about $6.7 compared to $5.6 billion at the end of the fourth quarter of '24. Net debt was $3.44 billion compared to $1.76 billion at the end of the fourth quarter of '24. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed. Operator: [Operator Instructions] Your first question today comes from Philip Shen from ROTH Capital Partners. Philip Shen: Wanted to get your outlook and assumptions for pricing for Q1 and Q2. I think in your prepared remarks, you said you expect the global ASP to be stable. But are you assuming $0.10 a lot in Q1 and Q2? And then can you also talk about your gross margin cadence as we get through the year? Do you think Q1 is low, is it lower than Q4? And can it go higher from here? Are you guys speaking? Did you guys hear my question? Haiyun Cao: Sorry, Philip, this is Charlie. I'm [ muting ] my phone. Can you hear me? Philip Shen: Okay. Yes, I can hear you now. We didn't... Haiyun Cao: Okay. Let's get back to your question. And if you look at the price index, the market pricing. And I think the module price is rebounding in the last 3 to 5 months and reflecting the cost inflation and as well as I think most of the Tier 1 companies is more disciplined. And as well as there's backdrop as anti-evolutions. And if I talk to specifically Q1, Q2 ASP, we expect quarter-by-quarter, the improve and gradually. And it's a combination of the price inflation in placing as well as we are marking the next-generation Tiger Neo 3 high-inflation products. And that is -- I think we get a lot of changing from our customers, and there is a price premium. So as a combination, I think the market price is up and players are more disciplined. and we have more mix on the high increasing products. Philip Shen: Great. And so we can see the pricing improves. So can you quantify at all? So Q1, do we see $0.11. Q2, do we see $0.12? And then can you also speak to Q1 and Q2? Haiyun Cao: Yes, I think we're not in a position to disclose detailed in ASP for looking. But if you look at the market price, I think you're right, it's kind of the price level depending on different products and different ratings. It's roughly in the range of, I think, 11.5% or maybe 14, depending on different markets, different products in different regions. Operator: Your next question comes from Rajiv Chaudhri from Sunsara Capital. Rajiv Chaudhri: I just have a few questions. The first 1 is on the gross margin impact of the 3 factors you mentioned the foreign exchange, the U.S. dollar rate, cost of silver and the cost of polysilicon. Can you break down for us the amount -- the significance of each of these factors. And just give us a sort of -- if these factors had not shifted from Q3, what the gross margin could have been in Q4, so we understand what the impact was? Haiyun Cao: Yes, I think -- so back to your question, I think if nothing changed, we expect the Q4 margin should be stable or maybe a little bit higher in the fourth quarter. But fourth quarter, there's some headwinds. And just -- you are talking about it's -- if we look at the magnitude, the first one will definitely the commodities, particularly the silver. And I think the price -- the market price is sold. It's up 250% to 300%, not a dramatic change. And second one will be the RMB appreciation. And the polysilicon is not -- the price a little bit higher in Q4, but it's not a significant impact. Rajiv Chaudhri: Okay. So silver was #1, the exchange rate #2 and polysilicon, much less. Great. Next question is on depreciation and CapEx. What were the depreciation and CapEx numbers for '25? And what is your target for '26. Haiyun Cao: The depreciation a year per year in 2025, it's roughly -- sorry, an USD 1 billion per year. So -- and the CapEx in 2025, I think roughly, it's the same number. It's USD 1 billion. It's a totally different number, okay, it's coincidence. And definitely in 2026, we will further cut the CapEx is roughly, I think, roughly RMB 5 billion and roughly USD 700 million. And we make the investment on the CapEx, particularly the last year. It's -- the purpose it upgrades the roughly 40 gigawatts capacity through the next-generation technology, we call it Tiger Neo 3, and we don't have any additional investment plan in 2026. By 2026 payment is the outstanding the payable to the suppliers. Rajiv Chaudhri: I see. Okay. And the other question is on market share and size of market. Can you give us an idea of what you think the market size was in 2025. And obviously, that will allow me to calculate your market share. But related to that is a question of your guidance and the market share that you expect to get in 2026. Haiyun Cao: We -- last year, we delivered roughly 85% roughly gigawatts and were the top 1 in the industry. I think roughly, we get 13%, maybe 13% to 14% market share. And we expect 2026, the global demand a little bit flat or maybe down a little bit small percentage given last year, China reached to the very high peak over 300 gigawatts. And -- but overseas market continued to grow in 2026 and it's kind of the short term, the market size, the total market size a little bit down in 2026 because China specific situations. But for the next year, long term, we are very optimistic. If you look at the conflict Middle East, I think more and more countries, including China, have more determination to push more renewable energy and the energy independence securities are more -- will become more first priorities and for a lot of governments. And for the '26, we guided to 85 gigawatts with a flat with last year, maybe a little bit lower, reflecting the total market size in 2026. I'm talking about that the total markets could be a little bit lower compared to last year. And basically, I think the market share will be relatively stable. But the key operational targets will be improved -- significantly improve our financial performance were healthy operational cash flows, and we will more focus on the high-value customers and from the Utility segment and the DG segment as well. Rajiv Chaudhri: I see. So would you expect in this scenario that your -- the share of international will be even higher than last year in your sales? Haiyun Cao: I think so. I think so because we are trying to lower our exposure in China. And definitely, China last year, it takes around 40% of our shipments in 2025 for Jinko. And I expect 2026, China the percentage will be will be lowered to 30%, maybe a little bit lower, and we're getting more market share from overseas market, particularly the markets with more disciplined and the customer would like to pay for the branding, the qualities and the high increasing products. Rajiv Chaudhri: So Charlie, if some of the Tier 3 and the weaker companies are getting out of the market shouldn't we expect your market share to grow in 2026 even if the market overall is down, are you just being very conservative here? Haiyun Cao: No. Unfortunately, it's not a conservative estimation. And we think this year is kind of the -- how to say, the transition year. And next year, we are looking forward to a lot of good opportunities. And we believe this year, you're right, a lot of Tier 2, Tier 3 even relatively bigger guys will be facing, I think, liquidation issues or maybe consolidation issues. And we -- what we want to do is we penetrate the market with customers who is willing to be a ratable price and we are able to get a reasonable, I think, reasonable profitabilities. Rajiv Chaudhri: Charlie, final question. On the exchange rate, obviously, you experienced a negative margin pressure because the dollar weakened -- sorry, the dollar weakened against the renminbi and your products are priced in dollars globally. Would you consider shifting that into pricing globally in so that in future, as the dollar continues to weaken against RMB that you will -- you are not punished for it because it seems to me that it makes sense to consider this as a strategic rethink. Haiyun Cao: Yes. We're trying to diversify the minimize the risk of facturation in the currencies. And if you look at the price determination in our sales orders, it really depends on the customers, how they view their exposures. Most of our customers, I think the PPA is still in U.S. dollars. So it's kind of a natural hit when they prop the modules from the module makers, but some customers are willing to pay RMB denominated. And we are encouraging the customers who is willing to switch to the to RMB to a little bit lower, the exposure -- currency exposures. And on top of that, I think currency hedging will continue to do that. It's a little bit difficult, but we're trying to minimize impact. And for the pricing impact, we periodically, we reassess the possible the exchange rates and put into the pricing for the future sales order. Operator: Your next question comes from Alan Lau from Jefferies. Alan Lau: So First of all, I would like to understand the company's view on its potential collaboration with the U.S. leader in its local plan in both the space-based solar and also in some huge local 100 gigawatts deployment heard that Ghana was on the ground with some progress. So I would like to know if the company would share updates on that front? And another thing is recently, it seems there's market discussion on China may be prohibiting or stopping the export of solar equipment as well. So would this impact that collaboration? Haiyun Cao: Thanks for the questions. And for the second question, I didn't have any information or comment. And I know there is some kind of message, even public news from overseas media channels. And -- but for the -- I think you are talking about the U.S., the Tesla SpaceX it's probably information Elon Musk is making very bullish and plan to build and 100 gigawatts by Tesla and 100 gigawatts by the SpaceX. And I think it's -- why do you have such bullish plan? I think particularly from Tesla perspective, public news show, okay, because the AI, it is -- there's a lot of demand for electricity, renewable energies and the U.S. is lack of electricity and renewable energy will be the final solutions. And I think we size simply we have visited a lot of equipment suppliers and manufacturing, including JinkoSolar. They have decided the technology to be TOPCon but we don't have any further information to disclose. But again, under Jinko is Pioneer and the innovators for the top content knowledge. And we have, I think, the most powerful capabilities to build integrated the capacities, the digitalizations and have a very strong powerful patterns as well in the gold. And we are quite open to explore the corporate rating opportunities and with partners in different countries. And you can -- so that is the information I think I can see. But in summary, I think the property information show, okay. The Tesla, SpaceX has a plan to build capacities. They are doing a lot of the work including visiting Chinese manufacturing. And -- but we -- from Jinko perspective, we didn't have any further information to these goals. And -- but we are open for the business opportunities, if any. Alan Lau: So good luck for the potential chance on collaboration. And then to follow up, is there any -- what's your view on the pattern -- popcorn patent loss raised by First Solar. So are you seeing this is impacting your shipment in the U.S. or it's not really affected. Haiyun Cao: Yes. We don't expect any disruption or impact in our business and ongoing business in the United States and the first solar litigations, and we have been actively engaged experienced lawyers and to Fight. And we don't believe we infringe relevant patents of First Solar, and we did the research for the producing process. We don't believe it's relevant. And on top of that, we have a very solid experience a couple of years ago, and to deal with 337 with [indiscernible] Solar and remain in the final. And -- but again, we do a lot of preparation work and -- but we are confident, and there is an impact for our operations in the United States. Alan Lau: Understood. Clear. So switching gear to the fee-related issue. So I would like to know, I think probably for this year, there are sufficient projects already safe harbor for this year. So I wonder if you may share with investors on your plan on meeting the fee requirement going forward? Like is there any progress in sourcing partner, et cetera? Haiyun Cao: Yes. I think there's a lot of the safe harbor, the downstream projects and the project will get through the construction and the connections in the next 2 or 3 years. And for the long felt compliance for the manufacturing in our Florida facilities and we are in the final stages and recent negotiations with potential investors. And if there are any is significant make too. We will make the announcement. And we expect it to be closed in the next couple of months. Alan Lau: Understood. That's very good news. And then I would like to switch gears to ESS, like I think the Chairman has guided on the shipment that in the shipment may be doubled. I wonder if you can share in which region are those shipments is going to be? And is there any AI data center-related deals that is being negotiated or in discussion. Haiyun Cao: For the storage business, ESS business and AIDC definitely it's a very hot topic, and we are actively in early stage and discussion with few potential customers. And return. And I think we -- hopefully, we are able to finalize some deals by the end of this year. And therefore, the stories segment by ratings and China really take our small precedes and is roughly 10% to 15%. And our focus will be the Europe, Latin America and some projects from Middle East and Asia Pacific regions. So that's the breakdowns. In the U.S., last year, received around 600-megawatt hours, and we are building solidify our teams. And hopefully, we can make significant breakthrough in the U.S. market in 2026 as well. Alan Lau: Understood. So is there an expected gross margin target on the ESS side of the business? Haiyun Cao: Yes. It's we estimate to be 10% to 15%. That -- we did have a very good backlog last year. And the industry is facing increase of the price of late. And -- but we are trying to manage and minimize exposures, but we estimate it could be in a range of 10% to 15%. Alan Lau: Understood. That's very clear. I think my last question is on the shareholders' return. I wonder if the company -- what's the pace of the buyback or the company? Like is there any further shareholders' return program for this year? Haiyun Cao: I think we will convene 1 make the investment return in the combination of the share repurchase and the dividend and -- it could be -- the magnitude we have not determined, but we'll definitely do that. Alan Lau: Resulting in the past, it was around like the plan was around $200 million per year, but I'm not sure if this is still the plan, different situation in the industry for now. Haiyun Cao: U.S. holding companies and I think now the U.S. company has around USD 200 million in cash. And -- but we're trying to make some investment on this so -- including solar, robotics and some relevant and industries. And so we need to allocate between equity investment and shareholder returns. But we have sufficient, I think, the cash and to return on investment and to investors maybe in the range of 50% to a year. Operator: Your next question is a follow-up from Philip Shen from ROTH Capital Partners. Philip Shen: I wanted to ask about the perovskite outlook. You guys have highlighted your efficiencies there in the laboratory and was interested in getting your perspective on when perovskite could be commercialized in your capacity footprint? Are we looking at maybe 2 to 5 years? Or do you think it's beyond 5 years? Haiyun Cao: So we did make some through the laboratory for the perovskite technology and it's reaching roughly 24% to 25%. But talking to commercial mass adjusting, we think still have a lot of R&D work to do. it will be in the next maybe 3 to 5 years and -- but it's not -- definitely, it's not in the near term. Philip Shen: Yes. Okay, Charlie. And then in terms of your shipments to the U.S. market I think you had in your deck 5% of your shipments went to the U.S. What is your expectation for shipments to the U.S. market in 2026? Haiyun Cao: It's 5% to 10%. And there's a little bit of talent because the shortage of the solar cell in supplies. And -- but we are trying to reach to at least the metal point. Philip Shen: The midpoint of the 5% to 10%, is that what you mean? Haiyun Cao: Yes, yes. Midpoint, yes. Philip Shen: Got it. Can you talk about the source of your non-fosales? Are you sourcing them from the Mid East? Or where are they coming from? Haiyun Cao: Yes, in general, there's several different players and manufacturing, I think, in Africa in different continents. And we I think we are able to secure some of the productions from the suppliers. Philip Shen: Okay. And then in terms of the war, I just wanted to if there are any impacts to the business at all? And then you have your large manufacturing facility here your building in Saudi Arabia. So I want to see if -- do you have any thoughts on that? Haiyun Cao: Thanks for the question. And the Saudi joint ventures, we didn't make any, I think, the break ground, and it's still in the early preparations and waiting for the implementations of the policies, local policies. So we didn't make any investment and significant investment in the joint ventures. And the Middle East contract that it has several impacts. I don't believe it's a long term. Firstly, it will have an impact on our shipment to the Middle East, and we take a sizable market in the Middle East. And given the logistic challenge, and we need to replan we work with our customers, we schedule the cement plants. And there is a significant push for the oil price. And it's a kind of the fundamental cost for a lot of materials, particularly the chemicals and as well as logistics cost. So there is some kind of push for the cost from shipment costs, EV and -- but we are trying to manage in a renewable level. But I don't believe that's a long term, but short-term, there is some kind of impact, but we can get it. Philip Shen: Right. Charlie, so how much do you plan -- like what's the plan for shipments to the Mid East before the war 2026 percentage of your '26 shipments were you thinking? Haiyun Cao: You mean by year? A year? Philip Shen: Yes. For the full year. Like prewar were you thinking like 20%. Haiyun Cao: Yes. I think it's roughly 20%. And -- but it's not is not impacting all the countries but impacts some countries. Philip Shen: Right, in the short term right? Right. So in the short term, maybe it's half of that is maybe challenged by the? . Operator: There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the 2026. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin. Thank you. Abbe Goldstein: Good morning, and welcome to The Travelers Companies, Inc. discussion of our first quarter 2026 results. We released our press release, financial supplement, and web presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, CFO; and our three segment presidents, Greg Toczydlowski of Business Insurance, Jeffrey Klenk of Bond and Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take your questions. Before I turn the call over to Alan, I would like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under Forward-Looking Statements in our earnings press release and in our most recent 10-Q and 10-Ks filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investors section on our website. And now I would like to turn the call over to Alan Schnitzer. Alan Schnitzer: Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We are pleased to report an excellent start to 2026 with strong underwriting performance across all three segments and a strong result from our investment portfolio. We also continued to deliver on key strategic initiatives during the quarter. For the quarter, we earned core income of $1.7 billion, or $7.71 per diluted share, generating core return on equity of 19.7%. Over the trailing four quarters, we generated a core return on equity of 22.7%, driven by excellent underlying fundamentals. Underwriting income of $1.2 billion pretax benefited from strong levels of underlying underwriting income and favorable prior year development. Each of our three segments generated attractive underlying and reported margins. Turning to investments. Our high-quality investment portfolio continued to perform well. After-tax net investment income increased by 9% to $833 million, driven by strong and reliable returns from our growing fixed income portfolio. Our underwriting and investment results together with our strong balance sheet enabled us to return more than $2.2 billion of excess capital to shareholders during the quarter, including approximately $2 billion of share repurchases. Even after that return of capital, and having made important investments in the business, adjusted book value per share was 16% higher than a year ago. In recognition of our strong financial position and confidence in the outlook for our business, I am pleased to share that our Board of Directors declared a 14% increase in our quarterly cash dividend to $1.25 per diluted share, marking 22 consecutive years of dividend increases with a compound annual growth rate of 8% over that period. Turning to the top line. With disciplined marketplace execution across all three segments, we generated net written premiums of $10.3 billion in the quarter. In Business Insurance, we grew net written premiums to $5.8 billion. Excluding the property line, we grew domestic net written premiums in the segment by 6%. The declining premium volume in property continues to be a large account dynamic. Property premiums were higher in our small commercial business, and about flat in our middle market business. Renewal premium change in Business Insurance was 5.8%. Retention increased a point from recent quarters to a very strong 86% and was higher or stable in every line, reflecting deliberate execution on our part and a generally high level of stability in the market. Renewal premium change in our core middle market business was about unchanged sequentially, also with retention higher at 89%. In terms of the product lines, RPC in auto, CMP, and umbrella remained in the double digits. RPC in GL and workers’ comp was stable, and RPC in the property line was positive. New business in the segment was a record $775 million, a reflection of our strong value proposition. In Bond and Specialty Insurance, we grew net written premiums by 7% to $1.1 billion. In our high-quality management liability business, renewal premium change ticked up sequentially with excellent retention of 87%. In our industry-leading surety business, we grew net written premiums by 14%. In Personal Insurance, we generated net written premiums of $3.5 billion with solid retention and positive renewal premium change in both auto and homeowners. We will hear more shortly from Greg, Jeff, and Michael about our segment results. The results we released this morning are part of a larger story. They reflect a set of advantages that we have developed and that have compounded over a long period of time. Over the course of many years, we have managed through a wide variety of challenging conditions: the 2008 financial crisis, dramatic changes in interest rates, a major inflection in liability loss cost trends, the global pandemic, severe natural catastrophes, and periods of heightened geopolitical and economic uncertainty. We did not predict the full scope of any of those events. But by carefully balancing risk and reward on both sides of the balance sheet, we were positioned to manage successfully through all of them. We have consistently delivered growth in book value per share and earnings per share at industry-leading returns, averaging more than 1 thousand basis points above the ten-year Treasury over the last ten years, and with industry-low volatility. We have also built as strong a capital position as we have ever had. That track record is not a coincidence. It reflects a set of structural advantages that hold up regardless of the environment. Starting with the breadth of the franchise. We are a market leader across nine major lines of insurance, serving personal and commercial customers across the country and diversified across distribution partners, industry class, and customer size. That balance, which represents a bigger advantage than people sometimes appreciate, has resulted in our consolidated loss ratio being less volatile than the loss ratio of our least volatile segment. In an uncertain world, that kind of structural hedge is a meaningful source of stability. Where we operate also matters. More than 95% of our premiums come from North America. At a time of considerable geopolitical complexity, that concentration is a strategic advantage. And the domestic market offers substantial room for growth. With our broad product capability, our leading market position, and the execution you have seen from us over the years, we are well positioned to continue gaining share, as we have in our commercial businesses over the past five years. Equally important is our ability to navigate the loss environment. We have the data, the analytics, and the discipline to see changes in loss activity early and to reflect what we see in our reserves, our risk selection, our pricing, and our claim strategy. That capability is foundational, because until you have an accurate view of the loss environment, the many downstream decisions are working from the wrong inputs. Our early identification of the acceleration in social inflation is a good example. We adjusted before the market did, and since then, we have grown the business and significantly improved our margins. Our scale is also a significant and growing advantage. Our profitability and cash flow support our ability to invest more than $1.5 billion annually in technology, including in our ambitious AI strategy. Our size gives us the data to power AI and the resources to deploy it, creating a virtuous cycle of better insights, better decisions, and better outcomes. Our financial strength also enables us to absorb the increasing severity of weather losses, and all of these benefits position us as a preferred counterparty in the reinsurance market. Beyond that, our product breadth, risk control, claim expertise, and other capabilities that benefit from scale make us more relevant to our distribution partners, deepening those relationships and our access to quality business. Over time, companies that can leverage scale effectively will have a meaningful edge in consolidating industry premium. As for our investment portfolio, the principles that guide us are the same ones that have served us well for decades. We consistently manage for risk-adjusted returns, not headline yield. More than 90% of our portfolio is in high-quality fixed income, with an average credit rating of AA-. Issue of the day, private credit, is a nonissue for us. We manage interest rate risk by holding the vast majority of our fixed income securities to maturity and carefully coordinating the duration of our assets and liabilities. Our investing discipline has produced default rates that were a fraction of industry averages through every stress event in the past two decades. You cannot gracefully reposition a portfolio in the middle of a dislocation. The time to build that resilience is before you need it. In short, whether we are talking about underwriting or investing, the advantages we have built are designed to deliver across environments. And they have. Before I wrap up, I would like to share that a number of my colleagues and I have just returned from our The Travelers Companies, Inc. Leadership Conference, a multi-day event we host each year for the principals and senior leaders of our most significant distribution partners. As we have shared before, the vision for our innovation agenda includes enhancing our value proposition as an indispensable partner to our agents and brokers. We continue to make significant investments to ensure that we realize that vision through best-in-class products, services, and experiences. What we heard consistently is that our deep specialization across a wide range of modernized, simplified, and tailored products, along with a broad and consistent appetite and extraordinary field organization, the ability to deliver exceptional experiences and our industry-leading claim capabilities, are major differentiators in the market. To sum it up, we are off to an excellent start for 2026, and we are highly confident that the advantages that have driven our success will extend our strong record of outperformance. I will now turn the call over to Dan for the financial results. Dan Frey: Thank you, Alan. The Travelers Companies, Inc. delivered $1.7 billion of core income in the first quarter, resulting in a quarterly core return on equity of 19.7% and a trailing twelve-month core return on equity of 22.7%. First quarter earnings were driven by yet another very strong quarter of underlying underwriting income, which at $1.2 billion after tax marked our seventh consecutive quarter of more than $1 billion. Net investment income of more than $800 million after tax and net favorable prior year reserve development of $325 million after tax also contributed to the strong bottom line result. After-tax cat losses were just over $600 million. The all-in combined ratio of 88.6% was again excellent. The underlying underwriting gain reflected $10.6 billion of earned premium and an underlying combined ratio of 85.3%. Within the underlying combined ratio, the first quarter expense ratio came in at 29%. That is what we expected given the timing of expenses in Q1, and we still expect the full-year expense ratio to be in line with our prior guidance, right around 28.5%. The previously announced sale of most of our Canadian operations closed as expected on January 2, and I wanted to take a couple of minutes to summarize the impact of that sale on our first quarter results. Let us start with premium volume. The year-over-year comparison, with Canada’s business included in 2025 but not included in 2026, reduced the first quarter growth rate for consolidated net written premium and net earned premium by about two points each. The impact in both Business Insurance and Bond and Specialty was about one point, while the impact in Personal Insurance was about four points. The impacts on the growth rate of both written and earned premium will be similar for the remaining quarters of this year. To help with modeling the year-over-year impact for the rest of the year, we provided the quarter-by-quarter dollar impact on Slide 19 of the webcast presentation. Within net income for the quarter is a gain on sale consistent with our expectations when we originally announced the transaction last May. That gain does not impact core income. And finally, within the equity section of the balance sheet, you see a reduction in accumulated other comprehensive loss, which is primarily because the previously unrealized FX loss related to the sold Canadian entities became a realized loss upon sale. The move from unrealized to realized had no impact on total equity or on book value per share. Turning back to the rest of the quarterly results, catastrophe losses for the quarter totaled $761 million pretax, with the largest events being the winter storm that impacted much of the country in January, and a large tornado-hail event in March, both of which you can see in the table of significant cat losses in the MD&A section of our 10-Q. We reported net favorable prior year reserve development of $413 million pretax in the first quarter, with all three segments contributing. In Business Insurance, net favorable development of $162 million pretax was driven by commercial property and workers’ comp. In Bond and Specialty, net favorable PYD of $65 million pretax was driven by better-than-expected results in surety. Personal Insurance recorded net favorable PYD of $186 million pretax, with both auto and home contributing. After-tax net investment income increased 9% from the prior-year quarter to $833 million. Fixed income NII was higher than in the prior-year quarter in line with our expectations, benefiting from both higher yields and a higher level of invested assets. New money yields at the end of Q1 were about 70 basis points higher than the yield embedded in the portfolio. Our outlook for fixed income NII by quarter, including earnings from short-term securities, is consistent with the guidance we provided on our fourth quarter earnings call: expecting roughly $810 million after tax in the second quarter, growing to approximately $840 million in the third quarter and then to around $870 million in the fourth quarter. Net investment income from our alternative investment portfolio was also positive in the quarter, although down from a year ago. Given recent movement in the equity markets, this is a good time to remind you that results for our private equities, hedge funds, and real estate partnerships are generally reported to us on a one-quarter lag. And while not perfectly correlated, our non-fixed income returns tend to directionally follow the broader equity market. In other words, the impact of the decline in financial markets that occurred in the first quarter will be reflected in our second quarter results. Turning to capital management. Operating cash flows for the quarter of $2.2 billion were again very strong, as we generated more than $2 billion in operating cash flow for the fourth consecutive quarter. As interest rates increased during the quarter, our net unrealized investment loss increased from $1.5 billion after tax at year end to $2.4 billion after tax at March 31. Adjusted book value per share, which excludes unrealized investment gains and losses, was $161.60 at quarter end, up 16% from a year ago. Adjusted book value per share also increased 2% from year end, despite the very strong level of share repurchases during Q1. Share repurchases this quarter included $1.8 billion of open-market repurchases, in line with the guidance we shared last quarter. And as a reminder, $700 million of that $1.8 billion came from the closing of the Canadian business sale in January. We had an additional $185 million of buybacks in connection with employee share-based compensation plans, and we still have approximately $5.2 billion remaining under prior board authorizations for share repurchases. Dividends were $238 million in the quarter, and as Alan mentioned earlier, our Board authorized a 14% increase in the quarterly dividend to $1.25 per share. In summary, our first quarter results once again demonstrate significant and durable underwriting earnings power and attractive margins across our well-diversified book of business, along with steadily increasing NII from our growing investment portfolio. I will now turn the call over to Greg for a discussion of Business Insurance. Greg Toczydlowski: Thanks, Dan. Business Insurance had a strong start to 2026, delivering another quarter of excellent financial results and successful execution in the marketplace. Segment income of $839 million was a first-quarter record, benefiting from strong underlying underwriting results and net investment income as well as favorable prior year reserve development. For the fourteenth consecutive quarter, we delivered an underlying combined ratio below 90%. That sustained underwriting success reflects the strength of our risk selection, granular pricing segmentation, and field execution. Turning to the top line, we generated net written premiums of $5.8 billion. Domestic net written premiums were up 4% over the prior-year quarter as we grew our leading middle market and Select businesses by 5% and 3%, respectively. National property premium declined as we maintained our disciplined underwriting standards. Turning to production, we achieved renewal premium change of 5.8% for the quarter. Excluding the property line, RPC was nearly 8% and in line with the fourth quarter. Renewal premium change was positive in all lines and higher sequentially in the umbrella and auto lines. Retention increased to 86%, up sequentially from the fourth quarter, a reflection of our continued focus on retaining our high-quality book of business in generally stable market conditions. Strong new business of $775 million was a quarterly record. These production results benefit from the investments we have made in product and underwriting precision. Our new commercial auto product, TCAP, which contains industry-leading segmentation, is now live in 47 states. We also recently enhanced our property pricing models, refining catastrophe and non-cat segmentation. Our advanced analytics, market-facing tools, and sales enablement capabilities also played key roles in our success, reflecting the competitive advantages these investments continue to build. We are pleased with these production results and the excellent execution by our field organization. As for the individual businesses, in Select, renewal premium change was strong at 8.8%, while retention increased one point sequentially to 82%. As expected, we are seeing the benefit of having largely completed our targeted CMP risk-return optimization effort. New business of $157 million was strong and in line with last year’s record. These results underscore our continued investments in product, underwriting, and agent experience. BAP 2.0 is now fully deployed nationwide, completing a multiyear initiative that has transformed our small commercial offering. The recent rollouts of the product in California and New York were meaningful milestones. The industry-leading segmentation embedded in the product is contributing to profitable growth. We continue to enhance Travis, our digital quoting platform, which processes over 1 million transactions annually. In Middle Market, renewal premium change was 6.6%, while retention improved two points from the fourth quarter to a very strong 89%. Price increases remain broad-based, as we achieved higher prices on about three-quarters of our middle market accounts. New business of $468 million was up 7% compared to the prior-year quarter, reaching a new quarterly high. Once again, another great quarter for Business Insurance. We are energized by both the impact of the new capabilities contributing to our strong performance and by the additional capabilities we are currently building that will drive our continued success throughout the remainder of 2026 and into the future. With that, I will turn the call over to Jeff. Jeffrey Klenk: Thank you, Greg, and good morning, everyone. We are pleased to report that Bond and Specialty started the year with another strong quarter on both top and bottom lines. We generated segment income of $254 million, an excellent combined ratio of 83.3% and a strong underlying combined ratio of 88.9%. Turning to the top line. We grew net written premiums by a very strong 7% in the quarter to $1.1 billion. In our high-quality domestic management liability business, renewal premium change was slightly higher sequentially while retention remained strong at 87%. We are encouraged by our continued progress in achieving improved pricing through our purposeful and segmented initiatives while continuing to deliver strong retention. Turning to our market-leading surety business. We are very pleased that we increased net written premiums by 14% from the prior-year quarter. Bond premium growth came from both long-term accounts, many of which are relationships spanning decades, as well as high-quality new accounts recently added to our industry-leading portfolio. These new surety relationships reflect years of efforts spent by our outstanding field team earning trust as well as the strategic investments we have made over time to deliver value beyond the bond itself. Our portfolio of premier contractors is well positioned to continue to benefit from higher and broad-based infrastructure spending. So Bond and Specialty Insurance delivered strong results in 2026, driven by our consistent underwriting and risk management diligence, excellent execution by our field organization in delivering our leading products and value-added services, and by continuing to leverage our market-leading competitive advantages. And with that, I will turn the call over to Michael. Michael Klein: Thanks, Jeff. Good morning, everyone. In Personal Insurance, we delivered segment income of $704 million for 2026. Strong underlying underwriting income and favorable prior year development both contributed to this excellent bottom line result. The combined ratio of 82.9% was a terrific result in the quarter. The underlying combined ratio of 78.3% improved by 1.6 points compared to 2025, reflecting strong profitability in both Automobile and Homeowners and Other. Net written premiums for the segment were $3.5 billion. As a reminder, we completed the sale of our Canada personal lines business on 01/02/2026. The decrease in domestic net written premiums of 5% year over year reflects the impact of both auto and home actions we have taken over the past year to improve property pricing, terms, and conditions, and to reduce exposure in high-catastrophe-risk geographies. The decrease also reflects higher ceded premium related to the expanded coverage we purchased as part of the enterprise catastrophe reinsurance program, which renewed on January 1. Turning to Automobile. Bottom line results continue to be very strong. First quarter combined ratio was 82.9%, reflecting a very strong underlying combined ratio of 88.3% and a 6.3-point benefit from favorable prior year development. As a reminder, the first quarter is historically our seasonally lowest combined ratio quarter in Auto. In Homeowners and Other, first quarter combined ratio was an excellent 83%. The underlying combined ratio of 69.7% improved by approximately three points compared to the prior-year quarter, primarily related to the continued benefit of earned pricing. As another reminder, the second quarter historically has been the seasonally highest quarter for homeowners weather-related losses. Turning to production. In Automobile, retention of 82% was relatively consistent with recent periods, and renewal premium change continued to moderate, reflective of our strong profitability. We are pleased to note that both Auto new business premium and the number of new business policies written increased compared to the prior-year quarter. In Homeowners and Other, retention improved to 85%. Renewal premium change in homeowners moderated, reflecting our successful efforts to align replacement costs with insured values. We expect renewal premium change to further moderate into the mid-single digits reflecting improved profitability. We were encouraged to see new business premium higher year over year as we broadened our disciplined efforts to deploy property capacity. These production results reflect progress toward our objective of delivering profitable growth over time. We are executing a range of initiatives to generate new business growth in both Auto and Property, including continuing to enhance product and pricing segmentation, unwinding eligibility restrictions, lifting agent binding limitations, and increasing new agency appointments. We are focused on providing total account solutions that, together with continued investment in digitization and ease of doing business, make us an indispensable partner for our agents, and an undeniable choice for customers. To sum it up, we are operating from a position of strength. The underlying profitability in our personal lines business is excellent. Our multiyear efforts to improve returns and manage volatility in the property portfolio are largely behind us, and early signs of growth momentum in both Auto and Home are encouraging. And with that, I will turn the call back over to Abbe. Operator: Thanks, Michael. We will now open the call for questions. To ask a question, please press star followed by the number one on your telephone keypad. We ask that you please limit your questions to one. Your first question comes from Gregory Peters with Raymond James. Good morning, everyone. Gregory Peters: So for my first question, Alan and Dan, you have talked about your investment in technology every year for years now, and I am curious how it is affecting the culture of the company. I am thinking about this from two perspectives. First of all, a number of your peers have talked about the potential for headcount reduction. And then at the SBU or line of business level, there are risks, I suppose, of deploying new technology both on growth and margin, and maybe sometimes that might outweigh the benefits. So some perspective on those two points would be helpful. Alan Schnitzer: Greg, good morning. Thanks for the question. I love that question. I will take you back to, I think, 2017 when we came out and we said innovation is going to be a strategy for The Travelers Companies, Inc. What we have done in the intervening years really is hone our innovation skills. We are referring to the last, essentially, ten years as innovation 1.0, positioning us for innovation 2.0. But when you talk about the culture, that is a culture that, fortunately, we have developed and honed over a decade. That is everything from how you pick the right initiatives, how you assess performance along the way, how you measure results, how you prepare an organization to manage change, how you communicate to an organization in the middle of change. That has been a constant for us, and I do not think you can wake up on Monday morning and say, okay, we are going to be innovative today. It is a skill set, and we have a lot of hard-won know-how in doing it. I think that has shaped our culture, which is prepared for it. Gregory Peters: Okay. I guess related to looking at the Personal Lines results, again, Michael, just balancing profitability with possibly adjusted pricing to drive new business and growth. Just curious about how you are looking at that equation. Michael Klein: Sure, Greg. Thanks for the question. That is absolutely what we are trying to accomplish: balance growth with returns and generate profitable growth over time. Given the strong profit position, we have taken a number of actions across pricing, eligibility, and distribution management to drive growth. Importantly, we are doing that from a position of strength. The segment combined ratio and underlying combined ratio in Personal Insurance is the lowest first-quarter segment combined ratio in the last ten years. That gives us some flexibility to look at pricing segmentation. That gives us the opportunity to look at base rate levels in certain states to ensure that pricing is consistent with loss costs. Then, as I mentioned in the prepared remarks, we are executing a range of initiatives across distribution management, expanding eligibility, relaxing limitations, to support that growth. We are encouraged by the momentum we are starting to see. Gregory Peters: Got it. Thank you, everyone, for the answers. Alan Schnitzer: Thanks, Greg. Operator: Next question is from David Motemaden with Evercore. David Motemaden: Hey. Thanks. Good morning. I had a question just on the RPC within the Select business. I was a little surprised at the deceleration there. I was hoping you could unpack that a little bit and sort of what lines were driving that deceleration. Greg Toczydlowski: Hey, David. If you are referencing the RPC, first of all, let me point out that is a real strong number for Select, just under 9%. You can see that drove a real strong retention number also. Rate came in at 4% and down from the fourth quarter, but that really is a reflection of how we feel about the portfolio, the rate adequacy, and the very deliberate execution by our field organization. Alan Schnitzer: David, I would add to that. When you are looking at that pricing metric—any pricing metric—and I would say this for Select or, frankly, anywhere else, you really have to look at it as a package of what is the pricing, where are the returns, and where is the retention. When you look at that trio together and you look at Select, it is an excellent outcome. David Motemaden: Got it. And then maybe just for my follow-up. I thought the underlying loss ratio in BI was definitely better than I was looking for. Could you just talk through the moving pieces there? I think last year, you had talked about increased IBNR on liability lines. Any update there? And also, you had talked about some light non-cat property losses the first couple of quarters last year, and there were some questions if that is durable or not. Was wondering if you have any updated thoughts there that you might be reflecting in loss picks. Dan Frey: Yeah, David, it is Dan. Look, overall, we feel really terrific about the underlying profitability in Business Insurance. As Greg called out in his prepared remarks, that has been sustained for quite a while. I think we are in a really sweet spot, to the point Alan was just making about retention, pricing, and returns. Nothing really unusual in the quarter—sort of the normal suspects that you would expect, a little bit of mix impact—but nothing that we would call out as being particularly unusual, including non-cat weather or anything else. David Motemaden: You also talked about our comment last year on the casualty lines and putting a little bit of what we called, I think, an uncertainty provision— Dan Frey: —in both 2024 and 2025. I think we said that at the end of the 2025 year-end call, but I will repeat it here. We did again carry that into the 2026 loss pick. The losses have not performed poorly. We like the margins in this line, but, again, it is a pretty long-tail line. There is still a lot of uncertainty. There is still a lot of attorney representation. We are going to have a healthy respect for that uncertainty, and so we did include that provision again in the 2026 loss picks. David Motemaden: Got it. Thanks. That makes sense. Operator: Your next question is from Robert Cox with Goldman Sachs. Robert Cox: Just a question for you around AI exclusions from policy terms. We are hearing brokers talk about increasing inbounds around AI-related exclusions from policy terms. So I am just curious how The Travelers Companies, Inc. is thinking about underwriting exclusions for AI-related risks and if you are seeing this play out in the market at all? Greg Toczydlowski: Hey, Rob. Clearly, we review our policy language all the time when there are new perils or dynamics in the marketplace, and that is evolving right now. We have not had any material changes, but it is something we are watching very closely. Robert Cox: Okay. Great. Thank you. Then maybe I just wanted to check in on tort reform. I know we have talked in the past—Florida is kind of viewed as a success story there. There are a number of other states that have recently passed some fairly comprehensive actions. I am just curious if you think that these other states could have similar outcomes as Florida and if The Travelers Companies, Inc. would plan to proactively change strategy in those states with regards to underwriting and pricing, or would you wait to see an improvement before changing strategy? Alan Schnitzer: Rob, we have been very encouraged by what we saw in Florida, and we have seen other encouraging actions in some other states, as you have mentioned—Georgia, Texas, Louisiana, South Carolina, and so forth. It has been terrific to see, and I think in part attributable to a really strong ground game that we and the rest of the industry have put on—state by state—making sure that we are pounding the pavement together with other industries, just making the case for the impact of litigation abuse on affordability. We are really pleased to see early gains, and we hope to continue the momentum. It is hard to answer your question on how we are going to execute with a broad brush, but we will look at the dynamics in each state. We will look at the actions that states take and, either at the outset or over time, that will impact how we think about the opportunity there and how we execute. But we are hopeful that this is the beginning of some momentum. Robert Cox: Thank you. Alan Schnitzer: Thank you. Operator: Your next question comes from Andrew Anderson with Jefferies. Andrew Anderson: Hey, good morning. Within BI, as some of these lines continue to see firm pricing other than property, how do you think about the relative attractiveness of workers’ comp from either a growth or a margin perspective? Alan Schnitzer: The workers’ comp business is a fantastic business for us, and it continues to perform very well. You can look at the calendar year returns, and we are open—more than open—for business in workers’ comp. Andrew Anderson: Got it. And within surety, growth accelerated again. How would you frame the demand conditions relative to credit quality? Jeffrey Klenk: Hey, this is Jeff Klenk responding, Andrew. I would tell you that our growth in the quarter for surety was really broad-based. As I mentioned in the prepared remarks, it was new and existing customers. It was from several different segments within our surety business. We are really proud of the high credit quality of our book of business. We continue to look at that as we take new customers into that portfolio. We feel really good that our portfolio will continue to benefit from the broad-based infrastructure spending that is out there as we look ahead. Andrew Anderson: Thanks for the question. Alan Schnitzer: Thank you. Operator: Your next question comes from Josh Shanker with Bank of America. Josh Shanker: Yeah. Thank you for putting me in. I was curious about the expense ratio. It is a little higher than it has been in the past, on both the acquisition costs and the other expense ratio. Can you talk about the drivers and how we should think about that as the year progresses? Dan Frey: Sure, Josh. We are not at all surprised with the expense ratio. If you look at our results over the last five or six years, if you look at the quarters within any given full year, it is not at all unusual to see the expense ratio vary by a point or more from quarter to quarter. 2025 really did not, but 2025 was more of an outlier and just sort of happenstance. You mentioned compensation, commission—so things like at what point do you evaluate the level of accrual that you think you are going to need for profit sharing or contingent commission? In the first quarter last year, we were sitting here coming out of one of the largest cat events in the history of the industry with California wildfires and saying, look, at this rate, we probably do not need a whole lot of accrual for contingent commissions and profit sharing. That is a different situation this year given the profitability of the book in the first quarter. But as I said in my prepared remarks, first quarter came out pretty much where we expected it to be when we gave the guidance last year that we expected 28.5% for this year’s full year. Josh Shanker: And on Personal Lines, is there a difference in the complexion of the business that is churning out of your portfolio versus business that you are winning currently? Michael Klein: Thanks, Josh. I would say absolutely. The business that is churning out of the portfolio is not as high quality as the business that is coming in. When we look at the profile of the business lost versus the profile of the business added new, the profile of the business we are adding new is superior to the profile of the business that we are losing. Josh Shanker: And what are the qualitative features that make business better? Is it bundled? Is it higher-value homes? Is it more cars per home? Or what is the difference between those two cohorts? Michael Klein: The elements that we look at when we look at profile include all those things—credit quality, limit, bundling, number of vehicles, age of vehicle, age of home—really pretty much across the board. The profile characteristics of the business we are adding are better than the profile characteristics of the business we are losing. Josh Shanker: So can we say that you are churning the business you are losing with some intentionality, that that is actually a business you do not want anymore? Michael Klein: I would say we are very happy with the trade-off between what we are writing new and what we are losing. Remember, in Personal Insurance, the business is mostly systematized. There is certainly an element of business we are nonrenewing or declining to offer renewal for based on risk quality, risk characteristics, and our estimate of what the loss ratio relativity on that business is. But really, I think what you are seeing is the successful outcome of a pricing and segmentation strategy that is tuned to attract the business that we want. Josh Shanker: Thank you very much. Operator: Your next question comes from Yaron Kinar with Mizuho. Yaron Kinar: Good morning, everybody. I had two questions on Business Insurance. The first one: It seems like renewal pricing change is below loss trend for the first time in a while, at least based on the last long-term loss trend that the company provided a few years ago. Assuming that persists, how does that change the company’s approach to writing and retaining business? As an example, I think the last time we saw RPC in this range, retention rates were a bit lower than where they are today. Alan Schnitzer: Yaron, I am not going to respond to whether it is in fact expanding or shrinking on a written basis. But what I will say is we are thrilled with the book of business we have, and we are very happy about the business we are putting on the books. The way we think about the execution is not looking at retention as a headline number. It is executing at a very granular, account-by-account basis. When you are looking at the business we want to retain, you want to keep your quality business, you want to get the right price on it, and through a lot of hustle and franchise value, write new business. Given the quality of the book and the returns in this business, the retention and the fact that it ticked up is fantastic. Yaron Kinar: Okay. Got it. And then my follow-up, again in BI, more focused on Select accounts. I am trying to think about the impact of AI here, where on the one hand it probably offers an opportunity to increase TAM—you can drive scale and efficiency benefits. But at the same time, it could also mean that we see more of a shift of small commercial to larger brokers with more data and analytics capabilities, maybe greater negotiating power. How do you think about those dynamics, whether I am thinking about this correctly, and how you see the business develop over the coming years with the advent of AI? Alan Schnitzer: I honestly think it is a little too early to know how that is going to happen. We have acquired three digital agencies/brokers over the years—Simply Business, InsuraMatch, and others—expecting the digitization of small commercial to move up in size, and it really has not. For Simply Business, for example, the small commercial it writes is—I would describe it as micro. For whatever reason, we just have not had the take-up there the way we would have expected eight or ten years ago. Before we see how this business is going to transition from one size of distributor to another, you are going to have to see customers adopt digital distribution for research and purchasing. We just have not seen it. Greg Toczydlowski: And, Yaron, one thing I would throw out in addition—we are really excited about Gen AI within the independent agents channel and particularly in Select and in Middle Market. In Select, we have executed some Gen AI that helps us process the business, endorsements, and changes, and just remove the friction and allow it to be much smoother for our independent agent channel. I do not think it has applicability of just changing distribution channels. We think it can be a great facilitator in helping us be more efficient in our existing distribution channels. Just to go back to your question, to the extent small commercial does gravitate to the larger brokers, that is probably a good thing for us. We have those relationships, and it is probably a plus for The Travelers Companies, Inc. Yaron Kinar: Thanks so much. Operator: Your next question is from Elyse Greenspan from Wells Fargo. One moment for that last question. We can go to the next, and if Elyse jumps back in, we will take her later. Okay. One moment. Your next question is from Tracey Banque with Wolfe Research. Thank you. Good morning. Tracey Banque: Hey, a follow-up on AI and commercial lines distribution. I appreciate your comments on Simply Business and the lower take-up rate. But if I could take that in a different angle, rather than brokers being disintermediated, I am wondering over time, can commission structures change due to the advancement of AI? Alan Schnitzer: It is pretty early, I think, in the evolution of AI and the distribution of insurance to get into that, and it is probably a broader conversation for a different time, different day. Tracey Banque: Okay. Also have a big picture casualty reserving question. Are claim patterns normalizing post-COVID catch-up period? If so, does that inform your loss development factor selection? Dan Frey: Hey, Tracey. Compared to what we saw in COVID, I would say COVID probably disrupted payout patterns as much as we have seen. Normalized relative to that, yes. But the trend in payout patterns in the casualty lines, particularly the long-tail liability lines, has still been increased frequency of attorney representation and a general lengthening of the tail. The things that we talked about in 2024, when we made some adjustments to our loss picks for accident years 2021 through 2023 and then started to factor in that uncertainty provision I talked about in a question earlier today, are still relevant because we have not seen attorney representation rates slow down. We have not seen severity increases slow down. We have not seen payout patterns return to their pre-COVID patterns. It is an extended payout pattern that has, if anything, continued to slightly extend. Operator: Thank you. Your next question is from Elyse Greenspan with Wells Fargo. Elyse Greenspan: Hi, thanks. Sorry about that earlier. My first question, I wanted to ask just about M&A and capital, Alan. Given that things are starting to soften from a market and premium perspective, or continuing to soften, was hoping to get your current views on M&A—things that you might consider and how that fits into your capital priorities right now. Alan Schnitzer: Elyse, I will give you the same answer that I think I have given you for ten years consistently on that, which is we are always interested in M&A of potentially all shapes and sizes, and we are very active in looking at things. I think our shareholders should demand that we are active in looking at things. Whether that is larger transactions, bolt-ons, or acquiring capabilities, that is all within our thought process and within our regular activity. We do not need to do anything at all to continue to be successful. We have all the tools and capabilities that we need to be successful. But if we find the right opportunity that meets our objectives—and I have shared many times our objectives—obviously we are going to assess a transaction in a million different dimensions, but we are looking for transactions that either improve our return profile, lower volatility, or provide us with some strategic capability. We are actively looking for those. When we find them and can get them done at the right terms and conditions, we will do it. Elyse Greenspan: Thanks. And then my follow-up on Personal Lines: as we start to think about gas prices being elevated, given what is going on overseas—and I guess the offset could be potential supply chain issues, which would impact severity—gas prices are potentially helpful to frequency. Can you give some color on the outlook for margins within Personal Lines given some of the things going on in the market right now? Michael Klein: Sure, Elyse. The gas price dynamic really depends on duration. Short- to even medium-term increases in gas prices do not materially change commuting patterns and driving levels, so it does have to be a sustained elevation in gas prices to really impact miles driven. To be clear, if gas prices stay high for an extended period of time, that puts downward pressure on miles driven and is a benefit to frequency. That is the most straightforward dynamic that we could see. But, again, gas prices would need to stay high for an extended period of time to drive that. From a supply chain standpoint, it is a fast-moving, fast-changing situation. There are lots of different things that could happen. There are scenarios where elevated costs actually put downward pressure on consumers and reduce used car prices because there is not as much demand—as just one example of the type of scenario we could see. At this point, it would be speculative to go beyond that and pick a path. Operator: Your next question is from Michael Zaremski with BMO. Michael Zaremski: Hey. Thanks. A question on the home insurance side. Michael, I believe you said that pricing would start to move to mid-single digits. If we look at The Travelers Companies, Inc. historical loss trend in home, it looks like it is well into the double digits. Are you signaling that the loss cost trend is better after the changes you have made, or you are letting margins deteriorate a bit to accelerate growth, or a little bit of both? Especially if you look at the cat load increased guide over the last few years, it has been a bigger part of the equation. Thanks. Michael Klein: Sure, Mike. Taking those pieces and putting them together, the guidance for property pricing moving down towards mid-single digits really just reflects the fact that we have rate adequacy broadly in virtually every state across the country as we sit here today, and we are pleased with the profitability of the portfolio. Importantly, that has been driven by pricing but also by changes in appetite, terms and conditions, and business mix, including state distribution. What you saw between fourth quarter of last year and first quarter of this year was that we had caught up on insurance-to-value. We had gotten coverage limits where they needed to be on property policies, and so we have gone to a lower inflation factor on those property policies renewing in 2026. That explains most of the quarter-to-quarter drop in RPC. What I am signaling going forward is that rate will also start to moderate in response to that improved profitability. Underneath that is an assumption—based on what we have been seeing—that the elevated inflation you are referring to has returned to a more normal level, and that is aligned with that pricing expectation. Michael Zaremski: That is helpful. My follow-up, pivoting to Commercial Lines loss cost trend. If we look at your commentary about loss cost trend being mid-single digits plus in the past, and your reserve releases over the last year or more, it kind of implies that loss trend has been a bit below the historical stated trend. Would you agree with that? Or is loss trend maybe improving slightly versus your historical view? Thanks. Dan Frey: Yeah, Mike. If you look at Business Insurance in particular, a large part of the favorable reserve development we have seen over the last several years in general has been comp related. We have said on comp, each time that it has come up, there has been favorability both in frequency and in severity, particularly in medical cost trend severity. That does not really bleed over into the way we think about loss trend in Commercial Auto or Commercial Property or the General Liability lines as an example. I do not think that we have seen a sea change in the way we think about loss trend to the positive. There is still a lot of pressure on the liability lines, which is why we continue to talk about things like double-digit pricing in them—in umbrella. Fair question, but I do not think we have seen any big changes there. Alan Schnitzer: Mike, I would add that one of the reasons that we have gotten away from talking about loss trends is because it is a pretty narrow concept of frequency and severity. It is a very blunt instrument to think about what is happening across billions of dollars of premium. Each line has its own dynamic, and there are other things that impact margins. There are base year changes, exposure changes, mix changes, changes in our large loss assumptions, and other adjustments that we make for one reason or another. There is a lot of estimation in that number. We try to get away from it, but holistically speaking, what I would say is the loss picks we have reflect what we think is going on with loss trend and, on the whole, it behaved about as we expected. Michael Zaremski: Thanks. Operator: We have time for one more question, and that question comes from Pablo Zuan with JPMorgan. Pablo Zuan: Hi. Thanks for speaking with me. First, just a quick modeling question. You talked about the impact of the Canada sale on earned and written premiums. I think you had mentioned two points. Should there be a similar proportionate impact on the dollar run rate acquisition and G&A expenses? Dan Frey: I think the way we think about it, Pablo, is just think about combined ratio in general. There is a little bit of a mix difference between the way Canada performed relative to the other lines, but not so significant that we think we should call it out and tell you that you need to adjust the run-rate loss ratio. If you asked the same question about whether it is acquisition cost or G&A or loss ratio or claim and claim adjustment expense—sort of up and down the income statement—we do not think it is going to significantly change the profile of the profitability related to those dollars. Pablo Zuan: Understood. My second one, just a follow-up to Rob’s questions about AI and not entirely related to the quarter. The Travelers Companies, Inc. is one of the largest cyber writers in the U.S., and the question is, how are you thinking about your exposures there and risk management given recent developments with AI? Thanks. Jeffrey Klenk: Thanks for the question, Pablo. Absolutely, it is an underwriting consideration. We are thinking about artificial intelligence, and with some of the more recent announcements in the last few days about the strength of the LLM models and what that could mean. It is not just on the negative side—it also has the potential to be on the positive side from an investment in resilience and capability to actually address the threat. We are heavily invested and have continued to invest in our risk control capabilities to address the cyber risk issue. Ultimately, we will have to make sure we are staying on top of it in partnership with broader government entities, as we already are. The investments we have made in our cyber risk control team for the benefit of our customers—the really good news for them is that as this technology continues to expand and change, we are going to be in an even better position to help them identify and remediate vulnerabilities as they come about. Alan Schnitzer: Thanks for the question. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back over to Ms. Goldstein for any closing remarks. Abbe Goldstein: Thanks so much. We appreciate you tuning in. We know we left some questions in queue, so as always, please feel free to follow up with Investor Relations. We appreciate your time. Have a good day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the NextNRG, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Following management's remarks, we will move to a pre-submitted Q&A. This call is being recorded. Before we begin, I'll turn it over to Sharon Cohen for the required forward-looking statements disclosure. Sharon, please go ahead. Sharon Cohen: Thank you. I'd like to begin by reminding everyone that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially. Please refer to our most recent SEC filings for a full discussion of relevant risk factors. Today's call will also reference adjusted EBITDA, a non-GAAP financial measure. A full reconciliation of this measure to net loss, the most comparable GAAP measure is available in our earnings release located in the Investor tab of our website. Non-GAAP financial measures should not be considered as a substitute for GAAP results. On the call today is Michael D. Farkas, Founder and Chief Executive Officer; as well as Joel Kleiner, Chief Financial Officer. Michael, the floor is yours. Michael Farkas: Thank you, Sharon, and good morning, everyone. I want to begin with some numbers that will frame everything you're about to hear. In 2024, NextNRG generated $27.8 million in revenue. While in 2025, we generated $81.8 million. I want to repeat that. $27.8 million to $81.8 million. That is about 195% growth in 1 single year. Our on-site mobile fueling business was the driver of this growth. Following the completed merger of NextNRG and EzFill, we integrated 2 acquisitions, [ shelf tap ] up assets and [ Yoshi ] mobility. These acquisitions allowed us to enter into 4 new major markets: Phoenix, Austin, San Antonio and Houston, ending the year operating coast to coast, and results reflected that. We posted 7 consecutive months of record revenue. And by May, our year-to-date revenue has already surpassed all of 2024. Most critically, our margins improved as we scaled. Our full year gross margin in fueling was 8.4%. By Q4, it declined to 10.4%. That is the direction we're moving towards as we continue to optimize our operations, implement smarter customer acquisition, greater route density, increase of fuel mix deliveries and less wasted time. In that curve, we are still early. I want to call out our fourth quarter specifically because it tells you where this business is headed. Q4 revenue was approximately $23 million. October, $7.4 million; November, $7.5 million; December, $8 million. December loan represented 253% year-over-year growth in revenue and 308% growth in fuel volumes, and that is the momentum we're carrying into 2026. I also want to take a moment to highlight something specific because I believe it speaks to the quality of what we are building. Right now, our largest commercial fleet customer, the largest global online retailer is actively cutting other fuel vendors in certain markets. and replacing them with us, NextNRG. That does not happen by accident. That happens when service is cleaner, more reliable and more integrated than the alternatives. This is precisely what we design our products and services to do. And it means that the opportunity with this one customer alone has not even reached its whole potential. I want to talk about our Energy Infrastructure segment because this is where the next chapter of next energy is being written. We closed our first power purchase agreement, Sunny Side into [ Pengatarifs ] rehabilitation and subacute care centers, both in California. Under these agreements, NextNRG will design and build fully integrated on-site smart microgrids combining rooftop solar, battery storage, gas generators and our patented AI-driven controller. These are long-term structured agreements with annual escalators built in. This is not equipment sales, but as contracted energy relationships that generate annuitized revenues over the long term, some as many as 3 decades. We believe finalizing these agreements validates the model. The market exists, customers are ready to commit and NextNRG is ready to execute. Our pipeline of planned smart microgrid projects stands at approximately $750 million, spending municipal, tribal, healthcare, multifamily and commercial facilities. All in various stages of development. We are now converting that pipeline into executed contracts. Before I turn it over, I want to explain something about how this part of the business operates. Because I think context matters when you're looking at our numbers. We are deploying multimillion-dollar energy infrastructure projects to large operational entities which require engineering studies, permitting, utility interconnection approvals, project financing and organizational decision-making that can spend years. The contracts we are closing today are the result of development work that started 18 to 24 months ago. Therefore, when you look at the business, you should be looking at what we've already closed what's in the pipeline and how that builds from the year because each contract represents millions of dollars in revenue and a proven track record accelerates the pipeline behind it. The fuel business funds the operation today, the energy business is where the exponential growth will come from. That is the architecture of this company, and to 2025 was the year we demonstrated that both sides of the business can work. I will now turn it over to Joel to break down what is behind the numbers. Joel? Joel Kleiner: Thank you, Michael. I want to walk through 2025 financials plainly because there is an important story inside these numbers that does not see in the headline loss figure. Revenue for the full year came in at $81.8 million compared to $27.8 million in 2024, an increase of $54.1 million or 195% year-over-year. Cost of sales was $74.9 million, up from $26 million rising proportionally with expanded volume and geographic footprint. Gross profit reached $6.9 million versus $1.8 million in 2024, nearly 4x higher year-over-year. Revenue scaled, gross margin improved and gross profit grew, that is the business working. Gross margin expanded quarter-over-quarter throughout fiscal 2025, demonstrating the company's ability to drive operational efficiency while continuing to grow its revenue base. Our GAAP net loss for 2025 was $88.2 million. I want to walk through the major components because the bulk of that figure is not cash out of the door, and it's important that you understand the distinction. The largest driver is stock-based compensation. which is totaled at $42.6 million. This is entirely noncash. This figure represents the equity cost of attracting and retaining the talent to execute a merger, integrate 2 fleet acquisitions entering 4 new states and close the company's first energy infrastructure contracts, all in a single year. It is also the primary reason for adjusted EBITDA -- that our adjusted EBITDA as a fundamental different story than our net loss. Interest expense was $17.3 million. This includes $9.6 million in noncash amortization of debt discount, a GAAP accounting charge that does not represent current cash paid. The remainder reflects interest our outstanding borrowings used to fund the company's growth in working capital. We are committed to reducing our reliance on high-cost short-term debt as operating cash flow continues to scale. We also recorded an $8.5 million impairment charge. This is a onetime nonrecurring noncash accounting adjustment related to assets recorded in connection with our merger [indiscernible]. As part of the year-end process, those assets are evaluated under GAAP, and we recorded a write-down based on that assessment. This does not reflect any deterioration in customer relationships, contracts or operating assets. and impact the reported net loss, but has no effect on cash or how the business operates going forward. When you strip out these items, the noncash stock compensation interest inclusive of that discount amortization, depreciation, amortization and the onetime impairment, you get to adjusted EBITDA loss of [ $7.1 million ] for 2025 compared to $8.9 million in 2024. Net cash used in operating activities was $16.7 million in 2025. We continue to the company's growth through operating cash flow and equity capital market activity and debt facilities. Our February 2025 equity raise of $50 million provide critical working capital that supported the execution you see in these results. We are a growth company in intensive industry, and we continue to invest into expanding our energy infrastructure pipeline. Fuel business provides operational momentum. The energy business provides long-term upside. Net, they represent a company that generated [ $8.8 million ] in revenue and $6.9 million in gross profit in its first full year as a combined entity. I will turn it back to Michael for closing remarks. Michael Farkas: Thank you, Joel. I want to close with this. The energy market in the United States is fragmented, inefficient and expensive. Businesses that consume enormous amounts of energy, commercial fleets, logistics operators, hospitals, distribution centers are managing that energy the same way they have for over 20 years working across multiple vendors with very little integration, visibility or control. We built a platform that changes that, on-demand fueling with real-time dispatch optimization, on-site microgrids that eliminate fragmented utility dependence and replace it with intelligent integrated infrastructure, a unified operating system that let's say, business team, manage and optimize all of its energy needs in one place to our proprietary NextNRG dashboard. The fuel side of the platform works. We established that in 2025. The energy side is just now starting to convert pipeline into contracts, and those contracts are long-term, high-value and destined to compound. The progression is already starting to show up in the numbers and in what we have executed so far. $27.8 million to $81.8 million in revenues in 1 year. Gross profit nearly quadrupled 7 consecutive months of record revenue. Our first energy infrastructure contracts signed and a pipeline at over $750 million. This is the year we just had. We are more focused on the next one. Thank you for all being here. I'll now hand it back to Sharon to take us through the Q&A. Sharon Cohen: Thank you, Michael. We'll now move to questions that were submitted in advance. The first question is for Joel. You recorded $42.6 million in stock-based compensation in 2025. Who received that compensation? What was it tied to? And how should investors think about dilution going forward? Joel Kleiner: Well, 2025 was not a normal year for this company. We did a merger brought 2 suites, built an executive team and Advisory Board and launched an energy infrastructure business. I remind you all in the same year. The equity issue was tied to that buildup. A lot of that work was compensated in equity, and that's what's reflected in that figure. It's not something you should expect to see at this level going forward. As things stabilize, those numbers have come down. And yes, we're very aware of what dilution means to our shareholders, and that's always a part of the conversation and the decisions we make. Sharon Cohen: Okay. Thank you, Joel. Here's another one for you. Cash at year-end was $384,000 and the working capital deficit since approximately $25 million. The company has been relying on high interest instruments to fund operations. How does NextNRG get through this next year, 2026? And what does the financing plan look like? Joel Kleiner: Look, the cash position at the end -- at year-end does not tell the whole story of where we are liquidity-wise. Our cash position reflects the timing of debt facilities and operating cash flows working capital, and it doesn't give the full picture of available liquidity. We have active debt facilities in place, and we continue to have access to capital markets and as we have demonstrated, like in our February 2025 equity raise. As the infrastructure contracts close and move towards construction, they bring project level financing structures that are standard in the industry and don't rely solely on corporate balance sheet funding. We are not managing this business on $384,000. We're managing it on a combination of operational cash flow, debt facilities and the capital markets act as we've consistently demonstrated. The goal for 2026 is to reduce our dependence on high cost short-term debt by growing operating cash flow, increasing working capital and closing contracts that carry their own financing. That's the plan, and we're going to execute against it. Sharon Cohen: Thank you, Joel. Michael, the following questions I will direct to you. The Energy Infrastructure business is described as a long-term growth engine of the company. When those contracts do start generating revenue, what does the margin profile actually look like? And how does it compare to the fueling business? Michael Farkas: It is a completely different margin profile. The fueling business operates on fuel margins. We buy fuel, we deliver it and we earn the spread plus the service fee. Those margins are in the high single digits to low double digits and they improve as we optimize routes and density. The energy infrastructure business operates on a contracted rate over a multi-decade agreement. Once those assets are deployed and operating, the ongoing cost structure is largely fixed. You have maintenance, monitoring and debt service on the project financing and the revenue is locked in by contract with annual escalators. We expect the margin profile on a stabilized microgrid to be significantly higher than what we generated fueling. The fueling business is a strong, scalable cash generator. The Energy business is a different kind of assets completely. And when those contracts start producing revenue, we believe it has the potential to meaningfully change the financial profile of this company. Sharon Cohen: Thanks, Michael. Here's the next question. Given the current cash position and working capital deficit, what does the path to cash flow breakeven look like? And what are the 2 or 3 things that need to happen operationally to get there? Michael Farkas: There are 3 things. First, the fueling business needs to continue scaling its gross profit and it is. We went from $1.8 million in gross profit in 2024 to $6.9 million in 2025. In Q4 margins tell us there is more improvement ahead. Second, we need to close and monetize NextNRG infrastructure contracts. Each one that closes and moves towards construction is expected to represent significant revenue and significantly improve our cash position. And third, we need to rightsize our operating expenses relative to where the business actually is today, not where we are building to. We've been spending ahead of this revenue on the energy side. And that's just the nature of how the business works. But as those contracts start closing and revenue comes in, that ratio flips. That's what we're focused on. Sharon Cohen: Great. For our final question, as the fueling business matures and energy contracts begin to close, how is management thinking about capital allocation? Where does investment get prioritized and what guardrails exist to prevent a company from overextending on either side of the business? Michael Farkas: Great question. The fueling business funds itself at this point, it generates positive operating cash flow and the capital requirements are largely tied to fleet expansion, which we can pace based upon demand. So the capital allocation question is really about the energy side, and there, the discipline is built into the structure of how we develop projects. The capital to build each project comes with the project through project financing, not from corporate balance sheet. What we invest corporately is in the development and sales process, engineering work, permitting customer relationships. And that's a deliberate contained investment. It's not open ended. The more projects we close, the cheaper and faster the next one gets. The guardrail is the model itself. Sharon Cohen: Okay. Thank you. That concludes our Q&A. Michael, any final words from you? Michael Farkas: No. I just want to say thank you. We are hedged down and focused on execution, and we're looking forward to seeing you next quarter. Operator: Ladies and gentlemen, thank you so much. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Hello everyone, and welcome to the Citizens Financial Group First Quarter 2026 Earnings Conference Call. My name is Ivy and I will be your operator today. [Operator Instructions] As a reminder, this event is being recorded. Now I will turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin. Kristin Silberberg: Thanks, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee, will provide an overview of our first quarter results. Brendan Coughlin, President; and Ted Swimmer, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter presentation located on our Investor Relations website. After the presentation, we will be happy to take questions. Our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand it over to Bruce. Bruce Van Saun: Okay. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We're pleased to start the year off strong, notwithstanding geopolitical tensions and uncertainty in the macro environment. We delivered good financial performance in a seasonally soft quarter with year-over-year EPS growth of 47%, positive operating leverage of 7% and NIM expansion of 24 basis points. Our balance sheet position continues to be robust with CET1 at 10.5% and our allowance for loan losses at 1.52%. Credit trends continue to be favorable across our portfolios, and we continue our loan mix shift towards deeper relationships with lower credit risk. Execution on our strategic initiatives continues to track well. The Private Bank and Wealth business showed further growth in customers, balance sheet and profitability, now accounting for roughly 10% of our pretax income while delivering an ROE in excess of 25%. During the quarter, we opened 3 more PBOs, bringing the total to 9. Reimagine the bank is off to a solid start, and we reaffirm our $450 million P&L target by the end of 2028. We estimate about $100 million in 2026 exit run rate benefits at this point. Our positioning with private capital continues to be excellent. We anticipate a strong year for private equity sponsor activity, which should provide a balance sheet and fee opportunities for us. We've reviewed all of our lending to private credit vehicles at a granular level and we feel good about our credit exposure. The New York City Metro initiative also continues to show further progress. We are growing across retail, small business and middle market. We are in the process of analyzing Citizens' existing branch footprint for net new investment and optimization with New York City likely to see growth in branches in coming years. We should have more details to share with you on this midyear. We're also focused on an initiative we call One Citizens, which is systematically finding ways to work across the enterprise to deliver valuable solutions to our customers. Now that we have stood up the private bank and continued the build-out of our corporate bank, we have the capacity to provide both personal and corporate services to successful business owners investors and entrepreneurs. We will report more on this as the year progresses, but we're already gaining real traction. As we look ahead to the second quarter and the full year, we remain cautiously optimistic that we'll be able to navigate through external challenges and still deliver the strong results we projected coming into this year. So far, markets have behaved rationally despite the war with equity markets holding in and credit spreads only slightly wider. We intend to stay on our investment plan for the year unless the macro takes a meaningful turn for the worst. We're pleased with the regulatory changes we see coming from Washington, D.C., and we look forward to the upcoming CCAR stress test results, which we're hopeful will give a more accurate result for citizens than what we've seen in the past. So to sum up, a good start, well positioned with a great strategy and a great team and optimistic for a strong 2026. With that, I'll turn it over to Aunoy for the financial details. Aunoy? Aunoy Banerjee: Thanks, Bruce. Good morning, everyone. As Bruce mentioned, Citizens has started the year well. Referencing Slides 3 and 4, we delivered EPS of $1.13 for the first quarter with ROTCE of 12.2%. Results were paced by strong NII, reflecting both continued net interest margin expansion and solid loan growth. We also deferred our best-ever first quarter fee result, led by strong performance in our commercial bank. With solid revenue performance and expense discipline drove more than 700 basis points of positive operating leverage year-over-year notwithstanding continued investment in the private bank and our other strategic priorities, along with ramping up our [indiscernible] bank program. The Private Bank continued to grow its profitability, contributing $0.11 to EPS, up from $0.10 in the prior quarter as the business delivered another very strong quarter of deposit growth. Now let me walk through the first quarter results in more detail, starting with net interest income on Slide 5. Net interest income was up 1.6% linked quarter, driven by the benefit of an expanded net interest margin and higher interest-earning assets, including strong loan growth which more than offset the day count impact of about $22 million. As you see from the NIM back at the bottom of the slide, our margin improved 7 basis points to 3.14%, driven primarily by the benefits of the reduced drag from terminated swaps and noncore runoff with a 5 basis point of combined impact. The fixed rate asset repricing benefit of 1 basis point. And lastly, the net impact of 1 basis point related to improved funding cost and mix, largely offset by lower acetyls. We continue to do a good job optimizing deposits in a competitive environment. Our interest-bearing deposit costs were down 16 basis points and total deposit costs were down 12 basis points. The cumulative interest-bearing deposit beta improved to 50% as we benefited from the repricing after the last rate cut. Even with the Fed now expected to hold steady in '26, we are still projecting a high 40s beta for the cycle. Moving to Slide 6. Noninterest income is up 11% year-over-year but down 2% linked quarter. As I mentioned, this was our strongest first quarter fee result ever, notwithstanding heightened geopolitical tensions and an increase in market volatility. Capital markets performance demonstrated the strength and diversity of the franchise with fees up 34% year-over-year and down 4% compared with the strong fourth quarter. M&A delivered a good result in the quarter with our pipeline is strong and continues to build. Bond underwriting was up nicely from the prior quarter. Our equity underwriting performance was stable linked quarter and up significantly year-over-year. Loan syndications were lower given the market volatility. We continue to maintain strong market share ranking fourth in the middle market sponsors book runner deals by volume. This is for both the first quarter and over the last 12 months. Our deal pipelines across M&A, debt and equity capital markets continue to build notwithstanding the unsettled environment. Our Global Markets business was up $10 million linked quarter with increased client hedging activity in interest rate products and energy-related commodities. Our wealth business continues to build with progress in the private bank and strength in our retail network. Wealth fees are up 2% linked quarter and 23% year-over-year. These results reflect higher advisory fees with continued positive momentum in fee-based AUM growth year-over-year. The fourth quarter results reflect positive net inflows partially offset by market impacts on AUM. Mortgage was down 19% linked quarter given a lower MSR valuation, partially offset by slightly higher production and servicing fees. On Slide 7, Expenses were managed tightly, up 2.6% linked quarter, largely reflecting the usual seasonality in salaries and benefits as well as about $6 million of implementation costs to ramp up the reimagined the bank program. On Slide 8, average and period-end loans were up 1% linked quarter. We saw solid loan growth across each of the businesses. Commercial loans, excluding the private bank, were up 1% on a spot basis. This was driven by net new money originations at higher commercial line utilization. This was partially offset by CRE paydowns. We continue to reduce commercial banking CRE balances, which were down about 4% this quarter and 16% year-over-year. The Private Bank delivered good loan growth again this quarter with period-end lows up about $600 million, driven by growth in multifamily and residential mortgage. Growth in retail loans ex noncore on a spot basis was about $300 million, led by real estate secured categories. This was offset by noncore auto portfolio run-up of roughly $500 million for the quarter. Next, on Slides 9 and 10, we continue to do a good job on deposits. with average deposits up 1% or $1.5 billion quarter-on-quarter, primarily driven by the growth in the Private Bank, which reached $16.6 billion at the end of the quarter. This was partially offset by seasonal impacts in commercial. Year-over-year, average balances are up $8.6 billion or 5%, reflecting combined growth in the private bank and commercial of $11.2 billion, partially offset by roughly $2 billion of reduction in higher-cost treasury brokered deposits. On a spot basis, noninterest-bearing balances are up $1.3 billion or 3% quarter-on-quarter and up $4.1 billion or 11% year-over-year, improving the overall mix to 23% of the book. Our total noninterest-bearing and low-cost deposit mix was steady at 43%, and our consumer deposits are 64% of our total deposits. This compares to a peer average of about 56%. Moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 39 basis points, down from 43 basis points in the prior quarter. Nonaccrual loans are down modestly linked quarter, reflecting a decrease in commercial, largely driven by C&I, which was partially offset by an increase in market. Turning to Slide 12. The allowance was essentially stable this quarter with ACL coverage ratios of 1.52%. This reflects the continued improvement in our portfolio mix with noncore runoff, the reduction in CRE and strong originations of lower loss content C&I, residential real estate secured and private loans. The economic forecast supporting the allowance contemplates a mild recession with a slight deterioration compared with the last quarter, reflecting the potential impact of higher energy prices. As we look broadly across the portfolio, the credit outlook remains positive though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.5%. We returned about $500 million to shareholders in the first quarter with $198 million in common dividends and $300 million of share repurchases. Moving to Slide 14. The private bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $16.6 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding about $600 million of loan at a healthy spread of 4% over deposit costs to end the quarter at $7.7 billion of loans. We ended the quarter with $10.1 billion of total client assets with modest net inflows partially offset by market impacts. We have more runway here as we plan to continue adding top quality teams in key geographies. We opened offices in Malmo Park and Laurel Village in the first quarter, and we expect to open at least 2 more offices this year in Weston Beach, Florida and Greenwich, Connecticut. Moving to Slide 15. Our reimagined the bank program is off to a great start. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model. which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. The program is well underway with work commencing on several key work streams. For example, on the technology front, we are leveraging AI to assist in writing code and expect to have material productivity improvements in software development, cutting down cycle times. We are also using AI to improve our interactions with customers, which we expect will materially cut call volumes and improve the overall customer experience. We expect to exist 2026 with an annualized run rate of about $100 million of pretax benefit. Now moving to Slide 16. We provide our outlook for the second quarter. We expect net interest income to be up in the range of 3% to 4%, driven by continued expansion in net interest margin and earning asset growth. Noninterest income is expected to be up 3% to 5%, led by capital markets with some risk if market volatility moves higher. Other fee categories such as FX and derivatives, wealth and card should also provide lift for the quarter. We are projecting expenses to be stable to up 1% and incorporating a step-up in implementation costs associated with reimagine the Bank and continued investment in other key business initiatives. We expect expense saves from reimagine the bank to benefit second half expenses. The charge-off level is expected to be stable to down slightly. And we should end the second quarter with CET1 in the range of 10.5% to 10.6%, including share repurchases of about $225 million. In addition, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity over the course of the year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of pending our net interest margin is an important driver, and we continue to project NIM to be in the range of [ 322% to 328% ] in 4Q '26. And in the range of [ 330% to 350% ] in 4Q '27. Slide 17 provides incremental details on our net interest margin progression to the end of '27. This combined with the impact of successful execution of our strategic initiatives and normalizing credit should drive ROI to our target range. To wrap up, we're off to a good start to with results highlighted by strong growth, net interest income and good fee results in a seasonally soft quarter. Our balance sheet is strong and continue to drive forward our strategic initiatives with strong momentum in growing the private bank and in our reimagine the bank program. With that, I will hand it back over to Bruce. Bruce Van Saun: Okay. Thank you, Aunoy. Operator, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from Scott Siefers from Piper Sandler. Robert Siefers: Maybe I was hoping you could maybe start by speaking to kind of the capital markets dynamics. Obviously, I see the numbers in the first quarter, but curious how you thought the first quarter actually performed given that you had sort of the interplay between one, the environment played out a lot differently than we all figured it might. But two, I know you all had some deals that were pushed from the fourth quarter into the first quarter. So maybe just sort of results versus expectations then if you could speak to the forward look, things like pipelines, confidence and pull-through, et cetera. Bruce Van Saun: Yes. Scott, let me -- it's Bruce. I'll take it first and then hand over to Ted to provide more color. But I would say all things considered. We're pleased with the performance of the capital markets franchise in an environment that had increased volatility and lots of uncertainty, particularly in March once the war kicked in. But we have good diversification across our different services in capital markets. So we have M&A, we have bond underwriting, equity underwriting and syndicated loans. I think that diversity helped us print a good quarter. There was some leakage, I would say, from March that's geared up to go in April, which now that we have more optimistic tone to the market. We're actually starting to see that come through. So we may be in a situation where our pipelines are very well. We're very optimistic given kind of the strength of the franchise the likelihood that people want to transact. But if there's this external volatility ebbs and flows, you could see people pull to the sidelines, wait for the opportune time, for example, to go to market. And hopefully that cleans up. We're certainly not taking our numbers down for the year. In fact, we feel quite good about that given the level of activity that we see and the pipeline strength that we have. So Ted, over to you. Theodore Swimmer: Building on what Bruce just said, we've seen -- we took a couple of transactions in March that we would have launched into the market and pushed them into April, just given the volatility in the overall markets. But during that whole period of time, we continue to sign up new transactions. And I think what's really exciting about the transactions that we're signing up based on the investments we made in Corporate Finance and industry specialization we now are doing more complex transactions and getting signed up on more complex transactions than we ever had before and feel very good about what that pipe -- what those transactions are and how the pipeline is building. And to more to what Bruce just said, the deals that got postponed in March, especially this week, we've seen them back into the market. We are launching several transactions and part of several transactions that were postponed in March that are getting very good [indiscernible] now in April. So we continue to feel very optimistic about the pipeline, especially on the M&A side. And during this whole period of turmoil, we really actually saw a pickup in new mandates, especially on the M&A side of the business. Bruce Van Saun: Yes. And I'd just close by saying it was a record first quarter for us in capital markets fees, that shouldn't go unnoted. Robert Siefers: Okay. Perfect. That's very helpful. And then I was hoping you all would maybe speak to the private credit portfolio as well. I know there's a lot of good detail in the appendix. Just curious sort of not only for an update on credit quality dynamics, but also given your build-out of the team over many years, I know it's been a focus area and just sort of your appetite to continue to grow the portfolio given sort of certain current sort of industry circumstances? Bruce Van Saun: Yes, I'll start again and flip to Ted. But I would say we've been very disciplined in terms of the kind of counterparties that we select usually they're often a private equity sponsor that's migrated to a broader kind of business model that picks up private credit, and they're moving to be more of an alternative asset manager. And so we've helped them grow and get into this business and provide leverage to many of those names. So client selection is always key and then making sure we have the right structures in place so that we're structurally protected from any issues that could arise in the portfolios. And so we've gone through and looked at kind of our exposure and kind of the broad portfolio, looking at all the underlying factors who has liquidity gates for retail investors who's got software exposure at the end of the day, feel very, very confident that we're structurally well protected from a credit loss standpoint. And I think even though this is in the headlines and there's concerns about private credit, the asset class, if you want to call it that, is here to stay, and they provide a certain amount of leverage and deal structures that exceeds what banks have historically been willing to play, and there's certainly a lot of institutional demand folks or private credit managers are continuing to raise new money. So I think we'll just grow selectively with the market. as we have in the past, but we don't see this turning around and being something that starts to shrink. It's just going to grow. And I think every player in the market will be more selective, and we'll continue to be selective, but we would expect this to be an area that we stay committed to. Ted? Theodore Swimmer: Just adding on to what Bruce said in a number of conversations we've had with private credit since this -- the noise has really started. We really haven't seen a decrease in appetite. In fact, in a lot of the conversations and the deals we're getting ready to launch. We're getting inbound calls from the private credit side of the business. So technology and software is certainly something that they're not all that interested in investing in right now. But for the most part, the majority of their portfolio, they're still very hungry and there's a lot of demand out there. Operator: We'll go to the line of Manan Gosalia from Morgan Stanley. Manan Gosalia: Maybe to start on NII. I know you broadly reiterated the guide for the year, including the NII guide and the exit NIM. But you have noted that Citizens SKU is slightly asset sensitive. In a scenario where rates stay higher for longer, we don't get any rate cuts until the end of the year. Where do you think the NII and NIM is trending? And what's the most likely outcome here? Bruce Van Saun: Yes. So we feel really good about our ability to deliver the kind of NII and the NIM that we gave in the beginning of the year guide. So -- but as you say, the environment is going to have an impact to some degree and a bit of a pause by the Fed. So a little higher rate scenario that we came into the year given asset sensitivity is modestly positive for us. And then a little slightly steeper yield curve, we had assumed 425 to 450 is the 10-year, and we're kind of in that zone. But -- to the extent there's -- that moves up and there's a little more steepening, that's also potentially positive to the outlook. But I wouldn't say it's a game changer. These are kind of marginal benefits that give us even more conviction that we can deliver to the numbers or slightly ahead of the numbers. With that, Aunoy, I'll turn it over to you if you want to add any color? Aunoy Banerjee: Yes. I think Manan, to Bruce's point, we are very confident on getting to the NIM and the NII outlook that we gave I think on the NIM side of it, as you saw from our walk in 1Q, a lot of the benefit is coming from the terminated swaps and the noncore runoffs, which is which is not rate dependent, and that's another 12 basis points for the rest of the year. The front bank -- bank book book dynamic as Bruce strategies would be helpful in this environment. So we remain confident on getting there. And as you saw, we have some good loan, but we have good correction and pipeline on that. So we feel confident of getting there. Manan Gosalia: Perfect. And then maybe to pivot over to capital given the new proposals that we got a few weeks ago, if you could give us your initial thoughts on what the magnitude of the benefit is for risk-weighted assets given your specific business mix? And maybe if you have any thoughts on whether citizens would adopt the ERPA. Bruce Van Saun: Okay. Sure. So it's still early days, and we're going through a comment period. But based on what we see now, this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points, call it, 110 basis points or so of CET1 improvement. -- the AOCI phase-in, if it happened right today, it would basically mitigate that. But as it phases in over time, some of that drag will dissipate. And so we would expect to be kind of at least 30 basis points to the good net-net, even with AOCI, maybe as much as 50. So we'll just have to see how the rate curve plays out from here. But anyway, it's a good problem to have, and it's probably early days to say kind of what we'll plan to do with that. There'll be a lot of considerations what is stakeholders' expectations, the market, the rating agencies, the regulators, et cetera. But anyway, it's a good issue for us to think about. The other thing is on this ERBA. There's a modest improvement even over the revised standard approach but there's a lot of work that goes into that. So you'd have to step back and decide do you want to do it? One of the things that sticks out as a difference between the 2 approaches is kind of the lesser risk weights under [indiscernible] for investment-grade credit. And we'll have to see if that gets imported into the revised standard approach, so there's no difference or whether there is a difference that might pull you towards wanting to move over and do ERPA approach. So Aunoy, anything to add? Aunoy Banerjee: Yes. I think as Bruce said, Manan, we are going through all the advocacy on some of these things that Bruce mentioned. We are also looking at all the work that needs to be done on ERBA, which says versus standardized for what's there and now with a lot of new technology, things could be really different in some ways. So there's a lot to do here still. But we are -- as Bruce said, we are -- it's in the right direction, and we feel good about it. Operator: We'll go to the line of Ryan Nash from Goldman Sachs. Ryan Nash: So Bruce, you've had 4 straight quarters of sequential loan growth. If I look at the drivers of growth, clearly, private capital call, private credit have all been contributors. So maybe you could just talk about your confidence in loan growth here and what you see as the key drivers. And then second, I know you referenced higher utilization. What's driving that? I know you're expecting to see more of this. Bruce Van Saun: Yes, I'd say that the really impressive thing, Ryan, is that we're getting the growth in each of the 3 main business areas. So private bank being kind of that start-up phase is growing their book nicely and consistently. And I think that leans a little bit more on the consumer side and multifamily side, that should continue. We had actually low line utilization with their client base, which should bounce back. And so we see private bank contributing. I think in commercial as well, we have the growth in NBFI, but also starting to see a little deal activity pick up across the corporate book, and we have our expansion [indiscernible] don't forget. So we brought banking teams into Florida and California and beefed up our New York Metro team. So that's contributing a bit. And then in the consumer bank, we've been kind of a rock star and HELOCs and also consistent growth in mortgage. So it's nice to see it's pretty broad-based. And then some of the drags of the things that we've had in the past, such as kind of the rundown of noncore, some of the commercial BSO thin relationship exits and things like that, the CRE kind of getting back to par where we want to be on commercial CRE after the investors acquisition all that is starting to abate a little bit, which allows the inherent growth to shine through. I think I'll ask maybe go to Brendan first for some color on Consumer and Private Bank. And then Ted, I'll ask you for some color on commercial. Brendan Coughlin: Yes. Thanks, Bruce. Thanks, Ryan. Adding on Bruce, just give you a little more color and data on the retail side of the business. We're up about 4% year-on-year on core loans, heavily driven by HELOC and mortgage Bruce mentioned, you just got the league tables in from 2025. We're the #1 originator in the United States at home equity lending with an incredibly strong risk profile, low LTVs, strong FICO scores, all depository relationship customers. So we're very proud about that, and we expect that to continue. Mortgage originations in this rate environment has obviously been challenged, but prepay speeds slowed too. So we're seeing net positive growth in mortgage and the balance sheet rotating into higher relationship-based lending fueled by the private bank and the retail bank. With our launch of a new credit card products, we're seeing a 50%-plus growth in new credit card originations. It takes a little bit of time for that to translate into the balance sheet as pain activity gets through, but we should see some modest script in credit card as we hit the back half of the year, too. So broadly in retail, we expect the the growth rate that we're seeing to project forward with a lot of confidence and the mixing of the balance is to get strong with higher return and deeper relationships. The private banking side, we've generally been in the range of about $1 billion in net growth each quarter. We were a little bit lighter than that this quarter with some lower utilization rates on the private equity side. But we that to be temporal. And the underlying originations activity is quite strong. We're very confident we'll end the year in the range that we gave of $11 billion to $13 billion, which projects back to about that $1 billion in that growth per quarter returning in the private bank. So both retail and private banking, I would just broadly describe as continued steady momentum with what you've seen over the last few quarters. Ted? Theodore Swimmer: Yes. Thanks, Brendan and Bruce. On the middle market side, we have seen a pickup in utilization over the last 3 months. I think customers are getting -- our customers are getting more comfortable in the economy and overall spending money on CapEx, which has led to a slight increase there on the mid-corporate -- adding on that, what we built out in Florida, New York and California, we're starting to see some real success there with increased loan demand and some increased customer count, which has resulted in higher growth there. On the mid-corporate side, we've reorganized the division a little bit to be more industry focused, less geographic focus. That has resulted in a nice pickup of new opportunities for us on the mid-corporate side of the business, and that was really [indiscernible] in the first quarter for us with significant growth there. NDFI continues to grow somewhere in the range of 5% a year. There's still good opportunities both on the capital call line, the securitization business and on the lending to the direct funds, and we expect that to continue to go around 5%. And then finally, we have really not seen much pickup in the private equity side of the business. The sponsor business has still been, I would say, flattish year-over-year. So most of our growth has been the traditional mid-corporate and middle market space. Ryan Nash: Got it. And maybe just as my follow-up, Bruce. In the slides, you highlighted some of the things that you're doing with reimagine the bank, including corporate and the LLMs and a handful of things. I guess, given the pace of change we're seeing in the markets in areas like AI, are there opportunities to accelerate any of these initiatives or adjust the timing given, again, just the rapid pace of change that we're seeing? Bruce Van Saun: Yes. I'll start and put it to Brendan who's sponsoring and leading that program. But I think that's a really good call out, Ryan, is that the adoption curve, the innovation curve that we're seeing in AI is really -- it's almost mind boggling. It's very significant. And so I think what we did when we set up the program was we took a very systematic approach to say like here's how we do things today, how would we like to do them in the future, embracing the technology as we have it today, recognizing though that over a 2- to 3-year time frame, there's going to be a lot more innovation and a lot of chance to embrace even better tools. And so maybe that creates a higher level of benefit, maybe that creates an acceleration and maybe it just creates new work streams that we haven't even thought or possible. So it's really a living, breathing program it's dynamic. It will incorporate. We'll have our telescope out looking at all the new things that are coming down the pike and figuring out how we can incorporate those in. But I'd say one thing to leave you with, though, is that we've been -- we've demonstrated over the years an ability to take innovation and take new approaches to how we're running the bank and put them into a program and deliver real financial benefits. So we won't create a lot of science fair projects and kind of use some of this new technology in ways that actually don't deliver real benefits. That's kind of our mindset as we go through this. So Brendan? Brendan Coughlin: Yes. Thanks, Ryan. Your question is principally AI, but one point on the non-AI front, you saw from us in the quarter. the remain the bank initiative was principally self-funded by quick wins that were non-AI based. And so we've already got over $30 million in projected vendor saves for the year in the box with an expectation that, that number goes up. We've closed corporate facilities, smaller facilities that's driving savings. So that has offset the investment already. So you're seeing real tangible impact in the program already this early in the year. On the AI front, to say two things. One is, you're right to point out the risk of speed of execution also is the speed of obsolescence as we put these in place, the idea that the best answer could be different in a quarter is very much front of our mind. So we're architecting all the things that we're building to be even more nimble than you might expect from a tech standpoint in the past. So as new models come up, we can easily plug and play and make sure we're taking advantage of the latest and greatest. So that's very much front of our mind. We very much have real AI use cases in market today. in the call center, as an example, we've told you we expect to get 50% of the calls out by the end of the period. It's already in pilot. In fact, we expect inside of this calendar year, by the end of the year, we should have 25% of our calls answered by non-humans with the expectation that will ramp in 27% to 50%. That really should hit in the summer and into the early fall. So this is very real. This isn't a back-loaded program all coming in 2028. And the tech space, as an example, we've deployed [indiscernible] to our engineers. We're already seeing a very material productivity improvement and leverage we're getting on our capital investment and deployment ranging from 30% improvement in productivity that in some tests we've done, it's been a 5 to 10x improvement in productivity. So now we're working on scaling it and engineering it for real scale. So we are moving very, very fast. We're keeping up with the pace and it's live and in production and our confidence is building. Operator: [indiscernible] UBS. Unknown Analyst: Just a few follow-up questions for me, please. So given everything that you've said about a record first quarter in cap markets and very full pipelines, picking up new mandates while some of these deals were pushed into closing in the second quarter or launching in the second quarter, it sounds like we should still subscribe to the 6% to 8% fee outlook growth for '26? Bruce Van Saun: Yes. We're not coming off any of those ranges the full year guide at this point, Erika. L. Erika Penala: Perfect. And then my follow-up question is, thank you for the expansive answer on NIM and NII relative to the current forward curve. I guess this is a 2-part question. First is, I think, Aunoy, you talked about the noninterest-bearing growth in a seasonally tough quarter for that, maybe where that noninterest-bearing growth is coming from? And to that end, if we do have a scenario where we have no rate cuts can Citizens, keep deposit costs stable in light of more robust growth from you guys on both the consumer and corporate. Aunoy Banerjee: Erika, it's Aunoy here. We were quite pleased with our deposit performance this quarter. And as we saw actually good noninterest-bearing deposit growth Obviously, we have a couple of strategic initiatives. One is being the private bank where you saw the good DDA growth that the DDA percentage in the private bank is 30%. So we continue to see that coming. And as you saw the balanced growth we are seeing the DDAs grow along with it. So that's the, that's 1 thing that's really driving the DDA growth. But even as Brendan mentioned, even on the consumer side, there is a lot of growth that we are seeing in the low-cost NTT as we really build the relationships with our clients. So we are seeing a lot of good traction there. And to your second question about where we go deposits from here. Obviously, deposit volume is going to depend on the overall economy, how the GDP goes, how the loan formation goes in the economy. But with some of the strategic initiatives, we believe that we can maintain in the competitive range about where deposits are going to go from here. And as you saw, our deposit betas our 50% this quarter and we have -- we expect it to be in the high 40s, which is in line with the competition. With that, maybe, Brendan, I'll pass it on to you to see if you have any comments. Brendan Coughlin: I'll add a little color on each consumer and private, but out of the $118 billion or so of deposits that sit in the consumer bank, 52% of them are what we call low cost, which is either DDA or checking with interest. And in the retail bank checking with interest is sort of a sub-10 basis point type of cost. So for all intents and purposes, it's very similar to DDA. The COVID period of all those operating balances reducing is firmly behind us, and we're now seeing net growth. So we're up 130 basis points year-over-year and our low-cost deposit categories. That's versus a peer average of about 50 basis points. So we are very firmly in the top quartile in terms of low-cost growth. for the consumer bank, and we project that to continue with confidence in the outlook, which will really help control interest-bearing. Total cost of deposits when you include the interest-bearing side. And then no pointed this up. But in the private bank, we ended the quarter with very strong spot numbers. It's actually 40% DDA over 50% when you add in the checking with interest in the private bank itself as well. So we're expecting that to be in that sort of range in the same range that we've seen in the past. So we're getting this really strong growth in the private bank without breaking the quality metrics and this far in, that's a real positive to see. And broadly, we expect that to continue looking forward. Operator: We'll go to the line of John Pancari from Evercore ISI. John Pancari: Just on the private bank side, just what -- see if you can give us just a bit more color in terms of what are you seeing in terms of the mix of loan growth? How much momentum are you seeing on the mortgage side versus the commercial capital call type of loan generation. And then if you could maybe give us breakout of like where new money yields are that you're bringing on loans in the private bank, maybe on the mortgage side as well as on the other type of lending capital calls included. Brendan Coughlin: Yes. On the loan side, it has -- the longer-term trend line, it's been pretty evenly mixed between mortgage, multifamily, commercial real estate and private equity capital call lines the utilization rates this quarter on the PE lines were down a little bit, so it sort of artificially suppressed the linked quarter growth was more driven by mortgage and multifamily CRE, which is pretty evenly split between those categories. both of those asset classes where we use the balance sheet comes with deep, deep relationship-based banking. And so the net returns on the customers are actually quite high. When you look at our overall loan yields versus our deposit costs, we remain in the range of north of 400, 425 basis points of net spread between our loan yields and our deposit costs, and that has been consistent since we launched. And so the growth that we're seeing is actually deep relationship based, but even just asset asset yields minus deposit costs, it's net accretive to our NIM position. So the return profile of the business overall remains in the mid-20s because of that with high profitability on the balance sheet, and we see nothing that will take us off that trajectory. John Pancari: Got it. And then on the capital front, Bruce, maybe if you could kind of I think you talked about your capital allocation priorities from organic versus buyback and then maybe on the M&A interest side.[indiscernible] I know you've been historically uninterested in whole bank M&A. Just curious if that's changed for any reason at this point. Bruce Van Saun: Yes. Thanks. I would say the capital and priorities are really unchanged. They've been stable. So we always look to make sure that we have a good dividend on the stock and that we can raise our dividend as earnings grow, which be an objective for this year. The second place objective is to make sure we have capital supporting our clients and supporting the growth of the bank. So organic growth is kind of next up. And then the residual, you can look to do potentially some selective acquisitions. For example, in the first quarter, we bought very small but high-quality M&A boutique to, as Ted indicated, we go deeper into these industry verticals. Do we have everything we need to really serve those clients well. And in some instances, rather than hire people. It's faster just to go out and buy an M&A boutique that doesn't use a lot of capital, but we'll certainly look for things like that or maybe some things in the payment space that can accelerate our growth a little bit, but these are generally going to be small. And then whatever we have as the residual, really goes to buying back our stock. And I still think the stock is very attractive here, as you would expect me to say. But in any case, we're -- we bought a lot of stock in, in the first quarter, $300 million. And we gave in our guide that we're looking to buy $225 million here in the second quarter. So we'll have -- if we keep growing our overall results and our earnings will have lots of flexibility to both grow the bank organically plus buyback stock. Operator: We'll go [indiscernible] from [indiscernible] Unknown Analyst: Back on capital, you mentioned the stress tests coming up and the potential to get some relief there. your buffer is 4.5%, it seems like you could see some pretty significant relief this time around. And if you do, does that at all come into play with how you think about the 10.5% level for CET1, especially in the context of seeing some of the larger banks moving their CET1 ratios lower recently? Bruce Van Saun: Yes. So what I would say on that is that we've managed the capital kind of where we think it's appropriate given the environment and stakeholder expectations. And so we've been at the high side of our range of 10% to 10.5% or slightly over the 10.5% for the last several quarters. the SCB has not really been a binding constraint. And I've said in the past, it's to me, more of a scarlet letter I can't believe that we're getting that high of an SCB, which is completely outsized relative to peers. I do think that the Fed is now kind of taking a hard look at why are there some of these inaccuracies that take place. And so we'll see the models aren't really going into this round, but there's other things that I think the progression coming out of where we were in '23 to the strong balance sheet and jump-off point we have today, higher revenue levels. And then the scenario was particularly severe in the last cycle that is better this cycle. So we would expect to see the notional equivalent SCB even though it won't go into effect, we would expect to see that hopefully quite a bit lower and more in line with peers even before we see some of the model changes like the model changes of not picking up this benefit of swaps was really a big miss. But even without fixing things like that, I think we'll see improvement. So I would say we'll wait and see like how the environment shapes up. Right now, we're in a war with a lot of uncertainty and profitability is still increasing. So I think carrying a little extra capital through the course of 2026 makes sense. But certainly, there'll be opportunities to reassess that if we get a positive outcome to the war and the market conditions improve, and we continue to deliver a higher level of earnings it might be possible to start to ratchet that down, but probably that would be a '27 event and not something that you'd see us do in '26. Unknown Analyst: Okay. And then just switching to the Private Bank. You had some great deposit growth this quarter, and you mentioned some of the spread details on that incremental business, which sounded great [indiscernible] 400 to 425 spread. I was just curious what what the rough cost of those deposits were in terms of the growth coming in this quarter? And if you could just give an update on the talent pipeline in that business, that would be great. Brendan Coughlin: Yes. The deposit cost, looking at now to carts 220-ish basis points. the total deposit cost when you blend in the interest-bearing plus [indiscernible] that. Bruce Van Saun: Yes. So it's going to be somewhere is going to be lower than our commercial deposit funding costs but higher than pure retail is one way to think about that. Brendan Coughlin: And remember, the interest-bearing side is mostly still front book. So you've got a heavy piece of DDA and then the interest-bearing side is front book. So the poly is somewhat barbelled. Over time, we can smooth that out as the business builds. Bruce Van Saun: Yes. And the other thing that I would say is we opened 3 PBO offices this quarter, and we have 2 more geared up on this quarter and 1 later in the year. that will bring us up. I think we're at 9%. That brings us to 11 by the end of the year. So that's an important part of the deposit gathering strategy to have an ability to go out to successful people and walk [indiscernible] we call them 2-legged customers in addition to some of the corporate relationships that we have and we get billboard value from having those new locations opened. I would say over the next 3, 4 years, we could see that PBO count get up to 25% to 30%, if you recall, I think First Republic had maybe 80%. I don't think we're going to go near there. But I think we can get into the key markets and kind of have 25 to 30, which will also kind of keep that deposit machine cranking along. In terms of talent, the main needs we've taken the business from about 150 people at launch up to close to 600 today, including all the support dedicated support people. I think the plan for this year is to kind of continue to build out Florida is one of the things on the PB side, but then continue with the wealth lift-outs. And so we have a pretty good pipeline on private wealth lift-outs. None of them hit in the first quarter. We hopefully will catch up here where we want to be in the second quarter, but that's also a real focal point to make sure that we have the wealth professionals co-located with our private bankers so we can deliver kind of total solutions to the customer. Brendan Coughlin: The only thing I would add is our talent pipeline is really robust and attracting talent to this platform. It's not been a problem we -- over the course of the last few years. held ourselves back candidly a little bit for 2 reasons. One is our commitment to the market to deliver the profitability and the results we committed and then just making sure the platform is ready. We've had a lot of investment we had to make to connect all of our products and deliver the service. Our NPS has gone up from 70 to 76. And growth is obviously really, really strong [indiscernible] we're feeling good about the foundation of the platform. So we're starting to think about how we play some more offense on bringing talent in selectively. We want to maintain a really high bar that's really important to us the banking side, we're searching for a talent and a talent only. And so that's what we're bringing in. Bruce Van Saun: I would have said it [indiscernible] Brendan Coughlin: I'll give you the rounding. Aunoy Banerjee: On the deposit side, I would just add that we are also bringing good quality deposits, the lendability of these deposits are good. So just so that we can use it in the broader franchise Operator: [indiscernible] Bank of America. Unknown Analyst: Just 2 quick follow-ups. Maybe, Bruce, in your prepared in your remarks, you talked about looking at New York brand strategy, I guess you plan to open more branches in New York. Just talk to us, is that more private bank related? Or do you see an opportunity to just open more branches in New York and just the size of kind of what you're thinking there? Bruce Van Saun: Yes, sure. I'll start and flip it to Brendan. But I think I referenced this on a prior call is that we see a real opportunity to kind of double down on our footprint. Some of our peer banks are okay, taking the view that our footprint is pretty saturated and we need to go outside footprint to different regions of the country to get more growth. That's not our strategy that we're arriving at its where we're already well known, we can make some investment in the branch system to really optimize locations, optimize the mix between in-store and stand-alone branches and try to pick up the growth rate of deposits just in our footprint. And then we don't -- we avoid all that top of funnel spend advertising in a different region where nobody knows who we are. People already know who we are. So we think that makes sense. My hope is that when we get to the end and we kind of unveil this program that we'll be spending some incremental dollars on the branch network but we'll pick up that growth rate in deposits maybe by 200, 300 basis points over what the normal GDP growth rate was -- and if you look at that over a 10-year period, that's another $20 billion to $30 billion of deposits and deposits, obviously the lifeblood of a strong bank. So this is really important to us. Stay tuned for more details probably at the middle of the year. but New York is clearly an area where proof of concept, we got in on the back of combining 2 franchises that, frankly, were from a retail standpoint in need of some TLC. We put our best people down there and brought our version of banking into a highly competitive market, and we're having great success. It is our fastest-growing region in terms of households and deposits. But we're still not at the full scale with where we would need to be to really penetrate that opportunity. So as part of that broader effort, you would expect us to open more retail branches in Manhattan in surrounding environments, and we're pretty excited by that opportunity. we probably will open another 1 or 2 PB locations in Manhattan, for example. But the focus here really is to optimize what we're going to do on the retail side. Brendan, anything to add. Brendan Coughlin: I guess a sign of an incredibly aligned leadership team you took almost every word out of my mouth. The only thing I would add is just give you a [indiscernible] in New York and then on the rest of the markets. But in a world post-COVID, it's -- there are a lot of questions on the future of retail branches and the importance of them, but it's still very much truth, if you want outsized operating leverage in retail banking, you need 4% plus share of branch density and despite all of our incredible successes in New York, we're still at sort of, call it, 2.25%, 2.5% branch density. So we do think we can build on our momentum by densifying a little bit. And we'll do that thoughtfully over time. As Bruce mentioned, we'll give you more details as we get towards the middle part of the year. We also have some self-funding dynamics that still exist in the rest of the franchise. We still have lot of in-store branches that we'll be able to reposition a bit to traditional branches in the non-New York parts of the footprint that will free up some expense and capital to densify in New York. So we'll bring everybody through the plan here in short order. But really, as Bruce pointed out, the goal really is to drive sustainable market share gains and outsized deposit growth in retail to fund the rest of the franchise. Ebrahim Poonawala: That's good color. And just a quick follow-up, Bruce, for you on the capital plans, like [indiscernible] should benefit Citizens once that gets mark-to-market. When we look at the benefit from the capital proposals, it's something we've begun to think about do you think the tangible common equity ratio then becomes something that you're more mindful for in a world where the RWA density is coming down? Bruce Van Saun: Yes. That's a really thoughtful question. So I do think while that's not a regulatory ratio, it is something that bank investors have focused on over time. And so as I said, we're going to have to triage when this good news comes in, you have the triage as to what our market expectations, what are regulatory expectations, what are rating agencies' expectations. But yes, I think that could happen. I think that TCE ratio could be something that analysts and investors move up in prominence. Operator: We'll go to Gerard Cassidy from RBC Capital Markets. Gerard Cassidy: You guys have done a good job of expanding the commercial banking business. You talked about it on the call already. Can you share with us when you go into a new market like Florida or California, now clearly, you're building your national brand, but it's I don't think it's yet at Bank of America level in terms of recognition. So how do you balance when you go into these markets that could provide growth on the commercial side, how do you balance the risk with growth? And then second, are you leading your balance sheet? Or are you building out treasury products first and then lending to those customers? How do you guys approach that? Bruce Van Saun: Let me start and I'll flip right to Ted. But I would say we have tried to lever an expanded presence in these new markets where we brought a private banking operation or private wealth operations and then kind of magnify that by also bringing in kind of the corporate banking teams. And what we aspire to is to bring very experienced, high-quality bankers onto the platform who kind of have a growth ambition and who are good team players. And so one of the reasons that we're successful overall in the corporate bank is we worked very collaboratively with a coverage banker who has product partners that they work together to come up with good ideas. We call it thought leadership. But at every touch point with the client, we're showing up. We understand your business. We want to get to know you. We have some ideas about how you can be more successful. And that really resonates with customers. So I think there's always room for market participants who do that well. So it's really a combination of the visibility of already being in the market. And now we have like 400 people in California over 400 people. And that kind of works together to raise our visibility and our presence and then staying committed to really high-quality people and staying committed to that 1 citizens collaborative model where we can deliver solutions to the customer. Ted? Theodore Swimmer: Yes. Bruce, the one Citizens model that we've implemented throughout our bank has really gone to differentiate ourselves as we expand into these new regions. So to your question, [indiscernible] we don't necessarily lead with treasury, don't necessarily lead with credit, but we try to lead with his ideas to our customers and where we differentiate ourselves is as we pick what customers we're going to attract we really look at where do we differentiate ourselves versus our competitors. So is it an industry that we have a specialization sponsor, a private equity group that we know better. We are trying to -- and then how do we bring all the parts of the bank together to give the customer an experience that they wouldn't necessarily get from somebody else. And when you have the private bank and all the great people and all the relationships that they have and the ability to interact with people that we normally, if we were just showing up with a balance sheet, we wouldn't have the ability to address those customers, bringing the private banking and combining all those together has really been what we try to achieve as we've been building out in these markets. Bruce Van Saun: And I would say that, look, kind of companies in the regions we're targeting or the industries we're targeting are very receptive to have a new player with a really strong approach that they're not exactly -- some of the bigger players aren't covering themselves in glory when it comes to how they cover middle market and mid-corporate companies. And so it feels like we're pushing on an open door to some extent when we go into these markets. Gerard Cassidy: Very helpful. I appreciate it. And then pivoting over to AI, Brendan touched on it a moment ago, Bruce, and maybe it's for Brendan as well. When do you think we get to the point where you folks and your peers probably as well, are able to go out and tell investors, we just spent x millions of dollars on AI, and this is bottom line impact. Earnings per share improved 2% or the ROTCE number went up 50 basis points because of the x millions of dollars we just spent on AI. Do you think we can never get to something like that down the road? Or is that just too optimistic? Bruce Van Saun: Yes. I think it's going to be hard. It's going to be a very dynamic process, and there's a lot of cross currents that go through the P&L. I think we'll try to do that with reimagine the bank. We're not kind of detailing any notable items for what the cost is of restructuring and investment and consultants and all of that. But I think will certainly delineate it so that you understand what we're expanding. And so just within that program when we get to the $450 million run rate, that's going to be a very good return on what it took to stand that up. So that might be one way that you can kind of get a sniff of how much are they spending and what benefits are resulting. But I do think it's a dynamic process and a lot of things, there'll be a lot of cross currents in the economy and other things. And so you might not have the cleanliness of connection that you're talking about that you're aspiring to. Operator: [indiscernible] the line of [indiscernible] from Autonomous Research. Unknown Analyst: Just one here on expenses. So the first quarter and then the second quarter guide kind of get us to that 4.5-ish, 5% year-over-year cost growth I know a lot of the reimagined the bank benefit comes in the second half as long -- as well as some of the spending. So can you just help us just understand the cadence of expense growth as we kind of see that benefit. And as you balance performance related and investments against that as we move through the second half? And should we just be kind of thinking about that 4.5% overall guide that you gave us in January. Bruce Van Saun: Yes. Ken, so we're not coming off the 4.5%, and there is a seasonal pattern of expense recognition that the first quarter has the FICA and associated payroll items that go with the bonus, paying the bonus. And then the second quarter tends to be where we would bring in people. And after they get bonus. And so any net adds that we want to have, it's a big period for the net adds. So overlay some reimagine the bank onetime costs in the first half of the year, you're going to kind of peak, I would say, in the upward pressures and your merit happens in the second quarter early -- second quarter. So you're kind of peaking in the first half of the year and then it wouldn't be as much net investment spending on ads in the second half of the year and then some of the benefits coming in from reimagine the bank will flow through in the second half of the year. So you could actually see expenses start to dip a bit in the second half. So we'll obviously give you that guidance as we get to the second quarter, we'll tell you what we think in the third quarter. But just to preview it we're still holding to the 4.5% for the year, and it's kind of -- the build is more front-loaded and then kind of levels off or even declines a little Yes. And Ken, I would just add, we are pleased with the expense discipline that we had in the first quarter. Really the growth quarter-on-quarter was all of our -- the seasonality that Bruce mentioned. And as Brendan mentioned, we have good line of sight to some of the savings that are coming. So we mentioned the vendor sales as well as some of the property closures. And so we feel very good about some of the some of the downtick that we will see and the benefit that's come there. And we have very disciplined returns objective on the private bank, et cetera. And I would just add, like if you should remember the 500 basis points of positive operating leverage for the year and we delivered 700 basis points this quarter. So that still remains very much true for this. Operator: [indiscernible] go to Chris McGratty from KBW. Christopher McGratty: Bruce, you expressed confidence getting into the the 16% to 18% range for the ROTCE by the end of next year. I guess, number one, what could make it perhaps a little sooner get into the range and maybe the factors that might push it out a little bit? Bruce Van Saun: Yes. I think it's hard to pull it forward a whole lot. We have some of the time-based benefits of those legacy swaps running off, which is a driver of kind of moving higher in NII and overall kind of revenue. But if we got into kind of piece dividend from the resolution of the Apron war. And then there's a lot of activity in the capital markets. I think we're as well positioned as anyone certainly amongst our peers, maybe better positioned to really capture that upside if that happens. So I think that's one driver that can maybe hope to get us there a little faster. And I'd say, in the private bank, they're on a steady as she goes by design kind of trajectory. If we did start to see more revenues, maybe we could force feed a little more investment there. And we talked a little bit about the potential for pull forward of RTB benefits if some of the new technologies kick in. So there is a case to make that potentially in a perfect scenario, you can pull it in a little bit, but I'm not promising that. And I'm really just focused on making sure we hit that by kind of the end of '27. And then I guess the converse is true, too. If the kind of environment stays volatile and the war doesn't get resolved quickly and energy prices go up and the economy slows down a bit, there's possibilities that, that could extend a little bit. But A lot of this is actually baked in. So to get kind of from 12 to 15 is really these time-based benefits and some of the trajectory we see on the NIM and then kind of getting all the way there is execution of kind of some of the rest of the initiatives, the normalization of credit cost back to the mid-30s. We had a 39 basis point this quarter. I think we're firmly on that trajectory, again, absent something happening in the economy. And then we'll just continue to buy back our stock fairly aggressively as well. Operator: [indiscernible] question will go to David Chiaverini from Jefferies. David Chiaverini: So I wanted to ask about loan pricing, commercial loan growth has been increasing nicely across the industry. So I was curious about how loan spreads are holding up in a competitive environment. Aunoy Banerjee: Yes. Let me start, David, and then I'll pass it on to Ted. As you saw that we had a diversified loan growth and even in the commercial bank, we had in the mid-corporate space, we were little bit on the subscription lines as well. And we expect -- as you think about the spreads, like it definitely came down as the rates came down. But but we are well within the pack. And the one thing I would talk about loan growth is -- and Ted mentioned this, this is not only just a credit relationships. It's a more holistic relationship. So we look at the returns of this loan on a holistic basis to think about what else are we getting, whether it's the deposit relationship or the business, other business activities, fees, et cetera, that we are getting. So there's a very disciplined process in Ted's business that we go through to ensure that we are just not looking at the spreads. Theodore Swimmer: Just to build on what Aunoy Banerjee said. Overall, in the markets in the beginning of the first quarter, we saw more on the institutional side. And on the bond side, we saw some tightening of spreads that obviously widen back out with what's going on in March. As we get specific to Citizens, we are now -- we look at the relationship holistically. So we try to figure out when we make a loan, what are the ancillary business, and this was all part of our BSO that we really completed through the end of last year. We now feel like we have a very good discipline in place that we do not stretch on loans where we do not get an overall suitable return for our customers. As such, we really haven't seen much of a decline in spreads in the last couple of -- in the last quarter. David Chiaverini: And then shifting over to private credit and NDFI. To what extent are you contemplating leaning in as other banks pull back? Or are you comfortable with your existing exposure? Bruce Van Saun: Yes. I would say -- it's Bruce, and I'll let Ted add color. But we've grown that, as I mentioned earlier, that book by very -- in a very disciplined manner, call it, 5% a year, being very selective about who we want to bank and the type of vehicles that we bank and making sure we have the right structure. So I don't really see us veering off of that. That served us well to where we're positioned today. And I think that's the strategy that we'll have going forward, even if some people step back and there's opportunities to do more we'll see. But our baseline assumption is that we kind of keep to that mid-single-digit growth rate. Ted? Theodore Swimmer: Yes. We're going to continue to support our customers. We look at these relationships, not just on the DFI side, but on the private equity side, on the subscription side and then what their portfolio companies are doing. So -- and if some of our customers are the winners and the survivors, we think that they're not survivors, but the winners and make acquisitions, maybe grow with them, sure. ut we're not going to specifically grow NDF. We're going to just continue to go with where our customers go. Bruce Van Saun: Okay. All right. I think that gets to the end of the question queue. So I really appreciate your interest in citizens. Thanks for dialing in today. Have a great day. Operator: That concludes today's conference. Thank you for your participation, and you may now disconnect.
Operator: Greetings, and welcome to the Prologis Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. Justin Meng: Thank you, operator, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of federal securities laws and including statements regarding our outlook, expectations and future performance. These statements are based on the current assumptions and are subject to risks and uncertainties and that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our first quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I will hand the call over to Dan. Dan Letter: Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level, supported by resilient demand, disciplined execution and the strength and scale of our global platform. Last quarter, we outlined our top 3 priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signings supported by both strong retention and healthy new leasing activity. Occupancy exceeded our expectations, and we are raising our full year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC and subsequent to quarter end, a $1.2 billion joint venture with La Caisse. These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide. Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I'll focus on what we are seeing in our data, what we're hearing from our customers and how we are operating the business. Our lease signings, proposal volume and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April of 2025, the pause in leasing activity was relatively immediate before flowing out in the following weeks and months. At the same time, our customer insights are grounded in direct ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation and they are telling us 2026 business plans are unchanged. The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date. That said, we're operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform and the structural drivers of growth across logistics, digital infrastructure and energy remain firmly in place. And with that, I'll hand the call to Tim to walk you through our results and outlook. Timothy Arndt: Thank you, Dan. Turning straight to our results. We delivered a solid quarter, executing well against our strategic priorities in a dynamic environment. First quarter core FFO was $1.50 per share, including net promote expense and $1.52 per share, excluding this expense, each ahead of our expectations. We ended the quarter with occupancy of 95.3%, reflecting the seasonal drop we telegraphed and typically experience each first quarter. Retention remained very strong at nearly 76%. Net effective rent change was more muted this quarter at 32%, driven primarily by market mix. Our expectation for full year rent change to approach 40% on a net effective basis remains unchanged. Our lease mark-to-market ended the quarter at 17% on a net effective basis. The rate of decline has slowed meaningfully, due in part by an uptick in market rents this quarter, the first increase in 2.5 years. Our lease mark-to-market represents approximately $750 million of embedded NOI at spot rents, which, of course, do not reflect the replacement cost rent upside, which should materialize over time as occupancies improve. Same-store NOI growth was 6.1% on a net effective basis and 8.8% on cash. In addition to the year-over-year occupancy increase and the growing contribution of rent change, the period also benefited from unusually low bad debt. In terms of capital deployment, we had a fantastic quarter. We started $2.1 billion of new development, including $850 million in logistics and $1.3 billion in 2 data center projects. Within logistics, approximately 75% of the starts were speculative, reflecting improving fundamentals and our confidence in the need for new supply across many of our markets. Our data center starts totaled 350 megawatts between 1 ground-up development at an existing campus and 1 conversion out of our portfolio. Both projects are pre-leased on a long-term basis to leading technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional with 1.3 gigawatts under LOI and all of our power pipeline in some level of discussion. We ended the quarter with 5.6 gigawatts of energy either secured or in advanced stages which reflects the stabilization of another 150-megawatt facility during the quarter. Simply assuming a power cell format at $3 million per megawatt, our current pipeline could provide well over $15 billion of investment and multiples of that in a turnkey format, creating significant potential for value creation. Continue to scale our solar and storage business, meaning customer demand and completing 42 projects during the quarter, bringing us to a total of 1.3 gigawatts of installed capacity. In terms of capital recycling, we sold or contributed approximately $1.2 billion of assets during the quarter. This included initial activity within the U.S. Agility Fund announced last quarter as well as seed assets for our new venture with GIC. Before turning to our markets, I'd like to take a moment to highlight that we marked the 10-year anniversary of Prologis Ventures, our corporate venture capital arm. We've now invested $300 million across more than 50 companies providing visibility to emerging technologies and solutions in the supply chain to stay ahead of disruption, drive innovation and discover new opportunities. Overall, we progressed further through the stages of inflection with demand strengthening vacancy topping out and an increase in the number of markets providing positive rent growth. Our U.S. markets absorbed 45 million square feet, a solid result on a seasonally adjusted basis, slightly ahead of our forecast and consistent with our own leasing experience in the quarter. The U.S. vacancy rate was flat sequentially at 7.5%, aided by lower completion levels as the construction pipeline remains favorable at just 1.7% of stock compared to a 10-year average of 2.6%. We still expect a relative balance between supply and demand, which would allow vacancy to drift lower over the year. Globally, market rents grew 30 basis points during the quarter. And barring an economic slowdown, we expect growth to continue, although it may be uneven quarter-to-quarter as conditions firm. In the U.S., the strongest growth remains in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K. and Japan stand out internationally. Southern California is performing in line with our expectations, which is to say it is improving but will lag other markets. We're seeing stronger leasing activity and a more constructive tone from customers and vacancy has increased modestly and rents have declined slightly, again, both consistent with our outlook as the market continues to progress through its earlier stages of inflection. Moving to our customers. Our recent leasing has been supported by a broader mix of transactions across both size category and geography. Even after delivering record leasing in the quarter, our pipeline has not only replenished but in fact, reached new highs reflecting strong underlying and ongoing demand. With large space format now essentially sold out in our portfolio, we're seeing activity broaden into other unit sizes alongside strength in our build-to-suit demand where our pipeline continues to be healthy. From a segment perspective, demand remains strong in essential goods and e-commerce, with increasing momentum among data center suppliers. Decision-making is marginally slower, the leasing activity remains robust, and we have not seen any meaningful evidence of pullback. In capital markets, transaction volumes have increased with an encouraging amount of product currently in the market across core, core plus and value-add strategies and spanning both single asset and portfolio transactions. What stands out is the pricing premium for quality. Assets with strong locations, functionality and credit are attracting the deepest buyer pools with cap rates on market rents around 5% and unlevered IRRs in the mid-7s. Turning to strategic capital. We closed commitments for 3 additional vehicles, including a new venture with GIC, which will develop and hold U.S. build-to-suit opportunities and an expansion of our relationship with La Caisse through a pan-European venture focused on both development and acquisition strategies. We also launched a new acquisition vehicle in Japan. Between these ventures as well as the Agility Fund and CREIT closings announced last quarter, we've raised over $2.6 billion of third-party equity, aligning capital with growing investment opportunities in a more accretive format. And finally, on our balance sheet, we raised $5.5 billion in new financing during the quarter at a weighted average rate of approximately 3.75%. This includes the $3 billion recast of one of our 3 credit facilities at a spread of just 63 basis points, the lowest of any REIT. Turning to guidance, which I'll review at our share. We are increasing our forecast for average occupancy to a range of 95% to [indiscernible]. This increase, together with our first quarter outperformance drives our expectations for net effective same-store growth to 4.75% to 5.5% and cash growth to 6.25% to 7%. And Strategic capital revenue is now expected to range between $660 million and $680 million, and G&A is expected to range between $510 million and $525 million. As for deployment, we are increasing development starts to $4.5 billion to $5.5 billion, this on an own and managed basis with approximately 40% allocated to data center build-to-suits. Acquisitions will continue to range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.5 billion and $4.5 billion, all at our share. Putting it together, our strong start has us increasing our outlook on earnings. Net earnings will range between $3.80 and $4.05 per share. Core FFO, including net promote expense will range between $6.07 and $6.23 per share, while core FFO, excluding net promote expense will range between $6.12 and $6.28 per share an 80 basis point increase from our prior midpoint. In closing, the strength of our business is evident against the backdrop of ongoing volatility. We are anchored by a portfolio of irreplaceable assets generating durable and growing cash flows, a disciplined approach to capital deployment, a scaled asset management platform and a fortress balance sheet. At the same time, we continue to expand in our adjacent businesses in energy and data centers, providing additional avenues for growth. We're excited by the strong start we've had, are proud of our team's execution and are well positioned to deliver excellent results over the balance of the year. With that, I'll turn the call back to the operator for your questions. Operator: [Operator Instructions] And your first question comes from Ronald Kamden with Morgan Stanley. Ronald Kamdem: Great. Congrats on the record leasing in the quarter. And I think I heard you mention that the pipeline is also back at record. I guess my question is just on the leasing spread. That looks like slightly [indiscernible] in the quarter. Just any comments there and how you guys are thinking about occupancy versus pricing going forward for the rest of the year? Timothy Arndt: Ron, yes, the quarter, I mentioned there was some mix going on in the numbers you see about 40% of the role by happen stands happen to be in our West region in the U.S. where we have some softer conditions and lower lease mark-to-market, as you're aware. So that impacted both rent change and things like free rent that you'll see in the SEP. In terms of balancing around occupancy and rent change, it's really not only market by market, it's really deal by deal. I would say out there, we have a pretty wide mix of market conditions, as you know, some exceedingly tight and some still soft, and that can happen at the submarket or even the unit level. So I'd say, in aggregate, we are in a mode of pushing rents in a number of markets and situations. But still preserving for some occupancy. Operator: Your next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Just wanted to ask on the data center development leasing front. It obviously seems like some good news announced in the quarter. But mean is there a worry we've heard things in the news around data center development opportunities around the country, getting shelved the local municipalities pushing back. Is that a risk for this pipeline? Or do you feel for these projects you've got underway even with the secured power that you're able to go forward and lease these and ultimately create that value that you've been talking about? Dan Letter: Michael, this is Dan. So our pipeline in the build-to-suit for data centers is very strong. You saw these 2 starts that we announced this quarter. We've been guiding for the year for the first time on what we expect to see. We've got 1.3 gigawatts of deals under LOI, and we're making further progress converting the pipeline I feel really good about what we have going. And I think that accounts for the next 3 years' worth of business and everything we're hearing from our customers is they need the space. Operator: The next question comes from Craig Mailman with Citi. Nicholas Joseph: It's Nick Joseph here with Craig. I appreciate the added disclosure on the data centers what we assume development margins on the new starts this quarter? I think in the past, you've talked about 25% to 50% margin. So how do these starts compared to that range? Dan Letter: So when you look at our start volume for the quarter, then obviously the blend of both our logistics that includes build-to-suits. It includes spec, where we've more spec going on this quarter than we've had the last several quarters. And then on the data center front, I would keep it within the range that you've heard us talk about the last few years, it's 25% to 50% better or higher than what you see in our typical logistics margins. Operator: Your next question comes from Blaine Heck with Wells Fargo. Blaine Heck: It seems as though average occupancy outperformed expectations during the quarter. I know you guys raised the guidance slightly, but given that the occupancy guidance doesn't lead much upside from Q1, is there anything kind of timing related that happened such that where we could see some more downside in Q2 than was initially expected? Or is there just maybe some conservatism in that guidance since we're still early in the year. And as Dan mentioned, visibility is somewhat more challenged. Timothy Arndt: Blaine, we outperformed average occupancy by around 20 basis points in the quarter. You see a lift in our full year using the midpoint of our guidance of around [indiscernible] points. So in excess of that, that reflects 2 things. There is one, some pulling forward of occupancy, mainly that's going to manifest in the form of surprise renewals, that kind of thing. And then also reflects the strength of the pipeline. As I mentioned, we had a lot of activity both in signings. That's half of it, but then the overall size of proposals standing today is large enough that gives us the confidence for the rest of the piece of that race. Operator: Next, we have Andrew Berger with Bank of America. Unknown Analyst: It sounds like 1Q net absorption was a bit ahead of your expectation. Can you just share your latest views on the fundamental outlook for 2026? Christopher Caton: Sure, it's Chris. So our view is unchanged. We're moving through the inflection phase, as Dan and Tim described in the script. There's very little change to our view. That's net absorption on pace to approach 200 million square feet and completions, 190 million square feet this year. So that will see rents and occupancies, market rents and occupancy is improving over the year. So like you proposed there, like you described, Q1 was modestly better. And -- but we're going to hold our core assumptions. This is a macro landscape that's going to evolve over the course of the year. It will be shaped by the magnitude and duration of the conflict in the Middle East. And so our outlook is balancing that risk against what we see which is resilient customer demand, as Dan described in his prepared remarks, we also leveraged the economic consensus. And they have been marking to market their view, taking it down sometimes 40 basis points in the back half of the year. But look, stepping back, the baseline view is intact, and there is ongoing momentum in the marketplace. Operator: Next, we have Nicholas Yulico with Scotiabank. Nicholas Yulico: I just want to turn back to some of the market commentary on -- which was helpful. Wanted to see if we could get a little bit more details on some of the U.S. laggard markets. I know you already talked about Southern California, but perhaps New York, New Jersey, other markets that maybe aren't outperforming what kind of needs to change to get better rent growth there. And then in terms of the Europe exposure, if you could just also talk about non-U.K. countries and sort of latest feeling you're hearing from customers since there is a lot of questions about how energy prices in Europe could affect the economy over there. Christopher Caton: It's Chris. I'll jump in. So first off, in the U.S., there are 3 or 4 things to reflect on. Number one, there is a growing range of healthy geographies in the U.S. Places like Texas generally, South Houston and Dallas are either strong or healthy, Atlanta and increasingly some of the Midwest markets, something about Columbia, something about Indianapolis. So there's that strength that Tim described in his prepared remarks. Yes, specifically after soft markets, the 2 softest markets are probably L.A. County and Seattle in the United States. Those are areas where vacancy rates are very elevated relative to history. The pace of incoming demand is muted. And so the recovery is yet to play out there. In terms of some core markets, you asked after New York, New Jersey, I'd also throw in San Francisco Bay Area. These are areas where we're upgrading our views. In general now, we're entering a phase where we're upgrading our assessment of markets and New York, New Jersey is a great example of it. Is it time for rent growth there? No, not quite yet. This is a year where we're going through a transition phase like we've talked about, but it's just worth knowing that we have a bias to upgrading areas. Vacancy rates have peaked are beginning to come down toning customer demand is positive. Turning to Europe. So first off, the Western European geographies of like Germany and the Netherlands are leading that marketplace. And we have the dialogue that was described in the prepared remarks, we have it globally, and that includes your Euro and the tone there is positive. Business plans are intact and customers are moving forward with their real estate requirements. Dan Letter: Maybe one thing I would add on here is just focusing on the unit size or building size, anything over, call it, large format, 500,000 square feet or above, we're nearly sold out. We're 98% leased across the globe at that size. So you'll start seeing rent growth there, certainly. Operator: Next, we have Vikram Malhotra with Mizuho. Vikram Malhotra: Congrats on the strong quarter. Just 2 clarifications. So I think last quarter, you had said as we enter the back half of the year, we'd like to see some markets where annualized rent growth could maybe eclipse your rent bumps I'm just wondering if you can give us a bit more color, like what -- which markets are you seeing real rent growth on an annualized basis? And then if you can just clarify on the same-store NOI outlook, the cash outlook, given the number you had in it does suggest a decel. So what's sort of driving that? Or I guess, what drove the big pop in 1Q versus the guide? Christopher Caton: Vikram, I'll start with market rent growth, and Tim will take some of the same-store questions. I like the way you worded the question there trying to get really specific numbers out of me. I don't recall that we would have put it that way. But let me just tell you the healthiest geographies including in Atlanta, Dallas, Houston, Columbus, also outside the U.S. places in Latin America like Sao Paulo and the Mexico City, these are the leading geographies for rent growth. Timothy Arndt: And Vikram, on the cash piece, yes, our guidance reflects our expectations clearly, the first quarter is benefiting from some occupancy comps a bit more favorable in the first quarter about the cadence of 2025. We built occupancy over the course of that year. So those comps get to be a lesser effect and then rent change, of course, is powerful rolling through the portfolio. But on a year-over-year basis, as spreads get a little bit more relaxed, that contributes lesser to quarter-over-quarter -- well, sorry, year-over-year for the same quarters in terms of same-store. Operator: Next, we have Tom Catherwood with BTIG. William Catherwood: Excellent. Maybe going back to the data centers for a second. Even when power is secured, it seems like there's a supply chain crunch on the equipment side, which is creating bottlenecks, especially with turnkey developments. Are you able to get ahead of that by preordering material and equipment similar to what you did during the pandemic? And if so, is it giving you an advantage when it comes to your build-to-suit negotiations? Dan Letter: Thanks, Tom. The short answer is yes, absolutely. Procurement, our fortress of a balance sheet and ability to get out in front of these long lead items is absolutely a differentiator for us. And what I'd say is just overall, this machine we've built and that we focused on so much over the last 3 years around building these capabilities across this company, whether it be procurement, data center expertise we've built in a big way over the last few years. It's leading to this pipeline that you see and the confidence that we have in putting these numbers out there and I'll actually correct something I said earlier on today and an earlier question around margins. Margins are actually 25% to 50%, not 25% to 50% better than logistics. And these are very profitable deals. Keeping in mind, our pipeline is built on the foundation of logistics basis, buildings and land. Operator: Next, we have Caitlin Burrows with Goldman Sachs. Caitlin Burrows: You might have touched on this a bit in the prepared remarks in terms of 3 points of focus. But Tim, you mentioned the new GIC and La Caisse JVs the acquisition vehicle in Japan, the Agility Fund. It just seems like a lot. So I'm wondering if there's some new increased focus on the strategic capital business, are those coincidental timing? Or is there some bigger push kind of on the fund side? And is there any core differences between these new funds and the existing ones? Timothy Arndt: Kate. Look, we're really proud and excited of the number of vehicles. We've launch now in the last 2 quarters, 5 new vehicles, spanning geographies and formats, but also risk appetite. One thing that you see between the U.S. Agility funds launched last quarter, as well as the venture announced here is spanning into some development activities. And it's very purposeful. We're getting ahead of what we see as growing deployment volumes on one part in logistics, you see us ramping up our guidance there as markets are improving. This is a machine that ought to be able to do $5 billion to $6 billion pretty easily, I would say, with our land bank and the size of our platform. But that's being matched up with this incredible data center opportunity that Dan is speaking to. And we are looking at the capital needs there and finding the right ways to get to all of those opportunities. actually in a smarter, more capital-efficient format that can yield fees and promotes. So you're seeing that branching now to exhibited in the announcement of these vehicles. Operator: Next, we have Michael Goldsmith with UBS. Michael Goldsmith: Lease proposal pipelines picked up quite a bit in the first quarter here. So can you provide a little bit more context around it? What's driving it? What sectors is coming from, what sizes and how should that translate to actual leasing in the current quarters. Christopher Caton: It's Chris. So what's underpinning that is customers have been deferring growth requirements sitting through -- sitting on their net needs and they're increasingly responding to the growth in their businesses, the opportunity to invest in their supply chains and as far as slices, it's diverse. So there are a couple of different ways we can look at it, whether it's by size. And so there's growth, say, for example, both above and below 100,000 square foot unit sizes. There's growth, for example, in terms of organizational types. So say international scale customers versus our local scale customers. Those are both growing as well as both renewal and new requirements. So there is diversity there. Operator: Next, we have Vince Tibone with Green Street. Vince Tibone: I wanted to follow up on your comment that data center suppliers are increasingly taking down logistics warehouse I just wanted to get your perspective on how material this demand driver could be in the coming years and also how sustainable? Like is it all tied to construction and this could be shorter-term leases? Or is this about servicing existing data centers as well. So I just -- yes, I'm trying to get a sense of like how -- is this a new structural demand driver for the space, what percentage of new leases maybe it's represented in last quarter or 2, if you're able to share. I just wanted to kind of pick your brain on that kind of seemingly new side of warehouse demand. Christopher Caton: Yes, Vince, you're right. It is a new structural driver of logistics real estate demand. It has gone from, say, less than 5% of new leasing a year ago to now 10% of new leasing, and it's an even greater share of the forward-looking pipeline. So there's absolutely upside over the near term as a consequence of this driver. In terms of the breadth and duration, I suppose, number one, we see them signing deals with really healthy term. There is a shift in their own supply chains going from -- I think you could think about it as unbundling manufacturing and distribution to having distribution, a more regionalized and close than production of the data centers. And so there's really solid momentum here, and you're right to describe it as a new structural driver for logistics real estate. Operator: Next we have Michael Carroll with RBC Capital Markets. Michael Carroll: With regard to the data center opportunity, how do these tenants discussions progress when deciding between pursuing a power base or a turnkey build-out I'm assuming these are different tenants that would want the power base builds. Is that fair? And how much of the opportunity that you kind of quoted in your prepared remarks could potentially be turnkey. Dan Letter: Every discussion, every deal is different, let's put it that way. And different users have different mindsets at different periods of time. So -- what you see from us, we were heavily focused on the powered shell side of this as you start these discussions. And then we've -- you've seen us deliver some powered shell plus really, we're trying to just work through the customer what they need from us and about how we capitalize this business longer term, maybe you see some more turnkey from us over time, but really, it's just a matter of who your -- what customer you're talking to and what's on their mind at the time. And... Timothy Arndt: Yes. And yield, what is their respective cost of capital is the other thing I see us coming up against because the migration up to turnkey can be expensive. Operator: Next up, we have Nick Thillman with Baird. Nicholas Thillman: Tim, I wanted to circle back on some of the commentary you had on the acquisition side and cap rates. Obviously, varying degrees of demand from a fundamental standpoint and the leasing side. understand your comments on just core portfolio transactions and quality buys, but it seems historically relative to historical trends, just cap rates by market or historically tight. I'm wondering if you guys could provide a little bit more commentary on markets where maybe you're seeing cap rates expand a little bit more? Or maybe you're seeing a little bit more compression on the transaction side. Dan Letter: Nick, I would say cap rates certainly expanded over the last few years. They've been holding pretty steady for the last 5, 6 quarters or so. We obviously dive deep into this volumes. Volumes themselves are actually, I would say, normalized. And so -- and those cap rates at a market it's going to be a range between 5% and 5.5% depending on the location quality. You're seeing more of a divergence of Class B and C than obviously that collapsed during the last cycle. And when you look at -- when we look at it, what we are an IRR-based investor, we're not focused necessarily -- of course, we're focused on it, but we're looking at the total return of these assets, quality, total return location. And so cap rates can be a bit confusing at times. Operator: Next, we have Mike Mueller with JPMorgan. Michael Mueller: For GIC and La Caisse. Can you give some color on how you determine what developments will be done in those ventures versus on your balance sheet? Timothy Arndt: Mike, we go through an allocation policy that is long-standing at the company. Now as you can imagine, our 40 years as an asset manager. We've had overlapping vehicles with mandates that need to be managed, so we have an allocation policy in that regard that deals will cycle through. It could find any of those vehicles, including the balance sheet has been the ultimate developer of some of these assets, and it's dependent on a variety of conditions that are run with good governance I think that makes your lives difficult if you were left only that which is a way of saying you're going to be increasingly reliant on the PLD share of these development volumes. So that will cut through all that noise for you because ultimately, that's the thing that's going to matter economically for the company. Operator: Next, we have Brendan Lynch with Barclays. Brendan Lynch: It looks like turnover costs per square foot are coming down, I think now about 7.3% of lease value, but free rent has ticked up a bit. So how should we think about the evolution of concessions going forward? Timothy Arndt: Well, I'll start. Concessions are still a bit elevated right now. We've seen free rent, as you highlight, stepped up. I said earlier, so I'll say it again, some of that influenced by the greater amount of roll out of the west where those conditions are softer and concessions are a bit more elevated. We do expect concessions to normalize as occupancies build, which that's on the free rent metric would be more in the order of something like 3% of lease value versus a little bit of a bulge that you see at the moment. Operator: Next, we have John Kim with BMO Capital Markets. John Kim: On data centers, I wanted to see if there was an update on the timing of your data center vehicle. And also if you can just clarify the 5.6 gigawatt of capacity, is that on growth or leasable power? Dan Letter: Sure. So let me start with the capitalization fees, maybe hand it to Kim -- or Tim, for some color. But bottom line is we've had very constructive conversations with global investors over the last 2.5 quarters or so. And interest remains very strong. We feel like we're in a very good position with multiple options. And we're just taking the time to evaluate what makes the most sense for us right now. Our current model of building on the balance sheet and then selling these stabilized assets has worked really well the last couple of years, and we see it working quite well going forward. I'd like to actually step back at this point and realize what we've done over the last few years, and I already mentioned it at the front end of the call, but the pipeline we've built, the capabilities we've built and the progress we've made since we embarked on this officially call it Investor Day 2023 has been tremendous. So feel great about what we're putting in front of these investors and where we're going to take it from here. But Tim may have some additional color on the capitalization piece. Timothy Arndt: Look, I think you covered it well. Happy to take other questions. I think the second part of your question dealt with clarification on the megawatts that is utility load that we're reporting out, and there's going to be -- probably 2/3 of that will be critical, so you can apply math based on those numbers. Operator: Next, we have Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I just wanted to go back to the discussion on market rent growth, and I appreciate some of the color and good to see the first increase in, I think, 2.5 years, as you said. Do you expect market rent growth to persist just given where conditions are at this point in the cycle? And then I know you touched on SoCal, but can you share a little bit more detail on that market and a bit of a real-time read on what you're seeing and how conditions are currently and how the market is performing relative to expectations so far this year? Christopher Caton: It's Chris. I'll start and Dan may add remarks as well. So first off, on market rent growth, one, underline the word stability. We did have a bit of growth in the first quarter is pretty incremental. And that is really a market-by-market exercise, with most markets enjoying stable to slightly rising. But with there being pockets of real strength like we discussed earlier on the call, as well as some pockets of softness like we also discussed. So I think what you should think about is our call is unchanged, but we're passing through an inflection. Rent growth is still a little bit uneven, and it's just a bit too early for broad-based and sustained growth. I'll offer a few details on Southern California. That is a market that is moving through the bottoming process. We're seeing the demand pick up. Vacancy is near a trough, but it's just a bit too early for rents to increase on a broad base. but there are pockets that are firming. Dan Letter: Yes. Let me just pile on a little bit here in Southern California. I feel like I've said this quite a bit over the last 1.5 years or so in various meetings. But I think it's really important to emphasize just how big of a market Southern California is and what are Os in these markets. We're focused on being close to the end consumer. There are 24 million consumers in Southern California. It's a $2 trillion economy down there and it's just getting more and more difficult to build down there. So the supply backdrop is really shaping up for that market quite well. And so we're -- we feel good about the projection we've made about Southern California kind of tailing the overall market by 2 to 3 quarters. That was the last question. So thank you all for joining the call. Just a big thank you to our colleagues around the world for another exceptional quarter. We look forward to seeing you all at upcoming conferences and speaking again at the next quarterly call. Thank you. Operator: Thank you. And with that, we conclude today's conference call. All parties may disconnect. Thank you.
Operator: Good morning, and welcome to the 2026 First Quarter Earnings Conference Call hosted by The Bank of New York Mellon Corporation. At this time, participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without The Bank of New York Mellon Corporation's consent. I will now turn the call over to Marius Merz, The Bank of New York Mellon Corporation Head of Investor Relations. Please go ahead. Marius Merz: Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I am here with Robin Vince, our CEO, and Dermot McDonogh, our CFO. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. I will note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement, and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, 04/16/2026, and will not be updated. With that, I will turn it over to Robin. Robin Vince: Thanks, Marius. Good morning, everyone, and thank you for joining us. I will begin with a few broader comments before Dermot takes you through our financial results. Referring to page two of the quarterly update presentation, The Bank of New York Mellon Corporation has started the year with a strong performance in the first quarter. Earnings per share of $2.24 grew 42% year over year, both on a reported basis and excluding notable items. Record revenue of $5.4 billion was up 13% year over year, reflecting broad-based growth across our Securities Services and Markets and Wealth Services businesses. We delivered over 800 basis points of positive operating leverage while making meaningful investments in new products, capabilities, AI, and critically, our people and culture. Taken together, this combination of strong top line growth and significant operating leverage resulted in pre-tax margin expansion to 37% and improved profitability with a return on tangible common equity of 29%. The Bank of New York Mellon Corporation’s position at the heart of global financial markets, with platforms across custody, security settlement, collateral, payments, trading, wealth, investments, and more, supports durable financial performance for our company, enabling us to power our clients' growth as they navigate an increasingly complex landscape. While the path of global markets is difficult to predict with certainty, what is clear is that the underlying trends—higher levels of activity, greater complexity, new technologies, and a resulting need for scale, efficiency, and connectivity—are more relevant than ever for our clients. As I mentioned in my shareholder letter earlier this year, the portfolio of The Bank of New York Mellon Corporation’s businesses is unique, but it is how we are embracing new ways of working, our adoption and integration of new technologies, and our strong culture that allows us to create truly differentiated solutions. Clients are increasingly recognizing the value of holistic solutions that support the full life cycle of their activity, whether it is managing liquidity, optimizing, supporting higher trading volumes, or getting ready for the future of financial market infrastructure. Our work to operate together as one The Bank of New York Mellon Corporation, through both our platforms operating model and our commercial model, better enables us to bring the full breadth of our capabilities together in service of our clients. A good example of this from the first quarter is our work with Allianz Global Investors, one of the world's leading active asset managers. AGI has selected The Bank of New York Mellon Corporation to support optimizing their investment operating model, leveraging the breadth of our global capabilities. This integrated model will help AGI deliver exceptional experience front to back while placing AI and modern data infrastructure at the heart of their operations to enhance productivity, enable faster work, clearer insights, and better outcomes for their teams and clients alike. Another example, PayPal has selected The Bank of New York Mellon Corporation to provide institutional-grade digital asset custody, supporting their digital payments wallets, financial services for millions of users globally. And just last week, the US Treasury Department announced that they have selected The Bank of New York Mellon Corporation as financial agent for Trump accounts, the US government's investment savings initiative for children aimed at building a strong financial foundation for our next generation. The Bank of New York Mellon Corporation will manage the national infrastructure for the program and collaborate with Robinhood, which will provide brokerage and initial trustee services. These examples illustrate our strategic evolution toward deeper integration between our products delivered with the technology and scale of The Bank of New York Mellon Corporation’s differentiated platforms. Over the next phase of The Bank of New York Mellon Corporation’s transformation, one of the most significant enablers of being more for our clients and running our company better is AI, and so we felt that this was an opportune time to spotlight how we are going about AI at The Bank of New York Mellon Corporation. Turning to slide three of the presentation, as a reminder, our work to set the foundation for reimagining our company has included intentional and consistent investments in AI over the past several years. We took a very deliberate approach to AI through the lens of integration, adoption, and importantly, our people and culture. We embraced the platforms approach to embedding AI across the company, creating our AI Hub in 2023, so we could develop the enterprise capabilities, strong governance framework, and training to empower every employee to embrace AI. More than two years ago, in collaboration with NVIDIA, The Bank of New York Mellon Corporation became the first global bank to deploy a DGX SuperPOD, and in the same year, we launched Eliza, The Bank of New York Mellon Corporation’s AI platform. Outlined on page four, our vision for AI at The Bank of New York Mellon Corporation is that it is for everyone, everywhere, and everything. As is the case with many things, the key to making it work is culture. We took a people-first approach. Over the last year, we focused on broad adoption. We made Eliza available to 100% of our employees, and supported advanced learning and development through a series of training programs. This approach to enterprise-wide enablement has already allowed us to develop more than 200 AI solutions and to introduce digital employees, multi-agentic solutions that operate alongside human colleagues. In 2026, we are doubling down on depth, moving from AI point solutions to using AI to enhance end-to-end processes, reducing manual touch points, improving cycle times, strengthening control outcomes, and building more connected intelligence by linking data, workflows, and expertise to enhance the service and value proposition for our clients. On page five, we show just some of the initial outputs—tangible results of AI enablement and impact across improved business and operating performance—driving greater efficiency and product innovation. None of these metrics individually show a complete picture of AI at The Bank of New York Mellon Corporation, but taken together, they show something important: that we are systematically embedding AI in our workflows across the entire company. Already, AI is helping us increase the pace at which we innovate our technology, accelerate onboarding, improve client service, and streamline processes. In combination with our broader efforts to run our company better, AI is starting to contribute to the improved financial performance trajectory at the bottom of the page. Building on our deliberate strategy and the solid foundation we have laid over the past several years, we are confident that AI will enable us to evolve our business model and enhance how we deliver for clients. Our commitment, not just to deep AI enablement but the full reimagination of our company, combined with the role that we play in global financial market infrastructure, the breadth of our businesses, and our trusted and deep client relationships together, represents a powerful competitive advantage. Taking a step back and reflecting on the operating environment, while AI was an ever-present theme in markets over the past few months, the first quarter also presented a dynamic market backdrop. Significant volatility was driven by shifting expectations for the paths of growth, inflation, and interest rates amid geopolitical conflicts and evolving policy outlooks. Within this constantly changing environment, our diversified business model, combined with our strong balance sheet, allows The Bank of New York Mellon Corporation to serve as a pillar of strength for our clients and for global markets. Before I hand it over to Dermot, I want to take a moment to recognize our employees around the world for rising to the challenge to execute on our long-term plan to unlock The Bank of New York Mellon Corporation’s full potential for our clients and shareholders. We have had a strong start to the year, supported by increasing client engagement and continued progress on our strategic priorities. I would like to thank our clients for their trust, our employees for their commitment and hard work, and our shareholders for their continued support. With that, over to you, Dermot. Dermot McDonogh: Thank you, Robin, and good morning, everyone. I will pick up on page six of the presentation with our consolidated financial results for the first quarter. Total revenue of $5.4 billion was up 13% year over year. Fee revenue was up 11%. This included 10% growth in investment services fees, reflecting higher client activity, net new business, and higher market values. Investment management and performance fees were up 6%, primarily driven by higher market values and a favorable impact of a weaker US dollar, partially offset by the impact of the mix of AUM flows. While not on the page, I will note that firmwide AUCA of $59.4 trillion increased by 12% year over year. This reflects net client inflows, higher market values, and the favorable impact of the weaker dollar. Assets under management of $2.1 trillion were up 6%, primarily driven by higher market values and the weaker dollar, partially offset by cumulative net outflows. Foreign exchange revenue was up 49% year over year on the back of higher volumes resulting from elevated market activity and supported by new products and capabilities. Investment and other revenue was $271 million in the quarter, including approximately $135 million of investment-related gains and $50 million of net securities losses. Net interest income increased by 18% year over year, primarily driven by continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $3.4 billion were up 5% year over year, both on a reported basis and excluding notable items. This was primarily driven by our commitment to higher investments in our businesses, higher revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by continued efficiency savings. Provision for credit losses was a benefit of $7 million in the quarter, primarily driven by improvements in commercial real estate exposure, partially offset by changes in macroeconomic and other factors. On the back of significant positive operating leverage of 833 basis points, pre-tax margin expanded to 37%, and return on tangible common equity was 29%. Taken together, we reported earnings per share of $2.24, up 42% year over year. On to capital and liquidity on page seven. Our Tier 1 leverage ratio for the quarter was 6%, flat sequentially. Tier 1 capital increased by $532 million, primarily driven by preferred stock issuance and earnings retention, partially offset by a net decrease in accumulated other comprehensive income. Average assets increased by 2% on the back of deposit growth. Our CET1 ratio at the end of the quarter was 11%, down 89 basis points sequentially. Our CET1 capital remained approximately flat; this decrease was primarily driven by higher risk-weighted assets reflecting a single-day increase in overnight loan balances on the last day of the quarter along with higher client activity in agency securities lending and foreign exchange. Over the course of the first quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 87%, and our Board of Directors authorized a new $10 billion share repurchase program. Our consolidated liquidity coverage ratio and net stable funding ratio were 111% and 131%, respectively. Turning to net interest income and balance sheet trends on page eight. Net interest income of $1.4 billion was up 18% year over year and up 2% quarter over quarter. Like the year-over-year increase described earlier, the sequential increase was primarily driven by the continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 3% sequentially, reflecting 2% growth in interest-bearing and 6% growth in non-interest-bearing deposits, and average interest-earning assets were up 2% quarter over quarter. Cash and reverse repo balances were flat. Loans increased by 6% and investment securities portfolio balances increased by 2%. Turning to our business segments starting on page nine. Securities Services reported total revenue of $2.7 billion, up 17% year over year. Total investment services fees were up 10%. In Asset Servicing, investment services fees grew by 11%, reflecting higher market values and broad-based client activity. ETF AUCA were up 33% year over year, on the back of higher market values, client inflows, and net new business. And our Alternatives [inaudible] 20%. I want to highlight that, consistent with our strategy to deliver the breadth of The Bank of New York Mellon Corporation to our clients, over 50% of the clients that awarded Asset Servicing new business in the first quarter also awarded new business to at least one of our other lines of business. In Issuer Services, investment services fees were up 4%, reflecting growth in both Corporate Trust and Depositary Receipts. I will note that for the first time in our history, Corporate Trust reached $15 trillion of total debt serviced, and we are particularly pleased with our continued market share gains in CLO servicing. Once again, the breadth of our capabilities is a powerful differentiator. Our clients clearly recognize the superior value proposition of a single provider for Corporate Trust, Asset Servicing, collateral, liquidity solutions, and more. In Securities Services overall, foreign exchange revenue was up 44% year over year, reflecting higher client volumes. Net interest income for the segment was up 20% year over year. Segment expenses of $1.6 billion were up 5% year over year, primarily driven by higher investments and revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by efficiency savings. Securities Services reported pre-tax income of $1.0 billion, a 46% increase year over year, and a pre-tax margin of 39%. Investment-related gains added three percentage points to pre-tax margin in the quarter. Next, Markets and Wealth Services on page 10. Markets and Wealth Services reported total revenue of $1.9 billion, up 11% year over year. Total investment services fees were up 10%. During the quarter, we formed our Wealth Solutions business by realigning Archer’s managed accounts solutions from Asset Servicing to Pershing. This integration further strengthens our capabilities to serve wealth advisors by adding Archer’s market-leading distribution and managed accounts expertise to deliver fully integrated end-to-end solutions across the entire wealth ecosystem. In Wealth Solutions, investment services fees were up 6%, reflecting higher market values and client activity. Net new assets were $22 billion in the quarter, representing an annualized growth rate of 3%, and AUCA of $3.3 trillion were up 14% year over year. In Clearance and Collateral Management, investment services fees increased by 19%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.8 trillion increased by 18% year over year, reflecting higher market activity and growth on the back of a robust environment for financing with US Treasury securities, strong money market fund balances, and increasing client demand for non-cash collateral. Ahead of the central clearing mandate for US Treasuries, we are engaging with central counterparties and our clients. We are delivering innovative solutions from across The Bank of New York Mellon Corporation that help them find new ways to access the market, clear transactions, and manage collateral and margin. In the quarter, we also saw strong growth in clearing volumes reflecting net new business wins, particularly in international clearance and from expanding wallet share with existing clients doing more with The Bank of New York Mellon Corporation. In our Payments and Trade business, investment services fees were up 5%, primarily reflecting net new business. Payments and Trade delivered another solid quarter with continued sales momentum, including numerous multi-line-of-business wins, particularly with FX and Global Liquidity Solutions. Net interest income for the segment overall was up 15% year over year. Segment expenses of $937 million were up 6% year over year, primarily driven by higher investments, employee merit increases, higher revenue-related expenses, and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Taken together, our Markets and Wealth Services segment reported pre-tax income of $961 million, up 18% year over year, and a pre-tax margin of 51%. Turning to Investment and Wealth Management on page 11. Investment and Wealth Management reported total revenue of $825 million, up 6% year over year. Investment management and performance fees were up 6%, primarily driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows. Segment expenses of $726 million were up 2% year over year, primarily driven by the weaker dollar, employee merit increases, and higher investments, partially offset by efficiency savings. Investment and Wealth Management reported pre-tax income of $90 million, up 43% year over year, and a pre-tax margin of 11% versus 8% in the prior-year quarter. As I mentioned earlier, assets under management of $2.1 trillion increased by 6% year over year. In the first quarter, long-term active flows were flat, reflecting net inflows into fixed income and LDI strategies, and net outflows from equity strategies. We saw $10 billion of net outflows from cash and $7 billion of net outflows from index strategies. Wealth Management client assets of $339 billion increased by 4% year over year, reflecting higher market values. Page 12 shows the results of the Other segment. I will close with an update on our financial outlook for the year. In light of our strong performance in the first quarter, we are raising our outlook for total revenue, excluding notable items, for full year 2026 and now expect approximately 6% year-over-year growth. That includes our expectation for full year 2026 net interest income to be up approximately 10% year over year. We expect full year 2026 expense growth, excluding notable items, to be at the top of the 3% to 4% year-over-year growth rate range that we provided in January. We continue to expect a quarterly tax rate of approximately 23% for the remaining quarters this year. I want to leave you with three important points. First, we delivered a strong financial performance in the first quarter and continue to serve as a pillar of strength for our clients amid a dynamic market environment. Second, the combination of our unique portfolio of businesses, our role in global financial market infrastructure, our deep and trusted client relationships, our diversified business model, and the strength of our balance sheet represents an exceptional client value proposition and a powerful competitive advantage. Finally, what truly differentiates The Bank of New York Mellon Corporation today is our ability to mobilize all of the above for the benefit of our clients and shareholders. With that, operator, can you please open the line for Q&A? Operator: As a reminder, we ask that you please limit yourself to one question and one related follow-up. We will take our first question from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Good morning. Thanks for taking my questions. I wanted to start with deposits. The deposit trends were stronger than expected. I was hoping maybe you could speak to quarter-to-date trends and around betas. Specifically for the euro and pound deposit betas, given we have hikes now in the forward curve. How should we be thinking about the betas for those currencies? Thanks. Dermot McDonogh: Okay. Thanks for the question, Brennan. Let me start with overall balances and trends. As you will recall from our call on January 13, we finished last year with strong momentum on deposits and, with the macro uncertainty and just how events of the quarter played out, we saw clients holding higher levels of liquidity. As a consequence, you see the overall balance being a little bit elevated, and then you saw the mix between interest-bearing and non-interest-bearing. We attracted more non-interest-bearing than anticipated. Overall, on the US dollar side, it really was the balance and the mix that drove the NII outperformance in the quarter. Within particular businesses, it really was in Issuer Services and Asset Servicing specifically and Corporate Trust that were the two businesses that saw the notable benefit. As it relates to the non-dollar side of things, euro and sterling is really a smaller part of our overall portfolio. It only accounts for roughly 25% of the overall book, so it is not a meaningful contributor to NII. For euros and sterling, the betas roughly peaked at 80% on the way up, and for dollars and non-dollars, we expect betas to perform in a symmetrical fashion going up as well as going down. That is how we see it. Brennan Hawken: Great. Thank you for that. And then on, I guess, the artist formerly known as Pershing, we had really robust year-over-year both DARTs and AUC growth, but the revenue growth was not quite as robust as those two metrics. So could you maybe help unpack the primary drivers of the revenue growth and help us understand how we should model that going forward? Dermot McDonogh: Wealth Solutions, as we now are going to call it going forward, will be as good as the artist formerly known as Pershing. You saw net new asset growth in the quarter of roughly 3%, and I would just like to reaffirm our belief and commitment that we can grow the business’ net new assets at mid-single-digit growth over the coming years. Also, for the first time in a few quarters, it is pleasing that we have not had to talk about a deconversion, so it was a relatively clean quarter with lots of volume. With macro uncertainty, we did see a lot more volume as clients were rehedging and rebalancing their portfolios, so it was more of a volume-driven quarter. To highlight the point about Archer, we really feel that Archer, in Wealth Solutions, will be able to drive more capabilities and more product innovation for our clients. We feel really good about the outlook and what Archer can do in the Wealth Solutions space. Brennan Hawken: Great. Thanks for that color. Operator: We will move to our next question from Alex Blostein with Goldman Sachs. Alex Blostein: Hi, good morning, everybody. Thank you. Obviously very strong performance in the quarter underscoring the benefits of various verticals within The Bank of New York Mellon Corporation, and part of that, I guess, is sort of transitory. I was hoping we could unpack that both on the fee side and NII—perhaps how much of the benefit the elevated market volatility contributed this quarter to think about the right baseline? And then for NII, the non-interest-bearing performance was obviously quite strong, and it feels like in your guide you are largely kind of mean reverting that. It does not sound like you are assuming much of that is going to stick around, but I was hoping you can unpack what is baked into the NII guide and the drivers. Thanks. Dermot McDonogh: Okay. For your first question—that was a lot of questions, Alex—here is what I would say. Robin spoke about it well on Squawk Box this morning. We are setting the firm up for a diversified revenue stream and durable performance. What was very pleasing from a CFO lens this quarter was the diversity of the revenue stream, the mix between fees from balances and fees from volumes. There was a lot of uncertainty in the market over the course of the first quarter, and our clients were doing a lot of rebalancing, so we were there to help and support that. Volatility can be a good enabler for The Bank of New York Mellon Corporation in terms of the business model because it generates volumes. You saw that across all of our platforms, and then you saw the mix was roughly 50/50 between balances and volumes, which was pleasing to see. The balance between equities and fixed income was also pretty balanced. Overall, it was very pleasing to see in terms of the backdrop. To be honest, we hope that continues, and we have scaled platforms that we have invested in over the last couple of years. With the record sales quarter, you are beginning to see the proof points of clients coming to the platforms wanting to do more with us across multiple lines of business. It really is clients doing more against a macro backdrop that was uncertain that generated the volumes. Overall, very pleasing quarter. As I said in my prepared remarks, there are a few one-offs; we particularly highlighted that in Securities Services, which is a 3% contributor to the margin of 39%. But if you back that out, it is a 36% margin—still a pretty exceptional quarter for that segment. Alex Blostein: Got you. And then just a follow-up on non-interest-bearing and what you are assuming is sort of temporary deposits given the volatility that could reverse itself over the next quarter or so, and how does that inform your 10% NII guide? Dermot McDonogh: We expect deposit balances to revert to more seasonal patterns from here. We expect Q2 to be moderately down from Q1. Q3 is usually our weakest quarter, with Q4 being our strongest quarter. Over the balance of the year, we expect balances to be modestly higher relative to 2025. We have run a bunch of scenarios—different rate environments, different levels—take the feedback from the businesses, and that gives us confidence around the 10% guide. Alex Blostein: Perfect. All right, thank you. I will leave it at that. Marius Merz: Thanks, Alex. Operator: We will take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. Maybe, Dermot, following up on your response to the previous question, I want to make sure we get this right. Very clear on deposit and NII outlook. On fees, the guidance implies like 2% to 3% growth for the rest of the year. Is that right? What are the puts and takes—do we need a materially better or worse macro for the 2% to 3% to be much higher or lower? What are the market assumptions you are making in the guidance for the rest of the year on the fee revenue side? Dermot McDonogh: It is a tricky question you ask, Ebrahim. If you go back to January 13, when we gave the guidance for full year, we went with 5% on top line growth. When I was pressed on that, we said a little bit higher on NII, a little bit lower on fees. We are one quarter into it. Under the hood, we said this on the call in January—we continue to believe that we are grinding organic growth higher than where it was. It was 3% in 2025. You will remember way back to 2022 it was flat, and 2023 it was 1%. We are very focused on it and, as Robin said in his remarks, record sales quarter this year in the first quarter and two record sales quarters last year. That is going to drive into the organic growth. We feel pretty good about the outlook for the year, but we are only one quarter in, three quarters to go, a lot of uncertainty, so we are not really changing our outlook on the fee at the moment. Ebrahim Poonawala: Got it. And then a bigger picture question for Robin. You talked about the use of AI and other efficiency improvements at the bank. I would argue there are few banks deploying AI more efficiently than The Bank of New York Mellon Corporation. Is there a risk that you are underinvesting? When we look at the pre-tax margin, could you be doing more in terms of investing in the business using some of these revenue tailwinds? There are a lot more productivity boosts the firm should see due to AI. Why not invest more to further improve the growth algorithm for the firm? Robin Vince: Sure, Ebrahim. Let me split it in two. First, investments versus operating leverage: it is very important to do both. We are investing in growth, and we are driving positive operating leverage and margin expansion. We have said we are going to do that consistently. We are setting ourselves up for peer-leading levels of operating leverage while also investing in the long term. Sometimes people ask whether we are investing enough. The flip side is whether we have full control of expenses if the environment changes. We are very careful about both—leaning in when there is space to do so, but not setting ourselves up with such expense momentum that it becomes problematic if we want to calibrate later. We feel like we are doing that well. On AI, we have been investing for three years in a meaningful way. We have a lot of investment heft with our $4 billion technology spend. Five years ago, that spend was heavily geared toward infrastructure as we rewired our underlying infrastructure to build more modern technology and applications on top. Now we have the gift of AI exactly when we are leaning into those capabilities. We wanted to give you a sense of breadth. We are not going to sit here and talk about all the leading-edge AI things we are doing, but we do want to show the breadth so you can sense it is everywhere. We have 218 AI solutions in production right now across the company—up four times year over year. We have digital employees working side by side with our teams, and we have a lot in pilot. We feel very good about our AI investments. If we felt we needed to do more, we could and we would. Ebrahim Poonawala: Got it. Thank you both. Operator: We will take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess AI is the topic of the day. You brought it up front in the deck—AI for everyone, everywhere, and everything. You talked about doing this for three years and you have 200 solutions. You said you are starting to see the financial benefits. It all sounds deliberate, thoughtful, and clear, but the big question is: what will the financial benefits be? What are the financial benefits now, and in five years what are your financial expectations as the end result of all these efforts? Robin Vince: Sure, Mike. It is a critical topic. We see AI as a catalyst for real transformational change. We have said from the beginning that the technology would move incredibly rapidly and scale in an exponential way. We are seeing that now. Adoption and integration risk being the limiting factors. As a user of AI, it is incredibly important that we embed it and have our people pulling it in, as opposed to pushing it away. Foundational investment in culture and technology allows it to be the superpower that it is and a capacity multiplier for our people. We would like a 47,000-person company to deliver like one many times larger. Our $4 billion technology spend gives us the scale to deploy AI properly, which is incredibly important. If you are a smaller spender, you risk lock-in to someone else’s ecosystem and become subject to token price wars and other unpleasant consequences. To your question, we think the financial outcomes show up in different ways. First, productivity for our people—47,000 people doing more and delivering more for clients—will show up over time in revenue per employee and pre-tax per employee. The progress so far has been driven by the platforms operating model, rewiring, and the commercial model; the next leg of growth is the maturing of those programs, powered by AI wrapped around everything. Second, capabilities and features of our software and platforms as we deliver for clients—we are already seeing that with client wins. Our AGI win in Europe—an inside look at what we are doing on AI made them excited about joining us; they saw AI was not just for our productivity but for theirs, viewing us as an extension of their operating model. Third, there are things we can do in an AI-enabled world that did not make sense before—things at the edge of profit, things clients asked for that did not warrant resources. With AI creating an abundance of capacity, we can start doing things that previously sat below the line. So we see a triple play: capacity creation, revenue enablement, and expanding the firm’s perimeter. Collectively, those excite us for the future. It is early days, and that is fine. Mike Mayo: Understood, and it is clear you are in the debate—are banks, or The Bank of New York Mellon Corporation, an AI beneficiary or victim—obviously you are saying beneficiary. But the other side is the bad actors with these AI superpowers. Bank CEOs have been summoned to DC due to new tools out there and the big risk of cyber. I have a tough time dimensioning the new cyber risk given the new AI tools. How should investors think about this type of risk? How do you think about that? Robin Vince: It is an important question. Cyber defense is something that, as one of the world’s leading financial institutions and a GSIB in the US, we are clearly very focused on. Defending our clients and our role in the financial system has been important for decades. As the technology evolves, so do the defenses. This is a team sport—doing it with AI providers and other technology partners is incredibly important. We have Mithos in-house—we are running it—so it joins the team of defense for us, as does the early access preview capability that OpenAI announced a couple of days ago—again joining the team. AI is a superpower, and it can be used for good or for evil. We are pulling the superpower into our environment to use for good in order to defend ourselves. We view this as an entirely predictable evolution of technology on an exponential curve—there will be step functions. We have accustomed ourselves to this acceleration and work constantly to stay ahead of the curve. It goes back to culture, humility, and being very focused on our role in the system. All of us have to be vigilant. As an investor, think about this across all industries, not just financial services. Bad actors can use AI in bad ways across industries. One of the privileges in financial services is that we have been alert to this topic for a long time. Operator: We will take our next question from Analyst with Morgan Stanley. Analyst: Hey, good morning. Very clear message on AI. It sounds like with the investment spend already in the run rate and a lot more of the benefit to come, there is actually a lot more benefit here on the expense side. You are already at a 37% margin even before the full benefit of the platforms operating model. Is the rationale for keeping the medium-term targets at 38% plus/minus that there may be some of these economics you have to share with your customers, and that will get you more market share in the future? Dermot McDonogh: I will take a stab at that first. It goes back to one of the previous questions about investing in capacity. We just updated our medium-term targets in January. We are one quarter into that. The medium-term targets were based on a three- to five-year horizon, and we feel good about where we are on the decade-long journey. We are continuing to invest, and we are continuing to harvest efficiencies. We think the margin targets and the ROTCE targets that we gave in January were stretch for the firm, notwithstanding the Q1 we have experienced. It is too early to say. If we see opportunities, like Robin said on AI, we may invest more. We are at the high end of our guide for expenses this year. We believe we have earned credibility with the market on being financially disciplined and good stewards of the expense base. It is something that we actively review continuously. If we see more opportunity to invest, we will, and at the right time we will update you on how it is turning out for the medium term. Robin Vince: Let us talk for a second about where the value accrues, because this is quite important. Over the long term, we see great value creation with AI, and it is going to accrue to clients, to employees, and to shareholders as well. We think AI over time becomes table stakes and ubiquitous, and to some extent, you are right—some of it will get priced out through the value chain. But companies that have an edge on using and deploying the technology will have an advantage, and there is a benefit to being a bit ahead in terms of product development and cost of doing business. We see this early-adopter benefit and believe we are one. Strategy matters here—three things. First, culture is an enabler in AI. We have made a lot of investment, and having a team at The Bank of New York Mellon Corporation who see the power of AI and want to use it is a meaningful advantage. Second, our platforms operating model and commercial model laid the groundwork for being a better adopter of AI, because we brought like things together and did the rewiring, data organization, and other work that is incredibly useful when deploying AI. Third, scale. Do you have the ability to manage yourself such that you are not just providing a ton of revenue to the AI companies and losing control of it? Escalation of token usage and costs—same story we have seen before with cloud. If you allow yourself to get locked in and do not have breadth of access, you take a real risk on the pricing power point you raised. For us, the “how” of AI is a strategic advantage. We made a bet on AI three years ago; so far, that has been the right strategy, and we are leaning in. We think this accrues well to our company over time. Analyst: Very clear. Appreciate all the detail. Maybe just on the capital side, given the new rules a few weeks ago, it would seem to me that The Bank of New York Mellon Corporation would benefit on the GSIB surcharge side. It is not entirely clear to me what the benefit would be on the RWA side. Can you comment on that and whether this changes how you are thinking about the capital targets? Dermot McDonogh: Thanks for the question. The recent rule is broadly favorable for The Bank of New York Mellon Corporation. Before, when we talked about it on previous calls, we gave a preliminary estimate of up 5% to 7% based on the original proposals, and now we expect flat to a modest reduction. It reinforces what we say about our balance sheet—the strength of a clean, liquid balance sheet and the low-risk nature of the balance sheet. We feel good about where we are and about the current proposals. Robin Vince: Great. Thank you. Operator: We will take our next question from Ken Usdin with Autonomous Research. Ken Usdin: Thanks. Good morning. Two environment-related questions. Given the real big sharp period-end balances, the capital ratios went down. Obviously, you have plenty of room. Assuming that being temporary, you would not have any change to your outlook for your expected total capital return for this year? Dermot McDonogh: That is correct. It was really spot balance sheet on the last day of the quarter, and that returned to normal levels on April 1. As you will see from my remarks, the Tier 1 leverage ratio—which is what we are bound by—remained steady at 6%. Ken Usdin: Okay. Also, given that it was a very volatile quarter with a lot of benefits from the environmental shift, how does organic growth feel, especially given a little bit more uncertainty out there? You spoke last quarter about trying to be better than the 3% last year. Any changes in terms of business wins and decision-making out there from your client set? Dermot McDonogh: I would reemphasize the point Robin made in earlier answers and in his prepared remarks. We saw three really nice client wins in Q1 across different types of clients, which demonstrated the strength and breadth of the franchise. I highlighted in my prepared remarks that 50% of client wins in Asset Servicing in Q1 also included awards to other lines of business. Clients doing more with us across multiple platforms is becoming more of a thing. With the record sales quarter, we feel good. We are not guiding on organic growth. It was 3% last year; it was zero four years ago, and we have been working the order book higher. We expect it to grind higher over the balance of this year. We are excited about the opportunity. Ken Usdin: Okay. Got it. Thank you, Dermot. Operator: Our next question comes from Glenn Schorr with Evercore ISI. Glenn Schorr: Thank you. When we all look at the banks, there is a lot of focus on the NDFI lending into a bunch of the funds out in private credit land. As the biggest servicer of a lot of these products, how much of lending into the funds is an integral part of the servicing relationship? Do you have any dimensionalizing of size and composition of book and how much it has grown for you? Dermot McDonogh: Our exposure from a balance sheet perspective is de minimis and well managed. We feel very good about our risk in that dimension. I would point you over to our Corporate Trust. As I said in my prepared remarks, we went through, for the first time, $15 trillion of total debt serviced, and that is where we service a lot of those clients. We feel very good about that business, the momentum, and the investments we have made. While it has been noteworthy with other banks in the news cycle over the last several weeks in the private credit space, it has not been materially showing up in our business, and there are no bumps there that I would highlight. Glenn Schorr: One other one that catches my attention is periodically you will see a certain fund or even stock get tokenized. There are a lot of investments and, I do not know, experiments being done, and I think you are investing in part of it too. Maybe update us on where we are and why—what are we doing? Money market funds I get a little bit. Why does the world need everything tokenized? What would that mean for your businesses if we do go down that path? Robin Vince: Thanks. I do not think the world needs everything tokenized. But there is no question that global financial market infrastructure is transforming and moving toward more of an always-on operating model. That is not just about blockchain technology immediately replacing traditional systems; it is about the two working in concert, and in some cases unlocking new possibilities that have not been possible before without the always-on model. We are in the business of moving, storing, and managing money, creating interoperability—all of that is what we do today. We are advising clients to use the right tool for the job. If they want to do real-time payment systems in the United States, we have real-time payments in the US. Same in Europe—they are even more advanced, which is why stablecoin usage in traditional financial markets has not taken up as much in Europe. In some emerging markets with high inflation, a 24/7 dollar-based stablecoin has advantages to sidestep inflationary friction. It is very much about the use case. Our strategy is to be a bridge and be in both places. We are doing business with traditional clients who want help with careful selection of what to do in digital assets—launch new funds, launch a new share class for digital-asset-focused investors, or Bitcoin custody for ETF providers—we announced one recently with Morgan Stanley. We are helping clients bridge to the new. New, digital-asset-native clients also need traditional capabilities—cash management, investment management, custody. A stablecoin provider would need all of those. We have invested across the ecosystem and stood up a bigger team with our head of product and innovation and digital assets to deliver against these use cases. You are right—an S&P 500 on-chain may not add as much value as bringing an asset deeper into the financial system or making an asset a lot more efficient today. S&P 500 equities are pretty efficient; money market funds work well. In loans and commodities, there are opportunities to improve and bring assets deeper into the financial system. Glenn Schorr: Sounds like evolution, not revolution. Thanks. Operator: Our next question comes from David Smith with Truist Securities. David Smith: Hi. You highlighted some big wins with clients working with you in multiple lines of business. Anything you can share on the progress in the percentage of clients with multiple products or lines-of-business relationships at The Bank of New York Mellon Corporation today versus a year or two ago, or the average number of products per client, or any metrics along those lines? Robin Vince: A couple of things, David. We set out in our commercial model to do several things. There are new products to be created; we have a lot of micro-innovation across the company that excites us because those are new opportunities. We have surprised ourselves with the number of new logos we are able to attract to the platform—about 10% of our sales were new logos in recent times, which is exciting. Dermot highlighted that half of our Asset Servicing wins were not just Asset Servicing—they also came to at least one other line of business. The blocking and tackling of delivering more of who we already are to existing clients is a big opportunity. Some stats: We had a record sales quarter in Q1 last year and another in Q2; it was a record sales year last year; we had another record sales quarter this quarter. We have had three consecutive years of year-over-year growth in core fee sales. We have had more than 60% growth in the number of clients buying from three or more businesses over the past two years. We have had a 20% annual increase in sales productivity per salesperson. All of these show traction in our commercial model. Remember, we are only 18 months into that journey; we launched it in 2024. We are excited about that. That is one reason why at the beginning of the year we aimed to grow our organic growth rate from the 3% last year, and we are very focused on growing from that. I want to add one other thing. There is an underlying theme that regular organic growth is somehow completely disconnected from the market. We push back on that for our company because we deliberately aligned our platforms over the past three years to participate in more environments and be a compounder of value largely irrespective of the environment. Of course, there are always some environments that are not great for us, but it is deliberate. We want to tap into megatrends: scaling with trusted providers, sophistication in wealth markets, private markets demand (you can see AUCA growth there), capital markets transformations, participating in digital assets, and connecting traditional ecosystems with new digital ones. Inputs to diversification: equity market values up; fixed income market values up; cash balances; issuance activity; M&A activity; private credit; public credit; volatility; transaction volumes; equity; fixed income; collateral. We have created diversified, global, strategic, recurring, durable attachment to different markets so that we can participate across them—wrapped with AI. For us, that strategy is an “as well as” relative to traditional organic growth. David Smith: Would you say that dampens the upside for The Bank of New York Mellon Corporation in a really strong market environment, or is there a way you can have your cake and eat it too? Robin Vince: We think it gives us better exposure to more markets. Take NII as a proxy—Dermot talks about cutting off the tails in NII. Out of a thousand scenarios, can we create one that is not great for NII? Sure—massively inverted curve or zero interest rates across the curve are not ideal. Those scenarios do not feel super likely right now. The same will be true in other environments. Yes, we give up some growth if equity markets are up 50% and you want to be all-in on that scenario—I would tell you to buy somebody else’s stock over ours because we represent a more diversified long-term compounding durable play. Operator: Our next question comes from Steven Chubak with Wolfe Research. Steven Chubak: Good afternoon, and thanks for taking my questions. A bigger picture question getting more attention that could impact the Wealth Solutions business, pertaining to AI and its growing adoption in the wealth space. There has been talk about the importance of greater control over infrastructure, tech stack, data, and the ability to offer more customized tools. Some believe this may compel more scale firms to transition to self-clearing models over time. Recognizing you service the largest RIAs and IBD platforms, what are you hearing about this potential structural shift that could take place over years, and how do you ensure you can keep those customers within your ecosystem? Robin Vince: It is an important question. Coincidentally, I was speaking with one of our largest clients yesterday about this. They reaffirmed how excited they were to be on our platform for the reasons you listed. They want to grow and have finite investment dollars. They want to spend on roll-ups, organic growth, and advisors—the core of their business. They do not want to spend on cyber defense and platform, nor try to compete at our scale—more than $3 trillion—in investing in core capabilities we provide. If you are a $3, $4, or $5 trillion RIA, you have your own scale. But if you are $50, $100, or $200 billion, you do not. Take AI as an example. If you go it alone, you have to pick a provider, live in their ecosystem, subject to their pricing power and models. You cannot have the cross-platform AI scale that gives you more control over deployment. There is a theme of scaling with trusted providers that applies to Pershing as it does to our other businesses. As we combined Wealth Solutions and aligned pieces for Pershing, clients continue to tell us they like scaling with us. Steven Chubak: Those are great insights, Robin. If I could squeeze in one more—double-click into Glenn’s earlier question on tokenization and implications for the ADR business if tokenized securities become more widespread? Robin Vince: People have been predicting the decline of the Depositary Receipts business for twenty years, but it is a very defiant—and for us growing—business which has performed well. Here it is really about connectivity and services: connections with exchanges and settlement rails. An AI agent cannot just turn up and offer that connectivity because providers do not want to provide that type of access. It is one thing to ask, “What was the price of the ten-year yesterday?” It is entirely different to give an agent full autonomy over how you connect to infrastructure and control assets. We think there is trust benefit we derive that is relevant in places like this. We will use AI ourselves to make the process more efficient across the lifecycle of many of our products. We are not competing with AI; we are competing with other people who use AI better than us. Operator: Our final question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: Hi, Robin. Hi, Dermot. Dermot McDonogh: Hi, Gerard. Gerard Cassidy: Two questions. First, in the Securities Services area, specifically Issuer Services—there was a sequential decline from the fourth quarter in revenues, though up year over year about 4%. What were the factors that caused that? Second, is there an opportunity for the Depositary Receipts business to pick up if international equity issuers come into the US capital markets later this year? Dermot McDonogh: On the quarter-over-quarter, Gerard, Depositary Receipts is a seasonal business. It speaks to seasonality rather than any noticeable trend. Corporate Trust, as I said in my prepared remarks, continues to grow—we are growing the revenues and margin. We are investing in the business, and we have grown the margin quite substantially over the last three years. It is the business where the platforms operating model is most mature—we are beginning to see the most benefits. It is three years in the model. We like what we see in terms of leadership, technology investment, and how we are showing up for clients. It is not an accident that we went through $15 trillion in Q1 in terms of total debt serviced. Overall, great momentum in that part of the world, and we expect it to continue. Gerard Cassidy: Thank you. And then, Robin, coming back to the AI commentary—can you frame out when AI becomes ubiquitous to your business as well as others? If you turn back the clock and look at the introduction of the internet or digital banking after the iPhone, how long does this take to ramp up AI so that five or ten years from now we say it is just normal operating business and something that everybody is doing? Robin Vince: I think the answer is that it has to be a lot less than those time frames for it to become ubiquitous in a company. If you do not make it ubiquitous inside those time frames, I do not know how you are going to keep up and compete. It is such a powerful technology and accelerating so quickly—we are talking about 10x capabilities in many cases. If you are behind the 10x curve by any meaningful period, you will be in trouble, which is one reason we are so focused on it. You have to make it ubiquitous, which goes back to culture, integration, and deep embedding—our principles at this point. We aim to make it well inside those time frames. Gerard Cassidy: Thank you. I appreciate that. Operator: That does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks. Robin Vince: Thank you, and thanks everyone for your time today. We appreciate your interest in The Bank of New York Mellon Corporation. Please reach out to Marius and the IR team if you have any follow-up questions. Be well. Operator: Thank you. This does conclude today’s conference and webcast. A replay of this conference call and webcast will be available on The Bank of New York Mellon Corporation Investor Relations website at 3 PM Eastern Time today. Have a great day.
Operator: Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. First Quarter 2026 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. Company presenters will begin with prepared remarks and then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star then 1 on your touchtone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. The Company has asked me to remind everyone to refer to the cautionary notes regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2026. At this time, all participants are in listen-only mode. This conference is being recorded. If you need operator assistance during the conference, please press 0. It is now my pleasure to turn the call over to Donna J. Townsell, Director of Investor Relations. Thank you. Good afternoon, and welcome to our first quarter conference call. Donna J. Townsell: With me for today's discussion is our Chairman, John W. Allison; John Stephen Tipton, chief executive officer of Centennial Bank; Kevin D. Hester, president and chief lending officer; Brian S. Davis, our chief financial officer; Christopher C. Poulton, president of CCFG; and Scott Walter of Shore Premier Finance. Our first quarter sets a strong tone for 2026. Results demonstrate sound expense control, consistent operating performance, and attractive returns, including record-setting metrics of book value per share of $22.15 and tangible book value per share of $14.87, which is a $1.72 per share increase year over year for a 13% increase. CET1 at 16.7%, leverage of 14.3%, and Tier 1 capital of 16.7%. In today's economic environment, that is a meaningful accomplishment, and our team is pleased to walk through the quarter's results with you. Our opening remarks today will be from our Chairman, John W. Allison. John W. Allison: Thank you, and welcome to Home Bancshares, Inc. for the first quarter 2026 earnings report to shareholders. Thank you for joining us today, and I think the headline and the quotes pretty much summarize the first quarter. I want to thank our team for getting us off to a great start in 2026. For those of you who are not already Home shareholders that are interested in a better understanding of Home, I think it is important that you look at the strength of the balance sheet, couple that with the monthly and quarterly consistent level of performance over the last several years as primarily showcased by the last five quarters. The prior year has reminded us of the highest interest rate cycle in the early eighties, where almost all banks struggled because of poor balance sheet management, and the same story has been even more visible today, i.e., lack of liquidity by investing in long-term securities trying to stretch for yield. I am proud of Home. We did not suffer those problems during that time and were reporting record earnings while others were struggling. S&P Global just ranked Home's performance for 2025 as number two of all banks in the U.S. over $10 billion. We are honored by this elite ranking by one of the world's best and most respected experts. We were barely edged out of the number one position last year. Maybe we will get it this year. We are happy to have completed the merger with our acquisition of Mountain Commerce and look forward to a successful combination. Due to the back-office computer upgrade that was already in progress before Mountain Commerce, we will not be able to start converting Mountain Commerce until November. As a result, the MCB anticipated savings will not be realized until probably late 2026. Once accomplished, we believe our new partners can soon begin helping us to continue the outstanding performance that Home Bancshares, Inc. is known for in the U.S. and worldwide. Home is proud of our reputation—one of the strongest, safest, most conservative, and best performing banks in the world. We will continue to try to make our shareholders proud and happy to be part of this outstanding company. We know who we work for, and that is our shareholders. If you loan money, we all know problems can and will arise from time to time that have to be worked through. We have a $110 million Texas credit that we decided to place on nonperforming status this quarter. This is the same credit we have been talking about for a year and a half or two years. The credit remained current until this quarter. It has been one we have been monitoring intensely for about eight months. We entered into a short-term forbearance agreement with multiple deadlines and requirements. We are advised by legal counsel not to discuss in depth. I can say we are either going to get paid off or we will liquidate the existing collateral. We do not anticipate any additional loss, but if things were to result in some loss, Home's story puts us in a position to deal with whatever comes. Because of the conservative balance sheet, we are running right at $300 million in loan loss reserves—one of the highest reserve percentages in the world. Couple the strong reserves with a consistent quarterly pretax, pre-provision net revenue of $150 million to $160 million, and we are confident in our ability with whatever happens and do not expect this loan to have any major impact on earnings, if any at all. It is our belief that there are more than sufficient assets and personal guarantees to properly resolve this issue. I am pleased with the results comparing Q1 to Q1 last year. The first quarter only had 90 days, and if we had the two extra days in a normal quarter, plus just a little touch of wind, we would have been even stronger. We had no wind this time. This quarter, we got zero wind, Brian. You always come up with wind. You did not come up with any juice this time. Well, we did have that FDIC assessment, but we got a reduction. Okay. Well, we had to write off the balance now, so that is evident in the noninterest income category being the lowest since December 2024. Maybe next quarter will be the best. On M&A, I want to congratulate the administration and the Fed along with the Arkansas State Bank Department for the fast approval process. The speed of approval may possibly give time for another deal this year. We are certainly in the market and looking for another good fit. We continue to repurchase stock as the volatility of an uncertain world—with a war count that makes it uncertain—has provided opportunities for us to purchase more recently. That is before we were in a blackout period. However, we did file our normal 10b5-1 for this time. If the volatility continues, we will be very active on the repurchase side. I think we have essentially bought back, if not all, of the shares issued in the Happy Bank transaction, and I will endeavor to do the same for the Mountain Commerce Bank transaction, particularly if volatility continues to create opportunities. The repurchases will take some time, but once MCB is converted on our system, the additional share reduction should have a positive impact on earnings. We are being very careful on the loan side because of the uncertainty of the war, the consumers, business, asset classes, and what this cycle may ultimately evolve into. Talking heads have all said rates are coming down, but we have cautioned that possibly they will go back up before they come down. Inflation is not dead. Let me say that again. Inflation is not dead. And as Jamie Dimon would say, that is a major cockroach in the mix. The question is how high and how long do they remain high? It depends on how aggressive the Fed is going to be with escalating interest rates to try to get a handle on inflation. Remember the late seventies and the early eighties? 21%. It is not going to be that high, but it has to be corralled. Christopher C. Poulton, who runs our New York office, has a great saying: the year of the lender is followed by the year of the collector. I think our early Texas experience confirms some of Chris' statements. I think it is a time to be very careful. The normal structure of some asset classes that worked in the past may not work today. It is our job to watch and hopefully recognize in advance these loans that we think may be infected with what Jamie Dimon would say are cockroaches. You will hear from Christopher C. Poulton today about his attitude on private credit and the changes made because of it. His call on private credit was outstanding. The good news—market pricing on acquisition deals is more in line with the correct value and slows the shareholder dilution at least for a while. One of the CEOs that did a fairly flagrant—delusionary may be the word—trade sometime back came up to me at a bank conference and said, “I am here to get my butt chewed out.” And I proceeded to do just that. Then I gave him a hug, and we discussed the pros and cons and the impact of the damage done to long-term loyal shareholders, and agreed that dilution is not the friend of the shareholder. Enough said. With all the attention that dilutive transactions are getting, maybe the publicity and management embarrassment has slowed the shareholder damage. At least, I certainly hope so. I hope it is finally the start of a sea change that forces management to do the right thing for the shareholders. Donna, great quarter. I am pleased with the strong continuation of Home's earnings. I will hand it back to you, and since I have teed up Chris, let us go to Chris first. Let him comment and turn it forward, and then we will go to Steven and Kevin and Brian, and back to you to wrap up. By the way, you all need to know Donna takes a pen away from me and gives me a rubber ball to speak with so that way I do not make any noise. So she stole my pen and gave me a rubber ball. So thanks, Donna, for looking out for me. Donna J. Townsell: My pleasure. Okay. Sounds good. Thank you, Johnny. Up next, we have a report on CCFG from Christopher C. Poulton. Christopher C. Poulton: Thank you, Donna. Today, I will provide a brief update on CCFG's first quarter, and then, as Johnny said, I will share some perspectives on the private credit market. During Q1, we grew the portfolio to approximately $2.1 billion. This represents roughly a $60 million increase supported by $370 million in new loan production. Loan production remains steady, and this number is in line with prior year levels. Payoffs for the quarter totaled just under $200 million, which is also consistent with historical averages. We do expect slightly higher payoffs in Q2, though I think our pipeline should allow us to replace those balances either this quarter or the next. Over the past several years, I have discussed declining balances in our corporate lending portfolio. This is an appropriate time to provide some additional context, particularly in light of recent news around private credit. CCFG has long participated in the private corporate credit market. Our exposure has varied over time, but we have maintained a consistent presence and have long-term experience in the space. Our private credit balances peaked at just under $500 million in 2022, and today outstandings are $87 million. That is a reduction of over 80% in the past three years. Why did we make the choice to reduce our private credit exposure? Beginning in 2023, we observed several trends that influenced this decision. First, we saw new bank entrants. As some banks looked to reduce their reliance on commercial real estate, many chose to lend into the growing private credit space through participations in structured facilities. This led to broad yield compression across the private credit market and, as often happens, some loosening of credit structures and underwriting standards. At the same time, we saw significant equity inflows from individual investors or retail investors into these sponsored vehicles. We have seen this movie a few times before, and we have not always enjoyed the ending. We have historically maintained an intentional focus on the shorter-duration position—typically under three years—and as a result, we were able to actively exit credit facilities as they reached the end of their reinvestment period. In total, we exited eight corporate lending facilities through repayment during this time. Our remaining exposure is limited to a few facilities, primarily within AA-rated structures. Our attachment point is approximately 58% of par value of the underlying loan, which provides 40% sponsor equity support beneath our senior position. While market dislocation often creates opportunity, we believe it is still early in the cycle. As a result, we are remaining cautious, and at present, our bias is toward further reduction while continuing to monitor this closely. With that, Donna, I will turn it back to you. Donna J. Townsell: Thank you. Great call, Chris. Thank you for keeping your eye on the ball with private credit, Chris. Next, we will hear a few words from John Stephen Tipton. John Stephen Tipton: Thanks, Donna. Chris, we appreciate your approach and discipline over the last eleven years with us. As Johnny mentioned, 2026 was a good start to the year: $118.2 million in net income, a 2.09% return on assets, and a 16.56% return on tangible common equity. Q1 earnings were in line with the prior quarter despite two fewer days, and were up $3 million or 2.6% from 2025. The reported net interest margin was 4.51%, down 10 basis points from Q4, as there was zero event income in Q1, and up seven basis points from the same period a year ago. The core margin, having no event income, was 4.51% versus 4.56% in Q4. The overall loan yield declined by 15 basis points to 7.08%, while interest-bearing deposit costs declined by 12 basis points to 2.35%. Total deposit costs were 1.83% in Q1 and exited the quarter at 1.82%. Deposit balances increased $258 million driven by all of our Florida regions. I would expect some headwinds in Q2 from tax payments, but we are pleased to start the year strong. A highlight from the quarter was that noninterest-bearing balances grew by $126 million to almost $4 billion and now account for 22.5% of total deposits. As we typically see in Q1, loan production softened coming off of a very strong fourth quarter. We had total loan production of $917 million with over half of that coming from the Community Bank footprint. Switching to capital, we repurchased 507 thousand shares of stock during the quarter for a total of $1.314 billion, and as Johnny said, we will continue to be active with our share repurchase plan. Capital levels continue to build with common equity tier 1 capital ending at 16.7% and total risk-based capital at 19.5%. Lastly, we are thrilled to have the Mountain Commerce employees, customers, and shareholders on board and look forward to growing the Tennessee franchise for Home. With that said, I will turn it back over to you, Donna. Donna J. Townsell: Thank you, Steven. And to close out our prepared remarks, Kevin D. Hester has a lending report. Kevin D. Hester: Thanks, Donna. Given our strong showing in 2025, it could be easy to look at this quarter as boring. I think that shows the high bar that we have set for ourselves, because any quarter that posts a return on assets of 2.09%, maintains solid asset quality, and is an earnings beat over the same quarter a year ago is not an easy task and should be inspiring. As I anticipated last quarter, ending loan balances dropped by a little over $50 million, but it happened very late in the quarter, which resulted in average loan balances actually being up $174 million on a linked-quarter basis. I see this downward trend continuing in the legacy bank into the second quarter because Q2 and Q3 projected payoffs are very high. The MCB acquisition will, however, add over $1.4 billion in loans to the balance sheet. Based on my meetings with their lenders, I expect them to settle into our credit culture quickly and be accretive to loan production in short order. Johnny mentioned the nonaccrual of the Texas C&I credit that we have been wrestling with since 2024, and this increased nonaccrual balances significantly. But we have made recent progress with the executed forbearance agreement, which leads us to a couple of ways to exit this credit during the next quarter or two. We are continuing to work with the same small set of issues that we have been dealing with for a while now. We took our medicine in 04/2024, but maximizing the exit sometimes takes more time and effort than you would like. It is wonderful to have the level of capital and reserves that we have, which allows you to maximize recovery on this limited set of problems. To that end, criticized assets were flat on a linked-quarter basis and early-stage past dues were below 50 basis points. Even with the large increase, the reserve coverage of nonperforming loans is still over 160%. As a point of reference, our loan loss reserve would cover 15 years of our historical charge-offs if you use the last five years of average charge-offs as a base—and that base includes the large 04/2024 Texas cleanup quarter. There is nothing wrong with a workmanlike quarter where you meet expectations. I expect that a majority of banks would trade results with us. On that note, Donna, I will send it back to you. That is accurate. Donna J. Townsell: Kevin, thank you for that report. Before we go to Q&A, does anyone have any additional comments? John W. Allison: Well, I thought about deposits. We had good deposit growth, and then tax time comes up. I think I said the same thing last year. It is good to have real customers. That is right. And we do have real customers, as evidenced by the tax checks we are seeing go out right now. That is good and bad, but they are our customers. They are not transactional. They are relationships. So I am proud of that. We will take a little up and down business, Kevin. I mean, Steven, you grew up. John Stephen Tipton: I agree 100%. John W. Allison: I am pretty pleased overall. Brian, you got any comments on the quarter? Brian S. Davis: I agree with you. I am pleased with the quarter. There is not really any noise to it, so it is just kind of good core earnings. John W. Allison: That is really it. We just kind of rolled on from what we have been doing. I think we have said in the past, we need more assets, and that is what Mountain Commerce has done for us. We have been consistent. Our earnings have been consistent quarter after quarter through this process, and we do need more assets. Right? So we will get this under wraps and Steven and Bill will get the savings out of Mountain Commerce. We will see that come to the bottom line, and maybe we will have another deal before then. So, Donna, I will let you have it. By the way, you all need to know Donna takes a pen away from me and gives me a rubber ball to speak with so that way I do not make any noise. So she stole my pen and gave me a rubber ball. So thanks, Donna, for looking out for me. Donna J. Townsell: My pleasure. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press star then 1. When prepared to ask your question, please ensure your device is unmuted locally. Our first question comes from Stephen Kendall Scouten with Piper Sandler. Your line is open. Please go ahead. Stephen Kendall Scouten: Good afternoon, everyone. Appreciate the time. I guess, Johnny, maybe if you can talk a little bit more about how the progress is going to acquire even more assets on top of Mountain Commerce. I mean, like you said, your returns are phenomenal, so it just feels like you need to be able to multiply that on a larger balance sheet. What have conversations been like and how aggressive would you be? And within that, would you ever think about loosening—the triple accretive mantra—to get a deal done? John W. Allison: I think we hold pretty tight to our philosophy around here. My fear is they will say, “Well, he lied.” I can hear the market saying, “Oh, he lied. He broke it. He diluted the deal.” So I just do not believe in doing that. I am the largest individual shareholder, and I am not interested in diluting myself. I think it hurts our shareholders. You know my philosophy on that. We stretch as much as we can on the trade, but people have joined this company because we do not dilute, and if I diluted now, I think it would be kind of—as I am getting older in my career—people would say, “He got weak and gave up.” I have not as of yet, and I think it is known when we are talking to a prospective seller: we say, we do not dilute. We need you to understand we are not going to be your highest price. But if you are going to sell the stock tomorrow, it does not matter—just do a deal and the buyer dilutes the hell out of himself. If you sell stock tomorrow, it does not matter, just get out and get going. But if you are going to ride with them for a while, it makes lots of sense not to do a dilutive deal. So if you want to hold the stock and keep it for a period of time, I think our sellers appreciate the fact over the years that we have not diluted. I know there is another deal out there right now they are getting bid up on, but I am not going to bid up on it. We will bid it to the maximum we can bid it, and if we do not get it, we do not get it. A lot depends on the seller—what the seller wants to do. Do they want to stay and be part of it, or do they want to go to the house? If they want to go to the house, just get the biggest best price and sell the stock tomorrow. Otherwise, if you want to be in it for a period of time, you need to have a good partner that is not going to dilute you. I know I rambled a little bit, Steven, but anyway. Stephen Kendall Scouten: That is helpful. And in terms of the pipeline of conversations, what is that like? We have not seen as many deals here in the first part of the year get announced. Are sellers just kind of not interested because the environment is pretty good? Or is it just the volatility in the stocks? What are you seeing in terms of conversations? John W. Allison: There are conversations going on—not only with us, but elsewhere. Bankers have called us and said, “Hey, what about this and what about that?” I said, we are not ready right now. Let us get Mountain Commerce, get our arms around it, and then we will be ready to go. But we are having conversations. At a bank conference recently, we ran into a couple of people, and I said we ought to talk sometime, and they followed up since then. Just a conversation in a bar. I said, “Yeah.” They were sitting at one table and said, “We will visit sometime.” That brought a banker out of the woodwork to talk to us about these two possible options. I actually think people are embarrassed to dilute the hell out of the shareholders right now. They have been called out for the dilution, and we see what has happened to the market prices of bank stocks. We went from 22.5x projected earnings to 11x earnings, or 10.5x. Where did the money go in bank stocks? My contention is we ran all the good investors out by beating them up—dilute, dilute, dilute. I want to get back to the old days where we were 21.5x earnings, and everybody was happy. Everybody made lots of money. It is a different world now, and I think it is directly a result of the dilution. Stephen Kendall Scouten: Valuations are crazy. We have to start calling you homebankai.com or something like that. One other question is around loan yields. There was a pretty big move in the loan yields this quarter. Can you give some color on how much of that was core decline versus where new loan yields are coming on, and how much the NPA affected reported loan yields quarter over quarter? John Stephen Tipton: Hey, Steven. This is Steven. First, on the impact from the nonaccrual—we do not have any of that in our margin for the quarter. Had we had it on the books, the impact was about 5 basis points to the loan yield and about 4 basis points to NIM. So the 4.51% that we reported—had it been on accrual for the full quarter—it would have been 4.55% versus 4.56%. A little color there. Some of the other decline in loan yields was really just a function of variable rate resets from the Fed moves last year that occurred January 1 and at other frequencies. If you normalize for the nonaccrual, we would have been down 10 or 11 basis points and matched what occurred on the deposit side. Production yields—I think we averaged 7.25% to 7.25% for the first quarter. We were at 6.99% or 7% in the Community Bank footprint—so, north of prime and getting our fair share. Stephen Kendall Scouten: Great. Appreciate all the color. Everyone, thanks for the time. John W. Allison: Thanks, Steven. Appreciate you. Operator: We now turn to David Rochester with Cantor Fitzgerald. Your line is open. Please go ahead. David Rochester: Hey. Good afternoon, guys. I just wanted to talk about the loan trend real quick. It sounded like you mentioned paydown activity being a little bit elevated in 2Q and 3Q. How are you thinking about the organic loan trend? I know you got the deal closed this quarter, so that will bump things up a bit. Just trying to understand the underlying organic trend, and what part of the book are you seeing those paydowns in? Is it more of the same? Anything new? Any difference across the different geographic regions? Kevin D. Hester: Hey, Dave. This is Kevin. I will answer that. It is going to be a little bit of a long answer because I am going to give you some color on the pipeline process. Our pipeline process likely has more visibility into the payoffs than the new loans that are coming on. We know because of CCFG's portfolio being a two-to-three-year turn, and a lot of what we are doing on the large side is construction deals, and we know when those are finishing. So we probably have a four-to-six-month lead time on a payoff, whereas we might have 30 to 45 days to put something on the pipeline for a new credit because we do not put new credits on the pipeline until they are fully approved. For Chris' group, CCFG, they may close it in 15 to no longer than 30 days, and in the Community Bank footprint, it might take 45, but it is probably closer to 30. So our pipeline process is more highly skewed toward knowing our payoffs. That said, we do see second- and third-quarter payoffs being higher than they have been the last couple of quarters. Will we have some production that will offset that? It is possible, but it is going to come in over the next 45 to 90 days. It is not on our pipeline yet because it has not gotten fully approved. Second piece is MCB is not yet in our pipeline process. So I really do not have a good feel for what they might contribute in the second and third quarter. I will know that probably in the next week to two weeks. So the short answer is: it feels a little soft in the second quarter. Could we outrun it? We could, but we are going to have to get the production in here and get it on the books. David Rochester: Okay. Great. Appreciate all the detail there. Maybe switching to the margin. What do you think is going to be the rough margin impact from the close of the deal, and if we have a stable Fed funds rate through the end of the year, how does the margin trend after the 2Q change from the deal? John Stephen Tipton: Hey, Dave. This is Steve. We are still finalizing the purchase accounting. I do expect a little pressure on the margin—obviously, it is additive to NII and EPS—but expect a little pressure at least initially on the margin. We landed for the quarter at 4.51% and, thinking about the nonaccrual, we were 4.49% for March—still fairly in line with where we were. Maybe it ticks down slightly with MCB, and then we hope to build on it from there. I talked to Bill today, and their story over the last year or so has been the ability to reprice deposits at maturity as they come through, and that appears to be what is taking place over the next 45 days and over the course of the year as some of the wholesale deposits either reprice or go away. David Rochester: Appreciate that. One last on M&A. I know you are open to deals in all your markets, but with Tennessee in the mix, are you prioritizing any markets now? John Stephen Tipton: Always Florida and now Tennessee. Kevin D. Hester: We could entertain those markets. David Rochester: Sounds good. Thanks again. Appreciate it. Operator: We now turn to Brett D. Rabatin with Stonex. Your line is open. Please go ahead. Brett D. Rabatin: Hey, good afternoon, everyone. Wanted to start on expenses. You kept expense growth pretty limited last year—like 3% growth—and I know Mountain Commerce will create a little noise, but is there anything you are going to spend money on either as a result of that deal or as you get bigger? And any thoughts on maybe core growth this year relative to 2025? John Stephen Tipton: Hey, Brett. This is Steven. Core expenses were about $115 million for the quarter. We will have some normal raises throughout the year with merit increases and contracts here and there, but that is a decent base today. Mountain Commerce probably adds $7 million to $7.5 million a quarter to that number right now, until we get to the latter part of the year and get their conversion in and begin to recognize the majority of those cost saves. There will be some cost saves along the way throughout the year, but the majority will come in the middle of the fourth quarter. Brett D. Rabatin: And then, Johnny, thematically, I know you are interested in M&A, and you have historically had a term for people that hire lenders from other banks. In Tennessee, with disruption due to big deals, would you let Bill hire some folks on the lender side in Tennessee, or is that still not part of the equation? John W. Allison: That is not the way I think about it, but Bill may think differently about it. We really have not discussed it. We are headed over next week to meet their customers and shareholders and talk about Home Bancshares, Inc. and Mountain Commerce and the partnership together. I will visit and catch up with you later on Bill's thoughts. I am not aware of any teams that he is talking to. Not saying it would not be out of the realm of possibility in the Nashville or Knoxville market. If it is due to disruption, that is a little different premise than just going in and taking away folks that are happy where they are. I get the disruption concept, and there could be something there. But we will see. Brett D. Rabatin: Lastly, on the pipeline—any of the pipeline trepidation related to competitive pressures? It seems some banks are being more competitive on rate. Is the competitive landscape impacting what you want to do in the back half? Kevin D. Hester: Some markets are harder than others. It is not the same players in every market. There is some rate pressure. There is even some underwriting and structure pressure that people have given into a little bit over the course of 2025 and early 2026. That is always a challenge. We fight that because we are pretty consistent in what we do. Brett D. Rabatin: Fair enough. Appreciate all the color. Operator: We now turn to Catherine Mealor with KBW. Your line is open. Please go ahead. Catherine Mealor: I have a follow-up on deposit costs. You mentioned the 1.82% exit deposit rate, which is similar to where you were for the average in the quarter. As you think about the rest of the year—if we do not have any more rate cuts—do you feel like deposit costs will start to increase as we move through the year, especially maybe once we get past second quarter and growth improves? How are you thinking about incremental deposit costs? John Stephen Tipton: Hi, Catherine. This is Steven. With MCB, we mentioned what they have coming through the maturity pipeline and certainly expect theirs to come down. On the legacy Home portfolio, we have some deposits tied to the short-term T-bill—91-day T-bill—which trickled up a little bit in the first quarter and put some pressure on other changes we were able to do. CDs will continue to mature that we will try to reprice down. I am still optimistic that we can inch out a basis point or two as we go throughout the year, but I will caveat that with competition. We are still seeing banks offer 4% for CDs and 3.75% to 4.05% on money market. We will defend our customer base both here and in Tennessee. John W. Allison: I am getting excited—4% might be cheaper if they do what I think they are going to do. It looks silly when you see people doing that, and we are still seeing some 6% too. When you think about that, how ridiculous that might turn out to be—we obviously have not stopped inflation. It depends on how aggressive the Fed is. If they have to be aggressive to slow inflation, it may take 200 basis points to stop it. If they lower significantly, I think that would be a huge mistake. Catherine Mealor: Johnny, you have been right on the rate trade the past couple of years. Is there anything you are doing in your balance sheet to prepare for the risk of higher rates? John W. Allison: Not really. We are just careful with our pricing. I was mad at myself last night when I said what was going to happen and then I did not bet it. I ran into a friend who said, “I heard you, Johnny. I went out and bought $4 million worth of money cheap, and I still have it.” I said, “Good for you.” He said he did it because of what I said. I did not do it, and that is a good thought—maybe to take a look at stretching out there a little bit. This is almost a ditto of the seventies and the eighties. We have this war now. We have oil, and we know what that does. We saw PPI at 4% annualized—we have not seen those numbers in a while. It could get a little crazy. I just do not have the answer yet. Hopefully, it will come to us. Catherine Mealor: And then on the credit side, anything you are seeing? I appreciate that you do not want to talk about the $92 million credit that moved to NPA this quarter until you get it resolved, but outside of that, any other trends or weakness across the book? Kevin D. Hester: Criticized assets—which includes all of our OLEM and below—were flat quarter over quarter, and early-stage past dues are as low as they have been, at below 50 basis points. We are working with the same set of issues that we have been working with for the last few quarters. I said a couple of quarters ago that the small group might get worse before it gets better, and that is what happens when you have to put it on nonaccrual and start working it out. We have already taken what we believe is our maximum loss, and we would expect to recover some to all of that depending on the way it resolves and which path it goes through. Talking about the larger credit now, we at least have good visibility into how that happens, and it could happen as early as this quarter or next. We feel good about that. It is the same set of problems. I am not seeing anything of materiality that we are concerned about. John W. Allison: I do not think we are going to lose any money on this deal. I like the guarantors. I like the assets—these are in-demand assets. They are not scrap assets. The assets are being leased as we speak. We sold some of these assets in the past on a 70/30 basis—we got 70% and the customer got 30%—and they paid down perfectly. Assuming the rest bring the same value, we are going to take 100% of the proceeds from this point forward. If we get the sales schedule, I think we will be fine. If there is any hole left, these people have honored everything they have ever said to us. It is a very wealthy family. Maybe if there is $10 million left, we put them on a $10 million ten-year note or something. I think they will honor it. Catherine Mealor: Has the price in oil had any impact? John W. Allison: If anything, it might help, quite honestly. Catherine Mealor: That is what I was thinking. Thank you so much for the color. Appreciate it. John W. Allison: Thank you. Appreciate it. Operator: We now turn to Michael Edward Rose with Raymond James. Your line is open. Please go ahead. Michael Edward Rose: Hey. Good afternoon, guys. Two follow-ups. First, on the large Texas loan—was there any interest reversal this quarter, and what was the impact on the margin? John Stephen Tipton: Hey, Michael. It is Steven. The 4.51% margin does not have any accrual in that number. The impact was about $1.6 million for the quarter, which is about 5 basis points to the loan yield and about 4 basis points to NIM. If we had had it on accrual for the whole quarter, 4.51% would have been 4.55% compared to 4.56% last quarter. Michael Edward Rose: Really helpful. And on scheduled payoffs, can you quantify what the expected payoffs and paydowns are over the next quarter or two? Kevin D. Hester: It looks to me like the second quarter is close to $1 billion, and third quarter could approach that. Those include abnormal paydowns and principal paydowns too. That is what you would have to do to stay even in each of those quarters. John Stephen Tipton: For some context, payoffs in Q1 were about $650 million, but they were $950 million in Q4—$750 million to $800 million in quarters prior to that. It sounds big, but that is the range we run, depending on seasonality. Kevin D. Hester: And that does not include MCB—none of what I am quoting includes MCB because they are not in my pipeline yet. Michael Edward Rose: Got it. Any loans with MCB identified that maybe do not fit your standards that you plan to run off? Kevin D. Hester: I am not aware of anything. We looked at every loan in due diligence. I do not remember anything I would say to run off. Their credit culture is pretty close to ours. They may be a little higher leverage in some areas—we will work on that over time. They have opportunities with us that they have not had, as they have not been willing to do much construction. Any decisions we make to go a different direction than what they have done, I think, will be more than offset by opportunities to do things they have not done before. I look at them as a positive. As I said, I would expect them to hit the ground running pretty early. We have already had pipeline discussions over three or four credits as of last week. I told Bill: nobody cares what you make this quarter—get ready for the future. If you have anything you need to write down, write it down. Get rid of it. Get it going. Get it out of here. I think we are coming in with a pretty clean check coming in the front door. Michael Edward Rose: Appreciate all the color. Thanks. Operator: We now turn to Analyst with RBC. Your line is open. Please go ahead. Analyst: Just a couple of things to follow up on. Johnny, did you say in your prepared comments that you think deal pricing has moderated somewhat? John W. Allison: Deal pricing—acquisition deal pricing—yes, I think it has lightened up a little bit. I do not see the urgency out there that I did. However, people are talking and continuing to want to do something, and some of them want to do it with Home. I think it is out there. It is just a matter of whether we are ready to do that. We are probably getting close to ready to look at something else, but we are not going to be able to convert it about the same time we convert Mountain Commerce in November. We have been pushed a little bit ourselves. We have had people calling us outside of investment bankers and saying, “We met your company two or three years ago, and we are thinking about doing something and wanted to talk to you.” That happened with a couple—one Florida and one Tennessee—that came at us. We are going over to see Bill and his team. We will have an opportunity to talk to Bill when we get to Tennessee and see where we are going and what we are thinking. We are looking at a Tennessee deal—there is some water out there. We will see how they work out. Analyst: Related to that, how do you feel about being more aggressive on the repurchase plan? Do you have an optimal capital level in mind, or are you warehousing capital for future acquisitions? CET1 of 16.7%—those are high levels. John W. Allison: I do not know if we can spend it as fast as we are making it. That is a pretty good position to be in. We made $118 million—pretty nice. We have so much capital right now that we like our position, but I am ready to buy stock. I am looking at it today. We cannot buy today. Tomorrow we can. We filed our 10b5-1. I want to buy back all of Mountain Commerce—it is about 5.5 million shares. I think we bought essentially all of Happy back. I want to buy all of Mountain Commerce back and go out there. We can do it pretty quick with the capitalization we have. I like to buy stock. Analyst: So it is not an either/or—you can do both? John W. Allison: That is correct. John Stephen Tipton: Yep. Analyst: Thanks. Appreciate it. Operator: We now turn to Matthew Covington Olney with Stephens. Your line is open. Please go ahead. Matthew Covington Olney: Sticking with M&A, you mentioned some potential bank targets in Florida and Tennessee. Can you speak to the appetite of doing M&A in existing markets versus expanding into new markets? Is the bar set higher if you were to expand the franchise into new markets? John W. Allison: There is no comparison to me. If there is a Florida deal out there that we can do, we have management from Key West to Pensacola—management all over the state. We can just add it to someone. You have heard me talk about pouring into one of those guys' buckets. They are great managers. The performance of our Florida operations is outstanding. Those guys know what to do and how to do it. It makes it simpler and easier. We made the big move to Tennessee because we like Bill and his team. We need to grow there and build that and muscle up Tennessee because I think there is opportunity—there is a little disruption over there. I think it will give us an opportunity to pick up and build some muscle in that state as we have done in Florida. The reason being, you get more consolidation savings. If you can close some branches, that is a big savings. We will continue to focus more on where we are than outside of that. When we look outside, one of those deals I am talking about that your banker was calling me about is outside of that. I really like the operator. We like the guy. We like his company. We like what he does. They do not have the growth that Florida has, but he runs a good, clean operation. Why would we go there? Because it is simple and clean, and they do a good job running their company. It kind of fits Bill’s math. If you are going outside the market, you better get somebody like Bill that knows what to do and knows how to run it. Matthew Covington Olney: Appreciate it. As a follow-up—Chris is still on the line—question about private credit. You noted the bias for further reduction. Can you expand on your outlook over the next few years, and when do you expect to see opportunities for growth for CCFG? Christopher C. Poulton: Thanks, Matt. Two things. One, right now the uncertainty is: what do the underlying loans look like and where do they go? It feels early because I think you are going to see a false bottom—some price expansion or markdowns in notes, people say “that is it,” and then there is the third shoe to drop. We are not seeing a lot of capitulation on price, and there should be, and we are also not seeing much activity. Nobody is pricing a new facility today if they do not have to. We look a lot at whether these loans have been marked appropriately—what is happening to the other line of credit, has EBITDA expanded or not, have the loans been marked, etc. We would like to see a little more of that before we get comfortable. We have had people come to us and say, “I would like to get out of some positions; what would the price be?” Our answer: price does not fix credit. An extra 50 basis points is not going to save me when I need credit support. Right now, we are biased toward “let us figure this credit thing out.” This may turn into nothing—maybe all these things are fine—but I do not think you should take that risk today. We would want to see more capitulation before we would expand again. We have been in this market for ten-plus years. I think people that came into the market need to take some losses before I would feel comfortable—that is how you get discipline. New entrants thought they were getting something risk-free, they priced it that way, and then it turned out not to be, and then everybody gets religion again. We will look for that, and when we see signs, we might consider expansion again. We also have facilities that will roll off, and right now if a facility rolls off, we probably would not replace it. On the C&I side, that is the posture. Real estate—we continue to see good pipeline growth. We are going to have elevated payoffs, but one is a credit we have had that I have been saying is two weeks from payoff for six months—I think it is paying off today. Not a worry for us on credit—they have been in the sale process and it dragged on. We like the credit, but we get nervous when things stay too long; stuff is supposed to move. We continue to see great opportunities. The pipeline is strong. It might take me more than a quarter to replace what comes off, but not a lot more than that. Matthew Covington Olney: Helpful, Chris. Thank you. John W. Allison: Thanks. Operator: We now turn to Brian Joseph Martin with Bryn Capital. Your line is open. Please go ahead. Brian Joseph Martin: Hey, guys. Just one follow-up, Chris, if you are still there. On your outlook for the year—you talked about a payoff last quarter; it sounds like that maybe got pushed back a bit. Is your outlook for growth still mid-single-digit this year with the puts and takes? Christopher C. Poulton: I think that is right. That is what I would like to see. If we do not have that, I would be a little disappointed. We really look at it on a rolling basis—over the next rolling twelve months, will we grow? I think so. We booked quite a bit last year; we had really good production; not all of that is funded, so we expect some of that to roll through. I like where we are on pipeline. We are in constant contact with customers; most of our business is repeat. Some of it moves around—you get a call on something hot, then they pass, then it is back on. We are flexible, and because we are flexible, we get a lot of looks. Generally speaking, on a rolling three to four quarters basis, I can say we are probably going to expand. Brian Joseph Martin: Perfect. Thanks, Chris. A couple follow-ups from me. Johnny, any change now that you have Mountain Commerce—in terms of sizing—would you look smaller or bigger, or just what is available? John W. Allison: Somewhere in the size of, or larger than, Mountain Commerce would be nice. But we would probably do a smaller deal if it fits Bill. If it is in a market where Bill is not, and it fits him, we would step down and do a smaller transaction. Tennessee is a pretty good size, and we are in about four or five locations—six, seven, eight—we have room to go in that state. Brian Joseph Martin: Got it. Steven, on the margin—you talked about opportunity on cost of deposits at MCB and maybe not as much room on legacy. On the asset side, what is the opportunity for what is remaining to be repriced this year for Home, and any impact from MCB? John Stephen Tipton: I do not think any impact necessarily from Mountain Commerce on the asset side. What we are seeing most recently on what is maturing, given where competition is, is essentially trying to blend with overall where it is maturing from to keep it on the books. The benefit that maybe banks thought was there a year ago—given loan pricing competition and other areas—it is kind of hold on to what you got. Brian Joseph Martin: Gotcha. On production—you said around $900 million this quarter. In recent quarters, has production been similar? John Stephen Tipton: It is a little light for Q1. The $917 million this quarter—Q4 was a little over $2 billion. Seasonally, Q4 is higher. Prior quarters have been a little north of $1 billion. John W. Allison: And some of this is not funding day one. A fair portion is construction that will not fund until six months from now when it starts to fund, so it is hard to pencil all at once. Brian Joseph Martin: Understood. On credit quality—the Texas one you talked about, and the Dallas/Fort Worth apartments and the boat credit—are those still being worked through with no real update on timing? John W. Allison: We work those credits every day. The boat—we are going to a trial in June. We have the boat. It just keeps going before the judge; now we have a third judge and are going to trial. It is a $5 million boat. It is $5 million owed. It may be $7 million to $9 million—by the time we get it sold, it may be $3 million if it takes too long. I have never seen anything quite like that—very frustrating. The apartments in Dallas—we will get it sold eventually. We have had five, six, seven buyers. We will get it sold. There is no loss in that for us. Kevin collected a couple million dollars on it a while back. It is just a matter of getting it out. There were some obstruction problems. It is in receivership, and the receiver has to correct some safety issues. We may find somebody to take it where it is at. We are working leads all the time. Realistically, we may have to work through the issues that need to be completed before you find the right buyer. There is opportunity there. If we find the right person, we will get it sold and moved. Brian Joseph Martin: And the outlook on charge-offs near term—still pretty benign? Christopher C. Poulton: I would agree with that. John W. Allison: I do not anticipate any more losses on the boat credit or the apartment credit. Those are the ones we are working through. They are marked and written down. If the $100 million credit had some loss, I would be shocked. I have been fooled before, but I think we are fine. It would just be a bump in the road for us. We have the PPNR, and we have reserves. We have 15 years’ worth of charge-offs in our reserve—based on our history, including the Texas cleanup. Brian Joseph Martin: Last one for Brian. Fee income seemed pretty clean around $44 million. Is that a decent level to think about going forward? Brian S. Davis: You are right. Over the last four quarters, we have had somewhere between $4 million and $5 million every quarter drop down in the other income line item—different events ranging from $5.7 million in the third quarter of last year to $3.9 million in the first quarter of last year. This quarter, we did not have any of that. Brian Joseph Martin: So a good baseline to work off, with hope to trend upward. Perfect. Congrats on the quarter, and thanks for taking the questions. John W. Allison: Appreciate you. Thank you. Operator: We have no further questions. I will hand back to Mr. Allison for any final comments. John W. Allison: Thanks. It is a long day. A lot of questions. A lot of interest. Thank you for your support. We will continue to do our part, and hopefully we will continue to run the 2% ROAs. They beat us up a little bit on the stock today—kind of hammered us on the stock. I do not think we deserve to be off 3%, but it is an opportunity to buy. It is a great opportunity to buy. Timing would be good for us. That is it. Thank you very much. Talk to you in 90 days. Operator: Ladies and gentlemen, today’s call has now concluded. We would like to thank you for your participation. You may now disconnect your lines.