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Sarah Matthews-DeMers: Welcome to the AB Dynamics 2026 Half Year Results Presentation. I'm Sarah Matthews-DeMers, the CEO, and I'm joined today by our Interim CFO, Andrew Lewis. I'm going to be taking you through the highlights before Andrew takes you through the detailed financial performance. Following this, I'll provide my initial observations from my first few months as CEO and an update on our progress against our medium-term growth strategy before wrapping up with a summary of FY '26 to date and the outlook for the remainder of the year. We set out our medium-term growth ambitions in November 2024, and I remain committed to delivering these. We have continued to make strategic progress in shaping the group to take advantage of the structural market drivers that underpin the significant medium-term growth opportunity. As we had already signposted, revenue was softer in the first half due to the order intake delays in the second half of last year caused by tariff disruption, with only GBP 44 million of orders received. In half 1 of FY '26, it is pleasing to see positive customer activity and order intake recovering to more positive levels with GBP 64 million of orders received. Our closing order book of GBP 47 million, together with revenue delivered in half 1, provides approximately 70% coverage of expected full year revenue. Combined with our confidence in operational execution, this leaves us well positioned to deliver in the second half of the year. We have enhanced our focus on innovation to drive future growth, an area I will cover in more detail later in the presentation. Our second value creation pillar is margin expansion. Our operating margin was maintained at 18.6% as the impact of lower volume was offset by operational improvements, management of discretionary spend and a positive revenue mix. This shows the benefits of the investment made over the last 5 years to make the business more agile and responsive to dynamic market conditions. Our full year margin is expected to show year-on-year progression given the expected half 2 revenue bias. In addition, the lower-margin Chinese testing services business, VadoTech, will now become a smaller proportion of the group, which will also benefit margin. In the operations function, we have a further program of continuous improvement underway to drive our incremental margin growth. And I am confident of achieving our sustainable margin target of greater than 20%. We have a promising pipeline of value-enhancing and strategically compelling acquisition opportunities that we are continuing to develop. Our significant net cash balance of GBP 39.3 million supports further organic and inorganic investment opportunities. I'll now hand over to Andrew to take you through our financial performance. Andrew Lewis: Thanks, Sarah, and good morning, everyone. It's been a privilege to join the group with AB Dynamics pedigree and to work with Sarah and the team over the last 2 months. I found a business with talented people, great products and excellent long-term high-quality customer relationships. On to the business of the day and the results for the first half of 2026. Revenue and profit in the first half were consistent with the previously guided second half bias for the full year in 2026. We expect this to result in a trading performance weighted approximately 55% to 60% towards the second half of the year, set against the context of a greater first half bias in 2025 than typically expected. Order intake in the first half strengthened, showing that the market and customer activity is returning to a more positive level after a more subdued third quarter of FY '25, which was heavily impacted by global trade tariff issues. Looking at the numbers in more detail. Revenue was down 16%, reflecting the previously communicated delays in the timing of order intake and customer delivery requirements, including the weaker-than-anticipated volumes at our Chinese testing services business, VadoTech, which I'll cover in more detail later in the presentation. Operating profit decreased by 16% to GBP 9.1 million. Operating margin was maintained at 18.6% with a negative impact of operational gearing offset by the full year effect of operational improvements, management cost actions and a positive revenue mix. The effective tax rate remained flat at 20% and earnings per share decreased by 15% to 31.3p. On a rolling 12-month basis, cash conversion of 102% and our rolling 3-year average cash conversion of 105% demonstrates that we're consistently able to turn our profits into cash. We are increasing the interim dividend by 10%, reflecting our strong financial position and confidence in the business. The order book at the end of the period was GBP 47 million, of which GBP 29 million is for delivery in the second half. This, combined with first half revenue, provides approximately 70% cover of full year 2026 expected revenue. Moving on and looking at the year-on-year operating profit bridge. The negative impact of operational gearing was offset by a combination of the full year effect of operational improvements, primarily in testing products, Management implemented cost mitigation actions, largely around the timing of discretionary spend and revenue mix, which contained a number of components. In Testing Services, growth in the high-margin U.S. mileage accumulation business, together with lower revenue in the low-margin Chinese testing services business and in simulation, a higher proportion of high-margin RF Pro software. This delivered an operating margin, which was maintained at 18.6%. Looking into the second half, we expect the volume to be higher and thus will benefit from operational gearing. Operational improvements are embedded into the business. Revenue mix is harder to forecast as it is often dependent on the timing of some large individual deliveries. And overheads will be managed carefully to balance financial performance with investment in innovation and our people. Now looking at cash. While in the period, working capital increased due to the timing of customer deliveries falling later in the period than usual, driving an increase in receivables, our rolling 12-month cash conversion of 102% demonstrates a continuation of our track record of turning profits into cash. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 2 million invested in capital projects, including on new product development in line with our technology road map. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 39.3 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products. This segment includes driving robots, ADAS platforms and soft targets and laboratory-based test equipment. Revenue was down 17% as a material delivery of robots to a North American OEM made in the first half of 2025 did not recur in the period. Underlying demand drivers remain strong and order intake was encouraging during the first half of 2026, particularly in Asia Pacific and North America. The increase in margin was driven by operational efficiencies, together with cost control measures focused on the timing of discretionary spend. Testing services includes our proving ground in California, powertrain and environmental testing in Michigan and on-road testing in China. Revenue decreased by 29%, which is very much a tale of 2 geographies. Performance has been positive for our U.S. businesses, where new customer wins for our mileage accumulation business and increased track testing activity on behalf of the U.S. regulator drove good revenue growth. However, our business in China, VadoTech, has seen significantly weaker-than-anticipated volumes under the new contract with a European OEM awarded at the end of last year. The customer has faced challenging local market conditions as its market share as a premium European brand has been replaced by domestic brands such as Geely and BYD and the lower consequent on-road testing activity has resulted in a reduction in our revenue. The VadoTech Testing Services business remains in continuing activities in the half year numbers as a strategic review commenced shortly after period end. This slide illustrates the financial impact of the VadoTech business on the Testing Services segment in the first half of this year with comparatives for last year's half and full year. In light of the performance of the VadoTech business in the first half of this year and customer intelligence about their revised expected volumes, the group recorded an impairment of the VadoTech business of GBP 16.8 million, the majority of which is noncash. The detail on the slide should provide sufficient information to allow modeling of the U.S.-based Testing Services segment, which as can be seen, is a higher-margin segment without the VadoTech results in it. It is important to stress that this is an isolated issue with a single European OEM who is facing challenging local market conditions in China. And has no bearing on the opportunities to sell testing products to Chinese OEMs for local use in China, which has been a strong market for our testing products in the first half of the year. Simulation includes our simulation software rFpro and driving simulator motion platforms. The slight decrease in revenue was driven by lower motion platform sales, where we expect revenue to be more heavily weighted to the second half, offset by higher software sales. Customer activity in this area was buoyant in the first half and included the EUR 9.7 million contract win to supply advanced driver in the loop simulation equipment to a major European OEM, which we announced in December. Margins were impacted by the mix of higher software and lower equipment sales in the period. As a reminder, high-value simulator sales are individually material and 2 further order wins are assumed in our second half revenue expectations. Our key financial enablers are unchanged and include our great people with over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations and finance. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that's been made in our people. Our cash conversion, which we aim to continue at 100% through the cycle, and our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million revolving credit facility. Whilst we prefer to remain debt-free, our debt capacity at approximately 2x EBITDA is now GBP 55 million, which for the right acquisition, we could use for a short period, then pay down from cash generation. Our capital allocation policy is unchanged, and we're pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and the CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for testing products is designed to address the opportunities of both regulation and NCAP testing over the next 5 years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. In simulation, new product development is targeted at addressing evolving customer requirements and ensuring our product range provides solutions for a range of use cases and budgets across the road and motorsport markets. We have well-invested facilities across the group, but where appropriate, we'll invest CapEx to increase production or service capacity. And we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest where we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit increases over the last 5 years. We will only consider returning further capital to shareholders if we are holding surplus cash and acquisition multiples ever become unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 21% in the first half of 2026. I'll now hand over to Sarah, who will provide an insight into the first few months in her new role and to recap on the progress against our medium-term growth strategy. Sarah Matthews-DeMers: Thanks, Andrew. Having been in the CEO role since the 1st of December, I'd like to share my initial observations. We have made a huge amount of progress at ABD over the last 5 years, and it's a very different business to the one I joined. We have great people, great products and a great market position, which underpin my confidence in the future of the business. There is no change to our overall strategy. And going forward, you should expect evolution, not revolution. We have reviewed the portfolio of prior acquisitions and taken early decisive action given the changes in market dynamics for our VadoTech business. I'm passionate about driving the group forward and will focus on innovation, continuous improvement and developing and growing our people. During the last few months, I have visited 9 out of 10 of our business units and personally met around 90% of the group's employees. I've really enjoyed my time visiting our sites and talking to some of our very talented people. We've run innovation workshops attended by all levels of the organization, designed to generate new ideas for innovation, continuous improvement and excellence and to promote a culture of respect. I was delighted that these workshops attracted full attendance and the engagement and enthusiasm of my colleagues reinforced my view that the group is a wash with talented and engaged people. Over 500 ideas have been generated and are currently being reviewed and actioned. A broad range of opportunities have been identified to drive both revenue growth and operational improvements. As a reminder, our medium-term ambition is to double revenue and triple operating profit from our FY '24 baseline, and I am fully committed to delivering the plan. The graph demonstrates how this will be achieved by the compounding effect of delivering average organic revenue growth of 10% each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. When we articulated the plan in November 2024, we clearly didn't have visibility of some of the geopolitical and macroeconomic issues and challenges that the second half of FY '25 brought or the more recent developments in the Middle East. And we have always said the medium-term progression was unlikely to be delivered in a perfectly linear fashion. As expected, half 1 '26 had a softer trading performance due to the macroeconomic disruption we experienced in the second half of last year, with revenue down 16%. And we expect FY '26 to have a greater weighting towards the second half. Despite the decrease in revenue, we have maintained the group operating margin at 18.6%. And in M&A, our pipeline continues to progress. I will give further detail on each of the 3 elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in 4 main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first 2 relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions and the increasing regulation and certification requirements in this area. These long-term tailwinds support the growth of the group's end markets across each of its 3 sectors, but have also led to volatility in the wider automotive market that can impact the timing of specific customer procurement activity over a short-term period. At a macro level, in the wider automotive markets, we note a continuation of the regional trends noted previously, whereby traditional European OEMs are losing market share to new entrants and are under pressure to innovate in response. Overall, in 2025, the global automotive market recovered to near pre-COVID highs with growth driven by APAC, where the group has a strong market position. A divergence internationally in terms of the rate of EV adoption following changes implemented by the U.S. administration, which will mean EVs and ICE vehicles are likely to coexist for longer, driving increased platform churn and therefore, testing demand. Rising investment in Level 2 ADAS systems, which provide partial driving automation such as lane keeping assist with premium technologies filtering into more affordable cars. Our product lineup is well suited to continue to capitalize in this area of development and testing. While the development of autonomous vehicles has been well publicized, we do not expect full-scale adoption of AVs until well into the future. With that said, the products and services we offer are critical to AV development, be that in high fidelity simulation or physical track testing scenarios. Our business is resilient against short-term market disruption, and our market drivers support sustainable double-digit revenue growth in the medium term and beyond. We are OEM and powertrain agnostic with over 150 different customers globally, including conventional manufacturers and Chinese EV makers. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. We have a number of organic growth opportunities. And on this slide, we have broken them down across each of our 3 segments to help illustrate how we expect to sustain increases in both volume and pricing going forward. The key takeaway is that across all segments and product or service offerings, we operate in growing end markets, which in the long term, we expect to drive incremental sales volumes. The timing of this is fluid across different geographies and OEM customers. But as technological advances in safety technology continue, the associated regulatory and certification environment is expected to follow, thus driving demand for our equipment. In addition to this overall market growth, there are further opportunities for growth in areas where the group can increase its market share. For example, in platforms and soft targets, where it competes with 2 other main competitors and has greater scope to win new customers. The group has a strong position in the market and a premium offering, which gives it strong pricing power and has enabled it to consistently increase prices above inflation in recent years. In areas where the group has strong niche positions such as robots and its simulation software, we will continue to maximize this opportunity. Finally, while replacement cycles underpin a level of steady-state revenue, our continued investment in new product development will help to stimulate demand and enhance growth prospects. While opportunities exist across each segment, there are particularly strong opportunities in robots and platforms as our equipment evolves to keep pace with ADAS technology and for driving simulators as we incorporate new customer requirements into new product launches. Operating margin expansion will be achieved through delivering operational gearing as we scale the business, simplifying the business and standardizing our processes and procedures. In our main manufacturing facility in the U.K., we delivered a net improvement of GBP 1.1 million in FY '25 with initiatives spanning supply chain efficiencies, planning and layout improvements and product rationalization. In half 1 '26, the full year effect of last year's initiatives delivered a further GBP 0.3 million. The innovation workshops I have conducted over the last few months will drive the next wave of incremental margin improvement opportunities, which we are working to monetize in FY '27. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we have built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. During the year, we have refocused our pipeline of opportunities and continue to develop relationships with a number of targets. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a potential transaction in the period. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. To summarize half 1 performance and the outlook for the remainder of the year, Revenue and profit in half 1 were consistent with the previously guided second half bias for FY '26. Order intake in the first half of GBP 64 million shows that the market and customer activity are returning to more positive levels after a more subdued third quarter of FY '25. Despite the lower revenue, we maintained margin at 18.6% from a combination of operational improvements, cost mitigation actions and positive revenue mix. We have proposed a 10% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 102% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM and powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group's geographic diversification and critical nature of its market-leading products and services have created a highly resilient platform that is well positioned to support customers navigating dynamic market conditions. We have good visibility into the second half of the year with an order book of GBP 47 million, of which GBP 29 million is for delivery in half 2, giving coverage of around 70% of expected revenue for the full year. We note the emerging situation in the Middle East. And whilst the group has no operating footprint in the region, we continue to monitor any potential impacts from broader risks to trade and cost inflation. The group has strong pricing power and a proven agile approach to managing the business through changing conditions. And so we remain confident in delivering on our key strategic and operational priorities. Whilst we are mindful of the current geopolitical uncertainty, absent an extended disruption, we expect adjusted operating profit for FY '26 to be in line with current expectations with an expected 55% to 60% revenue bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. That concludes the presentation. Thank you for joining us. Unknown Executive: So question number one is, how are you maximizing the use of AI in the business? Sarah Matthews-DeMers: In a number of different ways in our products, mainly in our software for AB Elevate. This enables our customers to train and test AV and ADAS using AI, using customizable training data that can generate hundreds of scenarios testing sensors. In our product development, we're using AI for software code debugging and also reducing engineering lead times. And then in the back office of the business, we're using it for efficiencies in terms of customer support, prepare training materials frequently asked questions and meeting minutes, et cetera. One of the things we are looking at is risk of using AI and allowing our IP to leak out into the wider Internet. So we're being very careful about the tools that we're using and ensuring that they are ring-fenced and safeguarding our IP. Unknown Executive: Great. Thank you. Question number two, what is the current state of OEM R&D budgets? And have they been cut in response to end market weakness? Sarah Matthews-DeMers: Well obviously, OEM R&D budgets are immune to falls in production volumes. Actually, what we're seeing in the market is that in the current environment, OEMs can't afford to cut their R&D budget significantly because of the competition from new Chinese entrants that are bringing models to market more quickly and efficiently and the more traditional OEMs having to fight hard to keep up in Europe and the U.S. So we're not seeing that as a significant movement. Unknown Executive: Okay. And following on from that, next question is, do you work with Chinese OEMs? Sarah Matthews-DeMers: We do absolutely work with domestic Chinese OEMs. And we sell testing products and simulators into China. While we sell direct to some of the larger OEMs, there are around 400 start-up OEMs in China who don't have the facilities to do their own testing. So we're selling into the testing providers that they're using to be able to do that testing. Unknown Executive: Great. And then finally, perhaps this is one for you, Andrew. How significant is the growth opportunity from here? Where could this business be in 5 to 10 years' time? Andrew Lewis: Yes. I think we set out the medium-term growth ambition is to double revenue and triple operating profit over the medium term. And Sarah explained the 3 component parts of how we believe we can deliver that. And I guess the growth drivers are structural and long term. And so we see a compounding effect from there that could take that out over the next decade. Unknown Executive: Sure. Okay. Well, that's all we've got time for. I'll hand back to Sarah to finish off. Sarah Matthews-DeMers: Great. Thank you. Thanks for listening, everyone, and we look forward to speaking to you again in Autumn.
Operator: Good day, and thank you for standing by. Welcome to the Hays plc Trading Update for the quarter ending 31st of March 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kean Marden, Head of Investor Relations and M&A. Please go ahead. Kean Marden: Good morning, everyone, and thank you for joining us on a busy reporting day for the sector. I'm Kean Marden, Head of Investor Relations, and I'm joined here today by James Hilton, Chief Financial Officer, to present Hays' Q3 '26 results. Before we begin, please be aware that this call is being recorded, and the replay is accessible using the number and code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call regardless of whether these statements are affected by new information, future events or otherwise. I'll now hand you over to James. James Hilton: Thank you, Kean. Good morning, everyone, and thanks for joining us today. I'll present the key points and regional details of today's trading update before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year unless stated otherwise, and consequently exclude our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. Group net fees decreased by 8% with Temp & Contracting down 6% and Perm down 12%. I'm pleased to confirm that strong consultant net fee productivity growth and cost discipline continues to offset lower net fees. Although near-term market conditions are likely to remain challenging, and we remain mindful of heightened global economic -- macroeconomic uncertainty, we currently expect FY '26 pre-exceptional operating profit will be in line with consensus. I would like to highlight the following key items from the results. Temp & Contracting net fees decreased by 6% as we saw a modestly stronger return to work in the U.K. and Ireland and ANZ and the year-on-year decline in volumes and average hours worked in Germany was in line with our expectations during the quarter. Group Temp & Contracting volumes decreased by 5% year-on-year, including Germany, down 9%, UK&I down 8%, ANZ down 6%, and Rest of the World up 2%. Perm net fees decreased by 12%, driven by a 15% decline in volumes as conversion of activity in UK&I and ANZ reduced modestly versus Q2. This was partially offset by a 3% increase in the group average Perm fee supported by our actions to target higher salary roles. We continue to manage our consultant capacity on a business line basis. And despite challenging markets, our actions delivered 7% year-on-year growth in average consultant net fee productivity in Q3, including notable increases in the UK&I and our Rest of the World businesses. On a seasonally adjusted basis, productivity has now increased for a sector-leading 10 consecutive quarters. Consultant headcount reduced by 3% in the quarter and by 14% versus prior year. We've continued to make strong progress towards our structural cost saving program with a further GBP 15 million per annum savings delivered in Q3. We've now achieved GBP 30 million annualized savings in FY '26, making excellent progress towards our target of GBP 45 million by FY '29. In total, we've now delivered GBP 95 million annualized cumulative structural savings since the start of FY '24. Our non-consultant headcount exited the quarter down 7% year-on-year. And the group's net debt position was circa GBP 15 million, which is in line with our expectations and reflects normal seasonal cash flows. I will now comment on the performance by each division in more detail. Our largest market of Germany saw fees down 11% year-on-year. Temp & Contracting fees decreased by 11% with volumes down 9% and a further 2% impact from negative hours and mix. Temp & Contracting volumes remained solid overall with return to work in line with prior year and the year-on-year decline in average hours were during the quarter predominantly in our public sector and enterprise clients was in line with our expectations. These sectors hired in anticipation of fiscal stimulus, hence, our placement volumes have remained resilient, but hours work remained softer in the quarter after federal budget approval was delayed. Perm was sequentially stable through the quarter and the year-on-year decline in net fees eased to 10%. At the specialism level, Technology and Engineering, our 2 largest specialisms, were flat year-on-year and down 27%, respectively, the latter impacted by ongoing subdued performance of the automotive sector. Accounting & Finance was down 22%, but Construction & Property performed strongly once again with 37% net fee growth, driven by our focus on infrastructure and the energy sector, and it now contributes 9% of our net fees in Germany. Consultant headcount decreased by 6% in the quarter and by 15% year-on-year. Net fee productivity increased by 5%, driven by our ongoing focus on resource allocation, and we made strong progress with our structural cost-saving initiatives. In U.K. and Ireland, fees decreased by 10% with a modestly stronger return to work in Temp & Contracting down 6%, but Perm remained subdued and was down 15%. Fees in the private sector declined by 8%, while the public sector was tougher, down 13%. At the specialism level, Technology was flat versus prior year, while Construction & Property and Accountancy & Finance decreased by 8% and 6%, respectively. Enterprise fees declined by 4%, while office support was flat as our actions just to target higher salary roles offset lower volumes in our junior roles. Consultant headcount decreased by 4% in the quarter and 16% year-on-year. Consultant net fee productivity increased by 11%, and we made further good progress in improving operational efficiency. Once again, a key driver has been our greater focus from our consultants on high skilled roles, consistent with our Five Levers strategy. As a result, year-on-year growth in average candidate salary remained at 8% for Perm in Q3 and accelerated to 9% in Temp & Contracting. As expected, our sustained focus on cost discipline, including ongoing initiatives to optimize our office portfolio and delayer management has driven a further structural improvement in costs. We've made good progress towards building a higher quality focused business and consequently anticipate improved profitability in the second half. In ANZ, fees decreased by 2% year-on-year with modestly improved momentum in Temp & Contracting, but Perm was more subdued. Temp & Contracting decreased by 1% year-on-year with a Return to Work modestly ahead of previous years. Perm net fees down 6% slipped back into modest year-on-year decline as conversion of activity to placement became more challenging. The private sector decreased slightly by 1% with the public sector down 6%. At the specialism level, Construction & Property, our largest specialism at 21% of ANZ net fees increased by 6% with office support and Accountancy & Finance up by 7% and 5%, respectively. Technology declined by 11%. Australia net fees were down 2% with New Zealand at minus 11%. ANZ consultant headcount was up 2% through the quarter but decreased by 4% year-on-year. Driven by our focus on resource allocation, consultant net fee productivity grew by 7%. As with U.K. and Ireland, the key driver of our profit recovery has been greater focus from our consultants on higher-skilled roles. As a result, year-on-year growth in our average salary of our Perm placements was maintained at 5% in Q3. In our Rest of World division, comprising 24 countries, like-for-like fees decreased by 6%. Temp moved back into positive year-on-year growth and fees were up 3%, but Perm declined by 12%. As a reminder, our total actual growth rate includes the impact of our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. In EMEA ex Germany, fees decreased by 8%. France, our largest Rest of the World country, remained tough and loss-making with fees down 17%, but our actions to address productivity and costs are being delivered on plan, and we continue to expect an improved performance in H2. Southern Europe performed strongly with Spain and Portugal again achieving record quarterly net fees, up 17% and 6%, respectively, and Poland grew by 2%. In the Americas, fees decreased by 7%. The U.S. and Canada were down 8% and 2%, respectively. We have previously highlighted a substantial bid pipeline with large enterprise clients in North America, and I'm pleased to share that several contracts have now reached final close with mobilization anticipated over the coming quarters. Brazil, down 12%, was again challenging. Asia fees increased by 8% with activity -- improved activity overall through the quarter. Japan grew by 33%, driven by strong growth in our Temp & Contracting business and an easier comparable. Mainland China grew by 16% and Hong Kong by 9%. For the Rest of the World as a whole, consultant headcount increased by 3% in the quarter and by 14% year-on-year. Before moving to the current trading, I wanted to take a few moments to update you on our strong strategic progress during the quarter. As we've previously shared with you, our initiatives to improve consultant net fee productivity in real terms through our Five Levers and structurally improve our cost base will be key drivers of profit recovery. Amidst challenging markets we are executing well and continue to make significant operational progress. We continue to invest in high potential and high-performing business lines and scale back or exit those with low performance and potential. As previously communicated, we have exited 4 countries over the last year, and we'll continue to review our country portfolio in the medium term. Consultant fee productivity up 7% in the quarter has increased for a sector-leading 10 consecutive quarters, driven by careful allocation of consultants to business lines with the most attractive productivity and long-term structural growth opportunities. Greater focus from our consultants on high skilled roles and our investments to provide them with the best tools. Within Temp & Contracting net fee growth was positive in 3 of our 8 focus countries in Q3. And at the group level, Temp & Contracting now contributes 65% of net fees. In Enterprise Solutions, we've recently signed several new contracts which we expect to contribute to fees over the coming quarter. And our programs to structurally reduce our cost base performing well with GBP 95 million per annum aggregate structural savings now secured since the start of FY '24. We continue to make strong progress with our initiatives and expect the full financial benefits to build over time. Moving on to current trading and guidance. To date, we have observed minimal impact from developments in the Middle East, but we remain vigilant. Although we have limited forward visibility given the heightened levels of global macroeconomic uncertainty, we expect near-term Perm market conditions to remain challenging but expect greater resilience in Temp & Contracting to continue. We were pleased once again with our net fee productivity through Q3 and believe our consultant headcount capacity is appropriate for current market conditions and therefore, expect it to remain broadly stable in Q4 as we balance focused investment in high-performing and high-potential business lines with improving productivity in more challenging areas. We will continue to structurally reduce our cost base to position Hays strongly for when end markets recover and expect to make further substantial progress in Q4. As a result of the acceleration of our cost program, we have incurred around GBP 20 million of exceptional restructuring costs to date in fiscal 2026. But finally, there are no material working day impacts anticipated in Q4 '26. I'll now hand you back to the administrator, and we're happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Rory McKenzie from UBS. Rory Mckenzie: It's Rory here. Two questions, please. Firstly, I'm sure you've scrutinized all the forward indicators all the ways that you can. So have you seen any signs of client activity changing at all since the start of the Middle East conflict? Then secondly, within enterprise clients, can you say what the net fee trend here was excluding those 2 large RPO contracts you lost? And you referenced a growing pipeline and improving win rates. Can you just talk more about any sectors or countries that are driving that and what your hopes are for that fee pile going forward? James Hilton: Thanks, Rory. I'll start off with the first one around the impact in the Middle East. And look, standing back from this the first an immediate priority for us has been the safety and the well-being of our 70 or so colleagues over in the region, specifically in the UAE I mean as I put in the statement and in the script, we have seen to date little to no impact at all in our -- either our fees or in our forward indicators. But clearly, we remain highly vigilant given the level of uncertainty that's building around the world. And as you would expect, we'll watch every piece of data like a hawk. And if and when we see any change, we'll react accordingly. But as we stand here today it's business as usual. We're continuing to focus on our priorities, which is optimizing our resource allocation for the best long-term opportunities versus -- and managing it versus the current level of demand and activity. We're fully focused on our cost programs, and we expect to make good progress through the next quarter, and we're continuing to invest in our technology and our people and position ourselves for the long term. So as a team, Rory, you know us well, we've been through choppy times in the past, whether that's GFCs, whether it's pandemics. This is the next thing to come along to the world of geopolitics, but we'll manage it accordingly, and we'll stay very, very close to it. And as and when we see anything, we'll let you know. Second question was around Enterprise and really the trends in that business. I think if we just look through the impact of 2 large losses that we had in Q4 last year, actually, excluding those, we were about flat year-on-year in the Enterprise business. I mean, bearing in mind this time last year, it was an all-time record performance for our Enterprise business. So we're up against a relatively tough comp. We were down 5% in the quarter. But if I adjust for those 2 contracts, it's about flat. In terms of the pipeline, it's been encouraging, actually. We've been talking a little while now around the efforts we've had to sharpen our focus on the bid pipeline and what we've had is some really successful conversions of that and now getting those deals over the line in the last quarter have been -- should be beneficial for us in the coming quarters ahead. In terms of where those are concentrated, we've had several wins in the North America and in the U.S., in particular in the tech sector as well. So that's where a lot of our focus has been, as you know, in terms of investment and really pleasing to see some of those efforts coming through. And I think that will help that business going forward over the next 6 to 12 months. Rory Mckenzie: Great. Maybe just one more to follow up on the kind of the business repositioning in these tricky markets. You're having to manage some areas that are up strong double digits right now and other areas that are still down strong double digits. So I know you've closed 4 country operations, and there's lots of kind of repositioning in the group. But can you talk about how you -- are you still in a process of a very active portfolio management? Could there be other countries or practices you might be closing to redeploy? Or how far through the evaluation of all the mix do you think you are right now? James Hilton: I mean the way we run the business, Rory, is not just at a country level. We -- as you know, we run it at a business line level. So whether that's a specialism or the contract form within that specialism. So we may be investing in tech contracting in a country while we're disinvesting in Perm because we see deeper levels of demand and activity, and we have to make appropriate decisions. And you're absolutely right. If you look at our consultant headcount at a macro level in the last quarter, we were down 3%. But actually, several of our countries, we were strongly investing in, and I'd highlight Japan, Spain has been 2 good examples there where we're seeing relatively benign macroeconomic conditions, we see really good long-term opportunities to structurally grow our businesses there, particularly in the Temp & Contracting area, and we really made some investments in both of those markets, which are really coming through quite nicely. So the way we run our business, as you know, is really to map our resource allocation to both the long-term opportunities for us to grow, but also we have to manage it within the markets we're in and have to respond to current levels of demand and activity. So that's how we do that at an overall group level, Rory. In terms of the portfolio, clearly, we've had 4 countries we've withdrawn from over the last 12 months or so. There's a couple more that we're looking at. I expect us to think about that more strategically going forward and think about the long-term opportunities and the major markets that we need to focus on. But we'll update on that in due course. I mean -- but as today, business as usual, we're very much focused on making sure we've got the right consultants on the right desks in the right markets. Operator: We will now take the next question from the line of James Rowland Clark from Barclays. James Clark: My first question is just in France. You commented it's loss-making at the moment. Are you able to update us on a potential time line for turning profitable at this level of activity in the market? And then my second question is on Australia and New Zealand. It slipped a little bit in this quarter to mind, the private sector was down 1%, it was up 2% last quarter. Just interested to know what's happened there? And a similar comment on Germany and Technology, which has done the opposite. It's materially improved to flat from down 10%. I just wondered if that was complicated or anything else to draw out. James Hilton: Great. Thanks, James. I'll kick off with France. And clearly, it's been a challenging market for us and for the sector overall to be fair, over the last couple of years. Clearly, we've not been happy with the performance there. And as you know, we were loss-making in the first half of the year. We're very much focused on turning that business around, both in terms of the markets that we're focused on increasing our exposure to Temp & Contracting away from junior clerical roles and moving further up the food chain and at the same time, bringing some of the structural costs down in that business. We're well on with our plan. Our current plan at the levels of demand that we've got today would see us back into a breakeven position or even slightly profitable in our Q4. So we're very much focused on that. But clearly, as all our markets is subject to current levels of demand. But other things being equal, I'd expect to be back into a positive position there. As we exit the financial year, which is important for us because France is an important market for us. Not so long ago, we were making GBP 15 million plus of profit there. Let's not forget. So it is an important market for us. It's been through an incredibly challenging time, talk about instability and the broader impacts on business confidence, that's right in the heart of that. The team have had a real battle on their hands, but I think we're coming through that now, and I expect to be in a better position as we exit the year. Question on Australia is a fair one. And actually, we talked last quarter about some positive momentum. As you mentioned, the private sector was up slightly. We were back in growth in the Perm business. And we've seen that slightly inflect actually whereas our Temp & Contracting business has continued to move forward. And I think overall, I look at Australia and we're pretty consistent with where we were 6 months ago. But I would say that the Temp & Contracting business has probably been slightly ahead of where we expected to be and have good momentum and good trends through the quarter as we've highlighted in the returns to work. But on the other hand, Perm has been a little bit softer. And it's interesting because we -- the top of funnel activity is actually pretty good. And I look at the number of job registrations, interview numbers, it's consistent with where we were in September and October. We just haven't seen that conversion come through at quite the same level. As we had 6 months ago. And hence, the Perm fees have come in just slightly short, but it's relatively small deltas both ways, but just a subtle shift there. But overall, it's a pretty stable trend in Australia and actually a pretty similar picture in the U.K. actually, not dissimilar in the trends that we've seen there. Germany tech is predominantly underpinned by our contracted business. So if you think about the weightings of our businesses, the Temp business is heavily weighted to the Engineering sector and the Automotive sector more broadly, whereas the contracting business is the largest business there is in technology. And that's been pretty stable. We've had reasonably pretty solid performance in terms of the number of starters there over the last 3 months post-Christmas. The hours has been stable, which is helpful. The team are doing a really good job of pivoting that business and finding growth within our clients, not everywhere is difficult in Germany. There are pockets of opportunity, and I think the team are doing a good job of finding that. So Technology being flat was a pretty decent result overall for the German business. Hopefully, that covered everything, I think, and please forgive me if I missed anything. Operator: We will now take the next question from the line of Karl Green from RBC Capital Markets. Karl Green: Just a quick question to see if you've got anything incrementally, you say, around a permanent CEO appointment in terms of how the process is unfolding there? And secondly, just technically, an update on what you'd expect exceptional restructuring charges to look like in the second half. You said that you expect to incur increased charges in H2. I just want to check how that compares to previous comments, please. James Hilton: I think I got it, Karl. You were a little bit faint. So if I miss anything in your questions, just please just shout. I think the first question was around the permanent CEO appointment -- clearly, Mark stepped into the role in February on an interim basis. And it's very much BAU. As you can imagine, we're focused on driving performance on making sure we've got the right business line allocation. As you're aware, we've cracked on hard with the structural cost program and better positioning ourselves from that perspective, and we expect to make good progress through Q4 as well. So very much making sure that we deliver and best position the business as strongly as possible. While the Board are clearly running their process, evaluating both external and internal candidates. So that's their process to run and they'll update in due course. But working with Mark, it's very much business as usual, and we're very clear on what we're doing, and we're cracking on with that. The second question was around the restructuring work that we're doing and any update on restructuring costs in the second half. We had about GBP 10 million or so of restructuring charges in H1. And I expect a similar level in Q3, bearing in mind, we've accelerated the delivery of the cost program, but I expect similar levels in this quarter. Clearly, we've got another quarter to go, and as I mentioned, we expect to make good progress. So there's highly likely to be some further costs coming through. in Q4. But clearly, we'll update, Karl, in due course when we're closer to the time, and we know what the actual numbers are. Operator: We will now take the next question from the line of Steve Woolf from Deutsche Bank. Steven Woolf: Just one for me. On the Enterprise Solutions business, down overall, mentioning the contracts you previously flagged on North America and Switzerland. And also down in the U.K. So I was just wondering whether there was any sort of knock on those contracts were global contracts that were lost or whether this was anything specific to the U.K. James Hilton: Yes. Thanks, Steve. Yes. No, it's a fair question. And what we've seen in the last quarter is a little bit of a drop in some of the Perm contracts that we have in the Enterprise Solutions business in the U.K., notably in the construction sector. We've seen a little bit less demand coming through, which has been the driver of that being slightly down year-on-year. But as I said before, I'd highlight that this time last year was an all-time record quarter for that business. So pretty tough comp to go up against. But the Temp & Contracting side with the MSP has been pretty solid overall, but we have seen a little bit of a drop in demand in some of the Perm RPO parts of the business. Operator: [Operator Instructions] We will now take the next question from the line of Tom Burlton from BNP Paribas. Thomas Burlton: Sorry, my line did cut out, so apologies if any of these have been covered, but 2 for me. First one is on Asia, which was particularly strong, and I guess, especially Japan. Just wondering if you could dig a bit more into exactly what the drivers of that were? And then on -- second one is on headcount plans for Q4. I know you touched on the Middle East and limited impact there, but you did mention sort of heightened vigilance. I'm just curious if any of that heightened sort of awareness of what's going on there is feeding into headcount decisions as we think about Q4? James Hilton: Thanks, Tom. I'll kick off with Asia. So 8% growth in the region was pleasing. And as you highlighted, Japan, was the standout performance in that region. Underpinning that, has been really quite rewarding is the return on investment that we've made over the last couple of years in our contracting business, that's now a good -- about 25% of our business, actually probably close to 30% of our business is in the contracting space in Japan. And the investments we've made both in Engineering and in Technology contracting have really started to come through and that business was growing at north of 40% year-on-year, which is really pleasing. So the team are cracking on there and doing a really good job. I'm really pleased with that. We see it as a priority business for us. We think we can grow a big business there, and we're making good headway. So congratulations to the team over in Japan. It's been a really, really good quarter, and I expect to see another one in Q4. Moving on to the headcount question. And again, looking out to next quarter, we put the guidance in the statement as we expect it to be pretty flat overall. I think there was an earlier question that talked around resource allocation and how we manage that. So it doesn't mean that we won't be investing in some parts of the business and maybe scaling back in other parts. But I think net-net, we expect it to be broadly flat over the next quarter based on where we are today. And look, that's as I said at the outset, we haven't seen any significant impact on our forward KPIs and then trading in the business. But we remain vigilant and we'll react to that if we see it. So as we stand here today, we look forward to the next quarter, we think it will be pretty stable overall. But as I said before, there'll be lots and lots of moving parts under the covers where we're scaling back or we're doubling down. Operator: There are no further questions at this time. I would now like to turn the conference back to James Hilton for closing remarks. James Hilton: Thank you. That's all for questions. Thanks again for joining the call today. I look forward to speaking to you at our next Q4 results on the 10th of July. And should anyone have any follow-up questions Kean, Prash and myself will be available to take calls for the rest of the day. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Sarah Matthews-DeMers: Welcome to the AB Dynamics 2026 Half Year Results Presentation. I'm Sarah Matthews-DeMers, the CEO, and I'm joined today by our Interim CFO, Andrew Lewis. I'm going to be taking you through the highlights before Andrew takes you through the detailed financial performance. Following this, I'll provide my initial observations from my first few months as CEO and an update on our progress against our medium-term growth strategy before wrapping up with a summary of FY '26 to date and the outlook for the remainder of the year. We set out our medium-term growth ambitions in November 2024, and I remain committed to delivering these. We have continued to make strategic progress in shaping the group to take advantage of the structural market drivers that underpin the significant medium-term growth opportunity. As we had already signposted, revenue was softer in the first half due to the order intake delays in the second half of last year caused by tariff disruption, with only GBP 44 million of orders received. In half 1 of FY '26, it is pleasing to see positive customer activity and order intake recovering to more positive levels with GBP 64 million of orders received. Our closing order book of GBP 47 million, together with revenue delivered in half 1, provides approximately 70% coverage of expected full year revenue. Combined with our confidence in operational execution, this leaves us well positioned to deliver in the second half of the year. We have enhanced our focus on innovation to drive future growth, an area I will cover in more detail later in the presentation. Our second value creation pillar is margin expansion. Our operating margin was maintained at 18.6% as the impact of lower volume was offset by operational improvements, management of discretionary spend and a positive revenue mix. This shows the benefits of the investment made over the last 5 years to make the business more agile and responsive to dynamic market conditions. Our full year margin is expected to show year-on-year progression given the expected half 2 revenue bias. In addition, the lower-margin Chinese testing services business, VadoTech, will now become a smaller proportion of the group, which will also benefit margin. In the operations function, we have a further program of continuous improvement underway to drive our incremental margin growth. And I am confident of achieving our sustainable margin target of greater than 20%. We have a promising pipeline of value-enhancing and strategically compelling acquisition opportunities that we are continuing to develop. Our significant net cash balance of GBP 39.3 million supports further organic and inorganic investment opportunities. I'll now hand over to Andrew to take you through our financial performance. Andrew Lewis: Thanks, Sarah, and good morning, everyone. It's been a privilege to join the group with AB Dynamics pedigree and to work with Sarah and the team over the last 2 months. I found a business with talented people, great products and excellent long-term high-quality customer relationships. On to the business of the day and the results for the first half of 2026. Revenue and profit in the first half were consistent with the previously guided second half bias for the full year in 2026. We expect this to result in a trading performance weighted approximately 55% to 60% towards the second half of the year, set against the context of a greater first half bias in 2025 than typically expected. Order intake in the first half strengthened, showing that the market and customer activity is returning to a more positive level after a more subdued third quarter of FY '25, which was heavily impacted by global trade tariff issues. Looking at the numbers in more detail. Revenue was down 16%, reflecting the previously communicated delays in the timing of order intake and customer delivery requirements, including the weaker-than-anticipated volumes at our Chinese testing services business, VadoTech, which I'll cover in more detail later in the presentation. Operating profit decreased by 16% to GBP 9.1 million. Operating margin was maintained at 18.6% with a negative impact of operational gearing offset by the full year effect of operational improvements, management cost actions and a positive revenue mix. The effective tax rate remained flat at 20% and earnings per share decreased by 15% to 31.3p. On a rolling 12-month basis, cash conversion of 102% and our rolling 3-year average cash conversion of 105% demonstrates that we're consistently able to turn our profits into cash. We are increasing the interim dividend by 10%, reflecting our strong financial position and confidence in the business. The order book at the end of the period was GBP 47 million, of which GBP 29 million is for delivery in the second half. This, combined with first half revenue, provides approximately 70% cover of full year 2026 expected revenue. Moving on and looking at the year-on-year operating profit bridge. The negative impact of operational gearing was offset by a combination of the full year effect of operational improvements, primarily in testing products, Management implemented cost mitigation actions, largely around the timing of discretionary spend and revenue mix, which contained a number of components. In Testing Services, growth in the high-margin U.S. mileage accumulation business, together with lower revenue in the low-margin Chinese testing services business and in simulation, a higher proportion of high-margin RF Pro software. This delivered an operating margin, which was maintained at 18.6%. Looking into the second half, we expect the volume to be higher and thus will benefit from operational gearing. Operational improvements are embedded into the business. Revenue mix is harder to forecast as it is often dependent on the timing of some large individual deliveries. And overheads will be managed carefully to balance financial performance with investment in innovation and our people. Now looking at cash. While in the period, working capital increased due to the timing of customer deliveries falling later in the period than usual, driving an increase in receivables, our rolling 12-month cash conversion of 102% demonstrates a continuation of our track record of turning profits into cash. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 2 million invested in capital projects, including on new product development in line with our technology road map. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 39.3 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products. This segment includes driving robots, ADAS platforms and soft targets and laboratory-based test equipment. Revenue was down 17% as a material delivery of robots to a North American OEM made in the first half of 2025 did not recur in the period. Underlying demand drivers remain strong and order intake was encouraging during the first half of 2026, particularly in Asia Pacific and North America. The increase in margin was driven by operational efficiencies, together with cost control measures focused on the timing of discretionary spend. Testing services includes our proving ground in California, powertrain and environmental testing in Michigan and on-road testing in China. Revenue decreased by 29%, which is very much a tale of 2 geographies. Performance has been positive for our U.S. businesses, where new customer wins for our mileage accumulation business and increased track testing activity on behalf of the U.S. regulator drove good revenue growth. However, our business in China, VadoTech, has seen significantly weaker-than-anticipated volumes under the new contract with a European OEM awarded at the end of last year. The customer has faced challenging local market conditions as its market share as a premium European brand has been replaced by domestic brands such as Geely and BYD and the lower consequent on-road testing activity has resulted in a reduction in our revenue. The VadoTech Testing Services business remains in continuing activities in the half year numbers as a strategic review commenced shortly after period end. This slide illustrates the financial impact of the VadoTech business on the Testing Services segment in the first half of this year with comparatives for last year's half and full year. In light of the performance of the VadoTech business in the first half of this year and customer intelligence about their revised expected volumes, the group recorded an impairment of the VadoTech business of GBP 16.8 million, the majority of which is noncash. The detail on the slide should provide sufficient information to allow modeling of the U.S.-based Testing Services segment, which as can be seen, is a higher-margin segment without the VadoTech results in it. It is important to stress that this is an isolated issue with a single European OEM who is facing challenging local market conditions in China. And has no bearing on the opportunities to sell testing products to Chinese OEMs for local use in China, which has been a strong market for our testing products in the first half of the year. Simulation includes our simulation software rFpro and driving simulator motion platforms. The slight decrease in revenue was driven by lower motion platform sales, where we expect revenue to be more heavily weighted to the second half, offset by higher software sales. Customer activity in this area was buoyant in the first half and included the EUR 9.7 million contract win to supply advanced driver in the loop simulation equipment to a major European OEM, which we announced in December. Margins were impacted by the mix of higher software and lower equipment sales in the period. As a reminder, high-value simulator sales are individually material and 2 further order wins are assumed in our second half revenue expectations. Our key financial enablers are unchanged and include our great people with over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations and finance. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that's been made in our people. Our cash conversion, which we aim to continue at 100% through the cycle, and our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million revolving credit facility. Whilst we prefer to remain debt-free, our debt capacity at approximately 2x EBITDA is now GBP 55 million, which for the right acquisition, we could use for a short period, then pay down from cash generation. Our capital allocation policy is unchanged, and we're pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and the CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for testing products is designed to address the opportunities of both regulation and NCAP testing over the next 5 years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. In simulation, new product development is targeted at addressing evolving customer requirements and ensuring our product range provides solutions for a range of use cases and budgets across the road and motorsport markets. We have well-invested facilities across the group, but where appropriate, we'll invest CapEx to increase production or service capacity. And we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest where we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit increases over the last 5 years. We will only consider returning further capital to shareholders if we are holding surplus cash and acquisition multiples ever become unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 21% in the first half of 2026. I'll now hand over to Sarah, who will provide an insight into the first few months in her new role and to recap on the progress against our medium-term growth strategy. Sarah Matthews-DeMers: Thanks, Andrew. Having been in the CEO role since the 1st of December, I'd like to share my initial observations. We have made a huge amount of progress at ABD over the last 5 years, and it's a very different business to the one I joined. We have great people, great products and a great market position, which underpin my confidence in the future of the business. There is no change to our overall strategy. And going forward, you should expect evolution, not revolution. We have reviewed the portfolio of prior acquisitions and taken early decisive action given the changes in market dynamics for our VadoTech business. I'm passionate about driving the group forward and will focus on innovation, continuous improvement and developing and growing our people. During the last few months, I have visited 9 out of 10 of our business units and personally met around 90% of the group's employees. I've really enjoyed my time visiting our sites and talking to some of our very talented people. We've run innovation workshops attended by all levels of the organization, designed to generate new ideas for innovation, continuous improvement and excellence and to promote a culture of respect. I was delighted that these workshops attracted full attendance and the engagement and enthusiasm of my colleagues reinforced my view that the group is a wash with talented and engaged people. Over 500 ideas have been generated and are currently being reviewed and actioned. A broad range of opportunities have been identified to drive both revenue growth and operational improvements. As a reminder, our medium-term ambition is to double revenue and triple operating profit from our FY '24 baseline, and I am fully committed to delivering the plan. The graph demonstrates how this will be achieved by the compounding effect of delivering average organic revenue growth of 10% each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. When we articulated the plan in November 2024, we clearly didn't have visibility of some of the geopolitical and macroeconomic issues and challenges that the second half of FY '25 brought or the more recent developments in the Middle East. And we have always said the medium-term progression was unlikely to be delivered in a perfectly linear fashion. As expected, half 1 '26 had a softer trading performance due to the macroeconomic disruption we experienced in the second half of last year, with revenue down 16%. And we expect FY '26 to have a greater weighting towards the second half. Despite the decrease in revenue, we have maintained the group operating margin at 18.6%. And in M&A, our pipeline continues to progress. I will give further detail on each of the 3 elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in 4 main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first 2 relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions and the increasing regulation and certification requirements in this area. These long-term tailwinds support the growth of the group's end markets across each of its 3 sectors, but have also led to volatility in the wider automotive market that can impact the timing of specific customer procurement activity over a short-term period. At a macro level, in the wider automotive markets, we note a continuation of the regional trends noted previously, whereby traditional European OEMs are losing market share to new entrants and are under pressure to innovate in response. Overall, in 2025, the global automotive market recovered to near pre-COVID highs with growth driven by APAC, where the group has a strong market position. A divergence internationally in terms of the rate of EV adoption following changes implemented by the U.S. administration, which will mean EVs and ICE vehicles are likely to coexist for longer, driving increased platform churn and therefore, testing demand. Rising investment in Level 2 ADAS systems, which provide partial driving automation such as lane keeping assist with premium technologies filtering into more affordable cars. Our product lineup is well suited to continue to capitalize in this area of development and testing. While the development of autonomous vehicles has been well publicized, we do not expect full-scale adoption of AVs until well into the future. With that said, the products and services we offer are critical to AV development, be that in high fidelity simulation or physical track testing scenarios. Our business is resilient against short-term market disruption, and our market drivers support sustainable double-digit revenue growth in the medium term and beyond. We are OEM and powertrain agnostic with over 150 different customers globally, including conventional manufacturers and Chinese EV makers. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. We have a number of organic growth opportunities. And on this slide, we have broken them down across each of our 3 segments to help illustrate how we expect to sustain increases in both volume and pricing going forward. The key takeaway is that across all segments and product or service offerings, we operate in growing end markets, which in the long term, we expect to drive incremental sales volumes. The timing of this is fluid across different geographies and OEM customers. But as technological advances in safety technology continue, the associated regulatory and certification environment is expected to follow, thus driving demand for our equipment. In addition to this overall market growth, there are further opportunities for growth in areas where the group can increase its market share. For example, in platforms and soft targets, where it competes with 2 other main competitors and has greater scope to win new customers. The group has a strong position in the market and a premium offering, which gives it strong pricing power and has enabled it to consistently increase prices above inflation in recent years. In areas where the group has strong niche positions such as robots and its simulation software, we will continue to maximize this opportunity. Finally, while replacement cycles underpin a level of steady-state revenue, our continued investment in new product development will help to stimulate demand and enhance growth prospects. While opportunities exist across each segment, there are particularly strong opportunities in robots and platforms as our equipment evolves to keep pace with ADAS technology and for driving simulators as we incorporate new customer requirements into new product launches. Operating margin expansion will be achieved through delivering operational gearing as we scale the business, simplifying the business and standardizing our processes and procedures. In our main manufacturing facility in the U.K., we delivered a net improvement of GBP 1.1 million in FY '25 with initiatives spanning supply chain efficiencies, planning and layout improvements and product rationalization. In half 1 '26, the full year effect of last year's initiatives delivered a further GBP 0.3 million. The innovation workshops I have conducted over the last few months will drive the next wave of incremental margin improvement opportunities, which we are working to monetize in FY '27. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we have built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. During the year, we have refocused our pipeline of opportunities and continue to develop relationships with a number of targets. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a potential transaction in the period. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. To summarize half 1 performance and the outlook for the remainder of the year, Revenue and profit in half 1 were consistent with the previously guided second half bias for FY '26. Order intake in the first half of GBP 64 million shows that the market and customer activity are returning to more positive levels after a more subdued third quarter of FY '25. Despite the lower revenue, we maintained margin at 18.6% from a combination of operational improvements, cost mitigation actions and positive revenue mix. We have proposed a 10% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 102% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM and powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group's geographic diversification and critical nature of its market-leading products and services have created a highly resilient platform that is well positioned to support customers navigating dynamic market conditions. We have good visibility into the second half of the year with an order book of GBP 47 million, of which GBP 29 million is for delivery in half 2, giving coverage of around 70% of expected revenue for the full year. We note the emerging situation in the Middle East. And whilst the group has no operating footprint in the region, we continue to monitor any potential impacts from broader risks to trade and cost inflation. The group has strong pricing power and a proven agile approach to managing the business through changing conditions. And so we remain confident in delivering on our key strategic and operational priorities. Whilst we are mindful of the current geopolitical uncertainty, absent an extended disruption, we expect adjusted operating profit for FY '26 to be in line with current expectations with an expected 55% to 60% revenue bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. That concludes the presentation. Thank you for joining us. Unknown Executive: So question number one is, how are you maximizing the use of AI in the business? Sarah Matthews-DeMers: In a number of different ways in our products, mainly in our software for AB Elevate. This enables our customers to train and test AV and ADAS using AI, using customizable training data that can generate hundreds of scenarios testing sensors. In our product development, we're using AI for software code debugging and also reducing engineering lead times. And then in the back office of the business, we're using it for efficiencies in terms of customer support, prepare training materials frequently asked questions and meeting minutes, et cetera. One of the things we are looking at is risk of using AI and allowing our IP to leak out into the wider Internet. So we're being very careful about the tools that we're using and ensuring that they are ring-fenced and safeguarding our IP. Unknown Executive: Great. Thank you. Question number two, what is the current state of OEM R&D budgets? And have they been cut in response to end market weakness? Sarah Matthews-DeMers: Well obviously, OEM R&D budgets are immune to falls in production volumes. Actually, what we're seeing in the market is that in the current environment, OEMs can't afford to cut their R&D budget significantly because of the competition from new Chinese entrants that are bringing models to market more quickly and efficiently and the more traditional OEMs having to fight hard to keep up in Europe and the U.S. So we're not seeing that as a significant movement. Unknown Executive: Okay. And following on from that, next question is, do you work with Chinese OEMs? Sarah Matthews-DeMers: We do absolutely work with domestic Chinese OEMs. And we sell testing products and simulators into China. While we sell direct to some of the larger OEMs, there are around 400 start-up OEMs in China who don't have the facilities to do their own testing. So we're selling into the testing providers that they're using to be able to do that testing. Unknown Executive: Great. And then finally, perhaps this is one for you, Andrew. How significant is the growth opportunity from here? Where could this business be in 5 to 10 years' time? Andrew Lewis: Yes. I think we set out the medium-term growth ambition is to double revenue and triple operating profit over the medium term. And Sarah explained the 3 component parts of how we believe we can deliver that. And I guess the growth drivers are structural and long term. And so we see a compounding effect from there that could take that out over the next decade. Unknown Executive: Sure. Okay. Well, that's all we've got time for. I'll hand back to Sarah to finish off. Sarah Matthews-DeMers: Great. Thank you. Thanks for listening, everyone, and we look forward to speaking to you again in Autumn.
Operator: Good morning. Thank you for standing by, and welcome to the Pluxee First Half Fiscal 2026 Results Presentation. [Operator Instructions] I advise you that this conference is being recorded today on Thursday, April 16, 2026. At this time, I would like to hand the conference over to Ms. Pauline Bireaud, Head of Investor Relations. Please go ahead, madam. Pauline Bireaud: Good morning, everyone, and thank you for joining us today for our fiscal 2026 H1 results. So I'm Pauline, I'm Head of Investor Relations for Pluxee and I'm joined by Aurelien Sonet, our CEO; and Stephane Lhopiteau, our CFO. Let me guide you through today's presentation agenda in the next slide. So Aurelien will start with the key highlights and figures for H1, followed by a focus on our commercial performance, and then Stephane will take you through our financial results. Finally, Aurelien will then conclude with our outlook, including an update on the regulatory situation in Brazil before we open the floor for the Q&A. And with that, I will hand over to Aurelien. Aurélien Sonet: Thank you, Pauline, and good morning, everyone. I'm pleased to be back with you today to present our first half fiscal 2026 results, starting with our key highlights. We are pleased to share that we delivered overall solid H1, which puts us well on track to meet our full year objectives. First, commercial momentum remains strong and resulted in sustained revenue growth driven by our core employee benefits activity. Again, profitability delivered ahead of plan. Recurring EBITDA margin expanded strongly, supported by the operating leverage embedded in our business model and the strong execution of our efficiency initiatives. Lastly, it translated into strong earnings growth and cash generation, reinforcing further our net financial cash position. Overall, H1 performance strengthens our confidence for the full year and allows us to enter H2 from a position of strength amid a more uncertain macro and geopolitical environment. Let's now focus on the key figures for the semester on Slide 5. Despite the increasingly challenging environment, we continue to deliver sustained top line growth with total revenues reaching EUR 655 million, up plus 5.6% organically. This was supported by the continued strength of our core business with Employee Benefits operating revenue reaching EUR 500 million at a 9.4% organically. And I'll come back on this in the incoming slides. At the same time, profitability delivered strongly. Recurring EBITDA reached EUR 242 million, up plus 12.9% organically, and recurring EBITDA margin expanded to 37%, up plus 229 basis points organically. And finally, recurring free cash flow reached EUR 210 million, corresponding to 86% cash conversion rate. In a world, we delivered a strong and well-balanced performance across growth, profitability and cash generation. And this is exactly what the next slide highlights over time. Beyond quality of execution, the performance delivered in one also reflects how our business model structurally convert top line growth into margin expansion and cash generation. At its core, Pluxee benefits from a resilient growth engine anchored in Employee Benefits. Combined with the operating leverage embedded in our platform, and the continued efficiency gains, this translates into higher profitability with EBITDA growing at twice the pace of top line growth. In turn, this profitability translates into strong cash generation, confirming the robust cash conversion capacity of our model. Let me now focus on our core growth engine, Employee Benefits in the next slide. As part of our growth engine is Employee Benefits. This core business represents the vast majority of our revenues and continue to deliver high single-digit organic growth across regions in H1. In Latin America, Employee Benefits grew by plus 11.5% organically, driven by particularly strong commercial dynamics across products and further supported by favorable face value trends underpinned by local inflation cost. In Continental Europe, growth reached plus 5.1% organically. In the current geopolitical and macroeconomic environment, this represents a solid performance and illustrates the resilience of our core offering across European markets. Finally, in Rest of the World, growth was particularly strong at 16.8% organically, illustrating the favorable dynamic that we observe in terms of market penetration in those countries. Overall, Employee Benefits once again demonstrated this semester the relevance of our pure-play positioning. I will now turn to other products and services in the next slide. Even if other products and services is facing temporary pressure in specific activities, the long-term value creation story remains unchanged. Looking first at Public Benefits in Continental Europe. Current performance mainly reflects the effects related to the contract cycle and order phasing, which are inherent in this business. At the same time, by leveraging our merchant network and payment capabilities, these large-scale programs structurally enhance group scalability. On top of that, our highly selective approach and close monitoring of contract performance ensures that Public Benefits remains sustainably accretive to growth and profitability overall beyond short-term phasing impact. As base effects unwind, performance is expected to progressively regain momentum from H2. Switching to the U.K. and the U.S., where we are strategically refocusing our activity towards employee engagement, a structurally growing segment in both countries. We now operate fully digital scalable platforms and are progressively exiting noncore, lower return activities. Together, these countries account for less than 5% of group revenues. And while they are expected to continue weighing on group's revenue growth in H2 2026, they should return to a positive contribution from fiscal 2027. More broadly, we continue to actively manage the portfolio and allocate capital and resources selectively toward activities and markets offering the most attractive long-term returns. Let's now look at the key drivers of the group's substantial margin expansion in the next slide. H1 marked another strong EBITDA margin increase with operating EBITDA margin expansion accelerating at plus 268 basis points compared to plus 235 basis points last year. It comes first from the operating leverage embedded in our model. Our one platform architecture allows us to absorb incremental volumes with limited additional costs, generating structural scale effects and synergies across the group. This sharp expansion also reflects the structural cost efficiency that we've been progressively delivering since the spin-off. It mainly comes from the streamlining of our product range and processes across countries. The accelerated automation, notably through the increasing use of AI as a key optimization enabler alongside technology and data and a clear prioritization of projects and initiatives based on rigorous value creation monitoring. Cost discipline has become an increasingly important margin driver for Pluxee, complementing volume growth and reinforcing our ability to sustainably improve profitability. Let's switch now to the commercial traction delivered in H1 on Slide 11. Our commercial trajectory remains solid in H1 and positions us well on track to deliver on our full year business targets. First, we achieved a record level of new client wins, generating EUR 0.9 billion of new annualized BVI across all client sizes and geographies. Second, net retention proved resilient despite a more challenging macro environment impacting end-user portfolios in some markets. Lastly, face value remains a structural growth driver of business volumes. In fiscal '24, we have generated EUR 2.9 billion of cumulative incremental BVI from increases in face value, bringing us very close to our 3-year target of more than EUR 3 billion. Let me now detail each of these levers, starting with new client development. New client development was particularly strong in H1. We generated a record EUR 0.9 billion of annualized BVI from new client acquisition with positive momentum across all 3 regions. It reflects our strong commercial execution tailored to the specific dynamics of each local market. Just as importantly, performance remained well balanced across client sizes with SMEs making a substantial contribution and accounting for more than 30% of new development over the semester. In addition, recent M&A contributed significantly, notably in Latin America, where the Santander partnership continued to perform at full speed. The acquisition of Beneficio Facil has also been a step change for our employee mobility business in Brazil, driving more than 50% volume growth year-on-year. This momentum is to be reinforced by the ongoing integration of Skipr in Belgium and in France. With a strong diversified and actionable pipeline, we are confident in our ability to deliver ahead of our full year development target, supported by disciplined execution in the second half. Now beyond new client acquisition, let's now look at net retention, another key driver of our commercial performance. Over the semester, client loyalty remains consistently at high level, underlining the strength of our value proposition to our clients. This provides a solid foundation to actively manage our revenue per client through 2 key levers: First, increase in sales values, which remain a key contributor, driven by inflation trends in Latin America and rest of the world as well as the progressive implementation of recent legal cap increases across Europe. This dynamic is expected to accelerate and continue to support BVI growth in H2 and beyond. Second, the cross-selling, which gained momentum, reflecting our strategy to stand up as a multi-benefit partner for our clients, illustrated as an example, by the accelerated deployment of our employee mobility solutions, as highlighted on the previous slide. At the same time, end user portfolio remained under pressure in some markets. A more challenging macroeconomic environment continued to weigh on labor market dynamics in some countries, leading to a temporary contraction in the covered employee base. As a result, net retention stood at 99% in H1, excluding the temporarily delayed large employee benefit program in Romania. It demonstrated solid resilience in the current environment, confirming the stickiness of our solutions and the effectiveness of our commercial and portfolio management strategy. And with that, I will now hand over to Stephane to take you through our financial performance in more detail. Stephane Lhopiteau: Thank you, Aurelien. Good morning, everyone. It is a pleasure to be with you today to present our financial performance for the first half of fiscal year 2026. Let's start this financial review with the business volumes issued on Page #15. Total business volumes issued or BVI reached EUR 12.9 billion in H1 '26. Employee Benefits remained the growth engine, reaching EUR 10.1 billion of BVI in H1, representing a plus 5.9% organic increase over the semester. It is worth noting that these figures include the deferred rollout to H2 of a large employee benefit program in Romania. Excluding this temporary phasing effect, Employee Benefit BVI grew plus 6.8% organically in H1. This performance reflects robust commercial execution driven by Latin America and Rest of the World as anticipated, which both delivered double-digit organic growth in Employee Benefits BVI over the first semester. Looking now at other products and services, business volume issued declined by minus 20.9% organically in H1. As already mentioned by Aurelien, this performance reflected temporary headwinds in Public Benefits due mostly to anticipated contract cycle and phasing effect of certain large Public Benefit programs across Continental Europe. Let's now see how such business volume issued translated into total revenues on Slide 16. Total revenues reached EUR 655 million in H1 '26, up plus 5.6% organically or plus 3% on a reported basis, including a minus 3.6% currency impact, mainly due to activities in Turkey, partly offset by a plus 1% scope effect. In Q2, total revenues increased by plus 2.8% organic. Operating revenue reached EUR 573 million in H1, up plus 5.7% organically and plus 3.9% on a reported basis, driven by Employee Benefits, which continued to deliver high single-digit organic growth as introduced by Aurelien earlier. Focusing on Q2 '26. Operating revenue reached EUR 306 million, delivering plus 2.8% organic growth. As expected, growth moderated, mainly reflecting nonrecurring effects in other products and services, which I will detail on the next slide. When stripping out these one-offs, we continue to see a strong and sustained momentum with operating revenue organic growth running at plus 6.1% in Q2 and plus 8.8% in H1, confirming the quality and resilience of our core business. Lastly, float revenue increased by plus 5.3% organically, reaching EUR 81 million in H1 '26. On a reported basis, it was slightly down by minus 2.5%, including a minus 7.9% currency impact. I will come back to the float revenue growth drivers in more detail later in the presentation. Before that, let's focus on the key drivers behind operating revenue performance over the semester as shown on Page 17. Employee Benefits operating revenue reached EUR 500 million in H1 '26, delivering a solid plus 9.4% organic growth or plus 7.8% on a reported basis. This high single-digit organic performance was fueled by strong commercial momentum, especially across Latin America and Rest of the World, and it was supported by a solid 5% take-up rate. Focusing on Q2 '26, Employee Benefits generated operating revenue of EUR 266 million, up plus 7.5% organic. Turning to Other Products and Services. Operating revenue reached EUR 73 million in H1, down minus 14.3% organically, of which minus 20.6% in Q2. As Aurelien explained it earlier, this decline mainly reflects first, temporary Public Benefit impact in Continental Europe, combined with the ongoing strategic repositioning of our activities in the U.K. and the U.S., including the exit from selected noncore and lower profitability contracts temporarily weighing on both countries' performance. Let's give a look at the geographical breakdown to see how these operating revenue trends were reflected across regions over the semester on Slide 18. Starting with Continental Europe. Operating revenue reached EUR 250 million in H1 '26, corresponding to a minus 0.7% organic contraction and a plus 0.8% reported growth. The trend, excluding one-off effects in Public Benefit remained solid, delivering plus 3.4% organic growth in H1. Growth continued to be driven by Southern Europe, especially Spain, which was up double digit organically, while France and Eastern Europe were more affected by the macroeconomic environment, notably with regards to end user portfolio trends. With the Public Benefit impact progressively fading, growth trend in Continental Europe should improve in Q3 versus Q2 in a still challenging macro context. Turning to Latin America. Operating revenue amounted to EUR 229 million in H1 '26, delivering a strong plus 12.1% organic growth. The region continued to benefit from strong commercial momentum, particularly in Brazil. Growth was driven by increasing penetration of Pluxee solution across both corporates and SME clients, combined with a continued increase in face values supported by local inflation dynamics. In addition, public benefit activity in Chile remains strong, further contributing to the region's strong performance. As the initial regulatory evolution in Brazil has been affecting the group since the beginning of March, operating revenue growth will turn negative in Q3 in the region as expected. Lastly, in Rest of the World, operating revenue reached EUR 94 million in H1, growing plus 8.4% organically or minus 5.3% on a reported basis, including a minus 13.9% currency impact, mainly related to the depreciation of the Turkish lira. Turkey remains a key growth driver for the group, supported by local hyperinflation environment driving higher face values across the client portfolio as well as by continued penetration through new contract wins. As already indicated, performance in the region also reflected the ongoing transformation of our activities in the U.K. and the U.S. Excluding this impact, operating revenue grew plus 16.9% organically, highlighting the strength of the momentum. Before contributing back to growth from fiscal 2027, this in-depth transformation is expecting to weigh more heavily on Q3 than on Q2 as the cleanup of legacy activities continues. I will now come back to the contribution of float revenue to the top line growth in H1 on Page 19. Float revenue reached EUR 81 million in H1 '26, still delivering a plus 5.3% organic growth, including plus 2.2% in Q2. On a reported basis, float revenue decreased slightly by minus 2.5% year-on-year, impacted by a minus 7.9% currency effect, mainly driven by the Turkish lira depreciation. Float revenue organic growth was mainly driven by higher business volumes issued, notably in countries where interest rates remained elevated such as Turkey or Brazil. This was partly offset by lower interest rates across most geographies, particularly in Europe, following successive interest rate cuts by the European Central Bank. Mitigate interest rate volatility and secure float revenue over time, the group continued to actively deploy a flexible investment strategy, increasing exposure to longer tenor and fixed rate instruments tailored to local financial market conditions. As a result, the average investment yield reached 6.1% in H1 '26, up plus 10 basis points year-on-year. Looking ahead for the full year, given, one, the current geopolitical environment and the implied volatility on interest rates; and two, the still uncertain impact from regulatory evolution on float balance sheet position in Brazil, visibility remains limited. As a consequence, our growth expectation for fiscal year '26 float revenue are now fluctuating from slight decrease to slight increase organically. After reviewing the top line performance, let me walk you through the significant profitability improvement delivered over the semester, starting with Slide #20. Once again, this semester's profitability performance clearly highlighted the strong value creation embedded in our business model and supported by our continued cost discipline. Recurring EBITDA reached EUR 242 million in H1 '26, up plus 12.9% organically and plus 7.7% on a reported basis. Recurring EBITDA margin stood at 37%, increasing by plus 229 basis points organically and plus 159 basis points on a reported basis. This strong margin expansion well spread across regions was largely driven by operating performance. Indeed, recurring operating EBITDA, I mean, here excluding float revenue contribution grew by plus 17.3% organically, translating into a plus 268 basis point organic uplift in the recurring operating EBITDA margin up to 28.1%. This performance reflects, as Aurelien already explained, strong operating leverage as well as strict cost monitoring discipline and continuous operational improvement implemented both locally and at group level, combined with top line and cost synergies from acquired businesses. This strong growth in recurring EBITDA contributed positively to the full income statement all the way down to net profit as disclosed on Page 21. Below EBITDA, first, depreciation and amortization stood at minus EUR 62 million in H1 '26, showing a slight increase year-on-year, consistent with the specific phasing of our CapEx in fiscal year '25 and the additional contribution from newly acquired companies. Second, other operating income and expenses decreased from minus EUR 13 million to minus EUR 8 million, reflecting limited one-off rationalization costs in H1 '26 compared with residual carve-out costs in H1 '25. For the full year, including Brazil restructuring, OIE are expected to remain broadly stable year-on-year at minus EUR 25 million. Operating profit or EBIT reached EUR 172 million, up plus 9% in H1 '26. Financial income and expenses came in at minus EUR 3 million, broadly stable versus H1 of last year. Borrowing costs remained unchanged and were largely offset by interest income generated from non-Float related cash. For the full year, we expect financial income and expenses to land between minus EUR 15 million and minus EUR 10 million. Finally, income tax expense reached minus EUR 53 million with an effective tax rate broadly stable year-on-year at 31.4%. As a consequence, net profit reached EUR 116 million in H1 '26, up plus 9.3% year-on-year, reflecting the strong expansion in recurring EBITDA, lower other operating items and disciplined financial expense management. Excluding OIE, adjusted EPS group share reached EUR 0.78, representing an increase of plus 6.8%, including the initial accretion from the execution of the share buyback program. Let's now take a look at how our solid operational and financial performance translated into a strong cash flow generation over H1 on Slide 20. Recurring free cash flow reached EUR 210 million in H1 '26, driven by the combination of a significant increase in recurring EBITDA, a disciplined monitoring of CapEx and a favorable evolution in working capital, excluding restricted cash. CapEx reached EUR 44 million in H1 '26 or 6.8% of total revenues, stable year-on-year, reflecting our disciplined capital allocation and the continued shift towards a more OpEx-driven model supported by cloud migration and IT service management. Change in working capital, excluding restricted cash, improved to EUR 85 million compared to EUR 43 million last year driven effective focus on cash collection and management. As a result, recurring cash conversion rates reached 86% in H1 '26, reflecting the quality of our recurring earnings. This performance keeps us well on track to meet our 3-year average objective of around 80% cash conversion despite expected regulatory headwinds in Brazil in the second half. This strong cash generation has also been a key driver supporting the further increase in the group net financial cash position as we see on Page 23. Net financial cash position, excluding restricted cash, reached EUR 1.270 billion as of end of February '26, representing an increase of plus EUR 107 million over the semester. This evolution reflected the strong recurring free cash flow, which more than covered the cash outflows for first, the deployment of our M&A strategy; second, the dividend payment; and third, the ongoing execution of the EUR 100 million share buyback program, of which around 64% had been completed by the end of H1. Gross financial debt remain quite unchanged over the semester at a bit less than EUR 1.3 billion, mainly composed of the 2 long-term bond tranches. During H1, we also entered into fixed floating interest rate swaps on part of this bond fixed rate debt, further optimizing the financial structure as part of our asset liability management strategy in connection with float revenue. And then this Pluxee's strong financial cash position and cash generation is also reflected in our unchanged BBB+ rating and stable outlook from Standard & Poor's. And with that, I will now hand it over back to Aurelien for the outlook. Aurélien Sonet: Thank you, Stephane. Let me now wrap up this presentation with our outlook, but starting with an update on recent developments in Brazil and the group's updated action plan. Since the revised framework was announced, we have consistently executed our action plan in Brazil, making tangible progress across our 3 work streams in line with regulatory milestones. So starting with operations. From early March, we have implemented the first measures set out in the decree. And in parallel, we've been preparing the rollout of our best-in-class open-loop solution, leveraging our existing [indiscernible] capabilities with the deployment starting in May. In addition, we've been deploying a multilevel efficiency plan to adapt our cost base and protect profitability, adjusted over time to reflect the different stages of the reform and our business needs. In parallel, we continue to maintain proactive and constructive discussion with Brazilian public authorities, focusing on feasibility, scope and implementation time lines to ensure a pragmatic and orderly transition. And finally, we continue to pursue our longer-term legal actions, keeping all options open to support the sustainable development and proper functioning of the PAT work in Brazil. Overall, we are executing our road map in line with the plan and teams both in Brazil and at group level remain fully mobilized. Combined with our strong H1 performance, this supports our confidence in confirming all our financial objectives for fiscal 2026. As a reminder, our fiscal 2026 objectives assume the full implementation of the Workers' Food program reform for the PAT from H2. It also incorporates the positive impact of our mitigating actions and the progressive adaptation of our operating model in Belgium. Within that framework, we continue to expect stable total revenues on an organic basis for the full year, slight organic expansion in recurring EBITDA margin. This is underpinned by the resilience of our model and by the actions we are taking across the group to protect profitability in a more challenging environment. And finally, recurring cash conversion of around 80% on average over fiscal 2024 to 2026. Overall, our strong H1 delivery, combined with our disciplined execution, reinforce our confidence on full year objectives while continuing to manage proactively in this complex geopolitical and macroeconomic context. To conclude, I would say that Pluxee once again delivered a strong H1 performance with solid revenue growth, margin expansion and robust cash generation. While we are facing a contained regulatory evolution in Brazil, it does not change the fundamentals of our business model, the strength of our commercial momentum nor our discipline on execution. And this is why we remain fully confident in meeting all our full year objectives and focused on long-term value creation for the group. Thank you for your attention. And now with Stephane, we will be happy to take your questions. Operator: The first question comes from Pravin Gondhale of Barclays. Pravin Gondhale: Firstly, on retention, it's sort of 99%, excluding Romania. Could you please give us a sense when do you expect it to sort of return to positive territory? And then secondly, on CapEx levels, H1 CapEx were broadly flat year-on-year, but I remember you chatting -- you talking about FY '25 CapEx being lower on temporary sort of delay in IT and tech CapEx. So given your shift to OpEx-driven model now, what's the right level of CapEx we should be thinking in medium term? And then finally, on Brazil, it's been sort of a few months since the announcement of decree. Since then, have you announced any incremental cost mitigation or renegotiation actions, which should help you to reduce the impact from the regulations? Aurélien Sonet: Thank you, Pravin. So I will start with your last question regarding Brazil. So indeed, as we said during our presentation, we started the implementation of our mitigation plan. And I'd like to highlight the strong commitment from our teams locally. And they've been working on 2 sets of measures. On one hand, the client renegotiation for all our clients who've been using the Workers' Food Program solution. So it has been a very deep work and it's a hard conversation that we've been having with clients, but positive overall. And the second set of measure is much more related to the cost. And as we said, we've been running ongoing cost reduction and optimization actions. And we are doing it in accordance with both our business needs and the evolution of our operating model. What I would mention among other items is that we already conducted a restructuring initiative in February to start streamlining the organization. Regarding the CapEx, maybe, Stephane, you want to take this? Stephane Lhopiteau: As you rightly noticed, this semester, we were consistently with last year for the first semester, a little bit lower compared to the 9% average of CapEx versus revenue that we expect and still expect for this full year. We are right now a bit lower compared to what we used to be 2 years ago with, as you said, this switch to a more OpEx-driven model. However, what happened this semester, there is nothing related to some specific events like what we faced last year with the carve-out. This is more just the pace of our internal project where the pace of activation of the project when they are fully completed was a bit behind. But overall, in the full year, we are fully on track with the more standard 9% over. And then in the medium term, it's likely that this percentage will be reduced by still switching to this OpEx-driven model and also with the higher scale of the group as the group will deliver more growth in the coming years. Aurélien Sonet: Thank you, Stephane. And regarding the net retention, look, we maintain our 100% objective for the full year. So we really aim at reaching at least 100% and we will be helped on that sense by the face value increase. We mentioned it. I mean, we still anticipate stronger contribution from the face value increase on H2. And on the end user portfolio growth, for the moment, for some specific country, we expect a positive inflection. But we also -- we have to remain a bit focused within this challenging macroeconomic and geopolitical environment. Operator: The next question is from Hannes Leitner of Jefferies. Hannes Leitner: A couple of questions from my side. Maybe you can comment on your reference to end user portfolio decline. Can you maybe double-click on that, talking also a little bit in terms of geographic dynamic, especially I would be interested to understand the European dynamic. And then thanks for talking about Turkey. Maybe you can also give us a little bit more detail on your current size of the business operating revenue contribution and how there is the dynamic in terms of market share, et cetera? And then just lastly on Brazil. There's one -- it sounds like the incumbent players are looking for kind of adopting the open loop, but also maintaining the closed loop. Can you just like talk a little bit about that, where -- in which case the closed loop just makes sense to maintain and what's led to the decision? Aurélien Sonet: Thanks a lot. I will start with your question regarding Brazil. So in Brazil, as we were sharing with you, we are still having constructive discussion with the Brazilian government clarifying whether there is an obligation even for the Workers' Food Program, is it a definitive decision to use only an open loop system. So we are currently having those, again, constructive discussion. But it's fair to say that if it's -- this obligation is confirmed, we still have other products in Brazil that will still take advantage of our closed-loop network, meaning a strong relationship with merchants. And on this topic, just to share with you, we still see some very good traction. I mean many -- and when I say many, it's thousands of merchants contacting us every month, close to 10,000 merchants to still onboard into the acceptance network of Pluxee. So that's for the -- regarding Brazil and the open loop and closed loop. Stephane maybe for Turkey. Stephane Lhopiteau: Turkey is as I think we already said, is one of our key countries. It's among our top 6, something like top 6 countries. It's a dynamic country for us where -- and this country contributes well to the organic growth of the group with double-digit organic growth, still strong double-digit organic growth from this country. And we don't share precise numbers by country. So I can't -- I'm not going to tell you -- you asked what is the level of operating revenue. We disclose it for France and Brazil as required by the accounting standard because this country represents more than 10% of group revenue. So you can conclude that Turkey is a big one among the top 6, but lower than 10% of the group revenue. Aurélien Sonet: And regarding the end user portfolio decline, so indeed, overall, at group level, we disclosed quite a negative impact. But it's fair to say that it's pretty different from a country to another, from sector, from industries to others as well. We are still penalized in Europe and mainly in countries such as France, Romania and Austria. And for example, in France, we see companies that are really cautious. Some are clearly putting critical projects and investments on hold, and they remain quite conservative in their approach to systems. And this impact is even more visible in the SME segment. And we saw it even during the Christmas campaign. And yes, after we -- I mean, previously, we are mentioning Mexico is still -- I mean, the situation is getting better, but it's not back to positive yet. And we have other countries where still the SME segment can show some weak signal, I would say. So that's why, again, I mean, we remain very, very cautious for H2 on this specific indicator. Hannes Leitner: I'd just like to explain that because they have been impacted by public social programs. So when you reference that kind of end user portfolio dynamic, is that also because of the expiry of those contracts? And if you now exclude those public contracts, just focusing on the core meal voucher, would you say that... Aurélien Sonet: No, no. I was not referring to those public benefits contract. I was really referring to the employee benefits business. Yes, there are some industries such as the IT, automotive industry that in Eastern Europe are under [indiscernible] at the moment. Operator: The next question is from Justin Forsythe of UBS. Justin Forsythe: Just a couple of questions, if I might. I wanted to come back on Brazil. I think we talked last quarter about some of the puts and takes between the revenue impact that you expect alongside the cost reductions. Just wondered if we could revisit that and confirm the progress there. And maybe talk about the different buckets of cost. I think there's a good portion of cost, which comes out relating to processing. So meaning when you remove some of the back-end processing, as you move to open loop, there is a big reduction in cost as a result of that. I wanted to focus on that other portion of cost, which is the OpEx side. Is there maybe more detail you can give on the specific actions you've taken? Aurélien Sonet: Okay. Thank you, Justin. Stephane, do you want to start? Stephane Lhopiteau: And you might complement? Aurélien Sonet: Yes. Stephane Lhopiteau: Justin, as Aurelien explained during the presentation and answering some of the previous question, in Brazil, I think we need to make a distinction between the potential endgame and the transition period. So the endgame and when I say endgame, there is a lot of uncertainty about this endgame, and we explained that right now, we took an assumption of a worst-case scenario with a full implementation of the reform as currently drafted in the decree. And this is this end game. And based on this endgame, we say that our business in Brazil might be reduced by something like twice. And then in this case, we will target to adapt significantly our business model in the countries by reducing our cost base. And we started to look at it because we are preparing for this situation. And it's almost all lines in the cost base that will be concerned, both processing costs as part of cost of sales or SG&A as well. And we said that, again, with this end game, we would target to keep our EBITDA margin in the country unchanged, meaning that if the top line was to be reduced in the end by twice, we will have to organize things to restructure things so as to be able to reduce our cost base by twice as well in order to keep this EBITDA margin unchanged. Now this is not where we are today. As Aurelien explained, we are in a transition phase. We are -- there are still a lot of uncertainties regarding the scope, the time line, the technical feasibility of this reform with some ongoing discussion with the government as well. So the industry has engaged with the government, and we'll see what will happen. So meaning for this fiscal year '26 and for the second half, we have started to reduce a little bit our cost base as we are going to face some preliminary headwinds, but we also need to protect the top line of the company in case in the end, the reform was to be implemented only partially or in a different way compared to what is currently contemplated. So therefore, there will be an impact in the second half of the year, but the potential 50% decrease in revenue and in the cost base, this is for a much later period in case, again, the full reform was to be implemented as currently started. Aurélien Sonet: And maybe just to complement on the revenue side because you remember that the growth in the business volume and the performance of Brazil remains very strong in terms of business volume growth. Our new sales in H1 were very high. We still benefited from the full impact of our partnership with Santander. We also enjoyed a strong performance in cross-selling, thanks to our new employee mobility benefit product. And talking about H2, we still anticipate similar dynamic in terms of business volume growth than in H1, i.e., double digit. And for us, this is extremely important and positive. Operator: The next question is from Andre Juillard of Deutsche Bank. Andre Juillard: Two questions, if I may. First one about the amortization. Could you give us some more color about the evolution of the amortization during H2 and the year after because you have -- correct me if I'm wrong, that you have 2 components. First one about the general evolution of the amortization regarding the CapEx and the OpEx. And secondly, the plan on M&A. And this is my second question. Your cash net position is even stronger than what it was at the end of last year. Do you have any new plan about the use of this cash or still not clear? Stephane Lhopiteau: Andre, regarding -- so this is Stephane speaking, but I guess you recognize my voice. Regarding your question about depreciation and amortization, no surprise for us. This is fully consistent with the pace of our CapEx in the last 2 years. If you look at it over the last 2 years, we capitalized in average, there are some differences year-on-year, but close to EUR 110 million per year. It was a little bit more than this in fiscal year '24. It was a little bit less in fiscal year '25. It will be a little bit more in this year, fiscal year '26. So this is the pace. And after a while, we are likely to reach the same level of depreciation year-on-year, and this is what we are seeing today with a little bit of contribution from the newly acquired company. If you think about companies like Pobi or Skipr, which have some tech assets, of course, we now consolidate the depreciation of the tech platform of these companies. And at the same time, in terms of amortization of intangible assets as identified as part of the business combination, no surprise, this is fully in line again with we were expecting. Regarding your question on the net cash position, I think it's worth differentiating 2 cash position. You have the overall net cash position. And we also disclosed clearly in our activity report, what we call this net excess cash position, making a clear distinction between the contribution of float related cash to cash and this excess cash. And if you look at this excess cash -- excess cash in the first half of the year with no surprise, we don't benefit from an improvement, but we faced a decrease of about EUR 140 million in the first half, which is fully related to the payment of dividend, the execution of the share buyback program, the cash out of program, interest cost, which is happening at the beginning of the year, in the beginning of September every year and all this kind of things. So therefore, the first half of the year for us is always and if you look at what happened in fiscal year '25 or fiscal year '24, it was the same. The first half of the year for us in terms of excess cash, this is a period where we burn some cash, a little bit more this year with the share buyback program, while in the second half of the year, we don't have the significant cash outflows and building again a strong excess cash position for the full year. So I just wanted to make it clear, this EUR 107 million improvement in the overall net cash position is the combination of EUR 140 million decrease in excess cash and EUR 240 million improvement overall on the float related tax position. Aurélien Sonet: And maybe even regarding the question, any new plan on the use of this cash. Just to confirm that M&A remains a key pillar of our growth strategy. We saw it the acquisition that we completed last year had a material impact on our first half [indiscernible] delivering 1% scope effect, delivering also some growth synergies and Beneficio Facil in Brazil has been a very good example with this plus 50% BV growth in 1 year. So we see the acceleration. And we -- the integration of the more recent acquisition is progressing well. So we -- now we have a good track record, and we believe that we are well positioned to continue executing on our M&A road map. And we have a solid pipeline and -- but we -- again, we want to execute this road map in a very rigorous and disciplined manner. So we'll come back to you when it will be. Operator: [Operator Instructions] The next question, gentleman, is from Mahir Bidani of UBS. Mahir Bidani: Just wanted to kind of confirm around the EBITDA guide. You reiterated it, but that's given -- that was reiteration despite a pretty strong beat in the first half. Is that just implying conservatism? Or do you expect perhaps the sort of downward trajectory in 2H in the EBITDA? And in terms of the macro environment, is there a bifurcation between, I guess, the sectors you're seeing the end user portfolio reduction? Is that more the automotive versus the tech? Have you -- the conversations that you've had with some of your clients are reducing the end user portfolio, is that because of AI fears and then stopping hiring for that reason? Or is it more because it's like concentrated towards blue-collar macro jobs? So can you just provide a little color there on that? Aurélien Sonet: Yes. So regarding your second question, so indeed, we start having -- and we are engaging even proactively with our clients because most of them are wondering what would be the future of their organization. Not many of them have very clear answers. But what makes Pluxee so resilient is the diversity of our clients portfolio because we are serving small but also very large clients in the private sector, in the public sector and all of this in 28 countries. So that does explain the resilience. And within this range of clients, we have also, let's say, the future giants, the one who will take advantage of AI, I mean, in order to grow with them. So this is what I can tell you. But I mean, if we look at industry by industry, it's fair to say that at the moment, indeed, the automotive industry, the IT industry and part of the interim industry are currently under pressure because their clients are reading some of their budgets that are related to their own activities. And concerning the EBITDA? Stephane Lhopiteau: Regarding your question about our guidance on the EBITDA. So this is not specifically conservative, the slight improvement in the EBITDA margin. Of course, all the teams are already focusing on doing their best in order to always do better, but this is what we currently have in mind. And if I have a bit more color, we expect all the regions to go on improving the EBITDA margin with a similar trend compared to what we delivered in H1 with one exception, one big exception, which is going to be Brazil. And as I explained, in Brazil, we are not engaging right now in a pool of restructuring. We are making sure that we are able to benefit from all potential scenarios. So there is a little bit of cost reduction, but the reform for the short term and for the second half of the year will weigh a lot on the EBITDA margin of the group. And this is because of Brazil that in the second half of the year, we will face a lower EBITDA margin compared to the previous year. So overall, -- but the improvement, the uplift we delivered in H1 is going to be offset by a deterioration of the EBITDA margin in the second half of the year, not as big as what we delivered in H1. So there will be, in the end, the remaining small improvement in the EBITDA margin for the full year. Operator: There are no more questions registered at this time. Back to you, Mr. Aurelien, for any closing remarks. Aurélien Sonet: Thank you, and thank you for your attention this morning. In closing, I would like to reiterate our confidence in the future, supported by a strong first half and reiterate as well our continued focus on disciplined execution and long-term value creation. And with that, I wish you all a very good day. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good morning, and welcome to PepsiCo's 2026 First Quarter Earnings Question-and-Answer session. [Operator Instructions] Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin. Ravi Pamnani: Thank you, Kevin. Good morning, everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 16, 2026, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our first quarter 2026 earnings release and first quarter 2026 Form 10-Q available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's CFO, Steve Schmitt. [Operator Instructions] And with that, I will turn it back over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: You guys are first up in large staples, so I thought it was appropriate to start with just an update on any impacts from the Iran conflict that are now contemplated in guidance and how that ties to your full year earnings visibility. So first, maybe, Steve, on the cost side, just can you highlight what's changed in terms of your cost assumptions? Any sizable pressure points individually as you think about the cost situation? And also if you're more locked into this point on cost with hedging and contracts or a bit more open ended for the full year? And I'm presuming costs have gone up. So what are the offsets internally as you think about 2026 earnings visibility? And do you think you still have that visibility even with the external volatility? And then, Ramon, if I can slip a second one in, maybe you can just touch on international demand. Obviously, another solid quarter, continuation of momentum there. But in theory, there's also some macro risk to demand post Iran. So if you can touch on the international regions if you're seeing any impact from the conflict later in March or April so far, that would be helpful. And again, the juxtaposition of sort of internal momentum versus the external volatility and if you think you can drive continued momentum going forward? Stephen Schmitt: Dara, it's Steve. Thanks for the question, and good morning, everyone. Obviously, we've been spending a lot of time here. A few things maybe. The -- we've had no major issues from a supply chain standpoint. We're seeing really nice continuity there. The teams are managing it well. I think in times like these, the scale of PepsiCo is really an advantage. I really want to thank our supply chain and procurement teams for the work they're doing. I know they're working around the clock to manage this, and they're doing a really nice job making sure that we continue to service our customers. We do have some systemic hedging programs in place. That does give us some near-term visibility here. We typically have about 6- to 12-month hedges in place. Now our assumption is that inflation will come. The order of magnitude, we're still working through, and I think a lot of that is still to be determined. And the way I think about it from my experience on how you manage inflation would be kind of 3 ways over time. One, you grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price pack architecture. We'd like to do the majority of it through the first 2. But I think the reality is, depending on the magnitude and time that we have inflation will likely play in all 3 areas to combat the inflation that we'll see. From a visibility and guidance standpoint, our assumption is that we can mitigate what comes our way this year, and that's really reflected in our assumptions on guidance. And as you might expect, we've started to begin our work on 2027 scenarios, but we're still working through that, and we don't have anything more to share on that today. But Ramon, maybe you take the second part. Ramon Laguarta: Yes. Dara, so I would emphasize Steve's point that at this point, in the play, the scale of PepsiCo and the resilience we've built over the last few years, especially after COVID, on our supply chain. We built a lot of redundancy in terms of our key materials and multiple supply points for our key materials. So that's giving us an advantage. Obviously, our hedge program. And as Steve mentioned, the seniority and experience of our leaders on the ground make a big difference because they provide agility, they provide good, good common sense on how to deal with situations, protecting our people, but also driving for growth in moments of complexity. Now with regards to the international business, as you saw, is very strategic to our long-term growth strategy is one of the key pillars. It's been accelerating. And actually, to your question, it continues to accelerate. So we haven't seen an impact on demand in the last -- since the war started. We have very strong commercial programs. Actually, I would say in some markets, we're seeing benefit because we have better supply chain than some of our competitors, especially in the food business. So nothing to -- remarkable at this point. We're executing our very strong commercial programs for the summer. The World Cup is a big driver of execution and innovation during the summer, and the teams are full speed executing that, along with some other transformation of the portfolio. So the international business is very solid, continues to accelerate. And in our guidance, we haven't assumed any impact because we're not seeing any at this point. Operator: [Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was hoping to see if you can talk about PFNA a bit more in detail, and congrats on the volume inflection. Can you talk to us about like how the programs have been progressing as we go through the quarter? And how sustainable do you see this performance if you had -- I mean some of the investors may have asked if you had some benefit from shipping ahead of the shelf resets and then the winter storms as well? And if you can comment on that? And how has the repeat rates been in your view for the refilling of those orders? Ramon Laguarta: That's good, Andrea. So if you step back for a minute, early last year, in the spring time, we define the new strategy for the company, focused on growth and very strong productivity to fund the growth. The company has been executed across all the different sectors, this strategy with rigor and a sense of urgency. And we've seen results in Q4 and continued sequential improvement in Q1, as you saw. Now, when you go down to the North America Foods business, this was a holistic commercial study focused on growth. There was some additional value to the consumer. There was more space. There was a restage of some of the key brands like Lays and Tostitos. There was a lot of innovation to accelerate our, what we call permissible and functional. And there was a repurpose of funds towards away from home to accelerate away from home. All of that is delivering for us. So when you see the 2% volume growth is a combination of all these elements, more value in some of the core brands, multipacks and multiserve is one lever, but it's a much more holistic. We feel good about where we are at this point in the journey, still in the process of all the shelf resets and launching the innovation I would say. By the end of Q2, we'll probably be almost completed in that process. But the early reads are quite exciting. Now if you think about 2% volume growth, about 4% unit growth we have increased 300 million occasions in Q1 in the food business, 300 million new occasions to our business compared to Q1 of last year. The away from home business is growing 3x the average of the company. The permissible portfolio is growing double digit in some of the brands. So clearly, all the structural things that we're trying to do are working. And most importantly, we don't talk so much about it, the productivity decisions that we took early last year are giving us that flexibility and optionality to invest in the food business in a way that we couldn't do earlier. So -- and actually, the cost for North America Foods went down in Q1, which is a remarkable achievement by the team. So we're good. We're feeling encouraged also by the results in the last few weeks, where we got positive share. Not only in volume, we've had for quite some periods already, but now we have positive share in value as well, which is one of the KPIs that we set for ourselves early on. So good progress. We'll continue to update, but the execution is -- we're in the middle of this reset execution, but feeling very good about how the brands are reacting, how the customers are supporting and how the teams are executing in the marketplace. Operator: [Operator Instructions] Our next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a quick follow-up on PFNA. I just wanted to verify that you still expect to deliver both organic revenue growth and core operating margin expansion this year for the business. And then I do have a question, I guess, on the volume pressures you're seeing at PBNA. I assume your volumes have been pressured as you continue to roll out smaller pack sizes for affordability and then you're leaning in on your price pack architecture initiatives. But I guess, hoping for some color on what's continuing to pressure volumes and maybe your strategy to drive better volume growth this year. I guess, should we assume PBNA volumes will be negative this year, but declines will moderate and improve for the next few quarters? Stephen Schmitt: Thanks, Bonnie. This is Steve. Let me talk about the PFNA, I guess, margin question, I think you asked. If I take a step back, if I look at the total company, core operating margin increased about 10 basis points. We did have a property sale gain from last year in the PFNA business that negatively impacted that. So it would have grown, expanded a little bit more without that. We had organic revenue increase, 2.6%, core EPS increased 9%. So we're pleased with how the total company performed. For PFNA specifically, we're going to continue to play offense. We're investing in value. We have exciting innovation. We're supporting that with additional advertising and marketing, and we're growing volume and sales. So we affirmed our guidance today. We'll manage margin as a total company, but we want to give ourselves as much flexibility as possible within the segments to do what's necessary to hit our guidance overall. Ramon Laguarta: Yes. And Bonnie, on the North America Beverages business, we've been -- we're talking about this case pack water transition to a third party. That's still part of the numbers in Q1. It will -- I think it lasts at -- in. So we only have 1 more month to lap. If you excluded that transition, the volume is actually almost flat. And we expect that, that acceleration will continue in the coming periods. Now what's exciting about PBNA at this point is the business grew 9%, right, 9%. Now it's a combination of organic growth, revenue growth of 2 plus 7 points of additional platforms that are now in our distribution system. Some of that is business that we acquired like poppi, some of that is an increased portfolio of energy brands that are generating growth to our business. So we feel good about the 9%. We feel good about the acceleration, the 2% inorganic, and we feel good about the fact that we have flat volume as case by water and that, that progress will -- that acceleration will continue in the coming quarters. Our expectation is to have positive volume growth case pack water in the coming quarters. Operator: [Operator Instructions] Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to maybe get a little bit more granular, if we can on some of the trends in the PFNA business, knowing that Nielsen scanner doesn't capture everything. One thing that stood out to us is Lays. Lays is one of the businesses where I think you moved earliest, you had the Great Super Bowl commercial, refreshing the visual imagery, emphasizing simple ingredients, price adjustments and so on. And that business well is improving, it still looks pretty weak in aggregate, volumes bumpy, but still generally down and organic down pretty significantly. So I just wanted to talk -- hear your response to that kind of next steps. I would think that's the business that's the toughest in terms of kind of mainstream competition and less differentiation. But you're the furthest along there. So just maybe your perspective, what I might be missing on how that turnaround has been progressing from your perspective. Ramon Laguarta: Yes, Lauren, it's good. The Lays brand is part of, as I said, a more holistic restage of the full business. We're well under -- this is a global brand restage, so Lays is being restaged globally. Is performing very well globally. It is performing well in the U.S. We grew volume this quarter in Lays in particular. But if you step back and say, okay, what's happening at PFNA, we grew volume 2%. We grew occasions units 4%, and we grew 300 million occasions in the quarter versus Q1 last year. That, for us, some of the success metrics that we're looking at. The other set of KPIs we're looking is household penetration, and we see household penetration gains across all our core brands. And on top of that, we see our permissible portfolio growing, in some cases, double digit, brands like SunChips, Smartfood, and some others. So holistically, we think we're in a very good place. The fact that we're back to gaining share in the last 3 weeks, we use IRI. We don't use Nielsen internally. That's the data point that we have. In IRI, we're gaining share of in value terms, in the last few weeks, and we've been gaining volume share now for, I think, 3 or 4 periods. So overall, we think that the consumer is back in our brands. The consumer is coming back multiple times to our brand responding to our holistic value plus execution plus advertising plus innovation strategy. And there will be more -- as we execute the full space transformation and innovation execution, we'll see -- we're very optimistic about the sequential improvement of that business. And we think we're on track -- actually a little bit ahead of where we thought we would be by now. Operator: [Operator Instructions] Our next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Congrats on the progress in the quarter. Wanted to ask you both on the organic sales guidance and your expectations for the back half of the year. So I think the existing commentary was that is successful with North America Foods and International continues to progress well, et cetera, you could deliver toward the higher end of the 2% to 4% in the back half of the year. You sounded good on international to me, maybe even a little bit better despite the conflict promising with the return to volumes in North America Foods and same on with beverages. So I just want to see if that is still the expectation that the exit rate for the year is going to be closer to the lower end of your long-term guidance of the 4% to 6%. So your comments there would be helpful. Stephen Robert Powers: Sure. Kevin, this is Steve. Maybe I'll start. Really no change in the guidance from the top line standpoint. We guided 2% to 4% and the upper end of that in the towards the back half of the year, and that is a good estimate as we can give you at this point in time. In terms of the progress of the financial performance over the year, I think in the last call, we talked a little bit about the year being balanced between the first half and second half. And I still think that's as good of an estimate as we can give you at this point in time. Ramon Laguarta: Yes, Kevin, I think the if you look at all the execution of the hungry and thirsty for growth strategy across the company is very positive. So we see an acceleration, international continue that. We've seen momentum in PBNA, both organic and reported. So that is good as well. And sequential growth in PFNA. As I said, probably a little bit ahead of what we thought at this time. So nothing has changed for us to give you guys a different guidance on how we see the business evolving and where we plan to be by the end of the year. . Operator: [Operator Instructions] Our next question comes from Filippo Falorni with Citi. Filippo Falorni: I wanted to ask a follow-up on PFNA, especially on the innovation and the distribution gains that you're expecting. Ramon, you mentioned you should be mostly done by the end of Q2. So how should we think about the relative size of distribution gains and the contribution from innovation in Q2 versus Q1. You have a lot of products shipping in Q2, like the protein, Good Warrior, Smartfood, good fiber. So I was just curious like your plans into Q2 in terms of innovation contribution and then the distribution gain, should we see an acceleration into late April and May? If you can comment on that would be great. Ramon Laguarta: Yes, Filippo, I think we are obviously different launches, different stages of ACV that we have. But if you think about the majority of our innovation is, let's say, 40%, 50% ACV at this point. So we should expect that we accelerate that in the balance of the quarter and into the summer. The same with the planogram resets were probably 50% more or less in the process of transformation of the space for the year. The space gains that we are getting from our retail partners are pretty much as we expected. Some customers a bit more, some customers, a bit less, and we continue to work with them in a win-win programs for the summer where this category is very relevant to consumers. So that's more or less the journey that we're in and why we think that we would be accelerating the business in the summer. I mean, towards the summer. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: Can you just maybe unpack some of the top line in PFNA a little bit more? And maybe elaborate on the timing of some of the price adjustments. Obviously, we see the segment price down, but just modestly in the first quarter. How much more is in place versus maybe still to come? And then just on some of the category assumptions looking ahead, some of the SNAP revisions and cuts are still quite early. Anything you're seeing or how you're factoring that into guidance and just maybe some thoughts on your expectations for GLP-1 impact. Stephen Schmitt: Maybe I'll -- this is Steve. Maybe I'll take the SNAP question. We did have 8 states. They were 8 states that began restriction in the first quarter. It's mainly beverages and candy. I think it's too early to come to any definitive conclusions right now in terms of impact. It's obviously something we'll watch closely, see how customers balance that funds with other discretionary income for purchases over time. I think the LRB category overall remains robust, and we'll continue to monitor it. Ramon Laguarta: Yes. And on the -- to complement what Steve said. On the food side, we're seeing the Sabra snacks category accelerating with -- part of that is our efforts, obviously, to bring more consumers into the category. Our retail partners are working with us in that journey is a very relevant category to everybody. We're seeing that category accelerating. In many parts of the world, snacks, Sabra snacks is growing ahead of food in the U.S., some weeks is already growing ahead of food, which is a good sign, and we're gaining share of that category. So overall, we see LRB consistently growing above food and beverages, and we've seen Sabra snacks continuing to accelerate and eventually stabilizing and growing ahead of food and beverages, which has been the historic norm in the past. That is one of the -- we've always thought that as, as leaders of the, Sabra is a category, one of our key objectives, make sure that the category is healthy, and we continue to bring consumers into the category. Some of them had lapsed. They're coming back, innovating to bring more families, more consumers into the category. So that's the assumption for balance of the year. And so far, so good. As I said, we've brought in a lot of consumption occasions into the category in Q1, and we see the same trends in Q2. . Operator: Our next question comes from Robert Moskow with TD Cowen . Robert Moskow: You talked about your market shares in PFNA. I want to know if you could talk about it in PBNA also. Is it fair to say that on a value basis, those shares are still in decline. And is that part of your strategic review? Will you be evaluating how to improve market share as well as what I think we're all focused on the bottler network? Ramon Laguarta: For sure. I mean, obviously, market share is a key. -- let's step back for a minute. PBNA is growing 9% total business, right? So we're growing at an accelerated way, including energy. So we see ourselves participating in the energy portfolio through our CELSIUS investment and our distribution of CELSIUS, that's gaining share. We see ourselves, obviously, very statistically leading the functional hydration category and that category is accelerating. For the first time in several years, we see functional hydration, including sports and the rest of functional hydration growing ahead of LRB. That's a key objective for us as well. . We see Gatorade and Propel gaining share there. We still have some work to do on accelerating the coffee business and accelerating the tea business, where we're also leaders. Some of the innovation that we have in the Starbucks portfolio is intended to do that. And then in CSDs, we continue to have good growth in modern soda, which is a segment that keeps accelerating. Our poppi business is starting to accelerate now, and then obviously, we have opportunities with Mountain Dew that we have highlighted for quite some time. Now some of the innovation that we've put on the market early innings, but both the Dirty Mountain Dew and Baja and cabo, different flavors on the Mountain Dew are starting to grow the brand, which is very encouraging for us. And then on the Pepsi business, we're lapping some of the events that happened last year. We continue to see no sugar Pepsi growing ahead of competitors, and we are optimizing pricing sizing on the rest of the business to participate in a better way in the -- during the summer period. So overall business, we feel good about the 9% top line growth and how we're participating in different segments of the category to drive the growth for PBNA. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: I wanted to ask a follow-up on PFNA. You mentioned in the prepared remarks that you expect sequential improvement for the division in '26. So I just wanted to clarify if that was a broad-based comment, or should we expect organic sales to continue to show improvement relative to the 1% growth that you delivered this past quarter? And I guess, if it's the latter, can you maybe provide some guardrails around what to expect as we think about the balance of the year? Ramon Laguarta: Yes. I mean our current assumptions is we continue to accelerate organic -- I mean first volume, we'll continue to grow volume, which is consumption units into the brands, Consumption Act. We'll continue to accelerate organic and reported revenue growth. becomes organic as of next quarter, I think. And then we'll -- our intentions and how we're thinking about the balance of the year is growing our profit growth in North America Foods again. That's how we're thinking about the business sequentially. Now Steve mentioned that we're going to manage the business as part of the broader portfolio, we're going to continue to be on the attack trying to make sure that we stabilize the top line, and we continue to make this category the Sabra snacks category growing ahead of foods and making this a place where both us and the retailers want to invest and continue to grow for the future. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Ramon, recognizing that it's still early in the PFNA momentum rebuild. I guess, have you seen any meaningful change at all in competitive intensity, whether pricing promotions or on shelf behavior? And I guess, given the incrementality of your building cost inflation. How do you think the food industry broadly will balance? What are clear consumer affordability concerns with -- the producer needs to offset costs. Is there a chance that, that could interrupt your own affordability investments? Or I guess, conversely, does that -- are you looking at that as a potential natural limitation on the risk or more aggressive competitive pricing response to your own actions as we build through the year? How are you thinking about those dynamics? Ramon Laguarta: Yes, I'm sure there will be -- as we enter the high season for the category in the summer with all the big holidays, I'm sure there will be more competitiveness in the category. And -- but we have our plans for this. It's not only price. It's trying to provide that. The growth strategy for Frito is not only price. Price is one element, obviously, that is very relevant for many consumers to get back to our category, but its innovation, its execution is making sure that all the elements in retail and away from home continue to be successful. Now with regards to the productivity story that we have, I don't know if our competitors have the same productivity story, but we've been focused on reducing cost, cost per unit and overall cost for the food business and all the North America business and across the company, actually. And that has been a very successful strategy for us. We still have a lot of non-executed drivers of productivity in the coming quarters and years that would help us continue to give consumers the right value and compete probably in a better way against the other food manufacturers. So that's how we're thinking about the next innings in the journey. And we'll see how inflation behaves as Steve said earlier, we're going to play a full portfolio and want to make sure that we win in the marketplace with PFNA, whilst we continue to deliver the overall profit growth targets for the full organization. Operator: Our next question comes from Robert Ottenstein with Evercore. Robert Ottenstein: So most of the focus today has been on the top line. I'm wondering if we could kind of dive into and you just started to touch on it a little bit the productivity programs. I think you mentioned that you're on track to having perhaps a record year on productivity. So can you talk about maybe the major buckets for productivity what you're doing maybe differently this year than in prior years because you've obviously been focused on productivity for a number of years. And then how you see that productivity gain scaling up through this year and into next year? . Stephen Schmitt: Sure. Thanks for the question. This is Steve. Well, productivity is one of these never-ending battles that we're going to have. We are benefiting from some of the moves from last year, the reduced headcount, plant closures, reduction in SKU count. It's encouraging to see key metrics like cases per hour and our supply chain continue to improve. So we've got some things that are really working in our favor that allow us to play offense as much as we have to grow volume. We're going to continue to remain very focused on customer service measures while we do this and reduce expenses. I think overall, we have more work to do on the total company cost structure. It's little things that we'll look at like just different things in the supply chain. It's like whether overtime hours are trending the way we want. The little details of how we're operating to make sure that we get the operating metrics really in line with where we need them to be to drive the productivity overall in the company. But we have good progress there. We have lots of work to do, and it's a big part of our strategy to make sure we continue to play offense. Ramon Laguarta: Yes. And also, I would add some of the big drivers that we've been talking about in the past, we continue to execute. So global shared services, deploying technology across the company and AI, both in our supply chain, but also how we do transportation, how we optimize routes. If you think about in many countries around the world, we're moving to digital ordering systems where we reduced the number and the time that our salesman expect to take an order. And so we're leveraging technology in a very holistic way and AI and data to drive efficiency and transformation of cost. Not only efficiency across the system, both supply chain and go to market, the 2 big buckets. We're also optimizing our advertising and marketing. We're getting better at the multiyear journey on return on investment on marketing and trade. So those are big -- 2 big demand budgets that we're optimizing. So if you think about where we are in the journey, we're in the multiyear journey, and we're executing all these strategies across all of our anchor markets, obviously including the U.S. And we're tested on learning, the idea of can we create more value, both growth and cost by integrating more of the supply chain in the U.S., and we're live in some tests in Texas, and we're going to deploy that in some other states. That is another vector of cost transformation going forward that we're going to learn more in the next few quarters and update you guys later in the year, early next year. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: Ramon, you had mentioned the very substantial increase in the number of occasions. Can you maybe dig into that a little bit more? Who are these consumers? Or what are those occasions? Are they different from the core? It sounds like it was obviously quite a success so far. I just like to learn more about what's behind it. Ramon Laguarta: I'll give you a couple of examples, Kaumil, and so you can get a sense. Obviously, by optimizing the value in some of our multi-serve and multipacks, both in Lays, Doritos, RUFFLES, et cetera, and also in Gatorade, we are bringing lapsed consumers into the brand. So these are consumers that had left the brand, either moved to stop buying the category or moving somewhere else. So that is kind of growth in the core. At the same time, if you think about the consumers that are coming into the category because of innovations like Naked or we're seeing already some in some of the innovation from Gatorade with no artificial, low sugar. We're seeing consumers that were not in the category, but because they love our favorite. Now we're offering solutions with no colors, no artificial colors, no artificial flavors and they're coming back to the category. So 2 types of consumers coming into the category because both of a stronger core and also innovation that drives incrementality to the category. And I think we're going to continue to play both levers. The other -- obviously, that applies to both foods and beverages, and we will continue to do this not only in the U.S., but also in our international markets where we're starting to deploy some of the innovation from the U.S., and we're seeing also an acceleration of the category, especially developed markets in Europe. Operator: Our last question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Just back to PFNA way back to the beginning of the call on Bonnie's question, did you change your investment targets or goals for the business this year? And if so, where are you seeing greater opportunity to invest? And Ramon, you flagged the World Cup as an activation event. What does a World Cup activation look like for PepsiCo, perhaps specifically for Frito, how is it different versus past events? And are you embedding any of that uplift in your outlook? Stephen Schmitt: Chris, it's Steve. Thanks for the question. The comments I was making earlier, I think to Bonnie's question, is that we just want to give ourselves as much flexibility as possible to manage all of the sectors and all of our businesses to hit the numbers that we've given you with our guidance. So that's what I was just trying to illustrate is that we want as much flexibility. There's a lot happening in the world that we need to manage and navigate through. And so we're going to give ourselves as much flexibility within the business to make the decisions that are right for the total company. Ramon Laguarta: No, listen, and World Cup is -- obviously, we're sponsors on the food side across the world. And this is obviously a very big opportunity to engage consumers. This is a real passion point for many consumers. I mean, I'm a big fan of soccer and I see how we feel at that moment. Now it's very holistic. If you think about innovation, we're going to have flavors from around the world, being executed in every market. Obviously, there's space gains, there's activations. But most importantly, from the consumer occasions point of view, we are working on no Lays no game, which is kind of an activity that -- or a campaign that we've been executing globally for quite some time, we'll double down on that with some of our global football players. And the idea is link Lays to the occasion of sports watching and making sure that when there is gatherings of consumers watching the game, this is activated. We're going to personalize, obviously, for different -- we know, more or less, who supports what team and then we're going to be able to personalize the communication to consumers. We're going to have fun of the match. So we're going to have different activations in every game where our Lays brand will nominate funds of the match. We're going to have Quaker participating as well in the event as the players walk into the stadium, the children will have Quaker brand, and that's going to be part of the restage of Quaker globally. And then obviously, we have partnerships with our retailers and quick delivery partners around the world to make sure that we capture those occasions in the moment and the consumers have the opportunity to order Lays and to order some of our drink combinations to enjoy the game with friends. A lot of occasion development, a lot of brand awareness, a lot of personalization and some innovation to drive excitement across the world, obviously, space gains and retail partnerships. So it's a very holistic activation across the world. I think especially for countries where per capita low. This is a huge idea for us to bring new consumers into the brand and also to develop frequency and some new occasions. So we're excited, and we can already see the some of the acceleration in some of the international markets because of this activation. So thank you very much for your questions and your support and thank you for the confidence you've placed in us in PepsiCo and look forward to further conversations in coming quarters. Thank you very much. Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good morning, and thank you for standing by. Welcome to Abbott Laboratories' First Quarter 2026 Earnings Conference Call. During the question-and-answer session, you will be able to ask your question by pressing the star, one, one keys on your touch-tone phone. This call is being recorded by Abbott Laboratories. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott Laboratories. It cannot be recorded or rebroadcast without Abbott Laboratories' express written permission. I would now like to introduce Mr. Michael Comilla, Vice President, Investor Relations. Michael Comilla: Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Philip Boudreau, Executive Vice President, Finance and Chief Financial Officer. Robert and Philip will provide opening remarks. Following their comments, we will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2026. Abbott Laboratories cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott Laboratories' operations are discussed in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the year ended 12/31/2025. Abbott Laboratories undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott Laboratories' ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott Laboratories has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which it is providing guidance because the company is unable to predict, with reasonable certainty and without unreasonable effort, the timing and impact of certain items, which could significantly impact Abbott Laboratories' results in accordance with GAAP. Unless otherwise noted, our commentary on sales growth refers to comparable sales growth, which includes the prior and current year sales of Exact Sciences, a cancer diagnostics company that Abbott Laboratories acquired on 03/23/2026. Our definition of comparable sales growth can be found on Page 2 of our press release issued earlier today, and a reconciliation table that contains data needed to calculate comparable sales growth can be found on Page 13. With that, I will now turn the call over to Robert. Robert Ford: Thanks, Michael. Good morning, everyone, and thank you for joining us. Our results in the first quarter were aligned with our expectations for the start of the year. That included delivering adjusted earnings per share of $1.15, consistent with our guidance despite absorbing the impact of earlier-than-planned financing costs related to our acquisition of Exact Sciences and a weaker-than-expected respiratory season. This quarter also marked an important strategic milestone for Abbott Laboratories with the completion of our acquisition of Exact Sciences. This acquisition adds a new high-growth business to the Abbott Laboratories portfolio, further strengthening our leadership position in diagnostics and expanding our presence into one of the fastest growing areas of health care, cancer diagnostics. As we communicated at the time of the acquisition announcement, we forecast the addition of Exact Sciences to add approximately $3 billion of incremental sales in 2026 and accelerate Abbott Laboratories' long-term sales growth rate. Before I summarize our first quarter results, I wanted to highlight a few pipeline achievements in our medical device business. Those include an earlier-than-planned approval and launch of two new PFA catheters, completion of patient enrollment in our Catalyst left atrial appendage device trial, initiation of development activities to bring an implantable extravascular ICD product to market, and the announcement of positive results from our randomized controlled trial which demonstrated that people with type 2 diabetes on basal insulin therapy benefited from using Libre, including seeing reductions in HbA1c and increased time spent in healthy glucose range. In addition to these achievements, our teams are preparing to initiate patient enrollment in several important clinical trials in the second half of this year. These trials represent a unique opportunity to position Abbott Laboratories to bring a new wave of highly differentiated technologies to the market. This pipeline of new technologies includes a balloon-expandable TAVR valve, a leadless conduction system pacing device that utilizes our revolutionary AVEIR leadless pacemaker, a mitral replacement valve developed following our acquisition of Cephea Valve Technologies, a peripheral IVL device developed following our acquisition of CSI, and a wearable continuous lactate monitoring sensor that will monitor for sepsis following discharge from a hospital. I will now summarize our first quarter results before I turn the call over to Philip, and I will start with Diagnostics, where sales increased 2% on a comparable basis. Core Lab Diagnostics growth of 3% was driven by growth in the U.S., Europe, and Latin America. Sales of Core Lab diagnostic tests, which exclude capital equipment and digital health solutions, increased on both a year-over-year and sequential basis, and this is a trend that we expect to continue and drive higher growth in the second half of the year compared to the first half. In our Rapid and Molecular Diagnostics business, sales declined 10%, reflecting lower demand for respiratory virus testing due to a much weaker respiratory season compared to last year. And in Cancer Diagnostics, sales grew 13% on a comparable basis, driven by mid-teens growth of Cologuard and high-teens growth in international markets. Moving to Nutrition, where sales finished slightly ahead of our expectations for the quarter. As discussed on our January earnings call, results in the quarter reflect the impact of lower sales volumes compared to the prior year and the effect of strategic pricing actions implemented in 2025 with an objective of reaccelerating volume growth. While we are still early in the transition back toward a more sustainable balance between price- and volume-driven growth, I am encouraged by the progress we are making. Early data indicates we are seeing the intended effect, with volume growth beginning to follow our pricing actions. We continue to expect that these pricing actions, combined with the launch of several new products, will result in growth improving over the course of the year. Turning to EPD, which grew 9% in the quarter. Growth was broad-based across the markets we serve, which included double-digit growth in several countries across Latin America and Asia Pacific regions. Demand in these markets continues to be supported by favorable long-term health care, economic, and demographic trends. With a broad product offering across five therapeutic areas, and an expanding biosimilars portfolio, which includes several market-leading oncology therapies, we are well positioned to serve the growing customer base in these markets. I will wrap up with Medical Devices, where sales grew 8.5%. Growth was led by strong performance in our cardiovascular device businesses. This included double-digit growth in Electrophysiology, Heart Failure, and Rhythm Management. In Electrophysiology, growth of 13% included contributions from two pulsed field ablation catheter launches in the quarter. The launch of our Volt PFA catheter contributed to growth of 14% in the U.S., and the launch of our TactiFlex Duo catheter helped drive mid-teens growth in Europe. As we broaden the launch of both catheters, we expect growth in our Electrophysiology business to accelerate. In Rhythm Management, sales grew 13%, marking the third consecutive quarter that we have delivered double-digit growth and continued our track record of significantly outperforming the market. In Heart Failure, growth of 12% was driven by our market-leading portfolio of Heart Assist devices, which offer treatment for chronic and temporary conditions. In Diabetes Care, continuous glucose monitoring sales were $2 billion and grew 7.5%. Growth in the quarter reflects an impact from a delay in the renewal process related to an international tender. We also saw the expected impact from a challenging comparison to last year. This comparison relates to shelf restocking dynamics that occurred in 2025, a topic that we discussed on an earnings call last year. As we look forward to the second quarter, we expect CGM to return to double-digit growth. So, in summary, our results in the quarter were in line with our expectations to start the year. We remain confident in our expectations for an acceleration in growth in the second half of the year, and we have clear visibility to the key drivers of that acceleration and are highly focused on executing on them. Those drivers include, first, executing our growth strategy in Nutrition, which is underway and on track with our expectations. Second, we see a clear path to accelerating growth in both Electrophysiology and Core Lab Diagnostics, supported by best-in-class portfolios, new product launches, and improving market conditions. Third, we will continue our proven track record of delivering strong EPD and across our Medical Devices portfolio. And finally, we are successfully integrating Exact Sciences, which adds a compelling high-growth business to the Abbott Laboratories portfolio, further strengthening our ability to deliver long-term sustainable growth. I will now turn the call over to Philip. Philip Boudreau: Thanks, Robert. As a result of the March 23 close of our acquisition of Exact Sciences, our first quarter financial results include the results of the Exact Sciences business from the close date through the end of the quarter. As Michael mentioned, our press release issued this morning provides sales growth in the quarter on a comparable basis, which includes the full-quarter sales of Exact Sciences in both the prior and current year. To align with our reporting of comparable sales growth, our full-year 2026 sales growth outlook of 6.5% to 7.5% is now on a comparable basis as well. The sales growth outlook includes the full-year sales of Exact Sciences in both the prior and current year. Compared to our previous full-year adjusted earnings per share guidance range midpoint of $5.68, our new guidance range midpoint of $5.48 reflects $0.20 of dilution related to the Exact Sciences acquisition, consistent with our assumption at the time of the announced transaction. Turning to our first quarter results, sales increased 3.7% on a comparable basis, and adjusted earnings per share of $1.15 grew 6% compared to the prior year. Foreign exchange had a favorable year-over-year impact of 4% on first quarter sales. Earlier in the quarter, we saw the U.S. dollar weaken, which resulted in a favorable impact on sales compared to exchange rates at the time of our earnings call in January. Regarding other aspects of the P&L, adjusted gross margin was 56.3% of sales, adjusted R&D was 6.7% of sales, and adjusted SG&A was 29.3% of sales. Based on current rates, we expect exchange to have a favorable impact of approximately 1% on full-year reported sales. For the second quarter, we expect exchange to have a relatively neutral impact on sales. And for the second quarter, we forecast adjusted earnings per share of $1.25 to $1.31. We will now open the call for questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press 1-1 again. For optimal sound quality, we kindly ask that you use your handset instead of your speakerphone when asking your question. Again, that is 1-1 to ask a question. Please stand by while we compile our roster. Our first question will come from David Roman from Goldman Sachs. Your line is open. David Roman: Thank you, and good morning, everyone. Thanks for taking the question. Maybe I will start with the updated guidance. I know you touched on some of this during the call, but could you go into further detail on your guidance philosophy and your thought process in establishing the revised outlook? And then the extent to which the outlook is, in your mind, fully de-risked and captures upside potential but also contemplates any downside unforeseen risks? Robert Ford: Yes, sure. I think the philosophy here, David, is that we have included Exact Sciences into the history, and our philosophy has always been to ensure that our investors have clear, transparent, detailed breakdowns of our performance. We did that during COVID. If you remember, we always split out the COVID sales. We got feedback that investors really wanted to understand the underlying part of the business and the COVID part of the business. When we did the acquisition of St. Jude, the acquisition closed in the first quarter, and we did the same approach there, to fold in St. Jude into a more comparable basis. We think it provides investors the most relevant growth rate, a growth rate that reflects the new asset portfolio on a very clean apples-to-apples basis. As it relates to the guidance, we made a little bit of a conservative choice on some aspects that we felt in the first quarter. For example, if you look at the respiratory season, we forecast Q1 to be a relatively weak season compared to other seasons that we had seen in the past, and it was even weaker than what we had forecasted. As we looked at other comparable health care businesses that we look at—for example, OTC meds, which is a very good triangulation—we are seeing those types of businesses also have this year-over-year effect. One of the ways to think about it is that you have parts in the year where you are going to have this effect; you have it at the start of the year and you have it at the end of the year. One of the ways to think about it is, if we were to make up that lower respiratory season at the back end of the year, then we would have to assume an above-average respiratory season, at least from a testing perspective, and I am only going to find that out just before Thanksgiving. So I thought it prudent not to forecast that we are going to make it up in Q4, this respiratory aspect. That does not mean we will not be ready. We have the portfolio, the manufacturing capabilities, and the distribution to be able to do that. We just decided that it was not prudent to bake that into the forecast. The rest of the areas of the business, the sales growth outlook, is very much in line with our January outlook. If I go back to how I described our year and the year progression, there are a couple of key blocks that really drive our growth throughout the year. The first block is sustaining the growth of our MedTech business and our pharma business—MedTech business low double digits, our pharma business above 7%. These are businesses that have consistently and reliably delivered this type of performance. Whether it is market conditions or new product launches in these businesses, we feel very good about our ability to sustain that kind of performance. The second bucket would be more of trajectory-changing businesses, and I would put Core Lab and Nutrition into those buckets. They are a little bit different, though, David. On our Core Lab business, we talked about the impact of China and the VBP, and obviously COVID. That was about a $1 billion headwind that we faced last year. Other parts of the business—geographies and platforms—are doing very well, and we continue to see that. What I have seen over the last six months really gives me confidence that we are very much on track, or slightly ahead, of that recovery in Diagnostics and that growth trajectory change. The teams there have done an incredible job in China and especially here in the U.S., too. I think the teams have done really well in terms of being able to gain market share. The Nutrition transition is a little bit earlier in that stage, but I still feel that what we are seeing right now, the timely decisions we took in the middle of Q4, are starting to show activity in terms of driving volume growth. It is still early; I cannot declare it done, but we are seeing really good indications that the actions we took, combined with the new product launches, are going to drive that recovery. The third bucket is the integration of Exact Sciences, which adds a high-growth business to the portfolio. It has been performing very well. I would say those are the three big drivers of our sales forecast, and those have not changed. I am not going to try and call what type of flu season we are going to have starting before Thanksgiving. But if the flu season is as aggressive as we have seen in other years, then we have the manufacturing, distribution, and sales force in place to be able to support that. Hopefully that answers your question. David Roman: Thanks so much. Robert Ford: Thank you. Operator: Our next question will come from Robbie Marcus from JPMorgan. Your line is open. Robbie Marcus: Maybe to follow up on David's question. I appreciate that comparable growth is a much more helpful metric, especially if we are looking out to the future and what the new Abbott Laboratories will be doing on an underlying basis. But when I look at organic growth, which I think is what a lot of people pay attention to in the health of the Abbott Laboratories business coming into the year before the acquisition, it looks to me like growth is moving from the 6.5% to 7.5% guide on the fourth-quarter call to something more like 5.75% to 6.75% if we adjust out Exact Sciences and the lost royalty revenue. So it does look like there is a bit of a deceleration in the prior organic Abbott Laboratories business. How are you thinking about managing that? How much is one-time versus sustainable? And where do you see the biggest pressure points and how are you addressing them? Robert Ford: I am not sure I follow those numbers, Robbie, but I think what you are trying to get to is, by putting Exact Sciences into a comparable basis, are there parts of the non-Exact business that are underperforming? I would say, as I said to David, if the acquisition had closed after this call—sometime in Q2—we probably would have done what you in the MedTech space would usually expect, which is to keep it separate and then lap it a year. But then you would need me to reconcile every quarter between what the acquisition did and the organic growth rate. Because it closed early in Q1 before this call, we could roll it in on a comparable basis and give our investors full visibility to the new Abbott Laboratories with the addition of Exact Sciences. I know that might involve a little more work for some of you in terms of modeling, but we tried to make it very easy for you as part of our disclosures. Parts of the business we are focusing on, I went through in detail. The device portfolio and the pharma portfolio—we still feel very strong about those growth rates. We are not backing off those. There are opportunities to outperform in some of them, and there are more challenging areas in others, whether it is market or competition, but overall we feel very good about sustaining that. Then there are the trajectory-changing businesses, like we have discussed in Diagnostics and Nutrition—we know what the issues were, we know what we are working on, and we are focused on executing. Taking a step back, we are a very diversified company. We lay out all of the different businesses, and even within sectors, we break them out and show performance. It would be great to have every single business beating all street expectations. Sometimes that does not happen. The important thing is to have a collection of businesses that we feel are very attractive, and that the combination, the sum of them, are able to hit our commitments and deliver on our financial commitment. I look at each business individually, and we also look at the whole. As a whole, the company is well set up for this year. Robbie Marcus: Thanks, Robert. Appreciate it. Robert Ford: Sure. Operator: Thank you. Our next question will come from Larry Biegelsen from Wells Fargo. Your line is open. Larry Biegelsen: Good morning. Thanks for taking the question. Robert, I wanted to ask about CGM. We heard your comments about the CGM market in Q1 and the expected acceleration in Q2. The CGM prescription trends in the U.S. look weak. Could you talk about what is happening in the CGM market? There is a concern that the current indications are saturated. How are you thinking about Libre growth for the rest of the year and longer term? And lastly, remind us of the timing for type 2 non-insulin and the dual ketone sensor and the lactate sensor you mentioned. Thank you. Robert Ford: Sure. I think it is always important not to look only at weekly prescription data in one country. It is an important country, and the weekly prescription data is a great early indicator for the market, even though that auditing channel does not capture the entire market. It is very different from pharma, where you have a lot of other segments of the market performing. Using TRx data to ultimately look at how the market is evolving—and only using that—is a little bit myopic. Let me take a bigger view. I am very bullish on the CGM market—I always have been and I continue to be. Our assessment of the number of people who should be on a CGM on a global basis is between 70 million and 80 million people. There are different types of patients in that number, but overall 70 to 80 million people. The market today is around 10 to 12 million people. There are about half a billion people with diabetes, so I have already narrowed it down quite a bit, and even in that narrowed-down world, we are still very underpenetrated. If you look back at our growth trajectory, going back fifteen years at quarterly revenue, it is never always up and to the right on a perfect 45-degree line. There are periods of modest growth—call it 8% to 10%—followed by very long periods of strong acceleration in the teens to 20% growth. Those acceleration periods are typically driven by different catalysts: reimbursement, geographic expansion, and new product launches. I see a lot of catalysts still ahead. On reimbursement, you mentioned CMS type 2 non-insulin coverage. I expect proposed language for that coming soon. I cannot tell you the exact month, but I know it is going to happen, and it is going to add close to 10 million people that do not have coverage now and will be able to have coverage, which will accelerate commercial coverage too. I have not included that in my guidance, but it is a sweet spot for us in terms of our channel strength, promotional strength, and reimbursement coverage. Internationally, out of the top 10 markets in the world, only four have gone full-blown basal coverage, so there are another six very large markets still in process. We have built evidence to support that movement, not only from a physician side but also from patient advocacy. We showed in an RCT, which I talked about earlier, that patients on basal do better with Libre. There is so much opportunity still internationally and in the U.S. I do not think the patient TAM is tapped. You will have moments where growth modulates a little bit, and then the next catalysts come in and drive growth. You have to look at the bigger picture: you have 70 to 80 million people who can be on this product. Even if you look at a yearly revenue number that is lower than what we are seeing today because you have different types of patient groups, you are looking at a $3.035 trillion opportunity here that is available to us, and we are focused on that—focused on building competitive advantage, whether product technology advantage, cost advantage, or scale advantage. On innovation as another catalyst, we are still committed to and expect approval of our dual-analyte system. On the pump side, you have about 1 million patients that previously had very little access. You are going to have about 5 million SGLT2 users that are not using the product who will now benefit from having continuous ketone monitoring. We are working on Libre 5. Our view is always about sustaining our competitive advantage through cost advantage and product innovation. I still feel very good about this market. We look at weekly TRxs too, and we see the trends. There are areas we can do better, and we are working on that, but the bigger picture is that we are very well positioned for a very large market. Larry Biegelsen: Alright. Thanks so much. Operator: Thank you. Our next question will come from Vijay Kumar from Evercore ISI. Your line is open. Vijay Kumar: Hi, Robert. Good morning, and thank you for taking my question. I will stick to Exact. Given that the deal is closed—this is an asset which has done phenomenally well over the years, doing mid-teens growth—talk about your plans for sustaining strong growth of Cologuard. Is there an international angle here for Cologuard? And related to that, comparable growth is now 6.5% to 7.5%, and we know Exact is growing faster. Is there some conservatism baked into the guidance? Could there be upside given Exact is growing faster? Thank you. Robert Ford: Sure. The integration is going very well. We have named Jake Orville as our new leader in that business. He previously led the screening business—the Cologuard business—and he is reporting directly to me. It is reported in our Diagnostics queue, but it is operating standalone and reports straight to me. We are very excited. I have traveled with reps and talked to physicians. I am very bullish about accelerating this business. Sustaining Cologuard growth—when we looked at this strategically, we wanted to think about it not as a one-product deal, but as an opportunity to enter an extremely exciting and high-growth space: not just screening with Cologuard, but therapy selection and MRD testing. These are great opportunities. Our goal in doing this is to be across the entire cancer diagnostics span, and we believed that Exact was a beachhead building block for us to do that. Within that, Cologuard is the key growth driver, and it is a very sustainable growth opportunity. Demand is high and continues to increase. It is very underpenetrated right now. About 50 million Americans are not up to date with CRC screening, so there is an opportunity in the U.S. and internationally. Internationally, it is very underpenetrated. One of the things that we bring is established regulatory, KOL, health care system, and distribution relationships across many markets. We have already set aside a group focused on developing the screening and cancer testing market in international markets. On screening guidelines, the age in 2021 was lowered from 50 to 45, adding a lot of new patients. We are seeing people at 30 and 35 being diagnosed with stage 3, which is not good. Could I eventually see the age lowered from 45 to 40? I think I can, because there is a medical need for that, and that would add another 20 million people in the U.S. The value proposition of Cologuard is incredible. With increasing demand for screening, there is a fixed amount of colonoscopy capacity—about 6 million per year pretty consistently. If you look at gastroenterologists and enrollment rates in medical schools, they are coming down. You can see a world with increased demand for screening and less supply to do colonoscopies. Cologuard does really well here. Not only is it convenient at home, but its sensitivity at 95% is equivalent to colonoscopy. The combination of increased demand and this bottleneck supports strong growth. The average wait time for colonoscopy is between three to nine months depending on the state, so there is already a backlog. Another unique aspect is the commercial model: a 1,000-person salesforce calling on primary care. It takes time to build that. About 200 thousand health care professionals prescribe Cologuard every quarter, and everything is integrated into health records and your phone—a very seamless experience. Rescreens are becoming a strong growth contributor. Twenty-five percent of our tests today are rescreens, and you are eligible every three years. With all the data, you can interact with customers to remind them. We are seeing very high rescreen rates that get even higher as rescreens progress—about 500,000 patients per year just for rescreens. Care gap programs are also unique. CRC screening is one of the quality metrics CMS uses for star ratings, and payers and providers get three times the quality score for Cologuard versus a FIT test. We are seeing a lot of interest from healthcare systems and providers to stay ahead and ensure they are scoring their quality metric points. Internationally, will it be Cologuard? It could be in some markets; it could be other tests in other markets, but there is clearly a need. I traveled to Asia and Europe in the first quarter and spoke to health ministers. Top three priorities included getting cancer screening up and going in their countries. They see it as a problem and see Abbott Laboratories as one of the solutions. I feel very good about this business, and the integration is going very well. Culturally, both companies are very compatible and very focused on the patient, innovation, and driving growth. Vijay Kumar: Thank you. Operator: Our next question will come from Matt Taylor from Jefferies. Your line is open. Matt Taylor: Good morning. Thanks for taking my question. Could you talk a little bit about the trends in Structural Heart and, within that, address what is going on in left atrial appendage closure? Not only do you have programs including the next-gen 360, which I think people are excited about, but could you comment on what you think the impact could be from the CHAMPION study from your competitor? You have a similar study, Catalyst, that will read out here in a year or two. We would love an overview of Structural Heart and LAAC. Robert Ford: That is an interesting question because historically we had our left atrial appendage closure device within our Structural Heart business, and we decided to move it outside of Structural Heart and put it into our Electrophysiology business. We did that at the end of last year, starting January 1, where we moved the salesforce, clinical teams, and eventually manufacturing. We did that because we felt it would be beneficial for Electrophysiology and, quite frankly, would be more beneficial for our Structural Heart business. I will focus on Structural Heart trends. We have been doing pretty well. In our queue, we have a reconciliation of the impact of moving those sales out of Structural Heart into EP—that is a big contributor to the disconnection between the street model and what we delivered. On top of that, we have seen some competitive intensity increase in the mitral space as one of our main competitors expanded their portfolio. My team can do a better job there; they know that. We need to improve our execution in the U.S. We have made some changes to leadership, and I am expecting our U.S. commercial team to respond to the challenge. Internationally, growth continues to be very strong across the entire portfolio, and we are delivering double-digit growth in Mitral, TriClip, and our Structural Interventions business. While there will be some geographic differences, I continue to expect our Structural Heart growth to be high single digits for the full year. We have a couple of trial readouts. We have completed enrollment in our Catalyst trial. I do not have a big reaction to my competitor's trial; I will wait until ours comes out and then comment. It is a high-growth, attractive business. Our next-generation product is very exciting, and moving it to our EP business should provide better acceleration for that product and allow our Structural Heart team to stay focused on valvular products. Matt Taylor: Thank you very much. Operator: Our next question will come from Travis Steed from BofA Securities. Your line is open. Travis Steed: Hey, everybody. I wanted to ask on the Nutrition business. I heard you mention that volume is starting to recover a bit. Any other color you can give on getting confidence in that business returning to growth in the back half and volume picking up? And how you are thinking about ongoing portfolio management and value creation, and how Nutrition fits in that strategic thinking? Robert Ford: As I said, we are starting to see the impact. We did a comprehensive price assessment at a product and geographic level. We evaluated our gaps versus competition. We did not reduce price uniformly; we kept it focused on products that, based on our experience, would demonstrate a positive volume response to reduced price. When the price is passed on to the consumer, we are seeing an immediate effect, but it takes time for some of that price to get passed on, because of channel inventory. That is why we wanted to get ahead of it quickly in Q4 of last year. When you see the lower prices get passed through to the consumer, you see the intended effect. For example, in our U.S. Adult Nutrition business, specifically Ensure, that was a product we knew had some elasticity in its price. We have seen volume grow across all the retailers that have passed that on in the U.S. We are tracking this on a monthly basis, using the first half of 2025 as the baseline, and my team looks at this weekly with available data. I feel good about where we are. I am not going to say it is all done—there is still work to do. Product launches allow us to gain distribution, and we need to expand distribution into the channel. The team is incredibly focused and resilient. As it relates to the portfolio, I like the diversity of our business model—across business segments, products, geographies, customer bases, payer types, and innovation cycles. We do not want to be heavily weighted on one or two products. That diversity provides us a unique perspective on the global health care system. We constantly evaluate our portfolio: Is the market still attractive? How is our competitive position? Do we expand, maintain, or potentially reduce? We do this on an ongoing basis with management and with our board at least once a year, sometimes twice. Evaluating our portfolio for value creation is not a once-every-five-year exercise. If we see an opportunity, we have demonstrated we can act upon it. I am never going to make a long-term strategic decision based on near-term challenges. Nutrition is going through some near-term challenges and a transition and recovery phase, and my focus is on getting our business back to the growth rate we had seen over the last four or five years. Travis Steed: Great. Thanks a lot. Operator: Thank you. Our next question will come from Joanne Wuensch from Citi. Your line is open. Joanne Wuensch: Good morning, and thank you for taking the question. I am surprised we are fifteen minutes into this and no one has asked about macro issues, so I am going to go there. What are you seeing in terms of potential impacts from the conflict in the Middle East on your business—on oil and resin costs—and big picture, what you are seeing in terms of patient volumes and reimbursement, outside of your comments on respiratory snow days and things like that? Thank you. Robert Ford: The way Abbott Laboratories has been built, it has been built to withstand these kinds of events. Our discipline is to ensure that we try to get ahead of it. As it relates to oil costs, it is too early to tell. We are not seeing any of that in our costs right now. We are not seeing freight rates increase from our suppliers right now, but we are monitoring it. We have a whole team that monitors and stays close to it. One of the things we do to stay ahead is that each of our businesses has dedicated teams—Monday through Friday, 8 AM to 6 PM—working on gross margin improvement: anticipating cost shocks, becoming more efficient and effective, and negotiating with suppliers. It is too early to tell, but I do not think there is a big impact because we have teams in place working to mitigate. The impact we saw in Q1 was very minimal. I would not call it a demand impact. It was more about getting product into the region. Shipping lanes became constrained; everyone wanted spots on planes and different types of transport. We need to stay ahead of that. We run pretty efficiently with our inventory, so now we need to make sure we have more inventory in our affiliates and warehouses in the areas, so we have enough product and do not have back orders. I did not see a drop-off in demand or reimbursement challenges as a result of the conflict. It was more ensuring that we could get product into the area. The teams that Abbott Laboratories has in the region have unfortunately been through a lot and seen a lot, and I give them a lot of credit. They have to grow and drive the business under very tough challenges. Operator: Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is open. Josh Jennings: Robert, hoping to get more details on the EP franchise and the Volt launch internationally and now in the U.S. Internationally, any quantification of how Volt is impacting share recapture in the ablation catheter segment? For the U.S., with the early approval of Volt 2.0, any updates in terms of timing or how your team is going to move forward into a full launch this year? And overall, can you help us think about Abbott Laboratories' updated views on EP market growth—volumes and pricing? Robert Ford: That is fifty-five minutes with the first EP question. The team has done an incredible job over the past years of driving double-digit growth during a window where we did not have PFA. That window is now closed, so our expectations and outlooks are on the rise. The U.S. launch of Volt and the European launch of TactiFlex Duo are underway. Both launches are in what we call a limited market release phase. We do that with all of our products across devices and diagnostics. Before we go full-blown, we believe there is an intermediate step between a controlled environment or clinical trial and full commercial launch. That helps us understand resourcing, positioning, and uncover insights you might not get during a clinical trial. The feedback from both products is extremely favorable and aligned with our expectations when we were building this portfolio two years ago. We realized we were not first, but we wanted to take advantage of our mapping systems and develop what we believed would be an upgrade to the first generations. We are seeing that with Volt. The conscious sedation aspect of Volt is extremely valuable in the U.S. and internationally, and it is specific to Volt by design. At the European Heart Rhythm meeting last week, albeit preliminary and small, we saw data suggesting the lesions that Volt creates are more durable. That balances the discussion on the EP market to be not only about efficiency and speed—because there are many patients to treat—but also better outcomes. We believe Volt can deliver speed and efficiency and better outcomes. The TactiFlex Duo feedback is very positive as well—easy to use, very fast lesion creation. This is on the TactiFlex chassis, so there is a lot of experience with that catheter, and there is a seamless switch between RF and PFA. We are now moving to broaden the launches, which gives us confidence that growth will accelerate, including growing faster than the market by the exit of this year. On market growth, there is debate—is it 15% or 20%? We think the market will be mid- to high-teens, and we are aiming to do better than that. The near-term outlook for the business looks really strong. More importantly, I like our long-term position. We have two new PFA catheters, a new ICE catheter, a new introducer, and we are constantly making annual upgrades to our mapping system. We have mapping infrastructure in place with clinical specialists—highly valuable to our customers. We will add a second-generation LAA device to this group. No company in this space has the kind of portfolio, completeness, experience, and field teams that we have. While not all of these products fall into EP as a reportable segment, many EPs also use our devices—pacemakers, ICDs—and our leadless technology is very fast-growing. We have a very differentiated EP product portfolio, and there are a lot of exciting times ahead for our EP business. Michael Comilla: Crystal, we will take one more question, please. Operator: Thank you. Our final question will come from Marie Thibault from BTIG. Your line is open. Marie Thibault: Good morning. Thanks for squeezing me in. I want to get a little bit closer to understanding what is going on in the Core Lab business. You called out strengths in the U.S., Europe, and Latin America. I think we are moving past some of the China VBP headwinds. Could you characterize the Core Lab trajectory by geography during Q1? Any share gains? Any notable product launches to call out? Robert Ford: You characterized it well. Our sales in China for Core Lab were flat in Q1. Last year, we were down between 15% and 30% every quarter. The teams are making good progress. We are lapping some of the price and volume headwinds, which also contributes. The market dynamics we faced have improved. I am cautious to say it is all lapped because in VBPs you have different phases—regionals, nationals, etc.—but we have China modeled at a single-digit decline for the year. Could we do better than that? It seems like the team has done better in the first quarter, and I hope they will continue. In the U.S., the team has done a fantastic job. Growth rates are high single digits and have been like that for some time. We are renewing contracts at a very high renewal rate—call it 90% plus—and share gains are accelerating. Our win rates are 55% plus; in new business, we are able to win one out of two. Europe is difficult to characterize as one region because of north-south differences, but in general, the business has been mid- to high-single digits pretty reliably. We feel very good about Diagnostics. It has been performing well, with the exception of the impact of VBP in China, and that seems to be lapping. I expect full-year Core Lab growth to be mid-single digits. I was talking to the leader of that business yesterday—they have strategies to do better than that, with the second half higher than the first, consistent with what we have historically done. The team has done a very good job navigating VBP in China and continuing to drive growth in other parts of the business. In China, about 80% of our portfolio has gone through VBP. You will probably hear about new waves of VBP like a fertility VBP or a cancer VBP, and we have very little share in those segments. I do not want to say we are past the eye of the hurricane, but it seems like the teams have stabilized China, and the other businesses continue to perform the way they have historically performed. Just before we end the call, I would like to reiterate my comments at the end of my prepared remarks. I remain very confident in our expectation for an acceleration in growth in the second half. We know what the drivers are, we know where the accelerations are, we know where we need to improve execution, and we are laser focused on executing on them. Thank you all for joining us today. Michael Comilla: Thank you, operator. Thank you all for your questions. This now concludes Abbott Laboratories' conference call. A webcast replay of this call will be available after 11 AM Central Time today on our website at abbott.com. Thank you for joining us today. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Jeff Edwards: Good morning, everyone. Thank you for joining us for Schwab's 2026 Spring business update. This is Jeff Edwards, Head of Investor Relations, and I'm joined in Westlake this morning by our President and CEO, Rick Wurster as well as our CFO, Mike Verdeschi. Let's jump on in today, and hopefully, everyone had a chance to review our earnings release that crossed the wires earlier this morning and per the usual, slides for today's business update will be posted to the IR website at the conclusion of today's prepared remarks. Please adhere to our one-question policy during Q&A. And as always, the IR team is available to assist with any questions following today's update. And finally, the [indiscernible] wall of words or perhaps more widely known as the forward-looking statements page, which reminds us that outcomes may differ from expectations, so please stay up-to-date with our disclosures. And with that, I'll turn it over to Rick. Richard Wurster: Thank you, Jeff, and good morning. Thank you for joining us for our spring business update. I hope you walk away from the call this morning with three overarching messages. One, our Through Clients' Eyes strategy drove record client growth and financial results in the first quarter. Two, Schwab is delivering for clients and is uniquely capable of meeting client needs across investor types and investment environments. And three, we are innovating at a rapid pace with tangible progress in AI, digital assets and client capabilities and experiences. Our Through Clients' Eyes strategy continues to drive results with strong growth across all fronts in the first quarter. Clients remain highly engaged, and they continue to turn to Schwab through volatile and uncertain markets. Clients opened 1.3 million brokerage accounts up 10% over last year. Excluding a onetime mutual fund clearing outflow, we attracted $158 billion in core net new assets, a first quarter record that brings total client assets to $11.8 trillion. March was our second highest month of NNA ever behind only December of 2021. Clients continue to turn to us for more of their financial lives with strong engagement in our wealth and lending solutions. Managed investing net flows were up 46%, reaching an all-time record. Bank lending was up 29% year-over-year with bank product balances and pledged asset line balances reaching all-time records. We supported a record 9.9 million daily average trades. This engagement led to record financial results with revenues up 16% [indiscernible] $1.43, up nearly 40% over last year. Behind those numbers are people of all life stages who are turning to Schwab to invest and trade through a period of heightened market volatility. In the first quarter, we continued to execute across our key strategic focus areas and deliver innovations at a fast pace to help clients grow and protect their wealth. I'll highlight just a few, starting with growth. We're continuing to hire financial consultants and wealth advisers while expanding our branch footprint with about a dozen new branches planned for 2026. When clients have a direct relationship with a financial consultant, their Client Promoter Scores increase 10 points and they trust Schwab with 2.4x more net new assets. We launched the Schwab Team Investor account, giving young people ages 13 to 17, an engaging way to get started on their lifelong investing journey. Our differentiated joint account structure allows parents to monitor and engage as needed as their teams trade and invest. We are still in the early days, but have seen great interest and enthusiasm so far. We believe it is important for teenagers to learn the benefits of saving and investing. The merits of compounding over messaging from the more gambling oriented messaging from some competitors. We completed the acquisition of Forge, which will allow us to provide clients with direct and indirect access to shares of pre-IPO companies through direct private share purchases, single company funds and multicompany funds. We'll roll these capabilities out to clients over time and look forward to sharing more details in the months ahead. We are building a healthy pipeline in our recently launched private issuer equity services service which offers capital people management solutions for pre-IPO companies that combines the expertise and capabilities of our workplace business with Qapita's flexible technology and offers a seamless transition to our public stock plan services capability. With the Forge transaction now closed, we continue to see upside in engaging the private market ecosystem with a solution that offers them pre-IPO stock plan services, liquidity solutions for their employees and equity holders and lending solutions for their employees. This win-win opportunity creates value for the issuer while creating a pipeline of stock plan services clients and greater access to private company shares to grow Forge. We also increased our strategic investment in Wealth.com which we are already using to bring AI-powered estate planning tools to our clients. We're also working to launch their AI-powered tax planning capability in the near future. We successfully began the rollout of our structured asset line offer to adviser clients, expanding the type of securities they can use as collateral, including alternative investments. We'll talk more about our AI progress in a moment, which is helping us drive both growth in scale and efficiency. When it comes to brilliant basics, we were there for our clients in the first quarter. We supported over 600 million trades, more than 7.8 million calls to our service centers and about 570 million digital log-ins up about 12% from the first quarter of last year. Clients reaching out to our service centers had their calls entered in less than 30 seconds on average. We're also making it easier for our clients to do business at Schwab. In Advisory Services, we're continuing to enhance our digital experiences across RIA workflows like move money, account open and account maintenance while also modernizing tools on our adviser platform. Taken together, these enhancements help RIAs get routine work done faster and with fewer errors. We're also continuing to enhance our digital experience across the retail and workplace ecosystem, including expanding our digital experiences and bringing workplace on to Schwab Mobile. Most importantly, we continue to delight our clients. Client Promoter Scores are up 9 points over last year in Investor Services nearing all-time highs. Our [ ASCG ] score also remains near an all-time high. Our capabilities are differentiated and aligned to support clients in all markets, including the more volatile environment that we experienced in Q1. Our formula for driving earnings growth over the long term is straightforward, and you see it here on the screen. I want to spend a few minutes highlighting just a few of the ways we are accelerating our pace of innovation to deliver for clients and drive our strategy as we look ahead. We have a diverse set of opportunities to deepen relationships with our 47 million client accounts while also diversifying our revenue streams. I'll spotlight two areas where we are helping clients conduct more of their financial lives at Schwab, wealth and digital assets. Flows into our managed investing solutions reached all-time highs. This was driven by strong engagement with our flagship Wealth offer Schwab Wealth Advisory where net flows reached a record $10 billion, up 90% over last year. Approximately 30% of the flows into our managed investing solutions came from legacy Ameritrade clients. Clients in our managed investing solutions have the highest client promoter scores at the firm and bring in approximately 2x the revenue on client assets, and we still have runway to grow this business as our clients' financial lives become more complex, and we continue to add to our capabilities to help clients grow, protect and pass along their wealth. Another way we will deepen relationships with clients is with Schwab Crypto, our new spot crypto offer. I'm excited to share that the employee pilot is underway, and we expect the phased client rollout will begin in the coming weeks. We are starting with the two most popular coins, bitcoin and ether which together represent approximately 3/4 of the crypto market. Pricing will be competitive at 75 basis points on the dollar value of each trade. We plan to add additional cryptocurrencies to the platform over time as well as transfer capabilities for both deposits and withdrawals, allowing clients with existing digital assets that bring them to Schwab alongside their other investments. Most importantly, we are launching our spot crypto offer the Schwab way with a powerful combination of education, research, risk management and service all at great value. Finally, I want to spend a few minutes diving into how artificial intelligence is accelerating our strategy and the fast pace at which we are launching impactful AI capabilities. I want to start by highlighting three points. One, Schwab is already an AI-enabled company. We have been using machine learning and AI capabilities for years and have made recent progress launching new AI capabilities. Just as we have embraced and flourished during other periods of seismic technology change, we are doing the same now benefiting from our massive scale, data and technological prowess. Two, AI will accelerate our strategy. On the growth front, AI opens up new distribution channels and allows us to create personalized relationships with clients we have not been able to serve with a person-to-person relationship. AI is already having significant impact in driving scale and efficiency, both in our technology and operations and in the way we serve clients. Three, we are harnessing the power of AI in the Schwab way, bringing the best of people and to engage the way they prefer. AI is accelerating our strategy in several ways. First, AI will help fuel our ability to serve more clients. As prospects and clients increasingly use consumer AI tools for research, we are making sure Schwab will be there providing the trusted education and expertise that we already bring to clients on other digital channels today. We're already reaching a growing number of clients through the answer engine optimization work that our marketing team is doing to ensure we show up on the AI platforms where investors are turning. We are working with these platforms now, and you'll see us do even more. AI will help us with our second growth lever, deepening existing client relationships. AI can help us create personalized and deeper relationships with the clients we can't currently serve at scale with one-to-one relationships. We know investors are using AI today, 77% of U.S. investors use AI today, though more than 90% still prefer human involvement in addition to AI. Next month, we will begin the rollout of portfolio insights and AI-enabled experience that will deliver tailored insights to our clients about their investment portfolios, how they are performing relative to indices, the news about their holdings and the relevant proprietary research from Schwab. We have already tested this capability with employees. We will expand these capabilities throughout 2026, providing clients with insights on topics like concentration risk, asset allocation and technical indicators. We will also be launching a generative search capability for clients looking for information on schwab.com. The first iteration will launch this year. Starting over the summer, we will introduce the first of several AI assistants that will enable our clients to interact with chat and voice to address their most frequent service and support needs. Our first iteration of the investor AI assistant will launch in June. This capability will be able to answer general questions and we will start to test a set of actions the agent can take on behalf of clients. For example, clients will be able to interact with the voice agent to set beneficiaries. We are ensuring clear handoffs to human agents and strict guardrails. This agent and others like it will get smarter with each release as we introduce new skills. We are working with a leading AI agent firm on this build-out and look forward to sharing more details soon. We are also now able to meet our clients' trust needs with an AI-powered capability from wealth.com. We will do the same with tax. Over time, these efforts will create opportunities for enhanced experiences and new fee-based offers that will create value, we believe our clients will be willing to pay for. According to research, more than half of our clients are willing to pay for AI financial tools. AI is already driving scale and efficiency in two ways. First, it is helping us drive productivity across the firm. Every one of our sales, service and advice professionals is using AI every day to elevate every interaction they have with clients. A few examples. Schwab Knowledge Assistant gives our phone professionals answers to complex client questions in seconds. And Schwab Research Assistant synthesizes market insights from the Schwab Center for Financial Research. Schwab AI Service Assistant, which we've rolled out in retail and will follow in Advisor Services instantly transcribes approximately 60,000 live interactions a day, captures notes and assist client-facing professionals with next steps. Within Advisor Services, we've introduced large language learning models to analyze millions of calls to provide better coaching to our service professionals. In our branches, we are launching a relationship management assistant. If an FC has a client meeting coming up, this capability quickly summarizes past client interactions using AI, shares a view on actions that would help the client, records the client meeting and prepares an action-based summary of the meeting for the client. We believe this tool will make our financial consultants more productive and able to serve more clients more deeply and more effectively. Second, AI is helping us transform how employees work. We have equipped every one of our 33,000 employees with AI tools and are seeing tremendous creativity as they are developing fluency in AI and embracing the ways it can transform how we work. We are accelerating the pace at which our Schwab engineers build technology. More than 8,000 of our technologists are using AI to design, code, test and fix bugs, all of which increases our speed. And we are streamlining back-office processes and operations, risk and across the firm to save time and resources. We are confident that we are incredibly well positioned to continue unlocking the benefits AI can bring to our clients and our business, including, one, enhancing the client experience by bringing personalized insights to more clients at scale and serving more clients more efficiently; two, increasing productivity and efficiency, which will lower our cost to serve while enabling us to continue to reinvest in our growth; and three, create future monetization opportunities with AI-powered capabilities that clients value. The outcome is AI is accelerating our Through Clients' Eyes strategy to help us drive profitable growth through the cycle. I look forward to sharing more detail with all of you at our Institutional Investor Day on May 14, including demos of some of the AI capabilities that we'll launch soon. To summarize, we have strong momentum as we head into the second quarter, and we're well positioned to deliver earnings growth through the cycle. With that, I'll turn it to Mike to speak more in detail on our financial picture. Michael Verdeschi: Thank you, Rick, and good morning, everyone. During today's call, I will discuss our strong start to 2026, where our sustained business momentum drove record financial results for the first quarter. In addition, I'll cover our disciplined approach to managing the balance sheet, which allows us to support the evolving needs of our clients across different environments. And lastly, highlight how by doing more for our clients across our platform, including the continued deployment of AI, enables Schwab's model to become even stronger and more diversified allowing us to provide individual investors and RIAs with an industry-leading value proposition. Starting with 1Q. Revenue increased 16% year-over-year to a record $6.5 billion for 1Q, including another quarter of double-digit year-over-year growth across all major line items. The reduction of higher cost borrowings at the banks increased utilization of our lending solutions by clients and interest in long-short strategies helped drive a 16% increase in net interest revenue versus 1Q '25. While equity markets were increasingly volatile over the course of the quarter, strong asset gathering and client interest in Schwab's wealth and asset management offerings drove 15% year-over-year growth in asset management and administration fees to a record $1.8 billion. Trading revenue for the quarter was up 20% versus 1Q '25 as our best-in-class retail trading platform supported record levels of engagement, including 9.9 million daily average trades. Bank deposit account fees also increased 20% year-over-year due to an improved net yield as lower-yielding fixed-rate obligations continue to mature and convert into higher yields across both the floating and fixed rate buckets. Moving on to expenses. Adjusted expenses for 1Q grew 5% year-over-year reflecting first quarter seasonality and strong client engagement across our trading, wealth and banking solutions. We also continue to invest to support our key strategic initiatives, including organic growth, new products, AI opportunities and ongoing scale and efficiency efforts. Record quarterly revenue combined with balanced expense management, resulted in an adjusted pretax profit margin of 51.4% and first quarter adjusted earnings per share reached a record $1.43, a year-over-year increase of 38%. Transitioning to the balance sheet. We continue support of our clients' evolving needs as they navigated a challenging environment in 1Q '26. Demand for our bank lending solutions remained strong as total bank loan balances grew to $61 billion, up 29% from 1Q '25 and 5% versus the prior year-end. Client margin loan balances ended the quarter at nearly $127 billion, up 13% from year-end 2025 levels, reflecting continued interest in certain long short strategies as well as increased trading related margin balances despite a pullback in activity during the month of March. We also continue to utilize the combination of our interest rate hedge programs and investment portfolio to match off our assets and liabilities enabling us to efficiently maintain a more modest asset-sensitive position. Client cash followed typical seasonal trends to begin the year. However, as volatility increased during the back half of the quarter, clients took a slightly more defensive posture, which in conjunction with the cash build from organic growth and the long short strategies contributed to $25 billion of cash inflows during the month of March resulting in an $8 billion sequential quarter increase in client transactional sweep cash. For the second quarter, we still anticipate the typical drawdown in client cash due to tax payments in April. And similar to past years, we expect this activity to impact both transactional sweep cash as well as other liquid cash alternatives such as money market funds. Beyond seasonal considerations, continued market volatility could influence client cash allocations. And lastly, in line with our stated principles, we continue to prioritize flexibility in managing the balance sheet to remain well positioned to navigate a wide range of environments. Capital levels remained strong with our adjusted Tier 1 leverage ratio, finishing the quarter within our 6.75% to 7% objective range. Our adjusted ratio of 6.8% reflects a 19% increase in our common stock dividend, the repurchase of common shares for $2.4 billion during the first quarter and sequential growth in the balance sheet. 1Q '26 represented a strong start to the year with growth on all fronts, including healthy organic growth, record client trading activity, as well as robust engagement across our broader suite of modern wealth solutions, which we converted into record revenue and earnings. Given our strong performance in 1Q and based on what we see today in terms of the expected path of rates and strong client engagement, we are tracking higher than the $5.70 to $5.80 EPS range implied by the scenario we shared back at the winter business update in January, which excluded the impact of buybacks and Forge. We'll provide a more comprehensive update on our full 2026 financial scenario at the next business update in July. Finally, before we move on to Q&A, I wanted to take a moment to build on Rick's AI comments, specifically the conversation relating to cash. There are three key points to remember. One, Schwab provides an industry-leading value proposition to individual investors and RIAs. Two, with help from Schwab, our clients are actively managing their cash allocations. And three, Schwab's ability to help clients with more of their financial lives enhances the flexibility of our client-driven model. So first, the overall value of Schwab's platform. We have created an exceptional offering in the marketplace that is highly trusted and valued by individual investors and RIAs, which has led to approximately 47 million total accounts and investors entrusting us with approximately $12 trillion in total client assets. Clients value our firm's focus on helping them build and manage their wealth while providing all of these services at highly attractive all-in costs for them. Second, we provide a broad suite of cash management solutions that offer clients a range of products with different features to help meet their diverse needs. We also proactively seek to raise awareness around the cash options available on the platform and efficiently enable them to move between the various options with as little as one click of a button. At the same time, independent RIAs continue to help their end clients manage their portfolio allocations, including cash to help meet their individual financial goals. Today, this has resulted in total cash levels running around 10% of client assets were transactional cash allocated at about a 4% level or approximately $10,000 per account. And as we see demand for new products or capabilities for cash, you would expect us to deliver those to our clients. Importantly, given how easy we have made it for clients to move their cash between different solutions and based on the trends observed over the past few years, client cash is actively allocated today. To the extent additional efficiencies are enabled down the line, the broader evolution of the platform enables continued flexibility in managing our economics. Finally, as Rick noted, we view the emergence of artificial intelligence as a tailwind to Schwab's strategy. So by continuing to put clients first, Schwab's platform has built up immense flexibility. Our motto is informed by investors' preferences for lower explicit fees without sacrificing product access, convenience or service. To the extent those preferences change at some point in the future, Schwab has a lot of flexibility to continue supporting investors and RIAs in the way they have come to expect from us while still delivering strong returns for stockholders. And with that, Jeff, let's move on to Q&A. Jeff Edwards: Operator, Could you please remind everyone how to ask a question? Operator: [Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research. Steven Chubak: I wanted to ask on the outlook for NIM and cash growth, just recognizing the backdrop in March is anything but normal. Entering the year, you spoke to a low 2.90s exit rate on the NIM. It also contemplated modest IEA growth. And at the time you laid out the guidance of forward curve had multiple cuts, we're anchoring to a lower 10-year. So given the evolving rate backdrop, how does that inform both the NIM outlook exiting this year as well as expectations for IEA growth in a higher for longer backdrop? Michael Verdeschi: Steven, thank you for the question. Certainly, it's been a favorable environment in terms of that client engagement in the first quarter. And as you highlighted during the winter business update, when we laid out our financial scenario, that included two rate cuts. I think there was a June and September rate cut there. And looking at the forward curve now, perhaps the market is anticipating no cuts. So that is more favorable for us. And at the same time, when you look at cash, we had a good first quarter for cash and typically, over the course of the year, you will see that seasonality play a factor certainly in 2Q. But stepping back, we're expecting the continued upward trajectory of cash being driven by organic growth. So we think over the course of the year, certainly favorable, where the lack of rate cuts perhaps as well as the strong client engagement, both bringing us new assets in cash with that but also on the asset side as lending has remained robust, that will provide continued upward momentum. And I feel good about the NIM growth, both what we had laid out in that scenario, but also perhaps some upside to that when we come back in July with a refresh of our financial scenario, we'll provide more details. Thanks for the question, Steven. Operator: Our next question comes from Ken Worthington with JPMorgan. Kenneth Worthington: ETFs have been an area of strong asset growth for Schwab, and it seems like the economics of the value chain are shifting in favor of intermediaries. When we think about Schwab's approach to charging where value is provided in win-win monetization, how is Schwab thinking about its value as an ETF distribution platform? And is there a distinction that you'd make for that value when considering active ETFs versus passive ETFs? Richard Wurster: Ken, thanks for the question. We think there is value for us to be earned as it relates to ETFs, and we are actively working on that. We've been in negotiation with the 400-plus asset managers or so that are on our platform, and those are going well. We've started with the big firms and knock those out. So we feel really good about by the end of the year, having an ETF monetization strategy in place and live. And that's our current plan. I think timing can always shift, but we're taking all the steps to make that happen. In terms of active versus passive, I think I would draw the distinction mainly on fees. The way we're thinking about it is as a percentage of the ETF fees. And so active strategies tend to have more higher fees versus passive. And so there'll be more of an economic opportunity there. Operator: Our next question comes from Bill Katz with TD Cowen. William Katz: So a bit of a complicated question, but it looks to me, right, you're doing a better job of managing the interplay between balance sheet growth and capital return. And with the adjusted Tier 1 leverage ratio sitting at 6.8%, sort of nicely nestled between your range that you sort of look to keep the firm at. So as you look ahead, I guess the question is, how are you thinking about maybe the growth of earning assets, the remixing of that between lending and other higher-yielding opportunities versus capital return, certainly given a very strong now 3 quarters in a row of buyback. Michael Verdeschi: Bill, thank you for the question. So as we look out on horizon, we feel good about the client engagement and as we said this morning, we've seen that across the board. As it pertains to some of that lending activity, we've seen good continued momentum in both that bank lending product, certainly driven by the pledged asset line. And that, of course, comes at a very healthy spread over above what we could earn on just leaving it in cash or allocating it to securities. So that's been a good boost as well as margin lending. And so I think with the continued volatility in markets, we're seeing engagement across the board, but we feel good about that lending space as well. And of course, as clients bring us more cash and as they keep cash on the sidelines, that is used to fund those lending activities very efficiently. So we see that expansion of the balance sheet. It was modest in the quarter but continue to be fueled by that client activity, which has certainly been accretive to the firm in terms of earnings and certainly accretive relative to capital. Now with that, we continue to look at capital, and we prioritize capital for the growth of the franchise, and it's going to be there to support our clients and their evolving needs. But with strong earnings growth, it's given us flexibility as well to return capital across our framework. We increased the dividend in the first quarter. Of course, over the course of the year, we'll have a look at those preferred securities that will become redeemable. And if we decide we wish to keep that form of capital in our capital stack, we'll evaluate the economics around leaving those preferreds outstanding or perhaps redeeming them and replacing them or some portion. And then, of course, that leaves you then with buybacks. And again, given the ability to continue to have capital to support the growth of the franchise as well as the strong earnings, we've had a lot of flexibility on capital. So we feel good about how the client growth has been evolving and how we've been able to support that in quite an accretive way. Operator: Our next question comes from Brennan Hawken with BMO Capital. Brennan Hawken: So investors have been rather focused on an announcement that JPMorgan has made in rolling out a product to reduce the friction around brokerage cash. Are you considering similar tools you spoke a lot in your prepared remarks about cash and continuing to innovate? And how should investors be thinking about your flexibility in adjustment both to the competitive environment and the realities of the economics of the business. Richard Wurster: Brennan, thanks for the question. We've been trying to make it easy for clients to allocate their cash in the appropriate way forever, really. And we do lots to support that, whether it's our FCs proactively reaching out to clients and letting them know they have cash balances in sweep cash and understanding what their intention is for that cash and explaining other options than when someone logs in, a high proportion of the time, their first screen is earn more on your cash at Schwab. And certainly, our advisers as part of their fiduciary responsibility are managing cash tightly. So we've done everything we think to make it as easy as possible optimize and be intentional about where your cash sits today. And so we feel good about that. The second thing I would say is there's a lot of reasons why when given the choice between cash options, clients are choosing to be in our sweep cash program. Number one, they needed to be able to move money around to pay their bills to afford their life. We've got a couple of hundred billion that move in and out of the firm every month in terms of cash. They needed to be able to trade. And over a 2-day period, we trade roughly $300 billion of equities. And so there's cash needed to move, to support that trading level. So there are lots of reasons why we think clients have their cash intentionally allocated and why a big portion of it is on the balance sheet. In terms of an agentic capability, we are launching an agentic capability this summer. It will have basic agentic capabilities to start with and take on a few tests. Over time, I expect that everything you can do at Schwab today by going and pointing and clicking to move around the website or through a mobile app, will be able to done -- or most of it will be able to be done through an agentic experience over time. And our launches will incrementally add to that over time. And so the one click it takes to move cash today may become an agentic experience over time. Now if clients want their cash managed as part of a broader asset allocation, we think that would be a fee-based solution, and that's something that we're -- that we will be prepared to offer as well. The final -- I mean I'd make on cash in addition to the fact that we think clients have optimized and been intentional about their cash is that we believe we have many ways to charge clients for the value we add. Our Client Promoter Scores are at all-time highs. Clients love working with us. We offer no trade-offs experience in periods like we've just been through this last quarter, the clients really see the value of what we do. how we have charged our clients over time for that value proposition has changed. It used to be heavily reliant on commissions. And certainly, we've adapted our business to deal with a declining commissions environment. So my views on this are really fold. One, we think clients have been intentional about their cash, and we've tried to make it really easy. Two, [indiscernible] agentic capabilities that will make everything at Schwab very easy. And three, we've got lots of flexibility in how we monetize at Schwab for the value that we provide. So we feel we're on a strong footing and are incredibly excited about AI as an accelerant to our strategy, not as a headwind. Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe you could just zoom in on March a little bit more. I mean very strong metrics in both NNA and transactional cash build. Any color around -- first on the NNA, we've seen the adviser side grow faster than the retail side drop for a while now. Any contribution from RIA conversions, bringing in new RIAs from wirehouses that would be sort of elevated in the month. And then on the deposit side, is it your sense that deposit build is more due to risk off or potentially more due to cash build ahead of tax payment season? Richard Wurster: March was an exceptional month of NNA. It was our second highest month of NNA ever behind only December, which December is always seasonally strong. So outside of one December, it's the strongest month of growth we've seen in net new assets, which is really exciting to see. And you mentioned the consistent strength we've had in adviser services. What's even more reassuring about March and more exciting is in investor services reached an all-time monthly high of net new assets and actually had higher net new assets in March than Advisor Services did. So we saw strength really across the board, both in Investor Services and in advisory services. I think it's a reflection of our value proposition. In Advisory Services, we continue to have the leading custodial offer. We say it's one of the Schwabiest choice. And I think that's becoming more and more true because we continue to invest in this business, make it easier for advisers to do business with us. We've rounded out our offering to them in terms of adding more lending capabilities, which they wanted and now they're getting. We were launching -- and just recently launched a structured asset lending program, which has opened up advisers' ability to have their clients borrow against alternative investments, borrow against their restricted shares, private shares things along those nature. And our advisers love that because, historically, they've had to introduce a big bank to do that lending and now they can keep that wealth relationship and do the lending through us. And so our value proposition to advisers has never been stronger. And importantly, the advisers continue to win in the marketplace because the fiduciary model works because there's a bull market for advice and convenience and the independent advisers have a great model. And so as they win and we're successful in supporting their growth, we win as well. On the retail side, I think -- or on the Investor Services side, our growth is a combination of our value proposition, some engaging market that has clients interested in bringing assets to Schwab and how we stand apart from others in the industry. It's -- we're going through a period of heightened market volatility where what we do and the way we do it and the way we see through client size really stands out. And so I think that's helped with our NNA. Mike, do you want to talk about cash? Michael Verdeschi: Yes. Thanks, Rick. In terms of the cash, yes, Brian, we did see that good pickup in the month of March, and there were a few factors that caused that. As you highlighted, if you look at the quarter, it was really March where you began to see that decline in equity markets and that shift in sentiment. So that certainly was a contribution to that pickup in cash that we saw late in the quarter. But then in addition, other activities such as that long short strategy brought in some cash as well but also with the strong net new assets over the course of the quarter and in particular, in the month of March, that also served to bring us cash as well. Now I don't know how much of that may have been related to the tax. I think the drivers that I described were more of the primary drivers, but it may mean that, that cash was not put back into the market too quickly. If clients were selling then that cash may have just remained on the sidelines, and we'll go out for tax reasons in the month of April. And as I said, in April, where we're expecting and everything we're seeing so far is that normal tax season or it's the combination of that transactional cash as well as money market funds contributing to those tax statements. But thank you for the question. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: I just wanted to circle back to your comments around the cash sweep monetization and customers choosing to pay for services in part through a lower yield on cash. I was just curious how you monitor and assess the scope for changes in customer behavior and preferences around that? And how might the competitive landscape? And technology advances maybe impact that. And I was hoping you could maybe elaborate a bit more on if monetization evolves away from cash sweep. What might future monetization and potential lever to look like at Schwab? Richard Wurster: Thanks for the question, Michael. And I want to be clear, before we get into how we would change our economics, we do not see this currently as a big risk. We believe our clients have intentionally allocated their cash, and we go out of our way to make it incredibly easy to make sure clients land in the right cash solution for them. And there's lots of reasons, as I mentioned, like clients choose sweep cash in both our advisory business and our Investor Services business. So that's point one. Point two, in terms of how it evolves, I think we have lots of levers to pursue. We make money in lots of different ways. And whether it's trade or trading or wealth or lending, potentially fee-based solutions that leverage these agentic AI capabilities, there's lots we can do. If someone is going to want us to proactively move cash for them without their -- without them being involved in that movement, that is likely an advisory offer, and we charge for advisory offers and would for an Agentic advisory offer. So there are numerous ways and Listen, when I look at our company and where we stand and the value that we have, the 47 million clients that we have on our platform, I'm incredibly bullish about our ability to grow our revenue in any environment. We have built long-standing deep relationship with clients that highly value what we do. And just as we figured it out, as commissions went down, we'll figure it out if the economics changed in this environment, but we're also very confident that we've gone out of our way to make sure our clients' cash is intentionally allocated and that we'll support them in any way they can with all of their business. And it's important to remember that client cash is, I believe, less than 4% or so of overall relationships that clients have here. We're helping them on 100% of their financial life. There's lots of ways we're going to be able to monetize those relationships as if things were to change. Operator: Our next question comes from Mike Brown with UBS. Michael Brown: I wanted to ask about the digital asset offering here. So it's imminently coming. And I guess when you think about the strategic objective here, is it mainly retention? Is it focus on new asset gathering, higher engagement or just kind of building a broader financial ecosystem. And when you talked about maybe some assets coming over to Schwab, is there any way to kind of catalyze that movement to bring assets over and help individuals consolidate the digital assets on to Schwab? Richard Wurster: Thanks for the question. In terms of why launch crypto, number one, we've always have stood for client choice. And we have many clients that want to invest in crypto and are investing in crypto through Schwab today, whether it's an ETP or future or closed-end fund. And they want exposure to crypto and they've wanted spot exposure, and now we'll be able to give it to them, and I couldn't be more excited about that. And we're doing it in the swab way at a great value with lots of research and education around it. In terms of how to catalyze clients moving their crypto from their current provider to us, they are -- they've been begging us to launch this so they can move their crypto assets to us. So I think they will proactively do that. Certainly, our financial consultants will have conversations with clients and encourage them to consolidate their financial life in one place. They've been asking us for it. And the reason they ask us for it is there's a couple of reasons. One is they trust us. They view us as a safe institution. And second, the more they can consolidate their financial life, the more we can help them guide them through the financial life provide the resources and capabilities they need to live their best financial life. And they know we offer the service the pricing, the capabilities that can't be matched. And so they proactively wanted to move. So I don't think we're going to have to catalyze it. I think it will happen but we certainly will have many conversations with clients to our financial consultants. The last point I'd make is you asked about the strategic importance of this. The other point I would highlight is that we have gone about this in a way where we are building our own books and records in our own custody capabilities. That is a prelude to being able to offer clients choice in how they want to hold their equity someday with the potential for some -- or in fixed income, some wanting to tokenize those securities. And we're building optionality through this launch that allows us to support the future of tokenization should that be of interest to clients. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: So in terms of trading, obviously, a very active quarter, but the [ RPT ] came in a lot and understanding mix always plays a role here, but curious if there are other inputs in terms of pricing? And then also just on the digital asset offering, I was hoping you could talk about the -- what informs your pricing strategy with the rollout of that offer. Richard Wurster: Absolutely. Let me start with trading and then digital pricing, and I'm just jotting these down. Sorry, what was the first part on trading? Revenue per trade Yes. So let me describe how our traders are feeling. Our traders are feeling more uncertain about the geopolitics, about potentially the economy. As a result, and I talked to a group of traders two weeks ago and what they shared with me is they are taking smaller positions, holding them for less duration because they have less conviction. And so they are trading more frequently as a result. But because they're smaller trades, they're generating less revenue per trade. And so that's what sort of lines the high level of daily average trades you're seeing with the revenue per trade that we're experiencing. In terms of crypto pricing, our crypto pricing, I believe, among the major terms, we will have the lowest price for the first dollar traded and we wanted to be competitive and at the same time, we know launching crypto is expensive. There's risk with launching crypto. And so we wanted to make sure that there was a healthy fee. And we thought -- we think we've hit the mark in terms of having a very competitive fee while still generating attractive economics. Operator: Our next question comes from Devin Ryan with Citizens. Devin Ryan: Question on prediction markets. It sounds like something you'll potentially look at. It doesn't sound like sports or gambling related are interesting. But how do you see the markets evolving more broadly, particularly the areas that are maybe closer to Schwab's core, like corporate events or economic events? How significant could those areas be over time? And then is there a time line that you can share just around how you are thinking about potentially entering or signposts that we can look at for Schwab potentially entering there. Richard Wurster: Devin, I think you hit the nail on the head in terms of how we think about it, which is we do differentiate between financial related events and supports politics, pop culture. Where even the power of ownership and the power of compounding over time and owning equities, owning fixed income assets, being an investor over time and having that ownership leads to higher levels of wealth. And our goal as a company is to help our clients live their best financial lives. And so prediction markets that are not aligned to that, are not something that we want to pursue. And if you look at the stats on the success of gamblers, they're not strong and people generally lose money. And so as a company that is in business to help people live the best financial lives, we have kept sports and other things off to the side. In terms of a time line, I think this quarter was a quarter in which we accelerated our innovation at one of the fastest spaces that I've ever seen with the company in terms of -- we launched crypto to employees. We made significant progress in AI. We opened up a new lending capability that our advisers love, we launched [ keen ] accounts sending a really strong message to parents and teenagers about what we stand for and the way we think clients should engage in markets. So we closed the deal on Forge to be able to provide private shares to our clients. So we had a significant number of launches. And when we ask clients what they're looking for, prediction markets is very low on the list. I spent time with a large group of clients a few weeks ago, and I asked every one of them, "Hey, what do you think of prediction markets", and it wasn't a tremendous interest to our clients. That said, I think at some point, we likely will have production markets. And I also think that there will be intermediaries that bring these to market. And so if you look at some of the announcements by folks like CBOE and others, they're coming up, I believe Nasdaq might be also doing something. They're coming up with binary options on different financial events and contracts that I think will act and behave very much like prediction markets, and that's something certainly we will take a hard look at and then will be quite straightforward for us to offer. So more to follow on production markets. It's not at the top of our clients' list. We're ready to move when and if needed and when we do, we'll stay away from gambling. Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: There's been clearly a lot of turbulence in retail channel for alternative products. Schwab's been fairly committed to that as a strategy. So I was hoping to get your perspective on what you're hearing on the ground from advisers with respect to their reception to Evergreen private alts in the RIA channel, but obviously also with respect to your own launch and how those products are being onboarded. And slightly separately, but within the alts category, I was hoping you could also comment on balance sheet capacity for the long short tax advantage strategies within that. Richard Wurster: I'll start with [ ops ] and then I'll have -- Mike will talk to the balance sheet. So on all its -- you asked about the advisers specifically. If you look at the proportion of alternatives that our advisers have as their broader asset allocation, it's relatively small. I expect when you take a 5- or 10-year view, that will grow. As we look at our platform today, we think we could do more to curate and help advisers along the way choose the right alternative investments for their clients and create a platform that is very helpful to them. In doing so, we believe there will be opportunities for us to monetize the provision of those alternatives to our advisers as that develops. It's also critical that we make investing in alternative investments easy for our advisers, and that's something we've leaned into heavily this year, and we'll make lots of progress on by the end of the year. So lots of opportunity there. And with that, Mike, do you want to talk about the long short program? Michael Verdeschi: Sure. Thank you, Rick. And in terms of that long short program, we've certainly seen that become of greater interest. And it's an activity where, of course, there's a long position offset with a short. From a balance sheet perspective, there's a netting aspect to that. And then, of course, a fee that we earn on that activity. So it's not a balance sheet capital-intensive type of activity. But that being said, we work closely with those fund managers. We understand the different strategies and perhaps how those strategies evolve in different environments and making sure we have the resources on hand to as needed if we see some of those strategies evolve over time. But we feel good about supporting the client need for that strategy, and we could continue to see some growth and it will depend on how the market evolves over time. But we certainly have the resources to support it. Jeff Edwards: Operator, looks like we have time for one final question. Operator: Our last question comes from Ben Budish with Barclays. Benjamin Budish: Maybe just a follow-up on the earlier commentary on training activity. Rick, I think you mentioned that traders are taking smaller positions, holding them for less duration. Just curious if there's any other color you can share the sort of breadth of engagement. The trading mix, I know can have an impact on revenue per trade. Just thinking -- trying to think through how we might think about some of those KPIs into April over the course of the rest of the year would be helpful. Michael Verdeschi: Ben, it's Mike. Thanks for the question. So yes, in the quarter, we did see strong engagement from clients. We did see that spike in daily average trades to a record $9.9 million. It's those types of environments where you see that volatility and high engagement. You tend to see that more weighted towards equities as opposed to derivatives. And that's what we did see. I think Rick brought in those other important factors, while weighted towards more equities, you did see smaller trade size, less shares per trade, less option contracts per trade. And I think that is an indication of the environment that we were operating in, highly volatile, but also less conviction. So we'll have to see how the macro backdrop evolves over the course of the year, but you see this dynamic where you see these spikes in daily average trades quite accretive, of course, to earnings but having that pressure on that revenue per trade, if you perhaps see a more moderate set of volatility impacting the market, if you saw that reduction in volume of trades you could see a little bit of a lift in that revenue per trade. But again, it's really going to be dependent on how the environment evolves. Overall, we're very happy to support the client engagement. It's been a highly accretive activity. Jeff Edwards: Thank you for your questions and engagement. We've covered a lot of ground today, but I want to leave you where we started. First, our Through Clients' Eyes strategy continues to drive strong client growth and financial results. Second, we are continuing to deliver for clients and are uniquely positioned to meet client needs across investor types and market environments. And finally, we are innovating at speed, making tangible progress in helping our clients conduct more of their financial lives at Schwab so they can grow and protect their wealth over the long term. Thanks for your time today. Take care.
Operator: Welcome to Marsh's Earnings Conference Call. Today's call is being recorded. First quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thanks, Andrew. Good morning, and thank you for joining us today to discuss our first quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO; and the CEOs of our businesses, Nick Studer of Marsh Risk; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Ted Moynihan of Marsh Management Consultant. Also with us this morning is Jay Gelb, Head of Investor Relations. Let me start by highlighting recent changes to our Executive Committee. Mark was named Chief Operating Officer of Marsh in addition to serving as our CFO. In this expanded role, Mark will take on more responsibility for evolving our strategy and working across our business to drive execution of top priorities, support collaboration and accelerate pace. We also announced Nick as the CEO of Marsh Risk. Nick is a proven growth leader as demonstrated by his record as CEO of Oliver Wyman. His experience advising corporate and public sector leaders on the topics of risk and strategy positions Nick well to deliver on our growth ambitions. Nick succeeded Martin South, who is now our Chief Client Officer. Martin will focus on elevating the client experience across the company and help us better leverage AI to support clients. And Ted succeeded Nick as CEO of Marsh Management Consulting. Ted has more than 3 decades of leadership experience at Oliver Wyman, and he is a respected adviser to business and government leaders. I look forward to him driving continued growth at Marsh Management Consulting. Congratulations to Mark, Nick, Martin and Ted. These leadership changes are all about growth, enhancing the client experience and helping us capture the benefits of Thrive. Turning to results. Our performance in the first quarter reflects solid execution despite challenging market conditions. Overall, we grew revenue 8% in the quarter. Underlying revenue increased 4% despite lower fiduciary interest income and continued downward pricing pressure in insurance and reinsurance. We are seeing strong sales across our business, and we are pleased with the sequential improvement in the growth at Marsh Risk. Adjusted operating income grew 8% from a year ago, and adjusted EPS also grew 8%. Turning to the ongoing conflict in the Middle East. Our primary concern has been the safety and well-being of our colleagues and clients and helping them navigate the challenges in the region. The impact on our business and the broader insurance industry has been limited. The economic issues related to the conflict in the gulf are not about insurance. While certain lines like marine coverage may experience price spikes for war risks, ultimately, the gating issue is the escalation. A sustained conflict in the region will create more uncertainty and risk for the world's economy. Broadly Marsh is advising clients on how to build greater resilience in their business planning, we're helping them address supply chain issues, review their cyber exposure and we are advising on investment decisions. And of course, we are working with clients to manage insurable risks, particularly in marine, aviation and energy. We've also engaged with governments as they work to minimize economic disruption and maintain global trade, particularly in energy, fertilizer and other commodities. Challenging events like this underscore the purpose of our work. It's also why we believe Marsh provides a unique value to clients who need strategy, talent, investment and risk advice in complex times. I'd like to take a moment to discuss our AI strategy and why we believe Marsh will be an AI winner. Our strategy leverages our scale and capacity to invest in AI to drive even greater value from our proprietary data assets and our role as our clients' trusted adviser. We are focused on 3 main pillars. The first is growth. We are building AI-enabled applications and services that are generating new revenue streams as well as enhancing world-class capabilities and data-driven insights in insurance, health, human capital and investments. Examples of these products include ADA, Centrus, UCLI and GC Quotebox, and many more of these applications are in development. We also see significant AI growth opportunity in consulting. Oliver Wyman's AI Quotient team created to help clients deploy their own AI strategies is its fastest-growing practice. We're advising clients in multiple sectors, such as banking, energy, government and manufacturing around AI and workforce transformation. We've already advised on more than $50 billion of capital investment in AI deployment. And Mercer is working with clients to assess and inventory skills and redesign jobs as AI is integrated into ways of working. Our second pillar is productivity, which focuses on deploying AI capabilities to boost the performance of our colleagues. This is showing up in hundreds of different ways across a wide variety of roles. A good example of our work is to embed AI our client management tools and to develop AI agents to help colleagues source and prequalify leads to support sales productivity. The final pillar is efficiency. Across our business, we are starting to see the impact of AI automation. A critical reason for creating our business and client services unit, or BCS, is to exploit the efficiency potential of AI. By consolidating our back-office operations and technology into scalable centers, BCS is accelerating the pace of AI-driven automation and process reengineering. For instance, our document ingestion capability is now handling thousands of documents weekly already improving efficiency in these processes by 20% and enhancing the quality of the data and its usability to further support clients with valuable insights. We are beginning to reduce the cost and time associated with upgrading code to modernize applications. For example, we recently used AI to turn a legacy tool into a newly designed broker workbench in days saving months of team effort. We have deployed agentic AI in our IT help desk, significantly reducing inquiries, improving colleague experience and creating downstream efficiencies in our support centers. And in our policy renewal center, AI has enabled us to transform a traditionally manual e-mail heavy process into a streamlined digital solution in weeks, a project that otherwise would have taken many months. AI-enabled savings will fuel additional growth investments, including in producer talent and new capabilities while building our confidence in continued margin improvement. It's important to remember that Marsh is not selling commoditized products or simply procuring insurance at the lowest possible price. That's not who we are or what we do. AI will help us serve our clients who have bespoke and complex needs even better. It will not replace the trusted advice, expertise and capabilities with which we deliver value to clients. In our risk business, we help clients identify and understand their exposures, implement loss prevention strategies and provide data and insights to make real-time decisions. And after developing the strategy, we help them finance their risk through self-insurance, traditional insurance, capital markets or captive management solutions to achieve their goals. Similarly, in consulting, we provide high-impact services to help organizations confront their biggest strategy and talent challenges. And we service trusted advisers to executive leadership in their company's transformative moments. Our client relationships, data and insights and the expertise of our professionals worldwide built over 155 years of market leadership is why we see AI as a powerful accelerator and enabler in delivering value to our clients, colleagues and shareholders. Now turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q1, driven largely by property. This follows a 4% decline in the fourth quarter of 2025. As a reminder, our index skews to large accounts. Rates in the U.S. were down 1%. Europe, Asia and Canada declined mid-single digits. U.K. and Latin America were down high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 9% year-over-year, which was the same pace as last quarter. Global Financial and Professional liability rates were down 5%, while cyber also decreased 5%. Global Casualty rates increased 3% with U.S. excess casualty up 18%, reflecting ongoing pressure in the liability permit, and workers' compensation decreased 1%. In reinsurance, there is substantial capacity to support client demand as reinsurers pursue growth. Throughout the first quarter, market conditions were generally consistent with what we saw at January 1. The strong reinsurer profitability, high ROEs and increased capital levels have resulted in ample supply of property cat capacity and meaningful rate reductions. It was also another active quarter for cap bond issuance. U.S. property cat reinsurance rates remain competitive for the April 1 renewal period. Rates for non-loss impacted accounts were down 15% to 20%, a slight acceleration from the January 1 renewal season. In U.S. Casualty Reinsurance, we continue to see a range of outcomes depending on loss experience with primary cares demonstrating limit, rate and underwriting discipline. In Japan, April 1 property cat rates overall were down 15% to 20% on a risk-adjusted basis. Early signs for June 1 Florida cat renewals point to similar market conditions characterized by rate reductions and excess supply as seen in January and April. There are early indications that Florida's legal reforms will contribute to further risk-adjusted decreases. Our clients are benefiting from the current market conditions. And as always, we continue to advise them on designing the best risk programs aligned to their goals. Now let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 8% to $7.6 billion, growing 4% on an underlying basis, with 3% growth in RIS and 5% in Consulting. Marsh Risk was up 4%. Guy Carpenter grew 2% and Mercer increased 5% and Marsh Management Consulting grew 6%. Adjusted operating income grew 8% and adjusted EPS was $3.29, up 8% year-over-year. We also repurchased $750 million of our stock. Looking ahead, we are well positioned for another solid year despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing. We continue to expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Our outlook is based on current conditions and the economic and geopolitical environment could change materially from our assumptions. In summary, we're off to a solid start in 2026. Despite challenging market conditions, we remain focused on executing our strategy and continuing our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand and generate greater efficiency. We're excited for AI's potential and committed to being an AI winner through growth, productivity and efficiency gains. Marsh is a resilient business that provides critically important advice and solution particularly in complex times such as these. We have proven our ability to deliver across cycles, and I am confident in Marsh's future. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John. Good morning. Our first quarter results represented a solid start to the year, reflecting strong execution despite a challenging environment. Consolidated revenue increased 8% to $7.6 billion with underlying growth of 4%, which came despite a headwind from fiduciary interest income and declining P&C rates. Operating income was $1.8 billion and adjusted operating income was $2.4 billion, up 8%. Our adjusted operating margin was unchanged at 31.8%. GAP EPS was $2.36 and adjusted EPS was $3.29, up 8% over last year. Looking at Risk & Insurance Services. First quarter revenue was $5.1 billion, up 6% from a year ago or 3% on an underlying basis. Operating income in RIS was $1.3 billion. Adjusted operating income was $1.9 billion, up 7% over last year, and the adjusted operating margin was 38.3%, up 10 basis points from a year ago. At Marsh Risk, revenue in the quarter was $3.7 billion, up 8% from a year ago or 4% on an underlying basis. Growth increased sequentially despite the more challenging market conditions, reflecting solid performances in the U.S., including MMA and across international. In U.S. and Canada, underlying growth was 3%. In international, underlying growth was 5%, with EMEA up 6%; Asia Pacific up 5% and Latin America up 2%. Guy Carpenter's revenue in the quarter were $1.2 billion, up 3% or 2% on an underlying basis, a good result considering the current pricing environment. Growth was impacted by softer reinsurance market conditions and a tough comp to 5% underlying growth in the first quarter of last year. However, Guy Carpenter executed well and drove strong new business despite the tough market conditions. In the Consulting segment, first quarter revenue was $2.6 billion, up 11% or 5% on an underlying basis. Consulting operating income was $525 million and adjusted operating income was $552 million, up 13%. Our adjusted operating margin in Consulting was 21.6%, up 40 basis points from a year ago. Mercer's revenue was $1.7 billion in the quarter, up 11% or 5% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $727 billion at the end of the first quarter, up 5% sequentially and up 19% compared to the first quarter of last year. Year-over-year growth was driven primarily by new wins, the impact of capital markets and acquisitions. Career was down 2%, reflecting continued softness in project-related work in the U.S. partially offset by sustained demand in International. Marsh Management Consulting generated revenue of $897 million in the first quarter, up 10% and or 6% on an underlying basis, reflecting solid demand across most regions and sectors. Fiduciary interest income was $85 million in the quarter, down $18 million compared with the first quarter of last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary interest income will be approximately $80 million. Foreign exchange was an $0.11 benefit in the first quarter. Based on current exchange rates, we expect that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Corporate expense in the first quarter was $74 million on an adjusted basis compared to $81 million in the fourth quarter. Looking ahead to the second quarter, we anticipate corporate expense of approximately $90 million, which includes some one-off timing items. We're making good progress on executing our Thrive program. We remain on track to generate $400 million of total savings, a portion of which will be reinvested for growth and incur approximately $500 million of charges to generate the savings. Total noteworthy items in the first quarter were $521 million, including $37 million of costs associated with Thrive. Noteworthy items this quarter also include a $425 million charge relating to litigation stemming from the collapse of greenfield capital in 2021. As we have previously disclosed, Marsh served as greenfields insurance broker starting in 2014. The charge in the quarter represents the best estimate of our liability in this case, and was influenced by a recent court sponsored mediation among the parties involved. Our 10-Q filed earlier today includes further information on this matter and the charge. As you can appreciate, this litigation is ongoing, so we aren't able to comment further at this time. Interest expense in the first quarter was $240 million. Based on our current forecast, we expect interest expense in the second quarter to be approximately $245 million. Our adjusted effective tax rate in the first quarter was 25.1%. This compares with 23.1% in the first quarter last year, which benefited from discrete items, most notably a meaningful benefit related to share-based compensation. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Turning to capital management and our balance sheet. We ended the quarter with total debt of $20.6 billion. Our next scheduled debt maturity is in the third quarter with $550 million of euro-denominated senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled $1.3 billion, included $440 million for dividends, $89 million for acquisitions and $750 million for share repurchases. We continue to expect to deploy approximately $5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Turning to our outlook for 2026. Despite the challenging environment, we remain well positioned for another solid year. We continue to expect underlying revenue growth will be similar to the levels we generated in 2025 along with another year of margin expansion and solid adjusted EPS growth. For modeling purposes, we expect to generate more margin expansion in the second half of this year than in the first half. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we are ready to begin the Q&A session. Operator: Certainly. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Charles Peters: I wanted for my first question, to focus on our margin results. John, I know we're quite proud of the 18 years of consecutive margin expansion and presumably, you're going to hit your 19th year in 2026. But because of these results, it's caught the attention of many about where the ability to generate future margin expansion will come from? And maybe it's embedded in your AI comments. But with your margin results being so high, curious about the risks of AI disintermediation across the various businesses that you have? John Doyle: Sure, Greg. Let me hit the margin part of that and then maybe I can talk to AI disremediation risk. So sure, AI, and I gave you a bunch of examples right in my prepared remarks around efficiency gains and some that we're already seeing today. Let me remind everybody, of course, we've guided to year '19 of margin expansion this year, and we fully expect to do that. Thrive, of course, is broadly an important lever for us. BCS I think in the broader kind of AI discussion in the economy and amongst businesses and governments, AI often is being used as a term for broad-based automation, but I distinguish the 2. So we're -- we still have real possibilities around and are actively building out our capability centers and using kind of more traditional digitizing strategies to drive efficiency gains. So there's a lot in front of us there. And so we're excited about the path that we're on. As I said in my prepared remarks, we expect to be an AI winner, we moved early on AI, and we're excited about how it's already making us better and how it's going to make us better in the future. And our scale and data and insights enable us to move more quickly. I would say to you, we've competed with early-stage tech-enabled startups for a long time. We've competed with direct insurers for a long time and competed successfully with them. When I think about the attributes that we have is that we're in the early days of what's possible around AI, our trusted client relationships matter. Our data matters, our modeling, it matters, our ability to advise on risk, not just by insurance, really matters. Our ability to connect to a complex ecosystem of risk financing really matters. We don't just buy insurance for our clients. We do so much more than that. So when I think about all the attributes that we have and what our ability is to be an AI winner, I can't think of a better place to be -- to start and to begin the early days of what's possible around AI than here. Do you have a follow-up Greg? Charles Peters: Yes, I do. And I'm going to pivot to capital management. the public brokers, the stock prices, everyone's reset lower, I'm not sure on the M&A side that the prices or valuations of acquisitions have reset lower yet. So I'm just curious on how you're thinking about the allocation or difference between growth through M&A versus repurchase of your own stock considering the reset and value of the stock price? John Doyle: Yes, it's a great question. What I would say is our strategy remains the same, right? We want a balanced approach to capital management. We favor investing in our business, whether it's organically or inorganically. Our goal remains to increase our dividend each year. And buybacks ultimately will depend on M&A. And as I mentioned in my prepared remarks, we did $750 million of buybacks in the first quarter. And we expect to deploy -- Mark mentioned we expect to deploy about $5 billion worth of capital this year. We're active in the market. Our pipeline is strong. So I feel terrific about that. And just as a reminder for everyone, 18 months ago, we closed on the biggest deal in our history, right? So not so long ago. And last year, we deployed about $850 million to M&A. And we did a meaningful deal at MMA in the fourth quarter in Hawaii, as most of you would remember. We did a couple of small deals, 3 small deals in the first quarter. We also actually closed on the sale of an admin business in the Pacific. I'd point that out to you. And we announced the acquisition of AltamarCAM. It's a private market asset manager with about $20 billion of AUM. That's kind of regulatory approval. So we expect that to close sometime later in the year. So we're likely to continue with our string of pearls approach. We do have the capacity to do larger deals, who knows what the marks are PE-backed assets. I will say, over the course of the last couple of quarters and some conversations we've had, there's been growing gaps between bidding -- bid and ask. We'll see how that materializes over the rest of this year. We've seen financial sponsors be a bit more aggressive than strategics. And Greg, we're going to, as always, be disciplined about how we deploy our capital. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Michael Zaremski: Great. Just 1 question on maybe around the AI conversation, specifically on the value-add services that you offer your clients. Curious a couple of your peers have talked about the Claims Advocacy Group, and they've offered some stats around the how the Claims Advocacy Group has made sure your clients get their claims paid in a timely manner. Just curious if you see that as one of the bigger value adds and if yes, if there's any stats or anything you'd like to share? John Doyle: Yes. Sure, Mike. And maybe what I'll do is I'll ask all of our business leaders just to share some thoughts on how we're investing in AI and how it impacts the value that we deliver. But we have the largest claim group -- Claims Advocacy Group in the industry by some measures. So maybe I'll start with Nick. Maybe you could share some thoughts, Nick? Nicholas Studer: Yes. Mike, thank you for the question. Maybe let me start on the claims advocacy question. As John said, we have a very large team plus additional specialists to handle highly complex claims. And the important thing to state, first of all, is that policy drafting and placement that creates contract certainty is the first stepping point here, so that you don't have rejected claims, which then require advocacy. But when you do our advocacy is strong and if you take an example like Claims IQ, which is our AI-enabled toolkit, we've got several thousand colleagues now drawing an AI-enabled analysis of almost $200 billion of loss information, which helps them support much better advice decision-making and advocacy. But if I take a few more examples tapping into John's prepared remarks, this is a bespoke fragmented, highly complex ecosystem from client service and a advice all the way through to placement. And A lot of the focus is on AI, but this is an ecosystem, which is digitizing steadily, and that digitization is critical to deploy the AI. There's lots more work to do just on digitization. And we still see human relationships and human judgment continuing to be central. But the AI investments are, I think, massively enabling of growth and of productivity and of efficiency. So value-added services, as you said, we're investing heavily in our digital client experience. We have a suite of tools, which you may have seen for many years in Blue[i] and Centrus, which we've talked about before, we're evolving these into what we call the Marsh risk companion, which will help clients understand and analyze their risks and their options across a wider range of their activities. But what's really crucial about the suite of tools is they're now all feeding off a new analytics engine. It's built from the ground up to leverage AI at scale. One of the things here is you're able to leapfrog with AI. And we call it the Marsh Risk cortex, but it really pulls together everything we need from our massive data sets and our most advanced models. And the crucial thing, I think, is not what features have we got, but it's the speed and the flexibility with which we can launch new applications because our clients' needs are evolving rapidly, and new needs are emerging. The first application is powered by the risk cortex, including our renewal companion, our captives companion, they're going to be launched in a couple of weeks at RINs. And then you should expect to see more flowing from that data set and analytical tower. And then maybe just to give a couple of more examples, we've talked before about our general proprietary AI suite just within Marsh Risk and up to more than 2 million prompts a month. So that helps productivity across the organization. But I know you're looking for sort of specific examples, too. So if I take something like we've rolled out tools to aid coverage gap analysis and quote comparison across our risk management and the Marsh agency businesses. And in the areas where we pilot that, we see the amount of work that, that takes off our client teams drive a 50% increase in sales velocity in the pilot. And we think some of that gain is scalable across the whole organization. So really lots going on, lots of activity to support our client-facing colleagues and our operations colleagues in work. John Doyle: Thank you, Nick. You're starting to sound like an insurance broker. Dean? Any thoughts from Guy Carpenter? Dean Klisura: Thanks, John. And Mike, you heard John in his prepared remarks, mentioned GC Quotebox, which is an AI-driven document ingestion tool. This is really a game changer for Guy Carpenter in our business. We get huge quantities of unstructured data from our clients, and this tool helps us ingest all of that data and makes it more efficient to match risk and capital through this tool, which will certainly improve turnaround times, make our teams, our brokers more efficient and deliver better turnaround times and more efficiency for our clients. John Doyle: Perfect, dean? Pat, how are you using AI Mercer? Patrick Tomlinson: Let me go 1 of those examples and maybe give you 1 where we're using it directly with clients. So Mercer Fiber is one of the tools where we're leveraging the broader AI stack that we have at Marsh to kind of further enable our existing digital tools. So health consultants leverage fiber when they're working directly with the client. It enables them to have these real-time iterative discussions on all aspects of their benefit programs, an incredibly powerful scenario planning and modeling during strategy sessions. What we do is we use fiber throughout the year as well to help with budget tracking, with updates with benchmarking, other plan management activities. And what it does is it allows us to visually display these insights and the data from across our health and benefits practice and then it combines it with the client's actual population and their actual claims data. And that allows us to understand and show clients directly the geographic differences in health care cost and quality based on their actual data, and we could do that live. And it allows us to really work to identify the most effective health care options for a specific population, right? And this is differentiating us in the market, really by showcasing the capabilities we've got the insights in a single integrated platform to be very client specific because it's very targeted to them and very client-centric. John Doyle: Thank you, Pat. Ted, welcome to the call. You want to share some thoughts on why we're excited about AI at Oliver Wyman. Ted Moynihan: SP26858316 Thank you, John. Thank you. And you mentioned already that our AI platform Quotient is our fastest-growing capability right now. And AI is developing into a very large opportunity for us as a consulting business that works on strategy and transformation. Let me mention a few examples. -- all of our work around performance transformation, where we're helping our clients improve how their businesses work and there's a ton of reengineering of processes and systems around AI. In industries, I would mention like banking, like health care, like advanced manufacturing, we're seeing the volume of work there really start to grow quickly. Growth and strategy work where we're helping our clients rethink kind of customer service and distribution channels. We've -- we've helped a number of clients already build new apps and chat GPT, a very new change to the way commerce is working, and we think going to be very transformational in industries like media, retail, communications, that's really a big deal. And you mentioned, I think, in your introductory remarks, but with governments, with investors, we've been helping to mobilize capital, where governments and investors are investing in AI skills and capabilities and new AI start-ups and new cost. And look, it's also changing the way we deliver our work and it's allowing us to -- AI is helping us deliver more value to clients. And just to give you one example in our private capital business, where Quotient diligence is changing the way we help our clients invest in businesses. And we're using very sophisticated tools to do market analysis, competitive analysis, growth opportunity analysis, and that allows our clients to make better investments and sometimes if they want to quicker investments in the private capital world. John Doyle: Thank you, Ted. Sorry, Mike, for that long answer, I just want to make sure everyone realizes why we're so excited and why we think we're best positioned to deliver greater value than we ever have to our clients and to our shareholders. So do you have a follow-up, Mike? Michael Zaremski: Yes, really quick. That was helpful follow-up. Just on the the pace of Marsh's hiring in terms of the producer level, do you expect that trajectory to change materially in 2016 and has higher or lower? John Doyle: Yes. No. Thanks, Mike. We had a good quarter, attracting production talent to the team in key markets, our brand in the market for town and in the areas where we compete and deliver for our clients is very, very strong. We start with the best talent and the most talent in the markets that we compete with. Would also maybe not your question, but our colleague retention is strong, our colleague engagement is outstanding. And so it's all anchored by a colleague value proposition, which is a really important way in which we try to convince people to stay and to give big parts of their career to our company. So thank you, Mike. Next question, Andrew? Operator: Our next question comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of them here for you, John. First one, I'm just curious, given the level of rate decreases that we're seeing out there. What are you seeing with respect to client demand at Marsh, given this uncertain kind of macro environment, are you using savings to purchase more coverage? Are they kind of holding back right now to see how the year kind of unfolds? John Doyle: Yes. I don't know it's very -- thanks, Brian, for the question. I'm not sure it's a very helpful answer, but sometimes, I guess would probably be the -- some of it. The market obviously got modestly more competitive in the first quarter. I talked a bit about the strong returns on the reinsurance side, but obviously, insurers and reinsurers have posted strong underwriting results. They're all looking for more growth, right, as a result. And so maybe another point I'd make here, Brian, is not directly on your question is, although rates are down, the cost of risk is clearly increasing. And I would think at a magnitude probably 2x GDP with liability inflation, medical cost inflation, cyber risk, certainly accelerating with AI, the frequency of extreme weather and how much more of the economy and society is exposed to those events. So it's maybe a more important driver of demand for us over the medium term. But maybe I'll ask Nick and Dean to just talk about a couple of market observations and what clients are doing in terms of purchasing. Nick? Nicholas Studer: Yes. I mean, as John said, the answer is sometimes. But in general, I think, yes. We've also seen continued trend and a rising trend in new business growth. And if I look at, say, the U.S. and Canada, highlights there include double-digit new business growth, continued strong growth at Marsh Agency, and double-digit growth in the specialties business. So transaction risk and construction, both growing strongly. And all of that with the -- across globally new business trending up for 4 quarters. But we're cautiously optimistic as we go through the rest of the year. John Doyle: Dean? Dean Klisura: Yes. Thanks, John. And Brian, maybe I'll just touch on kind of new business opportunities overall. And despite the property market and everything that John and Mark talked about which was a clear growth headwind for Guy Carpenter in the quarter. We're seeing record new business across our platform. We grew double-digit new business growth in every region in business globally in the quarter. I was really pleased with that. As Mark and John noted, we continue to see a really strong cat bond market and ILS market overall. We issued 7 cat bonds in the quarter, a record for Guy Carpenter. We've seen some $2 billion of new third-party capital flow into the market, just chasing casualty side cars, whole account quota shares and other similar vehicles. We've gotten several new mandates around those, very, very promising. I've talked in prior calls about our capital and advisory business, our investment banking boutique. We've never received more M&A mandates -- M&A advisory mandates, forming new side cars, as I mentioned, raising capital for MGA's Lloyd's platforms, our structured credit business, our MGA business. And in the last call, we talked about data centers, right? And just a couple of headlines there. I mean there's 50 deals that have been in the marketplace looking for more than $7.5 billion of capital to put these together. And all of my clients, Guy Carpenter's clients want to write more data centers, but they all need additional reinsurance protections. And I think the newest element of it, Brian, is clients now are talking about issuing cat bonds and leveraging third-party capital to write more data center business. And so I would say, overall for Guy Carpenter, there's more diverse new business opportunities that we've seen in several years. John Doyle: Thanks, Dean. SP1 Brian, do you have a follow-up? Brian Meredith: Yes, absolutely. So John, it's clear that AI is going to have productivity benefits,, it's going to benefit client experience and growth, et cetera. But 1 of the debates I'm having with investors is how much of the productivity gains is Marsh going to be able to keep and see a benefit from a margin perspective versus protects being competed away or giving back to clients. Maybe give us your perspective on that. John Doyle: Yes. It's a great question, Brian. And I talked about where we see efficiency opportunities -- Productivity opportunities, new sources of revenue generation. So -- we don't think anybody is better positioned to capitalize on these developments in technology than we are. And so I'm quite excited about that. Our fees have been for a long time, stable as a percentage of premium, and they're quite small compared to the cost of risk that we help our clients manage. And so we feel good again about how we're positioned and what that would mean. I think some of us on this call have talked about in the past and I mentioned in my prepared remarks, if you think we're a discounted insurance broker, yes, I might be a little bit worried, but we're not. That's not what we do. And so we feel good about what this technology will meet to our business. Thanks, Brian. Andrew, next question. Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: First question I had for you was just going back to the capital deployment and M&A side. I'm just curious how, if at all, AI is changing the M&A strategy. Are you staying away from certain businesses pivoting towards others and have your technology requirements or anything else changed? John Doyle: No. We -- it's a good question, Rob. We've had some opportunities and have looked at some businesses that have pitched kind of AI as part of their value. And I think there was a very significant gap between how some of those businesses for trade their tech value relative to how we saw their tech value. And so -- but I do -- and I recognize you can't plan around hope. So I say this with that in mind. But I'm hopeful that actually the scale benefits that we bring to investing in AI and the data sets and client relationships and all the advisory work will create opportunities for us to consolidate smaller brokers over time who are going to struggle to compete and to invest in these technologies. And even where they're able to make space for investment, they just don't have the data assets and the other capabilities that we have. And so I'm optimistic over time that will be a driver of M&A for us. Do you have a follow-up, Rob? Robert Cox: Yes, that's very helpful. Just had a follow-up on the MMA business. I understand you guys don't break that out. But just curious if you would characterize that business as a tailwind to organic growth for the RIS business and if it is, like, do you think it could continue to be a tailwind despite more pricing pressure for a commission-based model here? John Doyle: Yes. For -- the answer is yes, right? So MMA has been a tailwind to our growth for most years and most quarters, not all, but for most, as we've talked about in the past, we still have relatively modest penetration into the middle market. And so while Dave and the team have made a tremendous amount of progress, and we couldn't be more excited about the business we've built. In many respects, I feel like we're just getting started. We absolutely have the possibility for much greater growth. What I would say about pricing for for a number of, I think, rational reasons, pricing in the middle market has been -- has been more stable through cycles. That continues to be the case right now. It's one of the areas where we're delivering some of the productivity tools to help make our producers even better. And so we're really excited about the opportunity in the middle market. And by the way, not just in the United States, where we've learned a great deal in the last 15 years in building out that business and from some very talented executives we brought on, and it's helped making us better and capitalize on middle-market opportunities in other economies around the world. Thank you, Rob. Andrew, next question. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: Great. First question for John. I completely get the increasing benefits that you're going to be able to -- or increasing value that you're going to be able to bring to clients and carriers through AI. Are commissions still the right way to be compensated for that? Or do you expect compensation to become more transparently tied to the individual services? John Doyle: Look, Meyer, we have a broad risk of -- or broad range, excuse me, of the way we get compensated today. We have fees, we have commissions. We have success fees, right? I'm sure there are other things I'm not even thinking about. We're very transparent with our clients about how we get paid. And so -- so anyway, I mean, we'll see how those conversations evolve over time. I wouldn't -- I would suggest to you, I see no -- zero trend kind of around that. And so -- but again, we're happy to get paid in any form. We think we created outstanding value for our clients, and we think we get deserve to get paid well for that, assuming we deliver and execute on behalf of them. And as I mentioned before, our commissions and fees are a relatively small part of the overall cost of risk. And as a percentage of premium, they've been quite consistent over a long period of time. Do you have a follow-up, Meyer? Meyer Shields: Yes, just a quick modeling question. Is there any way of teasing out roughly how much of the wealth revenues come directly from assets under management? John Doyle: We haven't disclosed that historically, but it's obviously a range of, as we call it, AUDM or delegated management AUM and advisory fees. We're excited about how we're positioned in the investment advice business globally. We have -- we advise on close to $17 trillion assets around the world. And as a leading adviser in pension and retirement markets for a long time all over the world, we're very, very well positioned. I would also note, we're the largest OCIO, Outsourced Chief Investment Office in the market, and we continue to see a lot of possibilities for growth there. And I mentioned AltamarCAM and, maybe, Pat, you can talk about AltamarCAM and some of the investments we're making in our businesses make us even stronger. Patrick Tomlinson: Yes. Thanks. And listen, quickly on the wealth side in our business. Obviously, Mark had talked about the growth, we're pleased with the growth. It was led by our Investments business, in particular, our OCIO offering. So I understand the spirit of the question. We also will highlight our really seeing solid growth in our investment consulting business, right, which is not based on the AUM, based upon volatility in the market and clients seeing significant demand and need. And we have been to the point you're asking, diversifying our overall business and our AUM away from DB Vence, right? So it has been moving -- but we've been building out actively our deep defined contribution solutions around the world, and we've really been advancing our capabilities around nonpension clients, and that's been a major focus for us. insurers, endowments and foundations, family office and wealth management. And I think that goes into the spirit of the M&A and the AltamarCAM announcement that John kind of teed up from where we agreed to acquire AltamarCAM. They're specialists in private markets from an asset management solution perspective. They've got about EUR 20 billion AUM, we think it's going to significantly increase and expand our capabilities in the private markets platform. It's going to add a certain expertise in secondaries and co-investments, in bespoke accounts in evergreen vehicles, and that's going to allow us to offer much more comprehensive multi-asset private market solutions to clients. right? So we definitely feel that this is an area that we've been investing in heavily, you've seen from our announcements over the deals we've done as a firm over the last several years. And we've also been consciously making organic investments and trying to build out our capabilities broadly around being a main investment player. John Doyle: Thanks, Pat. Thanks, Meyer. Andrew, next question please? Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Guy Carpenter. So you guys were at 2% for the quarter, and I think you did point out, right, the elevated comp at 5% last Q1. I believe you were at 5% right throughout last year. So does the 2% feel like where this business should trend, I guess, at least in the near term, given it sounds like your pricing views or, if anything, right pointing to things getting a little bit worse post the [ 11 ] renewals. John Doyle: Yes. Elyse, as we've talked about, it's a very soft property cat reinsurance market. And so we're confronting that. We're particularly exposed to that in the first quarter. In the second quarter a bit as well with Japan and Florida, as we talked about. What I would say to you, Elyse, is that I'm quite pleased with our execution in spite of the kind of current market headwinds. And again, these market headwinds are good for our clients, right? So we're delivering for our clients in the moment. But client retention was strong, and we had an excellent new business quarter. And so I feel terrific about how the team is executing, what's a challenging market. It's not likely to be Guy Carpenter's best growth year this year, right? And so we've been planning for that and guiding to that. Do you have a follow-up, Elyse? Elyse Greenspan: Yes. My second question is just on capital, right? You guys were more active in the Q1 relative to prior first quarters. Obviously, we've seen a pullback in the stock price and just the group in general. As you guys think about balancing right M&A potential as well as where your stock is, could this be a year, I guess, where you continue to front-load I guess, more buybacks, even a little bit more independent of what's going on, on the M&A side? John Doyle: Sure. Maybe I'll ask Mark to jump in here, Elyse. Mark McGivney: Elyse, as John said earlier, there's no change in strategy. Our strategy of balanced capital deployment with a bias to reinvest and grow the business through high-quality acquisitions remains. But as we've consistently said, two, where our goal is not to build cash on the balance sheet. We're generating a lot of capital these days. And so where we see M&A light, we'll ramp up share repurchase. We did that in the fourth quarter. We bought back $1 billion and we started the year with $750 million. But the pipeline remains active. Our commitment to grow through M&A remains. It was relatively light M&A spending in the first quarter. But as John mentioned, this AltamarCAM transaction, which is a nice chunky deal that will close sometime later in the year. So -- so we did start the year with a heavy amount of share repurchase. But ultimately, what we end up deploying to share repurchase will depend on how the M&A pipeline develops through the year. John Doyle: Thanks, Mark, and thank you, Elyse. Andrew, maybe time for one more here. Operator: Certainly. Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Just had another follow-up question on AI? And maybe just a refresher, John, could you just remind us how much you guys are spending on AI just broadly within the tech budget. And I guess, who are you partnering with? What LLM providers are you partnering with? What tools are you using? That would be helpful. John Doyle: Yes, David. It wouldn't be a refresher because we've not shared that data in the past. We have a healthy tech CapEx budget. We take a hard look at that. It's, I think, another example where our scale matters, we're able to spend more and invest more. So we feel good about the investments we're making. I think, again, AI, I think the broad-based community needs to be careful about what AI even means. So -- but we're investing heavily and improving our tech stack in our utility of and in other parts of our efforts to digitize workflows and digitize how we engage with our clients. And so again, we feel good about how we're positioned there. We work with lots of different providers. So we're -- and I think one of the things about AI is it's of a lot of different things. There are many different possibilities for us to to extract value from these new technologies. So it's not about pick a hyperscaler and plugging them into our data set and it all of a sudden solving every inefficiency or productivity opportunity that exists in the world. And so we're working with a number of different major tech players and trying to pick and choose where we see the greatest value depending upon what it is we're trying to accomplish. Do you have a follow-up, David? David Motemaden: Yes. Maybe just a quick one in the interest of time. In Marsh, I'm just sort of wondering what's your exposure to in terms of revenues from personal lines, brokerage or micro commercial, where like you guys are only placing a single policy or as low dollar value and could be considered less complex? John Doyle: Yes. I'm not ready to concede by the way, that placing somebody's personal insurance isn't complex. If you're -- you have a client that's personally exposed and working with them to help manage risk and advise on their most precious assets. We certainly don't approach the client experience kind of in that way. where people are trying to buy commoditized products, those things exist already. I mean there's direct digital distribution. It's been that way. I would imagine for the direct markets, AI is going to create opportunities for them to improve their client experience with their customers. That's not who we serve. In personal lines, it's almost entirely a high net worth personalized client. It's an exciting area of growth for us. It's not a material part of our business, but we continue to grow. So if you're a restaurant on -- in small town U.S.A. there is a lot of complexity. And I'm not quite sure, by the way, we have very little of this business, almost none of this business. But I'm not ready to concede that it is something that some entrepreneur wants to prompt an app for hours and hours and hope that they get it right. So anyway, -- as I said, we're very excited. We don't think anybody is better positioned to take advantage of the developments on the technology front. We have to execute, but that's been the case for 150 years. And so we're excited about the path we're on and looking forward to accelerating our growth. Andrew, we have run over . Can you wrap us up here. I want to thank everybody for joining us today and thank our colleagues for their dedication to Marsh and our clients for their continued support and confidence in what we do for them. Operator: Ladies and gentlemen, this does conclude today's conference. You may now disconnect.
Operator: Welcome to Marsh's Earnings Conference Call. Today's call is being recorded. First quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thanks, Andrew. Good morning, and thank you for joining us today to discuss our first quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO; and the CEOs of our businesses, Nick Studer of Marsh Risk; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Ted Moynihan of Marsh Management Consultant. Also with us this morning is Jay Gelb, Head of Investor Relations. Let me start by highlighting recent changes to our Executive Committee. Mark was named Chief Operating Officer of Marsh in addition to serving as our CFO. In this expanded role, Mark will take on more responsibility for evolving our strategy and working across our business to drive execution of top priorities, support collaboration and accelerate pace. We also announced Nick as the CEO of Marsh Risk. Nick is a proven growth leader as demonstrated by his record as CEO of Oliver Wyman. His experience advising corporate and public sector leaders on the topics of risk and strategy positions Nick well to deliver on our growth ambitions. Nick succeeded Martin South, who is now our Chief Client Officer. Martin will focus on elevating the client experience across the company and help us better leverage AI to support clients. And Ted succeeded Nick as CEO of Marsh Management Consulting. Ted has more than 3 decades of leadership experience at Oliver Wyman, and he is a respected adviser to business and government leaders. I look forward to him driving continued growth at Marsh Management Consulting. Congratulations to Mark, Nick, Martin and Ted. These leadership changes are all about growth, enhancing the client experience and helping us capture the benefits of Thrive. Turning to results. Our performance in the first quarter reflects solid execution despite challenging market conditions. Overall, we grew revenue 8% in the quarter. Underlying revenue increased 4% despite lower fiduciary interest income and continued downward pricing pressure in insurance and reinsurance. We are seeing strong sales across our business, and we are pleased with the sequential improvement in the growth at Marsh Risk. Adjusted operating income grew 8% from a year ago, and adjusted EPS also grew 8%. Turning to the ongoing conflict in the Middle East. Our primary concern has been the safety and well-being of our colleagues and clients and helping them navigate the challenges in the region. The impact on our business and the broader insurance industry has been limited. The economic issues related to the conflict in the gulf are not about insurance. While certain lines like marine coverage may experience price spikes for war risks, ultimately, the gating issue is the escalation. A sustained conflict in the region will create more uncertainty and risk for the world's economy. Broadly Marsh is advising clients on how to build greater resilience in their business planning, we're helping them address supply chain issues, review their cyber exposure and we are advising on investment decisions. And of course, we are working with clients to manage insurable risks, particularly in marine, aviation and energy. We've also engaged with governments as they work to minimize economic disruption and maintain global trade, particularly in energy, fertilizer and other commodities. Challenging events like this underscore the purpose of our work. It's also why we believe Marsh provides a unique value to clients who need strategy, talent, investment and risk advice in complex times. I'd like to take a moment to discuss our AI strategy and why we believe Marsh will be an AI winner. Our strategy leverages our scale and capacity to invest in AI to drive even greater value from our proprietary data assets and our role as our clients' trusted adviser. We are focused on 3 main pillars. The first is growth. We are building AI-enabled applications and services that are generating new revenue streams as well as enhancing world-class capabilities and data-driven insights in insurance, health, human capital and investments. Examples of these products include ADA, Centrus, UCLI and GC Quotebox, and many more of these applications are in development. We also see significant AI growth opportunity in consulting. Oliver Wyman's AI Quotient team created to help clients deploy their own AI strategies is its fastest-growing practice. We're advising clients in multiple sectors, such as banking, energy, government and manufacturing around AI and workforce transformation. We've already advised on more than $50 billion of capital investment in AI deployment. And Mercer is working with clients to assess and inventory skills and redesign jobs as AI is integrated into ways of working. Our second pillar is productivity, which focuses on deploying AI capabilities to boost the performance of our colleagues. This is showing up in hundreds of different ways across a wide variety of roles. A good example of our work is to embed AI our client management tools and to develop AI agents to help colleagues source and prequalify leads to support sales productivity. The final pillar is efficiency. Across our business, we are starting to see the impact of AI automation. A critical reason for creating our business and client services unit, or BCS, is to exploit the efficiency potential of AI. By consolidating our back-office operations and technology into scalable centers, BCS is accelerating the pace of AI-driven automation and process reengineering. For instance, our document ingestion capability is now handling thousands of documents weekly already improving efficiency in these processes by 20% and enhancing the quality of the data and its usability to further support clients with valuable insights. We are beginning to reduce the cost and time associated with upgrading code to modernize applications. For example, we recently used AI to turn a legacy tool into a newly designed broker workbench in days saving months of team effort. We have deployed agentic AI in our IT help desk, significantly reducing inquiries, improving colleague experience and creating downstream efficiencies in our support centers. And in our policy renewal center, AI has enabled us to transform a traditionally manual e-mail heavy process into a streamlined digital solution in weeks, a project that otherwise would have taken many months. AI-enabled savings will fuel additional growth investments, including in producer talent and new capabilities while building our confidence in continued margin improvement. It's important to remember that Marsh is not selling commoditized products or simply procuring insurance at the lowest possible price. That's not who we are or what we do. AI will help us serve our clients who have bespoke and complex needs even better. It will not replace the trusted advice, expertise and capabilities with which we deliver value to clients. In our risk business, we help clients identify and understand their exposures, implement loss prevention strategies and provide data and insights to make real-time decisions. And after developing the strategy, we help them finance their risk through self-insurance, traditional insurance, capital markets or captive management solutions to achieve their goals. Similarly, in consulting, we provide high-impact services to help organizations confront their biggest strategy and talent challenges. And we service trusted advisers to executive leadership in their company's transformative moments. Our client relationships, data and insights and the expertise of our professionals worldwide built over 155 years of market leadership is why we see AI as a powerful accelerator and enabler in delivering value to our clients, colleagues and shareholders. Now turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q1, driven largely by property. This follows a 4% decline in the fourth quarter of 2025. As a reminder, our index skews to large accounts. Rates in the U.S. were down 1%. Europe, Asia and Canada declined mid-single digits. U.K. and Latin America were down high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 9% year-over-year, which was the same pace as last quarter. Global Financial and Professional liability rates were down 5%, while cyber also decreased 5%. Global Casualty rates increased 3% with U.S. excess casualty up 18%, reflecting ongoing pressure in the liability permit, and workers' compensation decreased 1%. In reinsurance, there is substantial capacity to support client demand as reinsurers pursue growth. Throughout the first quarter, market conditions were generally consistent with what we saw at January 1. The strong reinsurer profitability, high ROEs and increased capital levels have resulted in ample supply of property cat capacity and meaningful rate reductions. It was also another active quarter for cap bond issuance. U.S. property cat reinsurance rates remain competitive for the April 1 renewal period. Rates for non-loss impacted accounts were down 15% to 20%, a slight acceleration from the January 1 renewal season. In U.S. Casualty Reinsurance, we continue to see a range of outcomes depending on loss experience with primary cares demonstrating limit, rate and underwriting discipline. In Japan, April 1 property cat rates overall were down 15% to 20% on a risk-adjusted basis. Early signs for June 1 Florida cat renewals point to similar market conditions characterized by rate reductions and excess supply as seen in January and April. There are early indications that Florida's legal reforms will contribute to further risk-adjusted decreases. Our clients are benefiting from the current market conditions. And as always, we continue to advise them on designing the best risk programs aligned to their goals. Now let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 8% to $7.6 billion, growing 4% on an underlying basis, with 3% growth in RIS and 5% in Consulting. Marsh Risk was up 4%. Guy Carpenter grew 2% and Mercer increased 5% and Marsh Management Consulting grew 6%. Adjusted operating income grew 8% and adjusted EPS was $3.29, up 8% year-over-year. We also repurchased $750 million of our stock. Looking ahead, we are well positioned for another solid year despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing. We continue to expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Our outlook is based on current conditions and the economic and geopolitical environment could change materially from our assumptions. In summary, we're off to a solid start in 2026. Despite challenging market conditions, we remain focused on executing our strategy and continuing our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand and generate greater efficiency. We're excited for AI's potential and committed to being an AI winner through growth, productivity and efficiency gains. Marsh is a resilient business that provides critically important advice and solution particularly in complex times such as these. We have proven our ability to deliver across cycles, and I am confident in Marsh's future. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John. Good morning. Our first quarter results represented a solid start to the year, reflecting strong execution despite a challenging environment. Consolidated revenue increased 8% to $7.6 billion with underlying growth of 4%, which came despite a headwind from fiduciary interest income and declining P&C rates. Operating income was $1.8 billion and adjusted operating income was $2.4 billion, up 8%. Our adjusted operating margin was unchanged at 31.8%. GAP EPS was $2.36 and adjusted EPS was $3.29, up 8% over last year. Looking at Risk & Insurance Services. First quarter revenue was $5.1 billion, up 6% from a year ago or 3% on an underlying basis. Operating income in RIS was $1.3 billion. Adjusted operating income was $1.9 billion, up 7% over last year, and the adjusted operating margin was 38.3%, up 10 basis points from a year ago. At Marsh Risk, revenue in the quarter was $3.7 billion, up 8% from a year ago or 4% on an underlying basis. Growth increased sequentially despite the more challenging market conditions, reflecting solid performances in the U.S., including MMA and across international. In U.S. and Canada, underlying growth was 3%. In international, underlying growth was 5%, with EMEA up 6%; Asia Pacific up 5% and Latin America up 2%. Guy Carpenter's revenue in the quarter were $1.2 billion, up 3% or 2% on an underlying basis, a good result considering the current pricing environment. Growth was impacted by softer reinsurance market conditions and a tough comp to 5% underlying growth in the first quarter of last year. However, Guy Carpenter executed well and drove strong new business despite the tough market conditions. In the Consulting segment, first quarter revenue was $2.6 billion, up 11% or 5% on an underlying basis. Consulting operating income was $525 million and adjusted operating income was $552 million, up 13%. Our adjusted operating margin in Consulting was 21.6%, up 40 basis points from a year ago. Mercer's revenue was $1.7 billion in the quarter, up 11% or 5% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $727 billion at the end of the first quarter, up 5% sequentially and up 19% compared to the first quarter of last year. Year-over-year growth was driven primarily by new wins, the impact of capital markets and acquisitions. Career was down 2%, reflecting continued softness in project-related work in the U.S. partially offset by sustained demand in International. Marsh Management Consulting generated revenue of $897 million in the first quarter, up 10% and or 6% on an underlying basis, reflecting solid demand across most regions and sectors. Fiduciary interest income was $85 million in the quarter, down $18 million compared with the first quarter of last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary interest income will be approximately $80 million. Foreign exchange was an $0.11 benefit in the first quarter. Based on current exchange rates, we expect that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Corporate expense in the first quarter was $74 million on an adjusted basis compared to $81 million in the fourth quarter. Looking ahead to the second quarter, we anticipate corporate expense of approximately $90 million, which includes some one-off timing items. We're making good progress on executing our Thrive program. We remain on track to generate $400 million of total savings, a portion of which will be reinvested for growth and incur approximately $500 million of charges to generate the savings. Total noteworthy items in the first quarter were $521 million, including $37 million of costs associated with Thrive. Noteworthy items this quarter also include a $425 million charge relating to litigation stemming from the collapse of greenfield capital in 2021. As we have previously disclosed, Marsh served as greenfields insurance broker starting in 2014. The charge in the quarter represents the best estimate of our liability in this case, and was influenced by a recent court sponsored mediation among the parties involved. Our 10-Q filed earlier today includes further information on this matter and the charge. As you can appreciate, this litigation is ongoing, so we aren't able to comment further at this time. Interest expense in the first quarter was $240 million. Based on our current forecast, we expect interest expense in the second quarter to be approximately $245 million. Our adjusted effective tax rate in the first quarter was 25.1%. This compares with 23.1% in the first quarter last year, which benefited from discrete items, most notably a meaningful benefit related to share-based compensation. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Turning to capital management and our balance sheet. We ended the quarter with total debt of $20.6 billion. Our next scheduled debt maturity is in the third quarter with $550 million of euro-denominated senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled $1.3 billion, included $440 million for dividends, $89 million for acquisitions and $750 million for share repurchases. We continue to expect to deploy approximately $5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Turning to our outlook for 2026. Despite the challenging environment, we remain well positioned for another solid year. We continue to expect underlying revenue growth will be similar to the levels we generated in 2025 along with another year of margin expansion and solid adjusted EPS growth. For modeling purposes, we expect to generate more margin expansion in the second half of this year than in the first half. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we are ready to begin the Q&A session. Operator: Certainly. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Charles Peters: I wanted for my first question, to focus on our margin results. John, I know we're quite proud of the 18 years of consecutive margin expansion and presumably, you're going to hit your 19th year in 2026. But because of these results, it's caught the attention of many about where the ability to generate future margin expansion will come from? And maybe it's embedded in your AI comments. But with your margin results being so high, curious about the risks of AI disintermediation across the various businesses that you have? John Doyle: Sure, Greg. Let me hit the margin part of that and then maybe I can talk to AI disremediation risk. So sure, AI, and I gave you a bunch of examples right in my prepared remarks around efficiency gains and some that we're already seeing today. Let me remind everybody, of course, we've guided to year '19 of margin expansion this year, and we fully expect to do that. Thrive, of course, is broadly an important lever for us. BCS I think in the broader kind of AI discussion in the economy and amongst businesses and governments, AI often is being used as a term for broad-based automation, but I distinguish the 2. So we're -- we still have real possibilities around and are actively building out our capability centers and using kind of more traditional digitizing strategies to drive efficiency gains. So there's a lot in front of us there. And so we're excited about the path that we're on. As I said in my prepared remarks, we expect to be an AI winner, we moved early on AI, and we're excited about how it's already making us better and how it's going to make us better in the future. And our scale and data and insights enable us to move more quickly. I would say to you, we've competed with early-stage tech-enabled startups for a long time. We've competed with direct insurers for a long time and competed successfully with them. When I think about the attributes that we have is that we're in the early days of what's possible around AI, our trusted client relationships matter. Our data matters, our modeling, it matters, our ability to advise on risk, not just by insurance, really matters. Our ability to connect to a complex ecosystem of risk financing really matters. We don't just buy insurance for our clients. We do so much more than that. So when I think about all the attributes that we have and what our ability is to be an AI winner, I can't think of a better place to be -- to start and to begin the early days of what's possible around AI than here. Do you have a follow-up Greg? Charles Peters: Yes, I do. And I'm going to pivot to capital management. the public brokers, the stock prices, everyone's reset lower, I'm not sure on the M&A side that the prices or valuations of acquisitions have reset lower yet. So I'm just curious on how you're thinking about the allocation or difference between growth through M&A versus repurchase of your own stock considering the reset and value of the stock price? John Doyle: Yes, it's a great question. What I would say is our strategy remains the same, right? We want a balanced approach to capital management. We favor investing in our business, whether it's organically or inorganically. Our goal remains to increase our dividend each year. And buybacks ultimately will depend on M&A. And as I mentioned in my prepared remarks, we did $750 million of buybacks in the first quarter. And we expect to deploy -- Mark mentioned we expect to deploy about $5 billion worth of capital this year. We're active in the market. Our pipeline is strong. So I feel terrific about that. And just as a reminder for everyone, 18 months ago, we closed on the biggest deal in our history, right? So not so long ago. And last year, we deployed about $850 million to M&A. And we did a meaningful deal at MMA in the fourth quarter in Hawaii, as most of you would remember. We did a couple of small deals, 3 small deals in the first quarter. We also actually closed on the sale of an admin business in the Pacific. I'd point that out to you. And we announced the acquisition of AltamarCAM. It's a private market asset manager with about $20 billion of AUM. That's kind of regulatory approval. So we expect that to close sometime later in the year. So we're likely to continue with our string of pearls approach. We do have the capacity to do larger deals, who knows what the marks are PE-backed assets. I will say, over the course of the last couple of quarters and some conversations we've had, there's been growing gaps between bidding -- bid and ask. We'll see how that materializes over the rest of this year. We've seen financial sponsors be a bit more aggressive than strategics. And Greg, we're going to, as always, be disciplined about how we deploy our capital. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Michael Zaremski: Great. Just 1 question on maybe around the AI conversation, specifically on the value-add services that you offer your clients. Curious a couple of your peers have talked about the Claims Advocacy Group, and they've offered some stats around the how the Claims Advocacy Group has made sure your clients get their claims paid in a timely manner. Just curious if you see that as one of the bigger value adds and if yes, if there's any stats or anything you'd like to share? John Doyle: Yes. Sure, Mike. And maybe what I'll do is I'll ask all of our business leaders just to share some thoughts on how we're investing in AI and how it impacts the value that we deliver. But we have the largest claim group -- Claims Advocacy Group in the industry by some measures. So maybe I'll start with Nick. Maybe you could share some thoughts, Nick? Nicholas Studer: Yes. Mike, thank you for the question. Maybe let me start on the claims advocacy question. As John said, we have a very large team plus additional specialists to handle highly complex claims. And the important thing to state, first of all, is that policy drafting and placement that creates contract certainty is the first stepping point here, so that you don't have rejected claims, which then require advocacy. But when you do our advocacy is strong and if you take an example like Claims IQ, which is our AI-enabled toolkit, we've got several thousand colleagues now drawing an AI-enabled analysis of almost $200 billion of loss information, which helps them support much better advice decision-making and advocacy. But if I take a few more examples tapping into John's prepared remarks, this is a bespoke fragmented, highly complex ecosystem from client service and a advice all the way through to placement. And A lot of the focus is on AI, but this is an ecosystem, which is digitizing steadily, and that digitization is critical to deploy the AI. There's lots more work to do just on digitization. And we still see human relationships and human judgment continuing to be central. But the AI investments are, I think, massively enabling of growth and of productivity and of efficiency. So value-added services, as you said, we're investing heavily in our digital client experience. We have a suite of tools, which you may have seen for many years in Blue[i] and Centrus, which we've talked about before, we're evolving these into what we call the Marsh risk companion, which will help clients understand and analyze their risks and their options across a wider range of their activities. But what's really crucial about the suite of tools is they're now all feeding off a new analytics engine. It's built from the ground up to leverage AI at scale. One of the things here is you're able to leapfrog with AI. And we call it the Marsh Risk cortex, but it really pulls together everything we need from our massive data sets and our most advanced models. And the crucial thing, I think, is not what features have we got, but it's the speed and the flexibility with which we can launch new applications because our clients' needs are evolving rapidly, and new needs are emerging. The first application is powered by the risk cortex, including our renewal companion, our captives companion, they're going to be launched in a couple of weeks at RINs. And then you should expect to see more flowing from that data set and analytical tower. And then maybe just to give a couple of more examples, we've talked before about our general proprietary AI suite just within Marsh Risk and up to more than 2 million prompts a month. So that helps productivity across the organization. But I know you're looking for sort of specific examples, too. So if I take something like we've rolled out tools to aid coverage gap analysis and quote comparison across our risk management and the Marsh agency businesses. And in the areas where we pilot that, we see the amount of work that, that takes off our client teams drive a 50% increase in sales velocity in the pilot. And we think some of that gain is scalable across the whole organization. So really lots going on, lots of activity to support our client-facing colleagues and our operations colleagues in work. John Doyle: Thank you, Nick. You're starting to sound like an insurance broker. Dean? Any thoughts from Guy Carpenter? Dean Klisura: Thanks, John. And Mike, you heard John in his prepared remarks, mentioned GC Quotebox, which is an AI-driven document ingestion tool. This is really a game changer for Guy Carpenter in our business. We get huge quantities of unstructured data from our clients, and this tool helps us ingest all of that data and makes it more efficient to match risk and capital through this tool, which will certainly improve turnaround times, make our teams, our brokers more efficient and deliver better turnaround times and more efficiency for our clients. John Doyle: Perfect, dean? Pat, how are you using AI Mercer? Patrick Tomlinson: Let me go 1 of those examples and maybe give you 1 where we're using it directly with clients. So Mercer Fiber is one of the tools where we're leveraging the broader AI stack that we have at Marsh to kind of further enable our existing digital tools. So health consultants leverage fiber when they're working directly with the client. It enables them to have these real-time iterative discussions on all aspects of their benefit programs, an incredibly powerful scenario planning and modeling during strategy sessions. What we do is we use fiber throughout the year as well to help with budget tracking, with updates with benchmarking, other plan management activities. And what it does is it allows us to visually display these insights and the data from across our health and benefits practice and then it combines it with the client's actual population and their actual claims data. And that allows us to understand and show clients directly the geographic differences in health care cost and quality based on their actual data, and we could do that live. And it allows us to really work to identify the most effective health care options for a specific population, right? And this is differentiating us in the market, really by showcasing the capabilities we've got the insights in a single integrated platform to be very client specific because it's very targeted to them and very client-centric. John Doyle: Thank you, Pat. Ted, welcome to the call. You want to share some thoughts on why we're excited about AI at Oliver Wyman. Ted Moynihan: SP26858316 Thank you, John. Thank you. And you mentioned already that our AI platform Quotient is our fastest-growing capability right now. And AI is developing into a very large opportunity for us as a consulting business that works on strategy and transformation. Let me mention a few examples. -- all of our work around performance transformation, where we're helping our clients improve how their businesses work and there's a ton of reengineering of processes and systems around AI. In industries, I would mention like banking, like health care, like advanced manufacturing, we're seeing the volume of work there really start to grow quickly. Growth and strategy work where we're helping our clients rethink kind of customer service and distribution channels. We've -- we've helped a number of clients already build new apps and chat GPT, a very new change to the way commerce is working, and we think going to be very transformational in industries like media, retail, communications, that's really a big deal. And you mentioned, I think, in your introductory remarks, but with governments, with investors, we've been helping to mobilize capital, where governments and investors are investing in AI skills and capabilities and new AI start-ups and new cost. And look, it's also changing the way we deliver our work and it's allowing us to -- AI is helping us deliver more value to clients. And just to give you one example in our private capital business, where Quotient diligence is changing the way we help our clients invest in businesses. And we're using very sophisticated tools to do market analysis, competitive analysis, growth opportunity analysis, and that allows our clients to make better investments and sometimes if they want to quicker investments in the private capital world. John Doyle: Thank you, Ted. Sorry, Mike, for that long answer, I just want to make sure everyone realizes why we're so excited and why we think we're best positioned to deliver greater value than we ever have to our clients and to our shareholders. So do you have a follow-up, Mike? Michael Zaremski: Yes, really quick. That was helpful follow-up. Just on the the pace of Marsh's hiring in terms of the producer level, do you expect that trajectory to change materially in 2016 and has higher or lower? John Doyle: Yes. No. Thanks, Mike. We had a good quarter, attracting production talent to the team in key markets, our brand in the market for town and in the areas where we compete and deliver for our clients is very, very strong. We start with the best talent and the most talent in the markets that we compete with. Would also maybe not your question, but our colleague retention is strong, our colleague engagement is outstanding. And so it's all anchored by a colleague value proposition, which is a really important way in which we try to convince people to stay and to give big parts of their career to our company. So thank you, Mike. Next question, Andrew? Operator: Our next question comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of them here for you, John. First one, I'm just curious, given the level of rate decreases that we're seeing out there. What are you seeing with respect to client demand at Marsh, given this uncertain kind of macro environment, are you using savings to purchase more coverage? Are they kind of holding back right now to see how the year kind of unfolds? John Doyle: Yes. I don't know it's very -- thanks, Brian, for the question. I'm not sure it's a very helpful answer, but sometimes, I guess would probably be the -- some of it. The market obviously got modestly more competitive in the first quarter. I talked a bit about the strong returns on the reinsurance side, but obviously, insurers and reinsurers have posted strong underwriting results. They're all looking for more growth, right, as a result. And so maybe another point I'd make here, Brian, is not directly on your question is, although rates are down, the cost of risk is clearly increasing. And I would think at a magnitude probably 2x GDP with liability inflation, medical cost inflation, cyber risk, certainly accelerating with AI, the frequency of extreme weather and how much more of the economy and society is exposed to those events. So it's maybe a more important driver of demand for us over the medium term. But maybe I'll ask Nick and Dean to just talk about a couple of market observations and what clients are doing in terms of purchasing. Nick? Nicholas Studer: Yes. I mean, as John said, the answer is sometimes. But in general, I think, yes. We've also seen continued trend and a rising trend in new business growth. And if I look at, say, the U.S. and Canada, highlights there include double-digit new business growth, continued strong growth at Marsh Agency, and double-digit growth in the specialties business. So transaction risk and construction, both growing strongly. And all of that with the -- across globally new business trending up for 4 quarters. But we're cautiously optimistic as we go through the rest of the year. John Doyle: Dean? Dean Klisura: Yes. Thanks, John. And Brian, maybe I'll just touch on kind of new business opportunities overall. And despite the property market and everything that John and Mark talked about which was a clear growth headwind for Guy Carpenter in the quarter. We're seeing record new business across our platform. We grew double-digit new business growth in every region in business globally in the quarter. I was really pleased with that. As Mark and John noted, we continue to see a really strong cat bond market and ILS market overall. We issued 7 cat bonds in the quarter, a record for Guy Carpenter. We've seen some $2 billion of new third-party capital flow into the market, just chasing casualty side cars, whole account quota shares and other similar vehicles. We've gotten several new mandates around those, very, very promising. I've talked in prior calls about our capital and advisory business, our investment banking boutique. We've never received more M&A mandates -- M&A advisory mandates, forming new side cars, as I mentioned, raising capital for MGA's Lloyd's platforms, our structured credit business, our MGA business. And in the last call, we talked about data centers, right? And just a couple of headlines there. I mean there's 50 deals that have been in the marketplace looking for more than $7.5 billion of capital to put these together. And all of my clients, Guy Carpenter's clients want to write more data centers, but they all need additional reinsurance protections. And I think the newest element of it, Brian, is clients now are talking about issuing cat bonds and leveraging third-party capital to write more data center business. And so I would say, overall for Guy Carpenter, there's more diverse new business opportunities that we've seen in several years. John Doyle: Thanks, Dean. SP1 Brian, do you have a follow-up? Brian Meredith: Yes, absolutely. So John, it's clear that AI is going to have productivity benefits,, it's going to benefit client experience and growth, et cetera. But 1 of the debates I'm having with investors is how much of the productivity gains is Marsh going to be able to keep and see a benefit from a margin perspective versus protects being competed away or giving back to clients. Maybe give us your perspective on that. John Doyle: Yes. It's a great question, Brian. And I talked about where we see efficiency opportunities -- Productivity opportunities, new sources of revenue generation. So -- we don't think anybody is better positioned to capitalize on these developments in technology than we are. And so I'm quite excited about that. Our fees have been for a long time, stable as a percentage of premium, and they're quite small compared to the cost of risk that we help our clients manage. And so we feel good again about how we're positioned and what that would mean. I think some of us on this call have talked about in the past and I mentioned in my prepared remarks, if you think we're a discounted insurance broker, yes, I might be a little bit worried, but we're not. That's not what we do. And so we feel good about what this technology will meet to our business. Thanks, Brian. Andrew, next question. Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: First question I had for you was just going back to the capital deployment and M&A side. I'm just curious how, if at all, AI is changing the M&A strategy. Are you staying away from certain businesses pivoting towards others and have your technology requirements or anything else changed? John Doyle: No. We -- it's a good question, Rob. We've had some opportunities and have looked at some businesses that have pitched kind of AI as part of their value. And I think there was a very significant gap between how some of those businesses for trade their tech value relative to how we saw their tech value. And so -- but I do -- and I recognize you can't plan around hope. So I say this with that in mind. But I'm hopeful that actually the scale benefits that we bring to investing in AI and the data sets and client relationships and all the advisory work will create opportunities for us to consolidate smaller brokers over time who are going to struggle to compete and to invest in these technologies. And even where they're able to make space for investment, they just don't have the data assets and the other capabilities that we have. And so I'm optimistic over time that will be a driver of M&A for us. Do you have a follow-up, Rob? Robert Cox: Yes, that's very helpful. Just had a follow-up on the MMA business. I understand you guys don't break that out. But just curious if you would characterize that business as a tailwind to organic growth for the RIS business and if it is, like, do you think it could continue to be a tailwind despite more pricing pressure for a commission-based model here? John Doyle: Yes. For -- the answer is yes, right? So MMA has been a tailwind to our growth for most years and most quarters, not all, but for most, as we've talked about in the past, we still have relatively modest penetration into the middle market. And so while Dave and the team have made a tremendous amount of progress, and we couldn't be more excited about the business we've built. In many respects, I feel like we're just getting started. We absolutely have the possibility for much greater growth. What I would say about pricing for for a number of, I think, rational reasons, pricing in the middle market has been -- has been more stable through cycles. That continues to be the case right now. It's one of the areas where we're delivering some of the productivity tools to help make our producers even better. And so we're really excited about the opportunity in the middle market. And by the way, not just in the United States, where we've learned a great deal in the last 15 years in building out that business and from some very talented executives we brought on, and it's helped making us better and capitalize on middle-market opportunities in other economies around the world. Thank you, Rob. Andrew, next question. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: Great. First question for John. I completely get the increasing benefits that you're going to be able to -- or increasing value that you're going to be able to bring to clients and carriers through AI. Are commissions still the right way to be compensated for that? Or do you expect compensation to become more transparently tied to the individual services? John Doyle: Look, Meyer, we have a broad risk of -- or broad range, excuse me, of the way we get compensated today. We have fees, we have commissions. We have success fees, right? I'm sure there are other things I'm not even thinking about. We're very transparent with our clients about how we get paid. And so -- so anyway, I mean, we'll see how those conversations evolve over time. I wouldn't -- I would suggest to you, I see no -- zero trend kind of around that. And so -- but again, we're happy to get paid in any form. We think we created outstanding value for our clients, and we think we get deserve to get paid well for that, assuming we deliver and execute on behalf of them. And as I mentioned before, our commissions and fees are a relatively small part of the overall cost of risk. And as a percentage of premium, they've been quite consistent over a long period of time. Do you have a follow-up, Meyer? Meyer Shields: Yes, just a quick modeling question. Is there any way of teasing out roughly how much of the wealth revenues come directly from assets under management? John Doyle: We haven't disclosed that historically, but it's obviously a range of, as we call it, AUDM or delegated management AUM and advisory fees. We're excited about how we're positioned in the investment advice business globally. We have -- we advise on close to $17 trillion assets around the world. And as a leading adviser in pension and retirement markets for a long time all over the world, we're very, very well positioned. I would also note, we're the largest OCIO, Outsourced Chief Investment Office in the market, and we continue to see a lot of possibilities for growth there. And I mentioned AltamarCAM and, maybe, Pat, you can talk about AltamarCAM and some of the investments we're making in our businesses make us even stronger. Patrick Tomlinson: Yes. Thanks. And listen, quickly on the wealth side in our business. Obviously, Mark had talked about the growth, we're pleased with the growth. It was led by our Investments business, in particular, our OCIO offering. So I understand the spirit of the question. We also will highlight our really seeing solid growth in our investment consulting business, right, which is not based on the AUM, based upon volatility in the market and clients seeing significant demand and need. And we have been to the point you're asking, diversifying our overall business and our AUM away from DB Vence, right? So it has been moving -- but we've been building out actively our deep defined contribution solutions around the world, and we've really been advancing our capabilities around nonpension clients, and that's been a major focus for us. insurers, endowments and foundations, family office and wealth management. And I think that goes into the spirit of the M&A and the AltamarCAM announcement that John kind of teed up from where we agreed to acquire AltamarCAM. They're specialists in private markets from an asset management solution perspective. They've got about EUR 20 billion AUM, we think it's going to significantly increase and expand our capabilities in the private markets platform. It's going to add a certain expertise in secondaries and co-investments, in bespoke accounts in evergreen vehicles, and that's going to allow us to offer much more comprehensive multi-asset private market solutions to clients. right? So we definitely feel that this is an area that we've been investing in heavily, you've seen from our announcements over the deals we've done as a firm over the last several years. And we've also been consciously making organic investments and trying to build out our capabilities broadly around being a main investment player. John Doyle: Thanks, Pat. Thanks, Meyer. Andrew, next question please? Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Guy Carpenter. So you guys were at 2% for the quarter, and I think you did point out, right, the elevated comp at 5% last Q1. I believe you were at 5% right throughout last year. So does the 2% feel like where this business should trend, I guess, at least in the near term, given it sounds like your pricing views or, if anything, right pointing to things getting a little bit worse post the [ 11 ] renewals. John Doyle: Yes. Elyse, as we've talked about, it's a very soft property cat reinsurance market. And so we're confronting that. We're particularly exposed to that in the first quarter. In the second quarter a bit as well with Japan and Florida, as we talked about. What I would say to you, Elyse, is that I'm quite pleased with our execution in spite of the kind of current market headwinds. And again, these market headwinds are good for our clients, right? So we're delivering for our clients in the moment. But client retention was strong, and we had an excellent new business quarter. And so I feel terrific about how the team is executing, what's a challenging market. It's not likely to be Guy Carpenter's best growth year this year, right? And so we've been planning for that and guiding to that. Do you have a follow-up, Elyse? Elyse Greenspan: Yes. My second question is just on capital, right? You guys were more active in the Q1 relative to prior first quarters. Obviously, we've seen a pullback in the stock price and just the group in general. As you guys think about balancing right M&A potential as well as where your stock is, could this be a year, I guess, where you continue to front-load I guess, more buybacks, even a little bit more independent of what's going on, on the M&A side? John Doyle: Sure. Maybe I'll ask Mark to jump in here, Elyse. Mark McGivney: Elyse, as John said earlier, there's no change in strategy. Our strategy of balanced capital deployment with a bias to reinvest and grow the business through high-quality acquisitions remains. But as we've consistently said, two, where our goal is not to build cash on the balance sheet. We're generating a lot of capital these days. And so where we see M&A light, we'll ramp up share repurchase. We did that in the fourth quarter. We bought back $1 billion and we started the year with $750 million. But the pipeline remains active. Our commitment to grow through M&A remains. It was relatively light M&A spending in the first quarter. But as John mentioned, this AltamarCAM transaction, which is a nice chunky deal that will close sometime later in the year. So -- so we did start the year with a heavy amount of share repurchase. But ultimately, what we end up deploying to share repurchase will depend on how the M&A pipeline develops through the year. John Doyle: Thanks, Mark, and thank you, Elyse. Andrew, maybe time for one more here. Operator: Certainly. Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Just had another follow-up question on AI? And maybe just a refresher, John, could you just remind us how much you guys are spending on AI just broadly within the tech budget. And I guess, who are you partnering with? What LLM providers are you partnering with? What tools are you using? That would be helpful. John Doyle: Yes, David. It wouldn't be a refresher because we've not shared that data in the past. We have a healthy tech CapEx budget. We take a hard look at that. It's, I think, another example where our scale matters, we're able to spend more and invest more. So we feel good about the investments we're making. I think, again, AI, I think the broad-based community needs to be careful about what AI even means. So -- but we're investing heavily and improving our tech stack in our utility of and in other parts of our efforts to digitize workflows and digitize how we engage with our clients. And so again, we feel good about how we're positioned there. We work with lots of different providers. So we're -- and I think one of the things about AI is it's of a lot of different things. There are many different possibilities for us to to extract value from these new technologies. So it's not about pick a hyperscaler and plugging them into our data set and it all of a sudden solving every inefficiency or productivity opportunity that exists in the world. And so we're working with a number of different major tech players and trying to pick and choose where we see the greatest value depending upon what it is we're trying to accomplish. Do you have a follow-up, David? David Motemaden: Yes. Maybe just a quick one in the interest of time. In Marsh, I'm just sort of wondering what's your exposure to in terms of revenues from personal lines, brokerage or micro commercial, where like you guys are only placing a single policy or as low dollar value and could be considered less complex? John Doyle: Yes. I'm not ready to concede by the way, that placing somebody's personal insurance isn't complex. If you're -- you have a client that's personally exposed and working with them to help manage risk and advise on their most precious assets. We certainly don't approach the client experience kind of in that way. where people are trying to buy commoditized products, those things exist already. I mean there's direct digital distribution. It's been that way. I would imagine for the direct markets, AI is going to create opportunities for them to improve their client experience with their customers. That's not who we serve. In personal lines, it's almost entirely a high net worth personalized client. It's an exciting area of growth for us. It's not a material part of our business, but we continue to grow. So if you're a restaurant on -- in small town U.S.A. there is a lot of complexity. And I'm not quite sure, by the way, we have very little of this business, almost none of this business. But I'm not ready to concede that it is something that some entrepreneur wants to prompt an app for hours and hours and hope that they get it right. So anyway, -- as I said, we're very excited. We don't think anybody is better positioned to take advantage of the developments on the technology front. We have to execute, but that's been the case for 150 years. And so we're excited about the path we're on and looking forward to accelerating our growth. Andrew, we have run over . Can you wrap us up here. I want to thank everybody for joining us today and thank our colleagues for their dedication to Marsh and our clients for their continued support and confidence in what we do for them. Operator: Ladies and gentlemen, this does conclude today's conference. You may now disconnect.
Operator: Good morning, and welcome to KeyCorp’s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during that time, simply press star 1 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Mauney, KeyCorp’s Director of Investor Relations. Please go ahead. Brian Mauney: Thank you, operator, and good morning, everyone. I would like to thank you for joining KeyCorp’s First Quarter 2026 Earnings Conference Call. I am here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Khayat, our Chief Financial Officer, and Mohit Ramani, Chief Risk Officer. As usual, we will reference our earnings presentation slides which can be found in the Investor Relations section of the key.com website. In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures including non-GAAP measures. This covers our earnings materials as well as remarks made on this morning’s call. Actual results may differ materially from forward-looking statements; those statements speak only as of today, 04/16/2026, and will not be updated. With that, I will turn it over to Chris. Chris Gorman: Thank you, Brian, and good morning, everyone. Our strong first quarter performance demonstrates disciplined execution and significant momentum as we continue to deliver on our commitments. We reported first quarter earnings of $0.44 per share, up 33% year over year. Return on tangible common equity exceeded 13% as we continue to make significant progress with respect to our goal of 15% plus return on tangible common equity by year-end 2027. Revenue grew 10% year over year with revenue growing more than two times the rate of expenses. Adjusted pre-provision net revenue grew an additional $29 million sequentially, marking the eighth consecutive quarter of adjusted PPNR growth. Net interest margin expanded five basis points sequentially to 2.87% as we remain on track to exceed 3% net interest margin by year end. Commercial loan growth was strong and broad-based across industries and geographies, increasing $3.3 billion or 4% sequentially on a period-end basis. We continued to be disciplined with respect to funding cost management. Total funding costs declined by 15 basis points during the quarter with interest-bearing deposit costs decreasing 22 basis points, resulting in a cumulative through-the-cycle down beta of 56%. Asset quality metrics remain strong, with a net charge-off ratio of just 38 basis points. In addition to improving our return on capital, we remain committed to substantial return of capital to our shareholders. During the quarter, we took advantage of the pullback in regional bank stock prices and repurchased nearly $400 million of common stock, well in excess of the $300 million plus commitment we made in January. We are also encouraged by the latest Basel III endgame proposal. Our preliminary estimate shows a 100 plus basis point benefit to our marked CET1 ratio under the revised standardized approach if implemented as currently proposed. This would imply a fully phased-in ratio of around 11%, higher than our peers, and higher than we believe we need to operate our business in the ordinary course. Our capital position gives us flexibility to continue to lean in aggressively this year and in the coming years to support our clients, to support our own organic growth, and to repurchase our shares. Subject to market conditions, we expect to buy back at least $1.3 billion of our shares in 2026, up from the $1.2 billion we previously communicated. While the macroeconomic environment has continued to be dynamic, we will remain laser focused on managing what we can control: the delivery of our differentiated capabilities, acceleration of new client acquisition, and exceptional service to all our clients. We continue to grow clients. Commercial clients were up 3% and relationship households were up 2% from the prior year, in the first quarter. We continue to gain share across our priority fee-based businesses—Wealth, investment banking, and commercial payments. In the first quarter, these businesses collectively grew by 12% when compared to the prior year. This past quarter, we raised nearly $47 billion of capital on behalf of our clients, retaining 19% on our balance sheet. Investment banking pipelines continue to remain elevated, up 5% from year end with M&A pipelines at record levels. While we do currently expect investment banking fees to decline in the second quarter compared to the record first quarter given current market conditions, we continue to feel very comfortable that we can grow investment banking fees in the mid-single digits for the full year. Commercial loan pipelines also remain very healthy, up nearly 20% from year end despite the strong pull-through in the first quarter. Our mass affluent wealth strategy continues to bring in new households. Net flows and client assets to KeyCorp reached 57 thousand households and $7.4 billion of total client assets as of March 31. With a mass affluent household opportunity of 1.15 million customers, we remain less than 10% penetrated, implying a significant runway going forward. We continue to hire frontline bankers. This past quarter, we hired a middle market banking team based in Atlanta, and a family office and private capital team based in Kansas City. We also hire talented investment bankers and wealth managers as our differentiated platforms continue to attract top bankers. We will continue to grow our banker ranks, including evaluating team hires and niche tuck-in nonbank transaction opportunities as they arise, in order to leverage our unique but currently underleveraged platforms. Lastly, we are investing approximately $1 billion in technology this year that will give us new product and service capabilities and deliver better outcomes and experiences for those we serve. As it pertains to AI, we are focused on a few thematic use cases that will enhance client experiences, accelerate credit decisioning, increase technology productivity, and strengthen risk and security monitoring. Given the strong start to the year, and the favorable dynamics we are seeing across loans and deposits, we have increased our full-year net interest income and loan guidance while reiterating each of our other financial commitments. While we enjoy strong momentum, we will remain vigilant as it pertains to a wide variety of potential macroeconomic outcomes. Our updated NII guidance assumes a wide range of interest rate scenarios. Additionally, we have added to our already elevated qualitative loan loss reserves this past quarter in order to account for a wider range of potential macroeconomic outcomes. As it pertains to private credit, we have provided additional disclosures this quarter. The summary here is we continue to be very comfortable with these books of business. Finally, the first quarter was a strong quarter, and our business enjoys a significant amount of momentum. Before turning it over to Clark, I am pleased to announce that Clark has assumed an expanded role to lead our technology and operations organization, in addition to his role as CFO. We look forward to the contributions he will bring to our technology and operations teams at a pivotal and exciting time as we leverage AI to grow our business and better serve our clients. With that, I would like to turn it over to Clark. Clark Khayat: Thanks, Chris. Starting on slide four, we reported first quarter earnings per share of $0.44. Revenue was up 10% year over year, while expenses increased by 4%. Taxable equivalent net interest income increased 11% year over year and was up 1% sequentially, despite impact from two fewer days in the quarter and seasonally lower deposits. Noninterest income increased 8% year over year as our priority fee businesses collectively grew by 12%. Loan loss provision of $106 million included 38 basis points of net charge-offs, a reserve build of $5 million. The net build reflected additional qualitative reserves to account for the macro uncertainty, offsetting improvement in Moody’s economic scenarios and credit migration trends. Tangible book value per share increased 10% year over year. Moving to the balance sheet on slide five, average loans were up $1.4 billion sequentially and increased $2.6 billion on a period-end basis. Average C&I loans and average CRE loans both grew by 3%, partly offset by the ongoing intentional runoff of low-yielding consumer loans. On a period-end basis, C&I loans grew by $3 billion or 5%. Growth was broad-based across industries and regions with both institutional and middle market clients. The largest industry contributors were within our financial services, and utilities, power, and renewables industry verticals. C&I line utilization increased 1% sequentially to 31.5% as loan growth outpaced commitments. Turning to slide six, with the attention that NDFI and private credit have been getting lately, we provided some additional disclosures with respect to our portfolio, and we want to share how we manage the businesses. First, a reminder that the NDFI nomenclature is a regulatory definition. As you know, these definitions have changed and continue to be refined, and we will continue to apply our best efforts to categorize these loans within the spirit of these definitions. In the quarter, we grew NDFI loans by $2.4 billion. A third of that growth is a result of the reclassification of existing loans—so that is not actual loan growth, but rather a refinement of what had previously been included in the category based on further examination of the regulatory guidance. The loans here are real estate non-owner-occupied. The additional growth of approximately $1.6 billion comes from three areas. About half of these are loans connected to real estate debt funds run by sophisticated sponsors with whom we have deep relationships, and where the underlying properties are geographically diversified. We expect to syndicate about 25% of these loans in the second quarter. Second, $400 million of this growth is fairly evenly split between insurance and other high-quality finance companies. And third, our specialty finance business loans grew about $400 million, primarily from AAA-rated CLOs. While we will, of course, continue to disclose NDFI under the regulatory rules, this is not the way we think about these loans. They are a reflection of four distinct businesses that are collectively 90% investment grade: institutional real estate lending, specialty finance lending, insurance and finance companies, and our unitranche funds. Each business is relationship-based and has its own set of credit concentration limits and risk parameters, with de minimis NPLs and much lower criticized loan rates than our other commercial loans. As it pertains to private credit, as the waterfall shows, we estimate approximately $10.9 billion of outstandings as of March 31, with roughly 70% through our specialty finance lending business, which are asset-backed loans made largely through bankruptcy-remote SPE vehicles. SFL loans are 98% investment grade, diversified by industry and geography, with thousands of underlying obligors. We typically underwrite to the counterparty and their underwriting policies and have a long list of collateral eligibility criteria that they must adhere to. First-loss cushions typically range from 30% to 50% and we are very disciplined when it comes to ongoing collateral and liquidity monitoring with structural protection if performance deteriorates. Through the first quarter, all of our facilities are performing as structured and required. In short, we think these are great businesses. They are relationship-based with excellent credit profiles, and require the focus and expertise that make them excellent examples of our targeted scale strategy. Turning to slide seven, average deposits decreased by 2% sequentially, reflecting typical seasonal patterns and the intentional runoff of $1.6 billion in higher-cost brokered CDs. We expect deposits to trough in early May and grow from there through year end. Reported average noninterest-bearing deposits decreased 5.5% sequentially, but remained stable at 24% of total deposits when adjusted for our hybrid accounts. Total deposit cost declined by 16 basis points to 1.65%. Our cumulative interest-bearing deposit beta increased to 56%. We continue to take proactive actions in repricing deposits through limiting our incremental funding needs by remixing loans from consumer to commercial, gathering low-cost commercial deposits—particularly in payments—while allowing certain rate-sensitive excess commercial deposits to leave, and by actively rotating maturing CDs into money market deposits and consumer. Overall interest-bearing funding costs decreased by 21 basis points, bringing our cumulative funding beta to 68%. Slide eight provides drivers of NII and NIM this quarter. Taxable equivalent NII was up 1% and net interest margin increased five basis points from the prior quarter to 2.87%. The increase was driven by remixing lower-yielding consumer loans into higher-yielding commercial loans, swap repricing, and proactive deposit beta management, which more than offset the impact of seasonally lower deposits and two fewer days in the quarter. Our balance sheet position continues to be fairly neutral to changes in interest rates as we move through 2026. We would see some modest benefit from reductions in the short end of the curve, as well as from increases in three- and five-year reinvestment. On slide nine, noninterest income increased 8% year over year. Investment banking and debt placement fees were $197 million, an increase of 13% year over year and a new first quarter record. Growth was driven by M&A, equity issuance activity, and commercial mortgage debt placement activity. Our pipelines remain elevated, and were up about 5% from year end. M&A pipelines were at record levels. Still, as Chris mentioned, given uncertain market conditions, we are planning for second quarter investment banking fees to be in the $175 million to $180 million range, with upside if geopolitical and other macro risks subside. We continue to feel very comfortable that investment banking fees will grow mid-single digits in 2026. Trust and investment services income also grew 13% year over year, reflecting positive net flows and higher market values. Assets under management remained stable at $70 billion. Service charges on deposit accounts and corporate service fees increased by 129% year over year, respectively. The increase in service charges was driven by growth in commercial payments, which grew fee-equivalent revenue at 11%, while corporate services income was driven by higher loan commitment fees and client FX activity. Commercial mortgage servicing fees were $62 million, down $14 million year over year, largely driven by lower deposit placement fees as well as resolutions in special servicing. At quarter end, we were named primary or special servicer in approximately $720 billion of CRE loans, of which about $265 billion is special servicing. Active special servicing third-party assets were $10 billion, about half in office. This is down from $12 billion a year ago as the commercial real estate industry continues to recover. We continue to expect commercial mortgage servicing fees to run about $50 million to $60 million per quarter for the remainder of the year. On slide 10, first quarter noninterest expenses of $1.2 billion improved 6% sequentially when excluding the prior quarter’s FDIC special assessment and increased 4% year over year. Compared to the year-ago quarter, the increase was driven by higher personnel expenses related to our frontline banker hiring, incentive compensation associated with the strong fee performance, and higher benefits costs. Sequentially, expenses declined due to lower incentive compensation, seasonally lower professional fees and marketing expenses, and fewer days in the quarter. Expenses are expected to increase through the balance of the year, reflecting our ongoing investments in people and technology, incentive compensation associated with expected continued revenue momentum, and other seasonal impacts. We continue to feel very comfortable with our full-year expense growth guide of 3% to 4%. Turning to the next slide, credit quality remains solid. Net charge-offs were $101 million, down 3% sequentially and were an annualized 38 basis points of average loans. Nonperforming assets increased by $65 million sequentially, back to third quarter 2025 levels, and remain below historical levels at 63 basis points. The increase was driven by two credits in utilities and multifamily real estate industries, respectively. We are confident we will resolve these credits in the coming quarters, and we are well reserved against them today. Lastly, criticized loans declined by $3 million sequentially. Moving to slide 12, our CET1 ratio was 11.4%, and our marked CET1 ratio was 10% at quarter end. Our preliminary assessment of the updated Basel III endgame proposal is that our risk-weighted assets would decline by approximately 9% under the revised standardized approach, resulting in a 100 basis point plus improvement to our marked CET1 ratio. RWA relief would come primarily from lower risk weight associated with off-balance sheet commercial loan commitments, residential mortgages, and corporate loans. As we wait for rules to be finalized, we will continue to manage our marked CET1 ratio in the 9.5% to 10% range under current RWA methodology. We expect to repurchase at least $300 million of our shares per quarter for the balance of the year, which implies at least $1.3 billion for the full year. We remain focused on supporting our clients and growing our business, and as Chris mentioned, delivering a return of capital and a return on capital for our shareholders. Moving to slide 13, we are positively revising our 2026 guidance given the strong start to the year. We now expect full-year net interest income growth of 9% to 10%, compared to our prior guide of 8% to 10%. We now also expect to exit the year with a net interest margin of approximately 3.05% on a stable earning asset base relative to the first quarter. This guidance holds under a fairly broad range of interest rate scenarios. As of today, our base case assumes no cuts this year. We also improved our loan guidance. Average loans are expected to increase 2% to 4%, compared to our previous guidance of 1% to 2%. And average commercial loans are now expected to grow 6% to 8% this year. All of our other guidance remains unchanged, although, as you would expect, we continue to monitor macro conditions closely. In summary, subject to the usual macro caveats, we are confident that we will deliver another year of outsized organic revenue and earnings growth for our shareholders. With that, I would like to now turn the call back to the operator to provide instructions for the Q&A session. Operator? Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove your question or your question has been answered, please press star followed by two. If you are streaming today’s call and would like to ask a question, please dial in and enter star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to register. Our first question will go to the line of Erika Najarian with UBS. Erika, your line is open. Erika Najarian: Thank you, and good morning. The first one is for you, Chris. Given the strength that you showed this quarter on both lending and fees, maybe talk a little bit about client sentiment and how they are balancing sort of the geopolitical volatility with, you know, some of the, you know, positive on-the-ground, you know, big beautiful bill stimulus and, you know, everything else that is happening domestically. And, additionally, thank you so much for the NDFI in quotes breakdown. I am wondering what you are seeing in terms of, you know, sponsor activity, what you are seeing in terms of your private credit clients. And one of your peers, David Solomon, mentioned, in the private credit space, widening spreads. I am wondering if KeyCorp is seeing something similar. Chris Gorman: Well, sure. And good morning, Erika. Let me start, if I could, with the consumer because that is a little less complicated. The consumer is in great shape. If you look at all of our credit metrics, if you look at the fact that these tax refunds from the big beautiful bill will exceed what they did last year, you look at spending, spending is up kind of mid-single digits year over year. Online spending is up maybe double digits. The other thing that is interesting with our client base is the wealth effect. And I think this is something that has been underreported. So when we talk about mass affluent, we are talking about our customers with between $150 thousand and $2 million to invest. Eighteen months ago, we thought that universe was 1 million of our 3.5 million customers. We went back and redid it based on market activity. We now believe it to be 1.15 million, so up 15%. So on the consumer side, the consumer—our consumer—is in good shape. Now on the commercial side, there is obviously some puts and takes. You saw for the first time—and Clark detailed—our utilization went up, which is a good thing. We are starting to see people actually invest more in CapEx with some of the benefits from the big beautiful bill that you pointed out. And then, of course, the flip side of it is just the macro uncertainty. And so what we did see in the quarter is some people pulled some deals forward. So think about—you were going to go to the investment grade credit markets, and the activity started—you probably pulled that forward. Conversely, on M&A deals, what is happening is they are not going away. But people are kind of slow-playing it, doing a lot of due diligence because there is so much volatility kind of day to day, week to week. So we sort of saw both sides of that. Having said that, as we said earlier, our pipelines remain very, very strong. So I am very optimistic about where we are from our commercial businesses. But, obviously, it is not without impact from the near-term volatility. Second part of your question as it relates to NDFI is a very great question because this is kind of a developing area. And so we have seen a steady march down in terms of spreads for a long time because there has just been too much capacity in the market with respect to commercial loans. What we are seeing just as of late is a firming there. And part of the firming of that is that some of the private credit players—obviously in light of redemptions—are not in the market the way they have been. And I actually think as you look forward, there is a lot of discussion around private credit. I personally do not think there is a credit problem, but these redemptions are real. And if you have a bunch of redemption requests, the first thing you do is stop shoveling it out the front door. I think that will give the banks, in some instances, an opportunity to reintermediate some of those activities. That is my perspective. Anything else on that, Erika? Operator, we will take the next question. Operator: Yes, of course. Thank you, Erika. The next question will go to the line of Ken Usdin with Autonomous. Ken, your line is open. Ken Usdin: Thanks a lot. Appreciate it. I want to ask a question on deposits. I know the first quarter is seasonal. It had a decline in brokered CDs. Just wondering how you think that deposits will trend from here and if you think you are getting close to the bottom of that NIB mix, which I know was part of that seasonality in the first quarter. Clark Khayat: Yes. Ken, it is Clark. Thanks for the question. So you hit on, I think, the bigger drivers—broker deposits coming out at about $1.6 billion, seasonal decline. So first, I would say, as we did decline, we are actually slightly better in the first quarter than we would have planned, so I think just consistent with our expectations. On NIB, you did see that come down on a reported basis. I think if you put our hybrids in there, we are stable. So those continue to be a very good vehicle to work with commercial clients and maintain those high-quality operating deposits. And I think, as usual, we would expect to trough mid-May and then build up through the quarter. So I would say first quarter to second quarter average balances will be stable to maybe slightly up, but I would expect ending balances June 30 to be higher, and those to continue to rise through the course of the year. So we feel very good about the liquidity we have. If loan growth continues or picks up, we have low loan-to-deposit ratio on a relative basis. We have brought our market funds down, so we have a lot of third-party capacity if we need it. And then we have great access to client excess deposits and new operating deposits. So if we need to fund more loan growth, that is a high-class problem that we feel very confident about. Ken Usdin: Yep. And as a follow-up, on the cost side, you put in the slides about the cumulative down beta has been great at 56%. With rate cuts presumably on hold for a while, can you just talk about deposit competition—how much room do you have, if any, to continue to bring down deposit costs—and just, you know, the environment out there across the businesses for deposit taking? Clark Khayat: Yeah, sure. So, look, I think you hit it. With no cuts—and that is our base case—we would expect deposit pricing in general to sort of stabilize. Now, if loan growth really kicked in, some of the dynamics Chris talked about, if banks really step back in, we would expect some intensification of that deposit pricing. Right now, our view is that those will be fairly stable. Our deposit price will be fairly stable at this point. And as I just outlined, we will get back some balance on things like NIB and others. So I think we have some puts and takes. We will continue to drive down broker deposits through the first half. But if we needed more funding and we had to dip into that market to not hit more pricing across the book, we can do that. So I think we continue to have a lot of avenues at our disposal. I think if there were cuts, our deposit betas will probably drop a little bit in-year just given the timing component of that. Again, our base case is stable, and I think we can hold serve in the mid-50s as we move forward. But that is all premised on the loan growth we are guiding to. So if that came in stronger, we might see a little bit of a dip there, but I think we would make that trade-off as long as it is good-quality relationship growth. Ken Usdin: Okay. Thanks, Clark. Operator: Thank you. Sure. Thank you, Ken. Our next question will go to the line of Analyst with Evercore ISI. John, your line is open. Analyst: Good morning. Chris Gorman: Good morning, John. I guess just similarly on the competitive front on the lending side, I mean, one or two of your peers have cited a bit more aggressiveness out there on the lending front, particularly on structure. For the most part, also to a degree on pricing. Are you seeing this showing up in your markets and maybe if you can talk about how it has influenced loan spreads that you are seeing as you are pricing new originations? Chris Gorman: Yeah, John. So the phenomenon you are talking about has been a prevailing phenomenon for some time. What I was describing in my answer to Erika is sort of real-time some adjustment that we are seeing. But there is no question there has been excess capacity for some time, and I have talked about this at length—that a properly graded commercial loan cannot return its cost of capital. And there has been just a constant pressure on spreads and on structure. I think we may be—and I emphasize the word may—be at an inflection point on that trend. Mohit Ramani: And just from a risk management perspective, we have not adjusted any of our credit boxes or underwriting standards. We are still maintaining, again, the same standards that we have always had. Chris Gorman: Yeah. Moe, I think that is a good point. I mean, we never give unstructured. Obviously, it is a market out there and we price where we need to price. The advantage we have, John, is we can do a lot of other things for these clients—whether it is payments, whether it is strategic advice, hedging, etcetera. That is how we run our business. And, frankly, if the capital markets have a better deal, we will place it, as we did 80% of the time this last quarter. Analyst: Got it. Okay. Very helpful. Thank you. And then you gave some pretty good color here on the capital front in terms of buyback expectations. I guess, if you could just remind us of your allocation priorities there, and if anything could impact that pace of buyback? How do you think about any potential inorganic opportunities? Chris Gorman: So, I mean, obviously, what could impact it more than anything is if we had a severe macroeconomic downturn and started having credit losses. We do not see that. We feel really good about our credit book. Our capital priorities remain unchanged. It is first to support the growth of our clients, which we were pleased to see that we got in this last quarter. The next thing is to invest in our business. And when we talk about investing in our business, it is really people and it is technology. So we will continue to invest heavily in our business. We also, as I mentioned in my remarks, will continue to hire a lot of individual bankers. We will hire groups of bankers. And, opportunistically, we would look at small acquisitions of kind of boutique type operations, which are really just an extension of hiring a group of people. The next priority, of course, is to pay our dividend, which we do not talk about a lot, but it is $0.205 per share, which is not inconsequential as you look at the yield. And then, lastly, repurchase our shares. And we said earlier in our comments, John, we plan to repurchase $1.3 billion worth of stock in the year. Operator: Thank you, John. The next question will go to the line of Ryan Nash with Goldman Sachs. Ryan, your line is open. Ryan Nash: Hey, good morning, everyone. Chris Gorman: Hey, good morning, Ryan. Ryan Nash: So, Chris, if I look at the high end of the loan growth guidance, you know, it does not imply that much growth from the 1Q end-of-period levels. Now, I know you mentioned some moving pieces in one of your other answers, some syndications that could be coming in 2Q. But curious on the drivers of loan growth from here—what will drive the slowdown and can there be some upside from current expectations? Thank you. Chris Gorman: Well, thanks for the question. I will start with—I guess, the premise of your question is the loan guide is conservative. And that if we did not book a whole bunch more loans, we will basically grow at 6% for the year. And I would say there probably is some appropriate conservatism in the number, given the macro uncertainty out there. But let me give you the pieces and parts. Utilization, actually, for the first time in a long time, spiked up. I would not necessarily imagine that that will continue to spike up. We waited a long time for it to start moving. We do have broad-based growth across all geographies and industries, which should play forward. I mentioned in my remarks that we have a 20% increase in our backlog—obviously, would expect some of that to, in fact, pull through. Utilities and power continue to be an area of huge opportunity when you think about both renewables and the massive build-out that is required for GenAI. There are two other areas where we are starting to see some traction. One is health care—we are starting to see consolidation; it is necessary, by the way, in the health care industry. And then lastly, for the first time in a long time, we are starting to see this backlog of commercial real estate transactional activity. We have been refinancing a lot of commercial real estate, but what we are starting to see is people are starting to trade as the bid and the ask comes in and everybody sort of gets comfortable that we are going to be in this kind of an interest rate range for a while. So that is kind of the puts. Oh, and then also, I just would remind you we are going to continue to run off $500 million to $600 million of commercial residential mortgages per quarter. So that is kind of the puts and takes, Ryan. Ryan Nash: Gotcha. No, that is super helpful, Chris. And maybe as a follow-up to something that was talked about before—you know, within the investment banking business, if I look at the mid-single digit guide, it implies low single digit growth for the remainder of the year. And I feel like coming into the year, you were upbeat on the potential return of M&A to drive outsize, as historically it has been a bigger part of your business. So it sounds like from your comments earlier that M&A has not been as robust as you would have expected. But are there other parts of the business that are trailing? And what will we need to see for some of those parts of the business to begin to outperform expectations? Thank you. Chris Gorman: Sure. So with respect to M&A, what is interesting about M&A, Ryan, is there have been a lot of headline numbers. And as you well know, the G-SIBs have reported some incredible numbers with respect to advisory. I think deal volumes in total are up, like, 46%. Transaction volumes, however, are down 26%. And so we put all that together and we are still waiting for this huge surge of middle market M&A activity to come through. And so that is something that we are keeping a close eye on. Those transactions are binary. What we are guiding to right now is 5% to 6% growth year over year. So we did about $780 million last year. So the middle of the range, that would be something like $825 million off of a record year last year. So I feel really good about the business. But, admittedly, while we have record backlogs, we are not seeing as much come out of the pipeline right now as we would hope. I think when some of the geopolitical things are resolved, it will be a little better environment for that. Thanks for your question, Ryan. Operator: Thank you, Ryan. Our next question will go to the line of Scott Siefers with Piper Sandler. Scott, your line is open. Scott Siefers: Good morning, guys. Thanks for taking the question. Wanted to return for a moment to the capital discussion. You know, it seems like there really should be good capital management runway for a while, especially if you elect to put to work some of the additional excess you would have should the Fed’s NPR pass as proposed. I guess I am curious to hear how you would decide when and how aggressively to deploy that additional excess if those proposals in particular do advance. And, you know, what other considerations are there, whether it is rating agencies, investor expectations, etcetera, just as you think about the appropriate capital levels to sort of land on? Clark Khayat: Hey, Scott. Thanks for the question. So, one, we guided on the fourth quarter call that we would try to get to 10% marked by the end of the year. We actually arrived there a few quarters early in this quarter, so we feel very comfortable there, and would feel comfortable over the course of the year dipping into that 9.5% to 10%. And that is under the current regime. So, again, no issues there. To the extent the NPR passes as proposed, we expect, as we said, 100 plus basis points of additional marked capital there. So I think that gives us more room to continue to both invest in growing client activities but also to continue our share repurchase. So on the one hand, I know we are guiding to $1.3 billion for the year. Short of some more extreme situations, I would expect that to be more like the floor for buybacks for the year. I do not know how much more we will go over that. We will play that by ear. But we certainly believe over time, as you know, we have more capacity to lean into capital return. The other point that I would just make is I do not think anybody should expect one big swing at this. I think you should expect from us thoughtful, orderly, kind of methodical capital management over time where we are sharing as much visibility as we have given conditions and kind of marching down to that range over some meaningful and manageable period of time. But we are not going to do anything dramatic in any quarter or two. Scott Siefers: Gotcha. Okay. Perfect. Thank you. And then maybe switching gears for just a second. You know, appreciate the refresh and the color you guys have given on the full-year investment banking expectations. Clark, was hoping maybe you could kind of provide some thoughts on how you see some of the other key areas—whether it is wealth, payments, some of those other focus areas—projecting through the year. Clark Khayat: Sure. So, one, as Chris noted, we continue to get gains in our wealth business. So, to the extent the market cooperates, we would expect to see investment management fees continue to grow, and I think that is a mid- to high-single digit number for the year. That is tracking pretty well even despite a little bit of volatility in the first quarter. Our payments business, particularly on a fee-equivalent revenue—which, as you know, Scott, is the gross fees—continues to be very strong. If you unpack, for example, what happened in the quarter on deposit service charges, those numbers would have been mid-teens year over year. So we continue to get really good activity from our payments team, either selling additional services into existing clients or anchoring with new clients as they come in. No reason to think that that is going to stop. We continue to add new capabilities in payments, whether it is in our portal, our information reporting, or things like embedded banking. I think all of those are on very good trajectories, and we would continue to expect to see those grow—so that is again on a gross number, kind of low double digits; on a net number, high single digits. Then corporate services, which is really FX and derivatives and other hedging—the oil volatility has created some tailwinds there. If that settles in, derivatives tends to follow with loan growth, so that has been very positive. And we have seen some good traction in FX as well. So I think all of those categories continue to look up and have been consistently strong. The one place that we called out in the fourth quarter call—and will continue to be year-over-year down, but that is not a reflection of the quality of the business—is our commercial real estate servicing business. And, again, that is a function of advance rates coming down, clients paying us with deposits versus fees, and some recovery in the industry that causes special servicing and other resolutions to likely be down year over year. So, again, nothing negative to say about that business. That is just the market trends that are affecting it right now. In summary, expenses and fees, we expect to be relatively close. We would like to be a little bit better on fees, but we are really looking at reported fees to be, again, pretty consistent with expense growth over the course of the year, and then adjusted fees being in that mid-single digit range and priority fee businesses high single digit. Scott Siefers: Excellent. Alright. Good. Thank you very much. Operator: Thank you, Scott. Our next question will go to the line of Mike Mayo with Wells Fargo. Mike, your line is open. Mike Mayo: Chris, you have already answered part of the question about your investment banking and debt placement business. And I know you have built that business—big organic grower. But when you said you are looking for mid-single digit growth this year, like, that is, like, not so exciting, right? Like, waiting this long for cap market to come back, and I know it has been skewed towards the large mergers, and you say it is not really back yet, and so I guess that mid-single digit guide—is that just, like, what it is? Or is that what it is given your thoughts that activity will be delayed maybe until next year? Thank you. Chris Gorman: Well, first of all, good morning, Mike. That is what it is based on where we are right now in the market. I do take a lot of comfort in that our first quarter was a record. It was a record after last first quarter was a record. Last year was our second best. Our pipelines are at record levels. If we could get some stability out there in terms of rates and in terms of people’s perspective going forward, I think there is a huge opportunity here. But right now, as we look at it, what we are comfortable with is guiding 5% to 6%, understanding that the business has a lot of momentum. Mike Mayo: What do you think the difference is for the very large mergers and what we heard from the biggest banks is that dereg and pent-up demand and still very high stock prices and liquidity—that is all transcending the conflict. And you are seeing these pipelines get replenished and all that. With more of your middle market companies where the activity is still subdued? Chris Gorman: Yeah. So I think it is a couple things. One, those are transactions that obviously require a lot of approval, and there is no question that regulatory approval has improved geometrically. So that is the first thing. Second thing is many of those deals are stock-for-stock or a huge component of stock and, therefore, do not require nearly as much financing. And then the third thing is, typically, I have always noticed as you come out of a rut—and we have been in a rut in M&A—the first deals to start coming out are really large high-quality deals, and I think that is what you have seen. And I think it will matriculate to the entire market. Clark Khayat: Hey, Mike. One other element we are seeing more consistently also on the middle market end, which is heavily sponsor-backed: we are seeing more continuation vehicles as an option versus outright sales. And those obviously do not always translate to the same level of activity. Mike Mayo: That all makes sense. Would you say that some of the same factors, though, that could drive more loan demand due to CapEx could also drive merger? In other words, to the extent that middle market CEOs become more comfortable, then they are more likely to spend for CapEx and maybe, therefore, they are more likely to do mergers. So what is the demand for CapEx-driven financing? Chris Gorman: I do not think there is any question. I think as people get comfortable with the forward view and get comfortable with where they think rates are going to be, I think that will be an impetus to transact. And I think having gone through a bunch of market disruptions, once people see that sort of the coast is clear, I think there are probably a lot of people that are gearing up to go, and we have many in our backlog. Mike Mayo: Alright. Thank you. Operator: Thank you, Mike. Our next question will go to the line of Manan Gosalia with Morgan Stanley. Manan, your line is open. Manan Gosalia: Hey, good morning. So Chris, Clark, since you gave the ROTCE guide, NII and loan growth are trending better. You noted 100 basis points or so of benefit from 15% or so exit route, say, for 2027? Chris Gorman: Well, clearly, I think as the rules get finalized, we will have greater flexibility. We mentioned to the tune of—if you just look at the standardized approach—100 basis points or so. So we will have more to say about that after we have final rules come out and we make final decisions with respect to standardized approach or ERBA. Manan Gosalia: Got it. Okay. Great. And then you noted that, I guess, the balance sheet should stay fairly flat in 2026, which would mean that the LDR moves a little bit higher. How should we think about that going into 2027? Is there still more room to take the LDR up and, as we think about deposits and maybe some of the higher-cost deposits, at what point does it make sense from a relationship perspective and a franchise perspective to keep and pay up for them rather than let them leave? Clark Khayat: Yeah. Hey, Manan, it is Clark. So I think you hit that right. I mean, on a general basis, that last point is probably the most important here, which is—as we have talked about before, I will just talk to commercial for the benefit of this answer—80% of those deposits are operating accounts and 95%–96% of the deposits come from clients with operating deposits. Meaning, these are strong relationships. We know where the dollars are. And we are making often name-by-name decisions month by month about where the bid is on those excess deposits and whether we want to fund with those or not. So in the first quarter, we let some of those go. We did that last year in the first half and then brought them back in the second half. I would not be surprised if that happened again this year. And as we go forward, past 2026, and we start to see some balance sheet growth, we will have the opportunity to make those calls as we do today. And my guess is if we are starting to grow the balance sheet, we will look to fund with client deposits wherever we can as long as it makes sense on the margin. The nice thing about those commercial deposits is they are, at some level, individual decisions, and we are not sort of repricing the whole book across the board. This is why—as I mentioned with the hybrid accounts earlier—we have gotten real benefit out of that because we get advantageous rates there and we get deeper client relationships as we provide them with more and more payment services. Chris Gorman: And just to add to that, Manan, we would not let these excess deposits go if we thought it put our relationship at risk. These are excess deposits with people that are very good customers of ours. As Clark said, 81% of our commercial deposits are core operating. This goes back to our focus on primacy going back a decade. So we really have the flexibility to move those in and out as we need to. Clark Khayat: And I would say there is one last point just worth making because we talked about, in commercial mortgage servicing, some clients paying us with their deposits instead of hard fees. So we took deposits back on balance sheet in the first quarter. We also then, just to manage the deposit base, took some deposits off balance sheet, and those can be brought back if we needed additional funding. So we have a fair bit of levers to fund as it grows, and we are not sitting here overly concerned, to Chris’s point, about the marginal dollar funding if a quality loan is available. Manan Gosalia: Got it. Thank you. Operator: Thank you, Manan. Next question will go to the line of Ebrahim Poonawala with Bank of America. Ebrahim, your line is open. Ebrahim Poonawala: Thank you. Good morning. I guess just two sort of macro level questions, but, Chris, you should have a great perspective on this. When we think about the AI data center loans that are being made right now, is it your understanding that most of that is being distributed in the capital markets, or when we think about loan growth at the banks, is some of that being syndicated to banks and it is coming on bank balance sheets? And who knows how to think about AI two years from now and these investments? But is there risk tied to this data center spending that is being put on bank balance sheets at KeyCorp, and just broadly, across the industry? Chris Gorman: So it is a great question. The answer is the funding for these data center buildouts are in the capital markets and also at some of the banks. And, you know, we have been in the power business for a long time. And as a consequence, I think we do it pretty well. There are all kinds of nuances in these deals. Who pays for the cost overruns, for example, etcetera, etcetera. Who has the right to do what under a bunch of circumstances. We feel very good about the loans that we have. But these loans are both in the capital markets and in the banking system. Clark Khayat: Yeah, and, Chris, I just might add that our data center exposure is fairly de minimis. We have also looked at what we have called AI-adjacent type exposure and worked with our board on that as well. And, again, very, very well controlled and monitored. We are really not chasing a lot—again, these larger projects or hyperscalers. And so, again, it is very well managed. Ebrahim Poonawala: Got it. And just one quick follow-up, Chris. I think you talked about this. When we think about investment cycles are far longer than political cycles, are you actually seeing some element of manufacturing reshoring showing up in your footprint or across your businesses leading to longer-term domestic CapEx, which creates loan growth opportunities, not just this year, but thinking about the next two to five years? Chris Gorman: So we are starting to see that. I could give you some specific examples of people that are—and typically, it plays out like this: it is people expanding existing facilities in lieu of having contract manufacturers that are overseas. The other thing that we are seeing is people relocating from the Far East to Mexico and really shortening their supply lines and taking control that way. So we are starting to see it, but I would not say it is the biggest driver at all of, say, loan growth. It is very early days on that front. Ebrahim Poonawala: Got it. Thank you. Chris Gorman: Thank you. Operator: Thank you, Ebrahim. Our next question will go to the line of David Giaverini with Jefferies. David, your line is open. David Giaverini: Hi. Thanks for taking the question. I wanted to ask about credit quality. You mentioned the NPL increase was driven by two credits in utilities and multifamily. Are you able to point to any emerging trends by sector or geography that you are watching more closely? Chris Gorman: Well, we are always looking at certain sectors. As it relates to those two, when you have it kind of bumping along the bottom, there will always be one deal or two. Neither of those do we look at as systemic in any way. You know, we are watching a few areas as we always are—things like agriculture, things like transportation. But there is nothing—each of those are idiosyncratic in their nature. Clark Khayat: And, again, just a reminder, that slight uptick was not private-credit related. But, again, just—again, to Chris’s point—just idiosyncratic. David Giaverini: Thanks for that. And then shifting over to when thinking about expenses—and you mentioned the hiring of frontline bankers. Curious, is there more to come there? And how is pipeline looking? Chris Gorman: So last year, we talked a lot about the fact that we grew our sales forces by 10% collectively in our investment banking, in our wealth business, and our payments business. We continue to hire people in all of those businesses. Those are our targeted fee businesses where you will see in our report out today, we grew about 12% in the aggregate. We track all of this very, very closely. And we are pleased with the trajectory of the people we have been able to hire. And as a consequence, we will continue to do that. David Giaverini: Very helpful. Thank you. Chris Gorman: Thank you. Operator: Thank you, David. Our next question will go to the line of Gerard Cassidy with RBC. Gerard, your line is open. Gerard Cassidy: Hi, Chris. Chris Gorman: Hey, Gerard. Good morning. Gerard Cassidy: Chris, can we circle back to—you pointed out about the emerging affluent, how it grew 15%. I think you said to 1.15 million out of a total customer base of 3.5 million. How can you guys embrace AI to penetrate that client base and make it even more profitable because you are using AI? Chris Gorman: That is a great question, and it is very timely because I spoke to our big producers in this business as recently as Tuesday morning at their sales conference. I think there is a huge opportunity to use AI. We are already investing heavily in our wealth platforms. And I think as you think about serving that many customers, there is huge opportunity for AI. We will have more to say on that in the future, but that is a perfect application. Many of these customers are rather homogeneous in their needs. And I think we are armed with perfect information because it is all running through the bank. And I think harvesting more detailed information so we can do a better job of serving these customers that already know and trust KeyCorp and have their money on some other platform where, as you can imagine, they are not getting incredible service—just because it used to be that if you had $5 million, you got incredible service everywhere. Now, as you know, the number is a lot higher. And so this is a huge opportunity for us. Gerard Cassidy: And then to put Clark on the spot, but following up with this AI, do you think we will ever get to the point where outsiders like folks on this call could actually measure, you know, for your dollar of spending in AI, it actually incrementally led to a 50 basis point of ROTCE improvement? Will it get to that kind of metric some point in the future? Clark Khayat: Well, we would have to get to that first, and then share it because, as you know, Gerard, these are pretty hard to measure. I would say where we—and I think others—are seeing benefits is in efficiency and capacity, but it is really showing up more in avoidance of future investments. And so that is hard for me to come and say, “Hey, Gerard. I did not spend these dollars I may have otherwise spent.” The way I think we really need to demonstrate that is to scale some of these platforms, which has been a theme of Chris’s now for—I do not know—as long as I have known him. If we can do that, then you start to see the scale of the platform and the benefit of that cost avoidance in a real way. Then we can come back and say, we spent these dollars, we created these improved processes, and they drove this level of margin expansion. Gerard Cassidy: Great. And then just as the follow-up question, Chris, obviously, KeyCorp is well positioned as a commercial lender, and it looks like commercial lending for the industry and for you specifically is picking up. You obviously have your industry verticals that are national—that drives this commercial product—along with, as you point out, it is not just a loan, but it is multiple products. Outside of those seven verticals, is there much opportunity for commercial lending in, you know, the Pacific Northwest or the Midwest or New England? How do you look at that kind of commercial lending, or do you really not do it and it is just in those seven verticals? Chris Gorman: No, we do both. Our seven verticals give us what we think is a unique competitive advantage because our middle market bankers—who are also our payments representatives—call with our investment bankers, and that is something that others cannot do. So in those seven verticals, we have a huge advantage. But we also are out there looking for great payments and commercial banking customers just like everybody else. And, yes, there are significant opportunities outside of our seven industry verticals. And we compete effectively there as well. Clark Khayat: And, Gerard, just as a reminder, over the last couple of quarters, we have seen not just great industry vertical growth, but we have seen very consistent broad-based geographic middle market growth. So it has been a combination of both. We have been adding bankers in verticals and markets. And, as we have talked about before—whether it is Chicago, Southern California, recently Atlanta, or this family office business—we are adding bankers in new geographies with new capabilities in the middle market because we see exactly what you are referencing, which is really good opportunity to grow in specific geographies. Chris Gorman: And our uniqueness is not limited to just the investment banking area. In our payments area—which Clark at one point ran, by the way, and now Ken Gavrity runs both our commercial business and our payments business—we feel like we have a competitive advantage there as well, Gerard. Gerard Cassidy: And speaking of payments, and here is a layup maybe for Clark since you used to run payments. We all know about the risk in credit, and you guys have been very clear how you manage your credit risk, and it is quite good. What is the risk in payments? And as you grow new commercial customers, is it an increasing fraud risk we have to watch out for? I mean, which is totally out of the risk questions that we normally ask. But what do you guys think about that part of the equation—that as payments, and not just for you folks, because every commercial bank seems to be telling us the whole relationship includes a payment part of it—do we have a risk here that none of us are really focusing in on yet? Clark Khayat: Yeah. I mean, there is a little bit of credit risk in things like ACH and merchant, but those are very manageable and I think well understood. To your point, I think you see probably two versions of risk. The biggest pull is going to be operational. This is a technology business. So whether it is fraud or security—and often the easiest doors in are through clients who are not necessarily educated enough to manage the risk—so we do a lot of proactive client outreach on how to better secure their own platforms. But, you know, it is clearly a technology and software business, and that is why you need to be very dialed in on that level of risk. And then the other one is just reputation. Right? You are getting into clients. You are offering services. I used to joke, but I think it is true, that when we make a loan to a client, they sign the paperwork, they get the money, we talk to them in a couple weeks or months. When you sign a payments contract with the client, the work begins because you pop open the hood and you start rewiring the enterprise. So that comes with a lot of potential client friction. You have to manage that onboarding and servicing relationship very carefully and very thoughtfully. And it is a bit of an offensive lineman game where they expect things to work and when they do not is when you hear from them. So there is a lot of very important proactive communication and management of that process. And so I really think about it in the obvious operational risk you raise, which we spend an enormous amount of time thinking about and managing, and then the reputational piece because, as we say at KeyCorp, our payments business is about helping clients run their business better every day—because they use it every day—which means there is an opportunity for something to go wrong every day, and we have to manage that. Gerard Cassidy: Thank you. Very insightful, Clark, and good luck with the new responsibilities. Clark Khayat: Thanks. Operator: Thank you, Gerard. Our last question will go to the line of Analyst with KBW. Christopher, your line is open. Analyst: Hey. Good morning. This is Chris O’Connell filling in for Chris. Oh, okay. I just wanted to circle back to the margin discussion. And just given the overall shift in the rate environment this past quarter towards higher-for-longer environment, what impact do you think that might have on the margin improvement story? Clark Khayat: Yeah. So as we noted, our base case would be no cuts. So that is incorporated in this, and we did improve the margin guidance a bit. So what I would say—maybe alternatively—is we feel very good about managing to that guidance under a variety of circumstances. We would likely feel a little stress if there were hikes. And we have got some upside potentially if there were cuts—assuming those cuts, as we would expect at least at this point, with a little bit of steepening of the curve. So, right now, the reflected slight improvement in that margin guidance incorporates a flat, no-cut scenario. So hopefully that is responsive to your question there. Analyst: Okay. Great. And then, you know, you guys provided a ton of color on private credit and the specifics—both in the discussion, the deck, and overall credit quality relatively stable for the quarter. But just wondering if you could kind of stack rank or update us on, you know, your wall of worry on maybe more hot-button credit pockets. And then where private credit—either as a whole or within the parts that you disclosed and discussed—falls within that stack ranking. You know, I guess, in particular, with context of your view versus the overall markets. Chris Gorman: Sure. So I would be happy to address that, Chris. So I would not put private credit in my basket of things that we are really focused on right now. A few areas that we spend time thinking about: first is the oil and gas producers. Depending on how they are hedged, they actually could be making more money in this environment—particularly if they are unhedged. We have a couple billion dollars of exposure there. We have another $2.5 billion or so exposure in transportation. And to the extent people do not have escalators with their customers, obviously, costs are a significant issue. There is no issue yet with respect to consumer discretionary. But if we remain in an inflationary environment and people are spending a lot more for gas, the theory is that they will have less money to spend on discretionary consumer, which I agree. On the other side of it, we have seen some interesting recovery in that we had been worried a bit about health care. Health care is firming up nicely, so we feel good about that. We also were really focused on some materials and construction products—those areas have also firmed up nicely. So that is kind of where we are worried—where we look. Anytime I focus on areas of concern, it is where there is leverage, and we frankly have very little. If you look at our leverage book, it is about $2 billion, and it has been $2 billion for as long as I can remember. So I am not too worried about that. So that is kind of the around-the-horn on our portfolios. Analyst: Perfect. Appreciate all the color. Thank you for taking my questions. Chris Gorman: Happy to do so. Operator: Thank you, Christopher. With no additional questions waiting in queue, I would now like to pass the conference over to our CEO, Chris Gorman, for any closing remarks. Chris Gorman: Well, thank you, Megan, and thank you all for joining our call today. We appreciate your continued interest in KeyCorp. If you have additional questions, please do not hesitate to reach out directly to Brian or others on the Investor Relations team. Thank you, and have a great day. Operator: This concludes today’s call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rubin Ritter, Interim CEO. Please go ahead. Rubin Ritter: Welcome, everyone, also from my side. Thank you for joining. My name is Rubin. I'm Interim CEO at Kinnevik since about 4 weeks. This is my first earnings call. And so far, I'm enjoying the work with the team. It has been very busy weeks. So there is a lot to talk about. And I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks, and then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Kinnevik? And in my mind, there is kind of a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Kinnevik obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Kinnevik, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership. So I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus on simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that, and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth seeking debate in the team. So this is really the type of values that I want to strengthen within Kinnevik during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily 3 effects: The first one being a derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the Climate Tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently, and personally, I probably disagree with some of that, and I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed, and we are reflecting that really to the full extent in our NAV. Now as a first consequence of the ongoing portfolio review, which is not concluded, but has started, we have taken the first decision, which is to discontinue the sector of Climate Tech. I personally actually believe that Climate Tech has a great purpose. And so I don't really kind of like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed, we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. We have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings. But I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Kinnevik, so we will not report on that dimension going forward. Just to be clear, of course, all 5 of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders and not because they are core or strategic in nature. Now we have also worked intensely in the team to review our organization and our ways of working. And we have and the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Kinnevik. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views more towards a feeling of being one team where just people have different roles and different accountabilities, but ultimately, are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship. Because when we look at how we invest, we invest really from our own balance sheet, which means literally every krona that we spent unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think in this context, we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signals a significant savings potential that we want to realize by the end of this year. And we aim for a target level of management cash cost of around SEK 200 million per year, starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now also in the spirit of making every krona account, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should. And I think this is also exciting because the value of many of these companies lies in the future. So we should be investing. And I also believe that our role as investors is to support these companies on the journey. And sometimes also, that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company but also at the execution track record, the financial performance, the competitive moats and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder. But I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than SEK 1.5 billion in follow-up rounds in the existing portfolio. And we should not think of this as a budget, but more think of this as a cap. So some of the things that I outlined here will help us to preserve cash. And I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we're doing exactly that. And my expectation is that this would leave Kinnevik with around SEK 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provide authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on. So there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a long-standing history of doing just that. But we are also on a journey where many things will change, and we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now there are just 2 areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic. We have started with the 2025 reported management cost, which was SEK 341 million. We have then deducted all noncash items, which are primarily depreciation, amortization and LTIP and then have arrived at the management cash cost for 2025 of SEK 313 million, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king. So that's what we should be talking about. We have then made our considerations around the target of how we think the team should be set up for the coming years and the review of nonpersonnel costs. And on that basis, we have defined SEK 200 million as our new target annual management cash cost. Now you should think of this number as kind of a steady-state cost number. So it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance but also significant deal-related or other one-off costs. So to get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. So you should think of this chart not as an exact plan, but more as a way to think about it and an indication. So per the end of this quarter, of the Q1, so the last quarter, we have SEK 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what we have to spend going forward. It's, first of all, the cost for our own team, which I just talked about. If we take a reserve for that for the coming 5 years, 5 x 200, gets us to SEK 1 billion. And then I've talked about the follow-on where we want to stay below SEK 1.5 billion for the current portfolio, which brings us then to SEK 5 billion in cash that will be available to the next CEO, and my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections. Samuel Sjöström: Thanks, Rubin, and good morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which, Rubin will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Enveda continue to deliver on important milestones. Their discovery platforms, lead drug candidate, completed very successful Phase Ib studies demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results, which the company will now try to confirm in Phase II studies. So operationally, our larger companies outside of Climate Tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in 3 areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at Perk and Mews. Now we're yet to see that come through in actual reported performance, and our forecast do not incorporate this potential impact, but I should say that Perk shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there is continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now that's something we, probably you and Cityblock clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. Thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values and thereby, ultimately, share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer-term outlook for our companies. But moving to Page 7, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software like health care technology services. It is evident that capital is rotating into other sectors with public software being the weakest performer year-to-date with index declines of around 20% to 25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. Two in particular stand out and they also resonate with our own hypothesis. And that's, firstly, that fast-growing companies continue to command significant valuation premiums in public markets. And secondly, looking at share prices over a longer time period than just Q1, more vertical software companies that provide specialized services have outperformed less critical horizontal application companies. And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, the subcategorization may grow in importance going forward. Having said all of that, again, in Q1, the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarter's changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red label dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Mews and Oviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Pleo, we've been a bit harsher considering the lower growth profile of these companies relative to other industries. Our valuation model suggests that this is fairly proportionate to what we're seeing in public markets, where slower growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Cityblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers to try and reflect this underlying market narrative. Moving to Page 8 to put this multiple headwind in absolute terms, it brought an SEK 8.3 billion negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter and in Q1 at SEK 27.9 billion or SEK 101 per share. Going by sector. Health & Bio was down 20% and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our Climate Tech companies, meanwhile, were down a meaningful 56% in aggregate, and this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to EUR 10 million. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming 5 to 6 years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Rubin mentioned, we've narrowed our sector focus. That entails us not making any new investments in Climate Tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in Climate Tech and the valuation reassessments that we're making this quarter. And on our website, you will also find the spreadsheet providing a historical pro forma NAV overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widened and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful, nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to Page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our EUR 20 million participation in Mews' funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to SEK 116 million after the sale of a real estate property as part of the rightsizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter ending at SEK 7.5 billion. So our financial strength and flexibility remains strong, and is reinforced by the cost savings and the SEK 1.5 billion follow-on expectation for the existing portfolio that Rubin went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Rubin gives his closing remarks. Operator: [Operator Instructions] Now we're going to take our first question. And it comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: So starting if you could help us break down these SEK 1.5 billion you're talking about. Is this primarily through continued participation in primaries in the larger companies? Is it tilted more towards the emerging companies? I guess, especially, as you mentioned, it excludes some of the opportunities for follow-ons? Rubin Ritter: Yes, sure, happy to give some more color on that. So I think the SEK 1.5 billion is derived by going through the portfolio and looking at where do we see follow-on demand coming up in the coming years, and then just taking the sum of that. Of course, those things are difficult to foresee. So it might be more tilted towards younger companies. It might be tilted to companies that already have larger scale. But overall, the idea is that this is the amount that we expect we -- the limit to what we might need to bring the portfolio to profitability in follow-on rounds. I think separate from that, I just think it's important to underline that to me, if there is one company in the portfolio that reaches scale and profitable growth and starts to go into the phase where you would talk of them as a compounder that continues to execute, but on the basis of a much more mature profile or as being listed. And then if Kinnevik were to decide to double down on that asset and take a larger ownership stake, to me, that would be a different logic. And that would fall into the SEK 5 billion discretionary investment that we might choose to make going forward. So this is, I think, a bit how our thinking of the SEK 1.5 billion differs from the SEK 5 billion that the firm has available long term. Linus Sigurdson: Okay. That's clear. And then if you could talk a bit about how you've set up processes to make potential exits? I mean should we think about this as a portfolio wide effort? Are you targeting certain types of companies? And if this is what you mean when you say the portfolio review is not concluded. Rubin Ritter: No. I'm sorry. By saying that the portfolio review is not concluded, I'm just sort of indicating that in the 4 weeks that I have been here, I have not been able to dive deep into every one of those assets, right? So we have started with that, and you see that already some decisions have come out of that process. But I think for practical purpose, we are still in the middle of it. I mean, Kinnevik has more than 30 portfolio companies. And I think it takes time to go through that, and it will take us more time going forward. In terms of exits, so I think for Kinnevik in the midterm, it would be wise to move towards a more concentrated portfolio. At the same time, I think it's very difficult to time these things. And I also think it's not in the best interest of our shareholders to rush into exits. So there I think we just have to be balanced in how we approach it. Linus Sigurdson: Okay. I appreciate that. And then my final question, I mean, I can understand this waiting to pursue buybacks ahead of a permanent CEO being in place and your comments around optionality and the SEK 5 billion. But what types of actions do you envision a permanent CEO could take? Rubin Ritter: I'm not sure I fully understand the question, but I think a new CEO could take all sorts of actions, primarily also defining what will be new focus areas for investments going forward and how do we want to complement the existing portfolio that we do have that, as we know, consists primarily of younger companies, fast-growing companies, how do we want to complement that with investments potentially in other sectors or with a different maturity profile. Those will be decisions to be taken by a new CEO, also in line with the new strategy going forward. Operator: The question comes line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I appreciate the clarity. I wanted to follow up on the potential exits here going forward. I mean, how do you view the possibilities for that? And how high on the agenda is it right now as it could sort of change your outlook for what you provided for the balance sheet going forward? I mean looking at some of this, especially the prior core assets, it seems quite clear that they are quite attractive in sort of the private market space. So how do you think around that? Rubin Ritter: Yes, as indicated, I think directionally, over the next years, I would like to see a more concentrated portfolio. So I think that is something that we definitely will look at and consider. But then at the same time, we live in a very volatile world. I think it's very difficult to give more color or like a specific forecast on how exactly that will play out. So I think we just will be investing a lot of time to go through the portfolio to review the different options that we have. And I can promise to you, we'll be very active in thinking about where to take the portfolio and what actions would be in the best interest of our shareholders. I just find it very hard to make specific forecasts on that topic. So I would not want to promise something that is then hard to influence because it also depends on many other factors. And I think it would be wise for us -- like if I think of this as my portfolio, I think I would try to really carefully strike that balance to become more concentrated going forward, but then also to try to find the right time and the right moment and the right price if I wanted to make any exits. Derek Laliberte: Great. That's very understandable. And on the write-downs here, I mean, apart from the peer declines outside of Climate Tech, what do you mean about what has changed in your underlying view of the assets outside there because we see Perk being down 43% and Pleo down by 40%, which does some pretty extremely in the light of how peers have moved and also the latest transaction values in the market. Samuel Sjöström: Derek, it's Samuel. I'll try to answer that one. So naturally, our views and our companies are evolving continuously. But as we stated in today's report and in the prepared remarks, there hasn't been any meaningful changes to the outlooks for our larger companies in this quarter. So what we're trying to do here and what our process is trying to sort of apply onto our private portfolio is this very substantial drawdown in public markets. And there, we believe, and the models tell us that it should be affecting our investees in varying degrees. So as you rightfully state, Oviva and Mews have recently raised funding rounds. That typically leads to slightly milder but still meaningful write-downs because as I mentioned, the expiry date on transaction valuations in this type of volatile market is very, very short. And then we have companies that are growing slower, such as Cedar and Pleo. And the data tells us that those should be impacted slightly harder than a company growing a bit faster all else equal. And you mentioned Perk. Clearly, there, we have a comparable in Navan. That company is trading at around the same levels it was doing at the turn of the year. So our process makes us feel obliged to move closer to where Navan is trading, even though our view on Perk's long-term value creation potential has not changed one bit. So I'd say the write-downs you're seeing and the variations in write-downs you're seeing in this quarter is less driven by a change in view on our individual companies or their performance. It's about how to apply this very significant derating in public markets across a set of investees that share some characteristics and have some differences in between them. Derek Laliberte: Appreciate the clarity. And then looking at the 10 largest assets you list here, can you say something about which of these you are the most sort of comfortable with in light of the potential of AI disruption here? And where do you see the biggest risks in the portfolio? Samuel Sjöström: So naturally, as you can imagine, we and our companies are spending a lot of time assessing how our company's best can adapt to a changing environment, not something that clearly we're used to. I don't want to reduce the write-up that we've put up on our website to a 30-second answer. But to give you some examples, like we see very strong moats and aspects like Mews' ownership of quite complex workflows at hotels. We see moats and Enveda's ownership of proprietary data, and we see defensibility at Oviva in terms of the trust from customers and regulators that they've built up over several years of real-world operations. But I'd refer you to that write-up on our website. And I think in terms of how the risk of AI disruption is reflected in our valuations this quarter is mainly through this relatively indiscriminate derating that we're seeing in public peers. And we're not sort of trying to be smart when applying that in terms of thinking about the longer-term view on AI that we have in the piece on our website, but the valuation process is much more quantitatively driven. Derek Laliberte: Got it. Okay. And then just on this organizational simplification you're carrying out. I mean, looking forward, what will be sort of Kinnevik's action as an investor going forward as you see it? Rubin Ritter: Well, I think Kinnevik's focus really over the last years has been to invest into fast-growing challenger type companies that take on big problems and try to solve them differently through technology. And I think that is really the type of business that we have been focused on in the past. And of course, we'll also continue to work in that field and continue to evolve our view and continue to try to find great opportunities. But then I think in terms of how to build capabilities there, it's also, to a large extent, driven by what future strategies and future focus a permanent CEO looks at. And I think that can only be answered once that person is on board. When we think or when I think about the target org, we try to provide that flexibility in the way that we structure the work in our investment team, to do it in a way that we can continue to cover those sectors that we are focused on right now in a really good way. And in my mind, that's not always a function of the number of people. It's also a function of many other things. And then how to have the flexibility to add new ideas and investment themes that will define the future of Kinnevik once it is clear what those are. Derek Laliberte: Perfect. And finally, I mean, given that you're striving for more efficient operations, does having sort of 2 offices and teams align with that vision? Rubin Ritter: So in my mind, I think that going forward, Stockholm should be culturally, and also from where the team comes together, much more the center of gravity. We'll continue to have colleagues that live in different places across Europe and London will be one of them and will provide good opportunities for them to work there and meet companies. But I don't think we should think of that as a second half, not only in terms of the cost that presents, but also and maybe more importantly, in terms of what that presents in terms of having different cultures. I mean, Kinnevik is before the change and after the change, ultimately a small team. And I think there is a big benefit to have 1 physical place where the cultural center of gravity is. And I think, for Kinnevik, that should be in Stockholm. Operator: The question comes from the line of Bjorn Olsson SEB. Bjorn Olsson: Two questions on the organizational changes. First, could you give any more flavor in terms of where you expect to find the cost efficiencies? Is it from the investment teams, back office or just sort of across? And second, I mean, culture is something that's in the walls. So when you now strive to increase the performance culture in your company, do you have any sort of tangible actions planned in terms of either changed incentive schemes or any sort of change of key staff or similar? Rubin Ritter: Thank you for the question. So I think in terms of where we see savings potential, I think it's really -- we look at it across the board, and across all those different topics that you have mentioned. It comes down to a leaner target organization, but also then on nonemployee-related costs, there are opportunities that we see, such as office cost, IT cost and many others. So it gets very granular very quickly. But I think we just really also owe it to everybody that we do that tedious work. And essentially, we're looking at every single contract, and we are reviewing if we need it. And what is the value it creates, and is there a simpler and more efficient and better and also a cheaper way to do it. So that's clearly a focus. I think in terms of performance culture and achievement culture, you are 100% right that this is not something that can be impacted just within a few weeks. I think that is -- obviously, those processes take more time. And I think a lot of that will also be then hopefully brought forward by a new CEO. But to me, it is really a lot about leading by example, how do you take decision? What quality of argument do you accept? What do you not accept? So I think it's in the -- in many of the details of our daily collaboration that I think culture comes through. And just to be clear, that's also not just about me changing that, that's also about kind of the team bringing out the good things that we see and encouraging the team also to lead itself and each other in that regard. So I think that is something I'm quite passionate about and where I think we can make a lot of progress. You mentioned incentives. I mean incentives, of course, also play an important role. But to be fully frank, I haven't looked at that in the first 4 weeks, but I agree it's an important theme, and it will be important for the long-term success of the company that we get incentives right. That is, by the way, saying that they are not right, but they need to be right, and I haven't reviewed them yet. Bjorn Olsson: Good point. So then just a minor follow-up. So in terms of redundancy costs, when you're sort of rightsizing, that should probably be lower than if the FTE reduction is a smaller part of the SEK 100 million in cost savings? Rubin Ritter: I think personnel is a part, just like many other pieces, and there will be also redundancy costs related to personnel but also related maybe to other contracts that we might want to get out of. And the idea would be to incur the majority of that still this year. Operator: Now we're going to take our next question. And the question comes from the line of Oskar Lindstrom, Danske Bank. My apologies, there are no questions from Oskar. Now we'll proceed for the next question. And the question comes line of Johan Sjoberg from Nordea. Johan Sjoberg: I had a couple of questions actually. Starting off, Rubin, I mean, looking at your -- I understand you're 4 weeks into your temporary job and you have a lot on your plate right now. But on the other hand, I mean, you have tons of experience, you have aboard with a similar amount of experience. You have Samuel also, who is well on track, how things have been progressing with the 30 portfolio companies. So my question for you is how long time do you think it would take you to sort of get your head around all the companies, which was to sort of focus upon who will be sort of your concentrated portfolio over the coming -- in the foreseeable future? Rubin Ritter: Yes, sure. I mean I personally would think of it as a kind of ongoing process and ongoing discussions and considerations that we have in the team. And I think we also have many ideas in that regard already. And as you mentioned also, we're not doing everything from scratch. There is existing views and existing knowledge, obviously, in the team, right? So sometimes it's also just about following up on that and servicing those pieces. So I think we're incredibly focused on it. But I don't think it would be wise to now put ourselves in the corner by sharing specifically what our thoughts are on individual companies. I think that's not advisable. But as in any good investment company, I think those discussions should be ongoing as ordinary course of business also to just always be up-to-date on your portfolio on the different type of companies, and what our position on them should be going forward? Johan Sjoberg: I understand. So you have to sort of push a little bit here on the 30 portfolio companies. So when you talk about a more concentrated portfolio, what sort of range are we talking about here? Are we talking about below 20 or are we sort of -- once again, I understand it's early, and you don't want to sort of promise anything, but just for us to get some sort of feeling here. Rubin Ritter: Yes, right. I mean, to be frank, I think a lot of that also comes down to strategic decisions by a new CEO, but then I also don't want to shy away from an answer. In my view, it's not necessarily about a magic number. So I don't think there is kind of the perfect portfolio that is 10 or 15 or 25. But it's really about, in each of the companies to have a position that allows us to be a meaningful owner and to only have such a number of positions that you can cover with a kind of small, lean, but very experienced and high seniority team, that you have only positions where you can have a meaningful value add to those companies where you truly can be a great owner of that business and provide the right level of leadership to those companies. So those would be some of the considerations I would be focused on. And I don't have the number for you. I don't think of it in those terms, but I do think that the current number is too large. I think that is also given -- I mean we all know there is a large bucket of what we call other companies that has to do with previous strategies. And I think a lot of these things just have maybe a bit accumulated over time. And there we need to think through how to take that into a good direction going forward. Johan Sjoberg: Perfect. And we also talked a lot about the new CEO. Could you just give an update on how that process is ongoing here? It's been since November that the first decision was out. And you had a lot of time. I understand a lot of -- it's been a full headwind in Q1 in terms of how the market is viewing this sort of company, but also what is done right now. Rubin Ritter: Sure. I mean that search process is led by the Board and then more specifically, a subcommittee of the Board. And I'm sure they will give an update as soon as they have an update. But there's not really a whole lot more I can say on the issue. I'm on the subject. I'm right now incredibly focused on the inner workings of Kinnevik and all the work that we outlined in the presentation. Johan Sjoberg: Okay. Final question, Samuel, maybe you can help with this one. I mean just looking at the NAV or the write-down of NAV in the quarter, I think it's great that you have taken down the NAV because obviously, the market has not believed in sort of the underlying figures here. And sure, we've seen multiple contractions during the first quarter. But then on top of that, also you had some -- you also changed your view of growth for some of the few companies. And I guess, first of all, this is not a number, which I guess, Rubin, you feel much more comfortable with also, although just 4 weeks into the job. But just to get a feeling for, I mean, Samuel, maybe just looking at sort of the multiple impact on the write-down, how much would that be? And sort of what is the impact from your sort of changed view on the NAV also? Samuel Sjöström: Thanks, Johan. So I mean the easiest way to answer your question is to refer back to the page where we show that multiple contraction had a negative impact on NAV in excess of SEK 8 billion. And again, in terms of how we've applied the multiple compression we're seeing in public markets onto our portfolio, that is sort of flowing through our process, which is unchanged and is sort of intrinsically rigged, to be conservative, to be objective and to be as numbers driven as possible. And clearly, valuation levels in our portfolio has come down over the last quarters and last years. And I think that's 2 reasons mainly. Our portfolio has matured and that public comps have derated significantly. So in this quarter, specifically, we're taking that significant hit from the public peers. We've learned a lot over the last couple of years, and those learnings are clearly sort of ingested into our quantitative models. And then as always, there are individual considerations, but then again, those individual considerations are mainly of a technical and quantitative character in our different regression analysis and so on. So again, in terms of outlooks on our companies, looking at the larger investees as a group, those are largely unchanged. And in Q1, the larger companies have delivered on expectations. But yes, there is a lot to decipher in the public market moves in Q1. Johan Sjoberg: I'm just referring to sort of looking at the software down 38%. I mean just looking at sort of the presentation which you gave ahead of -- these are clearly below. And once again, I don't have a problem with it at all, but it seems like you have written it down more than sort of what the multiple seems to report, multiple contractions, that's sort of my -- maybe I'm wrong here. Rubin Ritter: To summarize, I think we are confident with the variations that we have put out in Q1. I think that's the bottom line of it. Operator: Now we're going to take our next question. And the question comes line of Oskar Lindstrom from Danske Bank. Oskar Lindström: I hope you can hear me this time. I have 2 sets of questions. The first one is on this ongoing portfolio review. And could you see adding back a cash flow-generating asset as opposed to more of the growth-oriented assets that you have today as part of the portfolio, again, to sort of have that balance between cash flow-generating assets and growth assets? That's my first question. Rubin Ritter: I think it's a very relevant question. And I think it also falls into that category of future strategy where, again, I just want to be careful with my own view, given that I'm also only here temporarily. But I think there is -- my personal view is, there is merit to what you are saying. And I think there needs to be the effort to make the portfolio more balanced. And my understanding is also, I don't oversee kind of the full 90-year history of Kinnevik, but my understanding is that also even though the company has a history of backing challengers and taking technology investments at early stages and kind of betting on the future in a way, in my understanding, that was at many times also balanced with more mature, more cash-generating assets in the portfolio, maybe also some of them being listed. And to me, that seems like an advisable idea because right now, of course, and that also became apparent when we went through the valuation exercise, one challenge that we clearly have, and I think it's also something that the team here internally really tries to live up to very hard, is that we have a portfolio of private fast-growing assets that are just really not easy to value. I think we can all agree on that. And then every quarter, of course, we have the expectation of public shareholders that want clarity and transparency, also for very understandable reasons. And every quarter, again, we have to kind of bridge that gap, and that's not an easy task to do, and that's also not easy on the team here internally. And I have also experienced that now firsthand when going through the valuations. So I think also in that regard, it might be a path to just make our lives a bit easier and also to generate a more balanced outcome for shareholders. So I think there's merits to that idea. But then again, I think it's also subject to the general strategic discussion going forward. Oskar Lindström: My second question is on the roughly SEK 1.5 billion of follow-up investments that you've talked about. How soon could that SEK 1.5 billion needs to be spent and you estimated? Is it like front loaded or sort of evenly over the years or how soon? Rubin Ritter: I really understand the question. And I think I would also love to know, I think that's the honest answer. I mean we have some view and some visibility on what demand might be coming in the coming months, but then it's also really difficult to forecast. And just maybe also to reiterate, I think it's really important to think of this not as a budget that we intend to spend, but it's more kind of an estimate or like a cap that we want to limit ourselves to because I also think in my perception in the market, there has been the perception that maybe the majority of the cash that we have might need to be deployed into the current portfolio. And I think our message is just that we really don't think that, that is the case necessarily. So that is the context why we have talked about this number, the SEK 1.5 billion. But then really, it will be a bottom-up exercise. I think every follow-on opportunity has to be assessed in its own right. I tried to speak to what are some of the characteristics and some of the analysis and some of the considerations we will make when we evaluate whether or not to participate in those rounds. And I think that is really what will be happening. So it's very much bottom-up. I wouldn't want to forecast it too detailed on a time line. And I think of the SEK 1.5 billion as an estimate and the maximum number. Oskar Lindström: Just a follow-up there. The SEK 1.5 billion, is that within the next 5 years? Just to clarify that once more. Rubin Ritter: Yes, I mean that's probably like a reasonable assumption. We talk about the existing portfolio, right? So like theoretically, it's a number into kind of eternity because we have the existing portfolio. It continues to drive towards profitability. And at some point, more and more of these companies just will not need further follow-on investments, right? So then they fall into a different category where we can, of course, always think about if we want to accrue to a larger stake because we think it's a company really want to be holding long term with a larger allocation, but that's been a different consideration, right? So as the portfolio grows towards profitability, that number will be deployed, and it's difficult to put a number on it, but probably 5 years is a valid assumption. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: I just have two from my end as well. Rubin, thank you for your thoughts. And I was just curious, there must be some sort of conversations that come your way that says, look, with valuations crashing the way they've had, aren't there any opportunities in the market also to sort of deploy capital in some very interesting assets that are now probably attractively valued, maybe in sectors that are topical like AI? How do you sort of deal with those kind of topics that come your way, given Kinnevik at the end of the day is an investment holding company? Some color there would be great. And second, I guess, we're halfway into April, have you all seen the valuations of the peers that you're using as comps stabilize so far in Q2? Or has it also been volatile with the geopolitical sort of news that's out there? Some color there on what's going on with the comp base would be great quarter-to-date. Rubin Ritter: Great. Thank you. Maybe I can comment on the first question, and then Samuel can take the second question. So I think you have a great observation that obviously volatility always also creates opportunities. And it is exactly in that context that I also see Kinnevik's SEK 5 billion of cash available to investments as a great asset to be able to potentially act on opportunities. And I also expect the Board will continue to be volatile going forward. So I think in that context, that balance sheet just becomes a very strong asset in the way that I look at it. In terms of AI, I mean, Kinnevik already today has exposure also not only to software companies that are taking this new technology onboard very decisively, but also to some AI native companies. And here, maybe I can also point you to the piece that Samuel already has referred to on our website on building business -- our thoughts on building businesses in the age of AI. Samuel Sjöström: Yes, Nizla on what we're seeing in peers, April to date, I'd say that volatility remains very high. If you look at cloud ETFs, they were up 5% yesterday and a week ago, they were 10% lower than they are today. So it seems to continue to sort of bounce around, both in terms of share prices, but I'd say sort of the volatility and the underlying drivers seems high as well with new AI product releases every week and clearly, what's going on in the Middle East and the posturing from the U.S. administration. So volatility is persisting in April. In terms of absolute levels, they are roughly around where we ended Q1. But again, very volatile still out there. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to Rubin Ritter for any closing remarks. Rubin Ritter: Great. Thank you all for your participation, for your time, for your questions and the good discussion. Maybe just to reiterate, as we have also pointed out in the Q&A, Q1 has been a tough quarter in many ways to our shareholders, to the team, to the company overall. A lot of things have been happening. And I also think that during Q2, we will just be very busy as the world continues to be volatile, and as we start to take some of the steps that we have been discussing. We have been talking about the cultural shift that we want to work on, how we want to work on preserving cash, for optionality for the future and how we want to move towards a gradual portfolio concentration by balancing that with the time that it might need. And I think many of those changes will also take time and hard work. But at the same time, when I try to see through this, I also see many positive things. I'm just really convinced that the changes that we have talked about will make the company stronger. And I really think that the cash position that the company has will create options going forward. And as we just discussed, I think that's particularly valuable in a world that is as volatile as ours. I do think we have great companies with great potential in the portfolio. And even though we have talked about the NAV impact on this quarter, I think we just should not forget that these companies are there and that they continue to execute. And I see a quite good path and a good chance that their value will also become much more tangible going forward. So I think this provides the basis for the company being significantly stronger in the future than it may seem today, and that is what we as a team are really focused on. So thank you again for your time, and have a good day.
Jack Perkins: Good morning. Welcome, everyone, to today's fireside chat with Pineapple Financial, hosted by KCSA IR. I'm joined today by Shubha-Jeet Dasgupta, Chief Executive Officer of Pineapple Financial, along with Anthony Georgiades, General Partner at Innovating Capital and a member of Pineapple's Board of Directors. We appreciate today's attendees taking the time to join us as we walk through Pineapple's Q2 2026 results. Before we begin, I'd like to remind everyone that statements made during today's discussion may be considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable securities laws. Actual results may differ materially due to risks and uncertainties described in Pineapple Financial's filings with the SEC. The company undertakes no obligation to update forward-looking statements, except as required by law. In a moment, Shubha and Anthony will provide an overview of the business and recap of Pineapple's Q2 results and strategic priorities. Following our discussion, we will turn to the audience for live questions regarding Pineapple, its core mortgage platform and its partnership with the Injective Foundation. [Operator Instructions] If we're unable to address your question during today's session, you can also follow up after today's discussion by contacting us through Pineapple Investor Relations e-mail at pineapple@kcsa.com. Please note that today's call is being recorded on Thursday, April 16, at 11:00 a.m. Eastern Time, and a replay link will be made available following the conclusion of the presentation. With that, I'd like to pass the line to Shubha to get us started today before we get into some Q&A. Over to you, Shubha. Shubha-Jeet Dasgupta: Thank you so much, Jack. And on behalf of our Board of Directors, our management, Anthony and myself, I'd like to thank all of you for joining us here today, for your interest in Pineapple and for your support over the years. With our Q2 earnings now complete, this is a great moment for us to step back and talk about where Pineapple is today and also talk more about where we're headed. Focus today is really on execution, discipline and what comes next for the business. We've gone through a meaningful transformation from a traditional mortgage brokerage into an integrated fintech platform over the last few quarters, and I want to frame it for everybody here. Let's start off with where Pineapple is today. We spent the last decade building an incredible national mortgage broker platform here in Canada. We're supporting hundreds of mortgage brokers from coast to coast and funding almost $2 billion a year in annual mortgage originations. Our Q2 2026 mortgage volume was posted at $367.2 million with 6-month aggregated volume being $829.3 million, implying that our annual run rate is near $1.6 billion to $1.7 billion for the year. For context, the 6-month mortgage volume edged up to about $829.3 million from $811.5 million in the prior year. This might seem like a modest increase, but it's very worth noting that the broader Canadian mortgage origination market is still operating below its 2022 levels. We're still seeing significant effects of the rise in interest rates and inflation that have caused consumer sentiment to be dampened and continuously impact affordability and the ability for new Canadians to enter the housing market with limited constraint -- sorry, with constraints and limited housing supply. So the fact that we're continuing to see stable to improving activity across our network, even in this environment speaks to the resilience of our platform as well as the reoccurring nature of Canada's renewal-driven mortgage cycle. This is not a concept business. This is an operating with real scale, real revenue and a country footprint in one of the most resilient markets in the world. What's changed is where we are in that journey. We've moved out of the build phase and into a phase that is really about execution and performance as an integrated platform. Let me talk to you a little bit about our recent operational reset. Over the last couple of quarters, we've made a very deliberate decision to resetting the operating model. That was really about tightening discipline across the business with a key focus around reducing our fixed cost base, improving capital efficiency and aligning the organization around execution while continuing to modernize and optimize our platform for the future of digital finance. This work included a workforce realignment, moving to a cleaner technology-enabled model rationalizing software and third-party spend, ensuring that we were streamlining and allocating our funds to the right places and integrating AI across a number of workflows, including automating agent onboarding, data and customer engagement as well as a multitude of others. Initiating tokenization of mortgage dining was also a big part of the last couple of quarters, and we'll be diving into that in more detail throughout this presentation. The results speak for themselves. We've implemented over $1.5 million of annualized cost savings to date. Total expected reductions will exceed $2.5 million by June 30 later this year. We've reduced our monthly cash burn by over 50%, and this is a structured reset of our expense base and not just a temporary. But I want to be clear, this is not about demand softness. This is about platform modernization and building a more efficient, more scalable platform for the years and decades ahead. Our goal is simple. We're building a business that's scalable with materially better unit economics and a more durable multifaceted earnings profile. Let me talk to you a little bit about how we think about our business. We now think about [ Pineapple ] as one integrated operating system built around 3 core pillars. The first is the mortgage platform. This remains to be our core foundation and fundamental. It drives origination, relationships and cash flow, a real operating business with a concrete footprint in the Canadian mortgage market and growing. Canada's mortgage market is structurally resilient. Let me talk to you a little bit about how it differs from that of the U.S. market. The U.S. market may see more longer-term 30-year mortgages. We have more short-term mortgages typically between 1 to 5 years. And this short-term renewal cycle creates a reoccurring pipeline of refinance and renewal activity that continues to drive business independent of new home purchases. Q2 revenue was $0.7 million and supported by stable subscription revenue and diversified income streams. And the second component is data and tokenization. We've been collecting mortgage data for years across our expansive network. Now it's about structuring, standardizing and ultimately monetizing it. This is the path toward lender-facing reoccurring revenue products and a higher margin revenue mix. And our third digital asset treasury. This is about capital efficiency and yield generation within a structured government framework. As of February 2028, the debt was valued at approximately $22.4 million, comprised primarily of approximately $7.21 million on INJ tokens, injective tokens. During this period, we generated $221,718 in staking revenue. This is a new incremental reoccurring income stream, and that's just. We've assembled the best-in-class institutional infrastructure, the injector foundation, Kraken FalconX, Monarq and Canary Capital, covering custody, execution, advisory and yield optimization. And we've also selectively deployed capital through lending arrangements and structured derivative strategies to generate incremental yield while maintaining strict risk controls. The key point here is that these are not 3 separate businesses. These are designed to reinforce one another in the value compounds through integration. How do our Q2 results fit into that? Well, when we look at the second quarter, it was really about execution against them all. We completed the operational reset. We strengthened the cost structure and reduced cash burn. We generated over $220,000 in staking income, a new tangible revenue stream. We authorized a $3 million share repurchase program expected to commence in the coming days to reinforce our commitment to disciplined capital allocation and long-term shareholder value. And our balance sheet is the strongest position it's ever been with $17.9 million in cash, $3.1 million in positive working capital and a treasury value of approximately $22.4 million. So this was not a quarter of new ideas. It was a quarter of putting our foundation in place and delivering tangible results. Now we'd like to pass the line to Anthony, who's going to put the Q2 financials into greater context. Anthony? Anthony Georgiades: Yes, absolutely. Thanks, Shubha. So I just wanted to take a quick moment to really reframe the quarter a bit because I think it's critical that investors understand the underlying performance relative to some of the reported numbers directly. And also just really understand the magnitude of what's actually changed inside the business over the last 6 and 12 months. So if you look at the headline number, there's obviously a reported net loss of roughly $19 million or so. But that really reflects 3 noncore and largely noncash items. You have a $17 million unrealized noncash mark-to-market adjustment on digital assets. Obviously, the digital asset landscape has been largely volatile over the last several months related to both monetary policy as well as a number of different global and macro concerns. Simultaneously, this quarter reflected the consummation of the PIPE transaction that officially went through in January. So there's $2.8 million of onetime financing costs associated with that PIPE that hit the quarter. There's also around $2 million or so of fair value changes in different instruments such as warrant liabilities as well as incremental interest expense tied to the treasury strategy, that interest being largely PIK and noncash pay. So if you normalize for that, what you see is really a business that has undergone a material financial and operational inflection. So to quantify that for a moment, we generated positive adjusted operating income of approximately $125,000, which while on the face might seem de minimis, if you compare that to the previous year, we're on the same metric, the business generated a negative loss of around $2 million and around minus $500,000 for the same period. That's a roughly 150% plus improvement in operating performance and a swing from both cash flow negative generation to cash flow positivity. Adjusted EBITDA as well came in at roughly $0.5 million versus a loss of roughly $600,000 last year, a $1 million improvement on a 3-month basis year-over-year or roughly 165% swing on a relative basis. What's important to really understand here is that, that improvement was achieved while maintaining a relatively stable revenue base in a still constrained mortgage environment. So this tells you this is not really a cyclical improvement. This is structural and has to do with a lot of what Shubha had alluded to. And this is really kind of where the narrative and work since. Over the last 2 quarters, we executed a full operating model reset. As Shubha mentioned, we reduced fixed costs materially. We rationalized vendor and software spend, and we reoriented the work force towards a more technology-enabled model. Simultaneously, we've begun embedding AI across a number of different core workflows. To date, we've implemented over $1.5 million in annualized cost savings with line of sight to around $2.5 million later this calendar quarter. which will take us to breakeven on a cash flow and operating basis going forward. That equates to, as Shubha mentioned, a 50% plus reduction in monthly cash burn. And so I want to be clear on one thing as well. This was a very deliberate rearchitecture of the cost base to really support a more scalable, capital-efficient platform. And these quarterly earnings are really the first time we're actually starting to see this trickle through the numbers here. What that means going forward is higher incremental margins, stronger operating leverage and really a business that can compound earnings without scaling costs linearly. Now stepping back to look at the balance sheet because this is where a lot of the transformation begins and becomes far more evident itself. The business has obviously 50x plus its overall cash balance, largely by way of the PIPE transaction that took place several months ago. We're also sitting at a positive working capital of roughly $3.5 million versus a deficit in the prior period. The slide here references a $22.4 million digital asset treasury. I do want to just clarify that that's roughly $22.4 million of INJ at the fair market value. There's also stable coins that are outstanding as well as a meaningful cash position. And so we actually look at the digital asset component on a fair market basis closer to around $45 million in liquid and liquid equipment assets. From a liquidity standpoint to that vein, we now have several years of operational runway, which gives us the ability to execute deliberately without really dependent on external capital or really shareholder dilutive capital sources. This is a fundamentally different company than really what it was 12 months ago. To spend another minute or so on the digital asset treasury because I think it's still somewhat maybe misunderstood or underappreciated. At a high level, we think about the debt as a structured capital allocation program, not necessarily passive balance sheet exposure. As I mentioned and as Shubha alluded to, we've generated several hundred thousand in staking income during the period, which has become a new recurring yield stream. We only forecast that to continue to grow as we continue to execute and deploy and state a variety of these different instruments. But that's really just the base layer. Where we've also really been focused is active yield generation within a disciplined framework. This includes structured derivative strategies, including writing puts to generate premium against our underlying INJ positions, accumulator style exposures, which allow us to systematically build position at favorable levels, meaningful discounts to open market transactional purchases. Also secured and unsecured lending strategies where we deploy assets to generate incremental yield and broader market neutral or partially hedged strategies to enhance returns while managing volatility. All of this is done within a government framework, defined liquidity thresholds, position limits, counterparty diversification and Board level oversight. And importantly, we've really built a first-class institutional grade stack around this, working with groups like FalconX on prime brokerage and lending, working with groups like Kraken on OTC transactions, working with groups like Monarq and Canary on structuring trades and structuring product. Each of these different counterparties handles very distinct functions across custody, execution, advisory and yield generation strategies overall. From a valuation standpoint, we've also introduced NNAV, which we think is an important lens for investors overall. At quarter end, NNAV was approximately 0.73x. In other words, what NNAV signifies is the fully diluted enterprise value of the business relative to the fair market value of its underlying crypto holdings and digital asset holdings itself. In other words, the market is valuing the company at a relative discount to the underlying asset base before fully attributing value to the operating platform itself or potential forward earnings power. And obviously, that dislocation is something we're very focused on, which leads us really directly to capital allocation. We've structured and authorized a $15 million share repurchase program. The Board has approved an initial $3 million tranche, which we're expecting to commence imminently in the coming days. We'll operate within Rule 10b-18 parameters. We'll have an initial ceiling in terms of price per share in the open market that we're going to be acquiring that in terms of $1.50. Obviously, that's subject to Board oversight. But at current levels, the Board and management see compelling risk-adjusted return in our own equity, and this gives us a disciplined mechanism to act on that. The last thing I want to touch on briefly is really where the business is going from here. We've alluded to this both in terms of what we've done on the cost reduction side, what we've done with respect to really rearchitecting the business. But the next phase of the platform is really focused around intelligence and automation. We've already begun embedding AI across onboarding, across underwriting workflows, across customer engagement. That's really just the tipping point and starting point. As we continue to structure and tokenize the underlying data layer, and integrate that across our platform, we believe there's a real opportunity to continue to build out and execute on software-driven, high-margin recurring revenue products that sit on top of really the existing mortgage infrastructure, think automated underwriting support, data-driven lender products, intelligent lead routing, conversion optimization and potentially eventually AI-native financial workflows. Directionally, we're very, very excited about where the platform is heading. We've already made tremendous progress in that respect, and we're excited to obviously continue to execute on the strategy from here. Jack Perkins: Thank you, Shubha. Thank you, Anthony. Appreciate your comments. We'd now like to take some time to review several questions that have come in. [Operator Instructions] First question, Pineapple, and this is for you, Anthony. Pineapple has spent the last several quarters repositioning the business from the build-out phase towards execution and operating discipline. Could you, at a high level, tell us how investors should think about what has changed inside the business and why this is an important moment for the company? Anthony Georgiades: Yes, definitely. So I guess to kind of rephrase what's kind of actually changed inside the business. The cleanest way to think about it is we've really transitioned from a general build phase into an execution phase, and that execution is far more focused on a -- it's really predicated and supported by a much larger balance sheet as well as a much more data-driven and software-driven and intelligence-driven initiative towards new revenue streams. Over the last 12, 18 months or so, we invested heavily in infrastructure, heavily in capital formation and significantly in a lot of the platform development. A lot of that work is largely behind us. You're starting to see that in the numbers already as a result of that transition. We've moved from an adjusted operating loss to a positive adjusted operating income and EBITDA as well moved from a meaningful deficit to positive. At the same time, and obviously, directly related, we've reduced monthly cash burn significantly. This isn't really a forward-looking story in that respect anymore in terms of forward growth. It's already showing up in the financials. The organization is now far more aligned around execution, efficiency and capital discipline. That's where our focus remains. And now we're doubling down on areas of growth across those different streams that will really take this business into the next phase of its evolution. Jack Perkins: Excellent. Thanks, Anthony. That was great. Another question for you. As you have described, this is a structural reset of the operating model. Can you walk us through what that reset involved and what it enables going forward in terms of margins, efficiency and scalability? Anthony Georgiades: Yes, absolutely. I think this one is important, too, because there are a lot of organizations and enterprises that go through the motions in terms of these sorts of rearchitectures and cost reduction exercises and whatnot. And to some extent, they're tile efforts or temporary in nature. We approach this reset as a permanent rearchitecture, not any sort of temporary cost reduction exercise. Management went through the business line by line, vendor stack, software, operational workflows, workforce and really aligned everything around a more efficient technology-enabled model. A key component of that, as we've discussed, was how can we really embed AI across core functions, whether that's onboarding, whether that's data processing, whether that's customer engagement. And how do we use that to leverage and to scale without adding incremental variable cost or incremental fixed costs to the platform. Obviously, as we've discussed, we've been able to both implement a more efficient and robust platform while simultaneously doing that with an estimated $2.5 million of savings on a net-net basis. But really, the more important point is what that enables, right? We have a much more structurally lower fixed cost base, which means, generally speaking, as revenue continues to grow, whether from the mortgage platform, whether from data initiatives, whether from treasury income, we anticipate and meaningfully expect higher incremental margins. That's the operating leverage we've been talking about. That's operating leverage we're focused on unlocking overall. Jack Perkins: Wonderful. Thank you, Anthony. That's an exciting time moving forward for the company. Taking a deeper look at the mortgage platform, and Shubha, I think this is a good question for you. What specific actions have been taken to improve agent productivity, retention and overall unit economics? And what early indicators are you seeing from these initiatives? Shubha, you're on mute. Shubha-Jeet Dasgupta: You guys hear me okay? Jack Perkins: Yes, we got you. Shubha-Jeet Dasgupta: Sorry. Yes. So I was saying, Jack, as an organization, we spend so much time with a focus around our agents and ensuring that we're optimizing their businesses and enhancing it to increase our revenue, increase our margins and increase our potential. We're constantly having meetings refine areas of improvement, how can we make this platform. And over these last couple of quarters, we've continued to invest into that area with workflow automation, continuous enhancements and significant CRM enhancements and optimization, lead generation tools through Pineapple our proprietary technology stack. All of these things plus are translating directly into our productivity. To give you some early indicators that are really encouraging that we've noticed here in the organization, subscription revenue has increased to $210,000 -- over $210,000 this quarter, which is up from about $185,000 in the prior year period. And what that tells us is that our agents are engaged and seeing value in the platform. Six-month mortgage volume continues to increase and move on the upward trajectory, as I referenced earlier, albeit modest right now, it's a really good indicator to show that the work that we are doing is very resilient even in difficult markets and in trying times. So we think that we're continuously making impacts, continuously making improvements and continuously focus on efforts to increase the productivity of our platform and the user. Jack Perkins: Excellent. Thank you, Shubha. And just kind of a follow-up on that. From a market perspective, Renewal and refinance activity appear to be driving a greater share of the mortgage volume today. Can you talk a little bit about how Pineapple's platform position will benefit from that shift? Shubha-Jeet Dasgupta: Yes. The Canadian mortgage market has so much opportunity and various segments of opportunity that each move in different cycles. We went through a phase a couple of years back where home buying and investment purchases were the significant drivers of the mortgage market of our business. As the years have evolved and changed, we've seen kind of the cyclical nature of mortgages and which vertical becomes more dominant than the other change with it. And today, we're seeing a lot of focus in activity around renewal and refinance. Well, statistically, almost 60% of Canadian mortgages will be coming up for renewal in the next we saw the biggest purchase year happen in 2021 when 5-year fixed rates were. That brings you right to today with all of those mortgages that happened in a record year coming up for renewal and coming up for maturity. That gives us an incredible opportunity to capture this reoccurring pipeline of renewal business, deliver value to our clients and drive revenue back towards us. We're also seeing a shift in the interest rate landscape here in Canada. Over the last few months -- sorry, over the last few years, Bank of Canada as well as our bond market has continued to move in a downward trajectory. Bank of Canada has reduced interest rates by over 200 basis points and yields have dropped to the same, which have reflected over into lower fixed cost and fixed rate mortgages. Both of these 2 have allowed us to go back out to the market Canadians have bought a mortgage over the last couple of years at significantly higher interest rates and refinance them into lower more acceptable prices. This allows us to reduce their monthly liabilities, allows them to live a little bit more comfortably and certainly helps us drive more revenue into the business. This is one of the core elements of our team and really capturing this reoccurring revenue. We've built and designed it in a way that we have triggers and milestones where we'll drive these opportunities right to our sales force. We'll put it at the top of their dashboard so that they can see which customers they need to work with and how they can help them find solutions for their specific mortgage needs. And over the last couple of quarters, as you can see from our financial results, this has been paying off for us with more volume, more agents and more productivity. Jack Perkins: Thank you, Shubha. Next question, this one is for you, Anthony. This quarter's reported results are significantly impacted by noncash digital asset revaluation and onetime financing costs. How should investors think about the underlying operating performance of the business, particularly in light of the improvements in adjusted operating loss? Anthony Georgiades: Yes. So I'd separate the -- or delineate really the GAAP accounting from the operating reality. The reported loss is almost entirely driven by 3 items, as you mentioned, right? You have a noncash mark-to-market adjustment on digital assets of roughly almost $17 million. You have onetime financing costs tied to the actual transaction itself, close to $2.83 million overall. There's also incremental interest expense pertaining to the debt strategy overall. But none of these really reflect the core recurring performance of the platform itself. Normalizing for these takes us to obviously the adjusted operating income and adjusted EBITDA. Looking at those same adjusted metrics on a year-over-year or quarter-over-quarter basis, we're seeing obviously a meaningful swing and movement towards positivity rather than operating at a deficit, which is exactly what we've been guiding for the last several months. And we're on track to be a cash flow positivity by the end of calendar Q2, by the end of June of this year. And importantly, overall, the digital asset adjustments of unrealized and noncash aren't things that as it stands today, the digital asset treasury contemplates or forecasts will become realized at any point in the near term. from our perspective, the real more important and relevant lens is that cost structure has improved, cash burn has materially reduced and our operating trajectory, as we've guided, has actually moved ahead of forecast towards breakeven, which we anticipate occurring in the coming months. And that's the true underlying story. Jack Perkins: Thank you, Anthony. Turning to data and tokenization. Pineapple has framed this as a natural extension of the Core mark mortgage platform. Can you walk us through how the company is thinking about unifying its data assets and what key milestones investors should be watching over the next few months -- sorry, over the next few quarters? Anthony, I think this is a good one for you. Anthony Georgiades: Yes, sure. So the data tokenization opportunity is to be specific, not a separate initiative. It's a natural extension of the underlying platform. Mortgage finance, whether it's in Canada, whether it's in the U.S., whether it's anywhere globally, still operates on an extremely fragmented unstructured data set, documents, PDFs, siloed systems. So what we've been doing and what we've had success doing is taking that disparate unstructured data that we've accumulated over years across the mortgage network and converting it into structured, verified, highly clean and centralized data sets that can subsequently be tokenized or licensed or offered in the form of API subscriptions to a constituent of third parties, whether that's lenders, whether that's hedge funds, institutional asset managers, data providers, you name it. And this has really created the foundation for things like internal automated compliance workflows, lender-facing analytics and ultimately, as I just alluded to, recurring software-driven revenue streams. The key point is that we already own the data. So this isn't about necessarily going out and trying to find and procure incremental data sets. This is about monetizing an existing asset base, not building something wildly speculative. And so near term, investors should really be on the lookout for announcements pertaining to pilot programs, validation, POCs, et cetera. Over time, we believe this becomes a very high-margin lucrative layer on top of the core platform. Jack Perkins: Thank you, Anthony. Next question is for Shubha, the digital asset treasury is a newer component of the story. Can you explain how this strategy fits in with the broader operating model and how you're approaching yield generation alongside liquidity and risk management? Shubha-Jeet Dasgupta: Yes, absolutely. And I mean from a risk management perspective, just to kick it off, it would be remiss of me not to note that we have an exceptional special advisory committee led by Anthony on this call that has done a tremendous job from a Board perspective to build out this digital asset treasury and really optimize what this potential can be. The gap for us and how we look at it is the -- we're generating a staking yield. We've referenced on this call a couple of times over $200,000 over this period. And this is a new incremental and reoccurring revenue stream. So it's yield, it's real yield on capital that would otherwise be sitting. But as I referenced just a moment ago, the key word here around risk is discipline. We've maintained minimum operating cash reserves. We're not using leverage aggressively. We're [ rehypothecating ] assets. And we've built out an institutional grade infrastructure. We have Kraken for custody; FalconX for execution; Monarq for advisory; and Canary Capital for yield optimization. This is a very, very well-governed program and not. Jack Perkins: Thank you, Shubha. Anthony, can you explain -- sorry, can you expand on the governance framework around the treasury, including how decisions are made and what safeguards are in place to ensure it supports the operating business? Anthony Georgiades: Yes, definitely. So risk management overall is foundational to how we've built the program, generally speaking. The treasury operates under a policy framework with clearly defined parameters, liquidity thresholds, position limits, concentration guidelines and really approval protocols at both the management, Board and counterparty level, including our asset managers. Every significant deployment decision goes through that process. On the execution side, we've deliberately separated custody execution, advisory and yield functions across a consortium of independent institutional partners whether that's Kraken, FalconX, BitGo, Monarq or Canary Capital. So there's no single point of failure or concentration risk in our counterparty exposure overall. And on the risk management side, we maintain significant cash positions. We've also built a surplus of working capital. Historically, the business has operated at a working capital deficit, and we've been able to shift from working capital deficit to positive working capital in the range of plus $3 million, which is really in excess of our floor in terms of minimum cash reserves. And based on current operating burn, we estimate in really a downside scenario that there's at least several years of operational runway. The treasury enhances that overall financial position doesn't put risk on the operating business, but rather enhances it and some plans it with incremental yield. Jack Perkins: Great. And now with the share repurchase program in place, how should investors think about the framework that you'll use to evaluate when and how to deploy capital into buybacks? Anthony Georgiades: Yes. So I guess, first and foremost, we view buybacks strictly through a capital allocation lens. When we look at the business today, when you look at our cash position, when you look at our treasury value and when you look at the operating platform that we've been building and evolving and obviously driving going forward, we see a clear disconnect between intrinsic value and market pricing. Last quarter end, NAV was approximately 0.73x, which implies the market is valuing the underlying business at a discount to the liquidation value of its underlying assets on an enterprise value basis and providing no intrinsic value to any other of the assets of the business itself, such as the operating platform, mortgage platform or very speculative growth initiatives we're engaging on. So with that in mind, we've authorized a $15 million share repurchase program with an initial $3 million tranche that's going to be deployed and commenced in the coming days. We're going to be executing this within Rule 10b-18 guidelines, subject to Board oversight, we have an initial threshold set of $1.50 per share in terms of the maximum price per share we'll acquire at. And we'll remain disciplined, always weighing buybacks against alternative uses of capital. But where we see obviously a compelling risk-adjusted return, we're prepared to obviously act and execute on. Jack Perkins: Great. Thank you, Anthony. I think we have time for one more question. Shubha, this one is for you. Looking ahead to the balance of 2026, what are the key execution priorities for management? And how should investors measure progress as Pineapple moves towards improved operating leverage and a more durable earnings profile? Shubha-Jeet Dasgupta: Sure. And I think I've been round this question off for us and pose this question off tying together everything that Anthony and I have been talking about here today in 3 priorities. The first being continuing to scale bridge on our mortgage platform. It means continuing to drive revenue growth while holding cost structure flat. We believe internally as management and Board. We believe and we know that we can scale this business multiple within any movement in operational expenses. We've already given guidance to a full year revenue in the range of about $7 million to $9.5 million on a run rate basis going up until the end of this calendar year, and we're targeting breakeven on a cash flow basis. So that's certainly something that investors will want to keep an eye on the metrics we keep close attention to. Second, on the advancement of our data and tokenization road map that just spoke in detail from development into early commercialization, investors can definitely keep a watch out for pilot programs, vendor partnerships, POCs and everything else as we begin to really push this product into real-world. And finally, third is continuing to build yield on digital asset treasury and demonstrating that the governance frameworks were designed, staking income should grow and the program will mature. The ways to measure it, it's pretty straightforward. Keep watching our adjusted operating income, the EBITDA trajectory, cost per funded loan, subscription revenue trends and our staking income. Those are the metrics that will tell you and guide you whether the execution that we are implementing on a daily basis is working. We're confident it is, and we expect the numbers to reflect over the coming quarters, and we are continuously thankful of our supporters and shareholders. Jack Perkins: Thank you, Shubha, and thank you, Anthony. That concludes today's fireside chat. On behalf of Pineapple Financial, thank you to everyone who joined us today. A replay of today's discussion will be made available through the company's Investor Relations website and social channels. Please contact pineapple@kcsa.com if you have further questions that we were not able to address today on the call. Thank you, everyone, and until next time.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you. Abhishek Jain: Yes, [ Sashi ]. Thank you. Warm welcome to our Q4 FY '26 earnings call. We'll begin the call with business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer; we also have our CHRO, Saurabh Govil; and our Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms at 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainty and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srini, Over to you. Srinivas Pallia: Thanks, Abhishek. Hello, everyone. Thank you for joining us today. Geopolitical and policy disruptions have become the new normal. Despite these headwinds, IT spending has shown resilience. Cloud, data and AI continue to attract investments as they provide infrastructure for future growth. Client priorities are shifting with spending decisions increasingly tied to outcomes. And at Wipro, we continue to make decisive investments to navigate the AI-first world. With that context, let me now turn to our performance in quarter 4 and for the full year FY 2025 '26. All growth numbers I shared will be in constant currency. Our IT Services revenue for quarter 4 was $2.65 billion, reflecting a sequential growth of 0.2% and degrowth of 2% on a year-on-year basis. Our operating margin came at 17.3%, a contraction of 30 basis points sequentially. The order booking for quarter 4 was at $3.5 billion, which is a growth of 3.2% sequentially and a degrowth of 13.9% on a year-on-year basis. We had 14 large deals totaling $1.4 billion this quarter. For the full year, IT Services revenue were $10.5 billion, reflecting a year-on-year degrowth of 1.6%. Our operating margin was at 17.2%, an expansion of almost 15 basis points as compared to FY '25. Now to our strategic market unit performance in quarter 4. Americas 1 delivered sequential and year-on-year growth, driven by strong performance in consumer, technology and communications. The health care center was impacted by seasonality and policy changes. Americas 2 decline sequentially and on a year-on-year basis. The BFSI sector was impacted by delayed ramp-ups on some large deals that were closed earlier this year and by certain client-specific issues. Europe grew sequentially and has remained flat on a year-on-year basis. We see good traction in the U.K., specifically in the BFSI sector. We also see strong deal momentum in Germany. APMEA grew sequentially and on a year-on-year basis. Growth driven by Southeast Asia. We are seeing traction in the BFSI, technology and communication sectors. We are encouraged by the momentum we are seeing in the APMEA region both in performing and bets we continue to make there. A strong example is the strategic deal we announced recently with the [indiscernible] expected to exceed $1 billion in contract value with a committed spend of $800 million. This is 1 of our largest engagements to date in APMEA. In this quarter, we also closed several strategic engagements. Let me highlight 2 examples with global technology leaders to drive AI at scale and how Wipro is partnering with them. In my first example, a leading global technology company has engaged Wipro to help run and improve its frontier AI models. Wipro will manage the end-to-end operation of these AI models from training, governance and evaluation to domain-specific validation. In fact, this engagement will be done to a specialized global delivery platform. We will make these models more accurate, reliable and safe while ensuring they can be deployed and managed at scale. In my second example, we have been selected by a leading global semiconductor company to provide engineering services that accelerate product development and manufacturing across its complex hardware platforms at locations distributed globally. We will support the entire engineering life cycle from product development to performance testing analysis. Before final shipment is made by our clients to their end clients. This will help our clients achieve faster resolution management, higher yield and improved governance with AI-driven analytics and automation. As intelligence becomes industrialized and widely accessible, we are making a deliberate strategic pivot to stay ahead. As you might be aware, we have launched a dedicated AI-native business and platforms unit to expand beyond a services-only model to a services-as-a-software approach. This unit will operate with dedicated leadership, focus investments and a distinct operating model to accelerate enterprise-grade agentic AI solutions. [indiscernible] will also incubate new AI businesses through an invest build partner approach in addition to collaborating with Wipro Ventures and our partner ecosystems. Together with core services, this creates a dual engine model, driving transformation at scale while building AI-native platforms that differentiate services enable repeatable deployments and unlock nonlinear growth. With that, let me move on to our guidance for the next quarter. In Q1, we are guiding for a sequential growth of minus 2% to 0% in constant currency terms. Thank you. I'll now hand it over to Aparna, our CFO. Aparna Iyer: Good evening, everyone. Let me share a quick update, and then we can open it up for Q&A. Our IT services revenue for Q4 grew 0.2% sequentially in constant currency terms, and 0.6% in reported currency. Our revenues declined 0.2% on a year-on-year basis in constant currency terms. For the full year FY '26, IT Services revenues declined by 1.6% in constant currency. Our operating margin for the quarter was at 17.3%, a contraction of 0.3% over Q3 '26, and a 0.2% contraction on a year-on-year basis. With this, our full year operating margin stands at 17.2% and expansion of 15 basis points year-on-year. We maintained the margins within a narrow band even after absorbing 2 incremental months of DTS HARMAN. And we also rolled out salary increases effective first March. As we move into Q1, we will have the headwinds of 2 months of salary increase and a few large deals that we've won and the volatility could be there in our quarterly performance. Having said that, our endeavor would be to maintain these margins in a narrow band in the medium term. Net income for the quarter was at INR 35 billion. Adjusted for the impact of labor code changes, our net income increased 3.7% sequentially. For the full year, our net income increased 2.2% year-on-year. This was after absorbing the impact of restructuring charges in both Q1 and Q3 of last year. EPS for the quarter was at INR 3.3 and INR 12.6 for the full year. Moving on to our strategic market unit and sector performance. All the growth numbers that I will be sharing will be in constant currency. Americas 1 grew 0.3% sequentially and grew 2.9% on a year-on-year basis. Americas 2 declined 2.6% sequentially and 6.7% on a year-on-year basis. Europe grew 2% sequentially and was flat on a year-on-year basis. APMEA grew 3.1% sequentially and 0.8% on a year-on-year basis. Moving on to sector performance. BFSI declined 1.3% sequentially and 0.5% year-on-year, Health declined 4.4% sequentially and was flat year-on-year. Consumer grew 1.7% sequentially and declined 2.9% year-on-year. Technology and Communication grew 5.3% sequentially and 10.4% year-on-year. EMR grew 1.1% sequentially and declined 5.9% year-on-year. Let me share some other key financial metrics. Our operating cash flow continues to be higher than the net income and stood at 112.6% of net income for FY '26. Our gross cash including investments was at [ 5.9 billion ]. Accounting yield on average investment held in India was at 7.3%. Our ETR was at 23.5%. In terms of guidance to reiterate the Srini said, we expect our revenue from IT Services business segment to be in the range of $2.597 billion to $2.651 billion. This translates to a sequential guidance of minus in constant currency terms. Lastly, I'd like to share that in our recently concluded Board meeting, the Board of Directors have announced and approved a buyback of INR 15,000 crores at a price of [ INR 250 ] per share. This is the largest buyback that Wipro has announced, and we expect to buy back 5.7% of the paid-up capital. The buyback is expected to complete in Q1 '27 subject to shareholder approval. Our endeavor has always been to return a substantial portion of the cash generated in our -- through our operations back to our shareholders in FY '26 alone, we distributed dividends of $1.3 billion, taking our total payout ratio for 3-year block ending FY '26 to about 88%, which is significantly higher than the minimum threshold of 70% that we have as per our capital allocation policy. With that, I will hand it over for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of [ Pratik Maheshwari ] from HSBC Securities..Sorry, his line is disconnected. We'll go on to the next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Sir, the first question is, there has been a good large deal wins, which has happened on the one end as well as fourth quarter of last year. And we kept on telling about delay in these large deals, which was expected to come in Q3, then we said Q4, then we said it will come 1Q, but the guidance does not show that. despite the nature of the deal being cost takeout when it comes to consolidation. Why is this delays happening? Srinivas Pallia: Thanks, Sandeep. This is Srini here. Thanks for your question. Let me just talk about the quarter 4 performance in the context of the 4 SMUs we had. Three out of the 4 SMUs, Americas, well, Europe and APMEA have grown sequentially. Having said that, specifically Americas 2, we saw significant softness. And this is specific to the BFSI sector there. This has been a combination of both client-specific issue and delayed ramp-up that you're talking about. The reason for the delay is a very client specific, but we see that opportunity coming up sooner than later, and that will give us the growth in that particular account and that particular sector. Sandeep Shah: Okay. And do you believe second quarter onwards, there could be ramp-up can actually pull up the growth? Or you believe plan-specific issue because of the geopolitical issuance macro may continue? Srinivas Pallia: So as far as this particular client is concerned, it will end in quarter 1, Sandeep, and there is no further impact for us materially. That's number one. Number two, as far as geopolitics is concerned and we have not seen any clients at this point in time, demonstrating any specific behavior. And also, if you reflect on the pipeline that we have across the market, including countries and across the sectors, a very strong pipeline. Of course, it's a very competitive landscape, and the competition is very intense. And the way we have gone ahead with the Olam deal, which is a very transformational deal, long-term deal also taking their entire IT into Wipro welcoming them into the Wipro family. The second one that we announced yesterday, which was part of the vendor consolidation, the kind of deals that are coming off are very different but very strategic, and we are staying focused on execution for us, which will help us quarters ahead. Sandeep Shah: Okay. And just last two, there has been a notable decline in our top line. What is the reason for the same? And second, can you give us the inorganic growth contribution you were factored in the first quarter growth guidance? Aparna Iyer: So these 2 deals that we've announced in this month, Sandeep, are a part of our guidance. At the midpoint, we've assumed both these deals to start yielding revenues for 1.5 months, halfway through the quarter. To your point on the top count growth, it's a sequential decline. But from a year-on-year standpoint, it continues to have grown. And we are very confident that it will continue to come back as we go through the quarters. Sandeep Shah: Okay. Okay. Is it possible to quantify inorganic growth in the guidance? Aparna Iyer: They are not inorganic. They are actually strategic deal wins. If you look at it, Olam is a strategic deal win with -- it's a relationship that is -- has committed revenue. So -- and even the other 1 that we announced was part of the vendor consolidation strategy, for 1 of our top clients, and we continue to participate in these kind of deals. And both will be a part of our numbers and our guided range. Operator: Next question is from the line of Ravi Menon from Axis Capital. Ravi Menon: Beyond the top customers where we've seen a sharp decline, we also been top 25 customers also declined slightly. The top customer decline although we said it's temporary. It's a very sharp decline. Can you talk a bit about what led to this? And why -- what gives you confidence that this will be temporary. Aparna Iyer: Ravi, if you look at it, our top client has been producing a healthy growth for us for a fairly long size right? This kind of one-off quarter volatility is not something that we are unduly concerned about. The relationship remains very strong, and you should continue to see it bounce back. Ravi Menon: And the unbilled revenue has grown this quarter more than $80 million. And then we also see some long-term unbilled revenue. Could you talk a bit about what's led to the [indiscernible] how should we see that trend? Aparna Iyer: No. So I don't think -- see, the unbilled revenue that has gone up is more a quarterly aberration. It should correct itself from a quarter on. I mean, from a year-on-year standpoint, actually, our DSO has remained flattish. Like I said, our operating cash flow has remained 112% of net income we are not seeing any large exposures or pile up of unbilled in our balance sheet. From a unbilled standpoint as well, I think it's fairly content and we have some consistent improvement. Yes, some of the larger deals as they pick up, we are open to -- they will come with some amount of balance sheet leverage, but nothing that's unduly different than what we do as business as usual, Ravi. Operator: Next question is from the line of Dipesh Mehta from Emkay Global. Dipesh Mehta: A couple of questions. First on the -- part. You said BFSI weakness was because of 2 factors. One is client specific and second is delay in ramp-up. And 1 of the question answer you indicated about some of this is likely to be ending by quarter 1, which part you are indicating by Q1? Aparna Iyer: We have said that the client-specific issue that we have seen in 1 of our clients in Americas 2 has had an impact on both Q4 and Q1 and there won't be a continuing impact of that going forward. Dipesh Mehta: And what about the delay in ramp-up part? Aparna Iyer: Yes. So if I have to characterize, we've had several large deal bookings, right? Now the 1 that we announced on [ Phoenix ], it is fully ramped up 2 plants. There's no delay, right? If you look at the other 3 mega deals that we spoke of, 1 of them is on plan, and we are continuing to ramp up. We are seeing challenging 1 of those -- as we spoke about, where we are seeing a delayed ramp-up, which is, in particular, impacting the growth rate of that particular sector in that particular market unit. Outside of that, BFSI growth rate of pretty good in Europe and APMEA. As that client comes back and we start to ramp up, you will see those growth rates improve it. That is our job. Dipesh Mehta: And can you give some sense about that the what factor is leading to delay in ramp up whether -- so if you can provide some details around it, qualitatively, what is leading to some of those delays? Second question which I have is, if I look, let's say, the couple of projects in which we close or in the process of closing, we included in the guidance, if, let's say, any delay in some of those closures, do you see risk to that guidance kind of thing? Aparna Iyer: We guide in a range. There is -- like I said, we guided a range and there is a midpoint, and we have some cushion, both on the downside and on the upside. And for now, we are comfortable within that guidance. On the first point, Srini. Srinivas Pallia: Yes. Dipesh, Srini here. On the first point, this is a very client-specific issue, where they have changed a little bit of the strategy around some of the things as part of the business because of which they have delayed it. But having said that, we have the clear visibility going forward. It's about the matter of timing, when and how much, and that should help us going forward, Dipesh. Dipesh Mehta: Understood. And last question from my side. I just want to get some sense about how Capco is playing out. Srinivas Pallia: So Dipesh, as you know, Capco is a tip of the spear for the consulting piece on the -- side. They are definitely doing well. And if you look at sequentially, Capco is performing very well and also on the year-on-year, both have been very positive. And in fact, Capco had 1 of the highest revenues in the last several quarters. So Capco is making a big difference in terms of the whole AI advisory and consulting. And the way they are being proactively shaping the clients thought process in terms of the whole geopolitics and in terms of the trade and tariff and the technology transition has been really good. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats Srini and Aparna for the buyback announcement finally. I know the market participants have been waiting for this 1 for quite a while. Two questions from my side... Operator: Sorry, Vibhor, you're sounding different. Vibhor Singhal: I'm sorry, sorry, just give me a second. [indiscernible]. Operator: Can you -- are you on your handset mode. Vibhor Singhal: Switch to the handset now? Operator: Yes, it is clear. Now please go ahead. Vibhor Singhal: Okay. Sorry for that. Yes. So a couple of questions from my side. Srini, on the energy and the -- verticals. This has been a vertical in which we've been very strong for quite a while. Just wanted to pick as to what are the conversations that you're having with the clients at this point of time because of the -- that is going around, will the crude prices and the volatility in it impact our business in this vertical, either positive or negative? Any conversations that have already started on that regard? Or is it too early to call out any impact of that on the segment? Srinivas Pallia: So Vibhor, from our perspective, if you look at the quarter 4, we have seen a sequential growth. And both manufacturing, particularly auto industrial, as seen impact otherwise on the reason for tariffs. Now coming specifically in the context of geopolitics, wherever, I think there is -- some of the clients are waiting and watching. But having said that, not dramatically changed their strategy. For example, what they're trying to do, especially in the manufacturing sector, if you will, they're looking at how do you secure the supply chain, make it more visible and more dynamic going forward. And that's some of the opportunities that we are looking at in the context of AI that can actually help. So that's the trend that we are seeing. Auto industry. Obviously, they're also looking at how the markets are going, and it varies from country to country in terms of how the business is going. And the third is in terms of overall manufacturing, we have not seen any clear change, but they have been constantly under pressure because of tariff flood disruptions that they're going through. And they're also looking at what kind of consumer demand they can have. And also they are keeping a close watch on the input cost because that will also impact their final product cost. So they are trying to sharpen their budgeting, I would say, tightening at this point in time. Vibhor Singhal: Got it. Got it. Good. My second question, Srini, was basically on -- again, sorry to have on the Q1 guidance, once again, as Aparna mentioned, we are taking around half -- 1.5 months of contribution from the new deal that would approximately come to around 0.7%, 0.8% of revenue. Then another -- 0.8% from the 1-month integral of HARMAN integration. That leads [indiscernible]. Operator: I'm sorry, Vibhor, you're sounding muffled again. Can you repeat the last part please? [Technical Difficulty] Okay. Now it's fine. Vibhor Singhal: Yes. I'm so sorry for the poor connectivity. Yes. So as -- I think the 2 deals will contribute 1.5 months of revenue, that's around 0.7%, 0.8% of revenue. HARMAN acquisition, 1 incremental month in Q1, again, that's another maybe 0.7%, 0.8%. So around 1.5% growth is coming from these 3 factors. So these aside, I think the remaining business seems to be quite a sharp line in Q1. You mentioned 1 of the client-specific issues, which you will continue to face in Q1. But are there any other significant client ramp-downs or any other delays that we are seeing because of which this Q1 growth -- organic growth or if I can call the growth beyond these 3 seems to be so weak? Aparna Iyer: You know DTS HARMAN is fully in our Q4 numbers... Vibhor Singhal: But in Q4, that was only 2 months. So on Q2, this will add another month in Q1? Aparna Iyer: No. No. Q4 was all 3 months. Yes. So that is not -- that is the only inorganic piece and our growth for Q1 is -- yes, there are these 2 deals that we've spoken about, which will be there, and it will add to our revenues in Q1. And we've assumed that they will start yielding revenues mid-quarter. Vibhor Singhal: Mid-quarter. Got it, got it. Aparna Iyer: Yes. [indiscernible] organic growth, are these strategies taken. Yes. Vibhor Singhal: Very much point taken. Just my last question on the margins. I think very strong performance on the margins in this quarter despite wage hike and HARMAN integration as well. Do we believe these margins are sustainable in the coming quarters as well, given that we'll have a couple of these deals -- out deals also that we will be factoring in? Do you believe you will be able to maintain their margins at around the current levels as we have always maintained. As we've always stated that this is our target range? Aparna Iyer: Yes, there are 3 areas where we are going to be investing in. We've already rolled out the wage hike effective first March. So we will have 2 months incremental impact, which will have to be absorbed, right, in Q1. Two, we are winning among these large deals, and they are 1 in a competitive environment. They will come with their share of lower margins, especially as we start these deals, right? Second, there is certainly around capabilities. We've acquired the DTS HARMAN connected services fees, which will -- which is also putting pressure on margins. And as I look ahead, we will continue to actually accelerate investments, especially around Wipro Intelligence, the platform unit that we have announced. And it will need a lot of investment that we will work through and share with you transparently as we go through the process as we form our strategy around it, that will also be an area of focus for investment. Given all this, we will have to drive operational improvement that is a continuous process, as you know. And like I said, maybe we see some quarter-on-quarter volatility, but our endeavor is going to be that in medium term, we continue to drive that productivity and cost takeout and deliver on the promise of actually AI helping us to deliver our fix-price programs better. And we continue to optimize all other over. Now as we do that, hopefully, we are able to keep our margins in the medium term in [indiscernible]. Operator: We'll take our next question from the line of [ Prateek Maheshwari ] from HSBC Securities. Unknown Analyst: So Srini, I've got a couple of questions. So I'm sorry for harping again on Americas 2. Just wanted to understand that, there are the client specific issue that you guys have faced in the fourth quarter and you facing the first quarter spend. However, if I look at Americas 2 over a 1-year period or a 3-year period, it seems that there's been a [indiscernible] there been multiple clients specific issues that have happened. So just wondering to understand your thoughts on this if it is a mere coincidence or how -- what are your thoughts on this? And just second question from [indiscernible] around the AI partnerships. So we are seeing our larger peers have -- along the parties with probably [indiscernible] like once said[indiscernible] but we haven't heard a lot from you -- so just wanted to understand how you guys are planning around this. And if you were the planning for [ GTM ] these models as well. Srinivas Pallia: Thanks, Pratik. You're right, AI is a central strategy for Wipro. 2 quarters back, we had launched Wipro Intelligence, which is a combination of industry and cross industry and functional platforms and solutions. And this quarter, the last quarter, we announced the formation of year native business and platform unit. The reason why we are doing it is in the last 2 quarters based on our experience, both in terms of industry platforms and the delivery platforms, which is WINGS for run and operate and Vega our [ DLC ] life cycle, which is more on the change in transform side. We have seen a very good traction. The clients feel very comfortable with the way we have put the guardrails making sure we align the technology to what they are actually using, making sure it is secure, reliable and responsible as well. Also, in terms of the productivity benefits that we can offer to them, both in the existing engagement and also the new engagements we plan to do. And we will continue to invest in this. And I think Aparna called out as well that Wipro Intelligence and the new AI-native business and platform unit is going to pivot us into our services as a software industry. So while we continue to deliver the services to our clients, this should help us to actually create a software-as-a-service through our platform model. We already saw some success with our platforms. be it in Health Care, be it in Banking, Insurance, Telecom. So we want to see that because the clients are actually feeling very comfortable with the fact that the whole platform is native, which is AI powered and it's able to well integrate into their domain with the kind of agent and agentic operations we're trying to bring in. So that investment will continue, [ Prateek ]. Unknown Analyst: First question, if you could share also -- so the question was that there's been multiple client issues over the years. Just wanted to understand what your thoughts on that. Srinivas Pallia: Yes. I think this quarter, last quarter, it was something that we called out as well, very specifically for the 2 reasons like you mentioned in your question itself. But 1 is the specific client ramp-up that has not happened upon I talked in detail about that. But we feel -- and I also answered that question, we feel fairly confident that clients come back because there was some directional change, and they wanted to pause before they had the clarity around that. The second 1 was something that the account-specific issue that happened, which impacted for us in quarter 1 and in addition to quarter 4. Having said that, if you look at our top accounts, they continue to stay focused on our top accounts with a very clear account management strategy. And in fact, many of our clients are asking us to come back and help them in terms of AI advisory and consulting in terms of how to navigate in the AI world. So what's important for our account team is to be very proactive and leverage to Wipro and platforms and solutions and kind of help the client through this disruption process. Unknown Analyst: Srini, If you could allow me to squeeze 1 more question. I just wanted to ask, you said that you have a positive view on BFSI in APMEA and also in Europe. So just wanted to ask outside of the client-specific issue that you may face in the first quarter, do you have a positive view on the USPs as side well. Srinivas Pallia: So I think from an overall -- I think the best way for me to reflect, [ Prateek ], in your question is the kind of pipeline that we have. And -- talk about having a very secular pipeline across industries and across markets. And your question specifically to BFSI, if you were to look at Americas and Europe and APMEA. And also the Capco question that came up. We continue to see very good traction. We continue to see a very good pipeline. And some of this, what the kind of work that Capco does is very consulting-led and advisory-led. And we also want to see how those implementations for the clients can happen. And for me, clearly, from a BFSI perspective, right, very clearly, the client wants to invest in AI around data platforms and agentic workflows and security. And while they are continuing to optimize but the spend in this specific area around AI, data and cloud continues. Operator: We'll take our next question from the line of Abhishek Shindadkar from Incred Research. Abhishek Shindadkar: Can you hear me? Operator: Yes. Abhishek Shindadkar: The first question is regarding the contribution for HARMAN. So when we gave the guidance last time, in the third quarter, the 0.8% was the contribution. And incrementally, 2 months was assumed when we gave the fourth quarter guidance. Can you just quantify what would have been the contribution for this quarter? Or if you can just quantify the organic growth for us? That's the first question. And I'll just ask the second 1 later. Aparna Iyer: So your question is around how much did the HARMAN acquisition contribute in Q4? Is that your question? Abhishek Shindadkar: Yes. Aparna Iyer: So we actually made a stock exchange filing around the revenues of the organization. You can assume the quarterly run rate around that much. Abhishek Shindadkar: Understood. That's helpful. The second thing is on the top client and maybe it has been asked, but not just the top, but if I look at the top 5. And if I look at the client metric and the attrition across some of the larger accounts, do you for this kind of stopping or halting in the next quarter? Or we may continue to see some challenges in the accounts, larger accounts even in the next quarter? Aparna Iyer: I think our overall growth rate also tend to reflect in our top client metric growth rates as well, right? That said, if you -- like if you had to look at the year-on-year performance of our top client and it's been largely flattish year-on-year constant currency actually has grown on a year-on-year constant currency by 0.2%. And top 10 have grown a positive 1.5% on year-on-year constant balance. And therefore, are we unduly worried about the top relationships that we have, no, we're not worried about it. That said, our constant endeavor is to continue to win with our largest client in the market. and some of the wins that we have announced even this bag are towards that. So you will continue to see us growing and expanding this because this is the way in which our growth will come from. It's our #1 strategic priority. We will work with large clients, and that is the endeavor. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Thank you all joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the Investor Relations. Have a nice day. Thank you. Operator: On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Welcome to U.S. Bancorp's First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately 10:00 a.m. Central Time. I will now turn the conference call over to Jen Thompson. Jennifer Thompson: Thank you, Regina, and good morning, everyone. In our Boardroom today, I'm joined by Chief Executive Officer, Gunjan Kedia; and Vice Chair and CFO, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release and supplemental analyst schedules can be found on our website at ir.usbank.com. Please note that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's earnings presentation, our press release and in reports on file with the SEC. Following our prepared remarks, Gunjan and John will be happy to take questions that you have. I will now turn the call over to Gunjan. Gunjan Kedia: Thank you, Jen, and good morning, everyone. I will begin on Slide 3. This quarter, we delivered earnings per share of $1.18, a year-over-year increase of approximately 15%. Total net revenue of $7.3 billion increased 4.7% year-over-year, with broad-based growth across each of our 3 major business lines. Net interest income on a taxable equivalent basis increased 4.1% year-over-year, supported by robust core loan growth in commercial and credit card and a second consecutive quarter of record consumer deposits. Fee income grew 6.9% year-over-year, reflecting improved payments performance and momentum across capital markets and investment services businesses. Capital markets' performance was particularly strong as new product penetration with long-standing clients and favorable market volatility combined to drive strong revenue growth. We delivered positive operating leverage of 440 basis points in the quarter. Strong revenue growth and continued expense discipline improved our efficiency ratio by 260 basis points year-over-year. John will provide more details on our financial performance in his opening remarks. On Slide 4, we are spotlighting our Business Banking franchise. This segment contributes approximately 9% of our revenues and represents a compelling long-term opportunity for us. We have been building out new products and operational capabilities for this segment. We have also expanded our client teams to build deep, multi-serve relationships that are served in branches with direct bankers and exceptional digital experiences. That approach has driven high single-digit compound annual growth in both clients and fees over the past 2 years. Looking ahead, we are investing in integrated solutions, collectively branded Business Essentials. These solutions offer banking, card, spend management and merchant solutions that support small businesses at every stage of their life cycle. Our recently announced partnership with Amazon is significant in size and will meaningfully expand our small business reach. This partnership is unique from traditional co-brand card arrangements in anticipating a clear pathway to broader banking relationships over time. On Slide 5, we highlight strong momentum in California, where we increased our scale and density with our Union Bank acquisition at the end of 2022. As previously reported, we realized merger-related expense savings of approximately $1 billion and are now focused on capturing the considerable revenue synergies offered by this acquisition. The map on the left illustrates our strong positioning in markets with a high concentration of small businesses. California is a powerful growth engine for us and is outperforming the broader franchise across multiple key dimensions. Moving to Slide 6. Within payments, we continue to see fee revenue growth consistently strengthening across all segments. In our credit card business, new products aimed at affluent transactors, along with significant increases in marketing, have resulted in double-digit growth in account acquisitions over the past 4 quarters and a strong start to the year. Merchant processing fee growth remained steady in the mid-single digits, reflecting disciplined execution across 3 core strategies: software-led products focused on 5 verticals and expanding direct distribution. And in corporate payments and prepaid, we are beginning to see growth rebound as spend levels normalize and installations of last year's strong business wins start to show through in results. I'll close on Slide 7. In capital markets, our organic product expansion as well as our pending BTIG acquisition are expected to drive sustained revenue growth. In payments, the Amazon partnership will meaningfully accelerate credit card revenue growth by the end of the year and expand our banking opportunity with the small business segments in the future. And in our consumer franchise, we look forward to building Financial Edge, a program to better serve the needs of NFL athletes and their families and to build our brand nationally, both in partnership with the NFL. Let me now turn the call over to John. John Stern: Thank you, Gunjan, and good morning, everyone. First quarter results showcased another quarter of strong business momentum and ongoing execution against our medium-term financial targets. If you turn to Slide 8, I'll start with some highlights, followed by a discussion of trends for the first quarter. We reported earnings per common share of $1.18 and generated $7.3 billion of net revenue, representing 4.7% growth year-over-year. Improved revenue trends reflect strong loan growth in areas like C&I and credit cards, along continued momentum in fee-generating businesses like capital markets, investment services and payments. Average total assets increased 0.7% linked quarter to $688 billion, reflecting steady client activity across the franchise. For the first quarter, ending assets were $701 billion. As a reminder, the Category II transition requires 4 quarters of average assets to be $700 billion or more. As expected, credit quality metrics remain stable, underscoring the resilience of our clients in an uncertain operating environment. As of March 31, our tangible book value per common share increased more than 15% on a year-over-year basis. Slide 9 provides our key performance metrics. We continue to operate comfortably within our medium-term targets for profitability and efficiency. Disciplined balance sheet management and strong returns drove a return on tangible common equity of 17%, while return on average assets was 1.15% this quarter. Net interest margin was flat linked quarter at 2.77% as core loan growth and stable deposit pricing were offset by elevated mortgage prepayments and somewhat tighter credit spreads. Turning to Slide 10. Over the last 2 years, we have increased our tangible common equity 31%, while continuing to deliver high-teens returns on tangible common equity given steady and improving earnings growth. The sequential step down this quarter reflects normal seasonality, along with the impact of continued AOCI burn-down, rather than any change in the underlying earnings or profitability trajectory. As we look ahead, we remain confident in our ability to deliver high-teens returns on tangible common equity. Slide 11 provides a balance sheet summary. Total average deposits were relatively flat on a linked-quarter basis, as record consumer deposits were offset by typical seasonality in our wholesale and investment services businesses, improving our deposit mix. Our percentage of noninterest-bearing to total average deposits remained stable at approximately 16%. Average loans totaled $394 billion, up 3.8% from the prior year or 5.3% when adjusting for loan sales in the second quarter of 2025. The growth was broad based and centered around credit card, commercial and commercial real estate. The ending balance on our investment securities portfolio as of March 31 was $174 billion. Turning to Slide 12. Net interest income on a fully taxable equivalent basis totaled $4.3 billion, an increase of 4.1% on a year-over-year basis, driven by a robust loan growth, funding optimization and ongoing benefits from fixed asset repricing. Slide 13 highlights fee revenue trends within noninterest income. Total fee income increased 6.9% on a year-over-year basis, supported by nearly 30% growth in capital markets, nearly 10% for trust and institutional fees and ongoing momentum across our payments business. As a reminder, our capital markets business is focused on fixed income, foreign exchange and derivatives, including our commodities business. Our pending BTIG acquisition adds equity and investment banking capabilities in the future. During the quarter, we also made updates to a select number of fee categories to better align our disclosure with how we manage the businesses. Prior results were restated for these classification changes, with no effect on total fee revenue. Turning to Slide 14. Noninterest expense totaled approximately $4.3 billion, up 0.8% linked quarter. On a year-over-year basis, ongoing productivity and continued expense discipline helped us fund strong investments in technology and marketing. Slide 15 highlights our ability to effectively manage our expense base while driving top line growth. Disciplined expense management has become foundational to how we operate, showcased by our seventh consecutive quarter of positive operating leverage. Looking ahead, we see opportunities to build on our strong operating leverage story, supported in part by the ongoing deployment of AI and other automation tools to improve efficiency. Slide 16 highlights our credit quality performance. Our ratio of nonperforming assets to loans and other real estate was 0.38% as of March 31, an improvement of 3 basis points from the previous quarter, and 7 basis points from a year ago. The first quarter net charge-off ratio was 0.56%, increasing 2 basis points sequentially, driven by the seasonal nature of credit cards, while our allowance for credit losses of nearly $8 billion represented 2.0% of period-end loans. On Slide 17, we're providing a closer look at our business credit exposure within the nondepositary financial institution loan portfolio given the increased attention on this segment. Business credit intermediaries represent approximately 3% of total ending loans, and these exposures are well structured. Our risk framework includes meaningful over-collateralization, clearly defined industry concentration limits and first-lien collateral. Importantly, this reflects U.S. Bank's long-standing approach to risk management and underpins our comfort with both business credit and the broader NDFI portfolio. Turning to Slide 18. As of March 31, our common equity Tier 1 capital ratio was 10.8%, or 9.3% including AOCI. On Slide 19, we wanted to provide some initial thoughts following the updated Basel III proposals. We're encouraged by the initial proposals and expect to see meaningful RWA relief under both methodologies, particularly in areas like mortgage and investment-grade corporate lending, providing additional flexibility to support clients through disciplined balance sheet usage. While we await final outcomes around key elements such as the AOCI phase-in and the effective date of the new rules, the framework as proposed supports our return to historical capital deployment ranges under both scenarios. On Slide 20, we provide a comparison of our first quarter results to our previous guidance. For the first quarter, net interest income, fee revenue and noninterest expense all exceeded our previous guidance. I'll now provide forward-looking guidance for the second quarter and the full year 2026. Starting with the second quarter 2026 guidance. Net interest income growth on a fully taxable equivalent basis is expected to be in the range of 6% to 7% compared to the second quarter of 2025. Total fee revenue growth is expected to be in the range of 6% to 7% compared to the second quarter of 2025. We expect total noninterest expense growth of 3% to 4% compared to the second quarter of 2025. I'll now provide full year 2026 guidance, which is consistent with our previous guidance. We expect total net revenue growth to be in the range of 4% to 6% compared to the prior year. We expect to deliver positive operating leverage of 200 basis points or more for the full year. And our guidance excludes the impact of the pending BTIG acquisition, which is expected to contribute approximately $200 million of fee revenue per quarter, with an anticipated close date in the back half of the second quarter. The impact of the Amazon small-business card and the NFL partnership are fully contemplated in our guidance. Turning to Slide 21. First quarter results represent another consecutive quarter of operating within all of our medium-term targets. While we are pleased with our continued momentum, our focus remains on delivering consistent, sustainable and industry-leading returns over time. And we have a high degree of confidence in our ability to strengthen our performance and build on these results. Let me now hand it back to Gunjan for closing remarks. Gunjan Kedia: Thank you, John. As we look ahead, the macroeconomic backdrop remains constructive despite some softening of sentiment recently. Consumer spend, core loan demand and credit delinquency trends all indicate relative stability. The regulatory backdrop is becoming more helpful, giving us greater capital flexibility over time. And our execution has strong momentum. All of that gives us confidence in our ability to continue building earnings power and creating long-term value as we move forward. With that, we will now open the call for your questions. Operator: [Operator Instructions] And our first question will come from the line of Scott Siefers with Piper Sandler. Robert Siefers: John, I wanted to ask about positive operating leverage. You kept the 200-plus basis points target for the year although you did -- you're doing significantly more than that now. It looks like it'll be about 300 basis points in the second quarter. Maybe I was hoping you could discuss how you're thinking about it. Would you sort of manage to that level or maybe let some incremental revenues drop to the bottom line if they came in better? And I guess the or more leaves a lot to the imagination. So I'm just curious on your thoughts. John Stern: Sure. Thanks, Scott. I appreciate that. Yes. No, we feel good about the outlook. As we mentioned in our guidance slide, we have a lot of growth opportunities, as we talked about. As we've mentioned in the past a couple of quarters now as we think about 2026, we're really thinking about our revenues growing faster and that being the driver of positive operating leverage. And we have a desire really to invest some of the savings that we have into things like technology and marketing, some of the things that we've talked about in the past. And it also kind of depends on the nature of the revenues. If fee revenues grow faster, as an example, that's going to bring with it more expense just by the nature of the compensation and things like that. And then net interest income, of course, we welcome that as well. So from an operating leverage standpoint, we have a lot of flexibility, and we feel good about our outlook. Robert Siefers: Terrific. Okay. And then maybe, Gunjan or John, really good commercial loan growth, maybe if you could touch on sort of what you're seeing in terms of utilization rates. And then, Gunjan, you touched on customer sentiment a bit toward the end of the prepared remarks, so maybe just some thoughts on what you're seeing there. Maybe if you could expand upon that a bit. John Stern: Yes. No, absolutely, Scott. I'll start. The commercial loan side, we just -- we saw a broad-based good core loan growth really across a number of different sectors. On the large corporate side, food and beverage, energy, health care are probably the top ones in our area. M&A for these customers as well as just general CapEx, really starting to kind of see its way through. Small business also continues to be a very strong performer for us, and that we expect that all to continue. We've talked about loan growth to being in the kind of that 3% to 4%, but I certainly think it's going to be higher than that. It's probably more in the mid-single-digit range from a broader loan growth perspective for the full year. So I think there's just a lot of momentum. In terms of utilization rate, we're at 25% or so, a little bit north of 25%. That's probably a good level for it. It's been creeping up a bit. I don't think there's a lot more upside from that standpoint. But just in general, core loan growth has been really strong. Gunjan Kedia: Scott, what I'll add on sentiment is it's turning to more core demand, which we find to be very healthy. So if you compare this time last year when the tariff discussion was very present, the demand we saw last year was very focused on the AI trade data centers, some M&A-driven trades, but a real pause pending some resolution or clarity around tariffs. What we see with loan pipelines going forward, which are quite robust, is people beginning to invest in kind of core middle market expansion and CapEx. So the sentiment has stabilized quite nicely. Operator: Our next question will come from the line of John Pancari with Evercore ISI. John Pancari: And then just on the funding and the margin side, I appreciate your loan growth commentary in terms of what you're seeing. What does that imply in terms of how we should think about the pace of deposit growth? And what are you seeing on the deposit pricing side? We've got a number of even the larger banks that are flagging some pressure still on the deposit pricing side from a competitive dynamic. And then lastly, how should we think about the progression of your margin here as you look out through '26? John Stern: Yes. A couple of things there, John. On the funding side of things, the deposit equation, we're seeing -- it's a competitive market, right? It's always been that way on the deposit side. But we saw, relatively speaking, price stability really within -- across the portfolios that we have. Maybe just as a reminder, our focus is really going to be and has been on growing consumer deposits. Again, we saw another record level on the consumer deposit side. We've seen a $7 billion increase year-on-year, nearly 3% growth. We've seen a focus for us on operational deposits on the wholesale side really utilizing deposits that can help us, along with the broader relationship and leverages into fees and things of that variety. So that has been where our focus has been on the deposit side. And we've been able to just navigate the deposit environment as we typically do. On the margin side of the equation, just as a reminder, I mentioned the margin was flat this quarter and we gave some color that the positive drivers were really good core loan growth, as we talked about. And then the pricing characteristics I just mentioned on the deposit side. On the other end of that though, there was some of the loans we brought on were at tighter spreads. Still good returning, but these are larger institutions that trade at tighter spreads. And so that was a little bit of a way as well as the impact of some refinancings on the mortgage side as rates -- we had more refinance activity of nearly 15% to 20% more than we did prior year. So those are kind of the puts and takes. Going forward, I expect that the mortgage stuff will abate and the other things to stick, meaning the good core loan growth, the deposit pricing stability, our earning asset mix all improving as we think about the future. So we see -- we continue to see progression in our net interest margin going forward. John Pancari: Okay. Great, John. And then just separately on the capital front, if you could maybe just talk a little bit about capital allocation priorities, how you're thinking about the buyback expectation? And then as you look at inorganic opportunities, you've done the BTIG deal. Should we expect that there'll be a more active effort to continue to build out the capital markets business potentially inorganic? And then, of course, Gunjan, I got to throw the whole bank M&A question at you as well. Sorry to ask it this early in the call. Gunjan Kedia: Sure. John, you start... John Stern: Maybe I'll start on the priorities of capital deployment. Really no change to our thinking here, John. I think from a capital deployment, we really focus our client and loan growth. And we certainly saw that this quarter, we're going to support our clients as needed. And then we're going to focus on the capital deployment to our shareholders. Certainly, the dividend is extremely important. And then the buybacks, as you know, we went from $100 million to $200 million this quarter. I would anticipate we're going to continue to glide up. I think we're going to start at $200 million would be my base case, but -- because we see such strength in the pipelines. But it could increase from there or that would be our intention. We're certainly going to glide up as we -- again, as we get to our capital levels that we need to get to. Gunjan Kedia: Thank you, John. I do want to just reiterate that we are very committed to long-term capital distribution targets of 70% to 75%, and we are keen to get back to those levels with share repurchases. And we are very close, John, to just stabilizing our capital ratios in a Category II framework and, of course, very encouraged by the capital rules that might accelerate that. So that's the backdrop. On our bolt-on acquisition strategy, we are constantly looking at properties. They are usually not as big as the acquisition we did with BTIG. It would be unusual for us to think about another bolt-on in the capital markets world because we are focused on closing the BTIG deal and getting synergies out of that. But we stay open to that. Those tend to be quite accretive immediately. They are small deals that give you local scale in a particular product to fill a gap. On your broader M&A question, nothing has changed about our strategy. We are very excited about the organic growth opportunities we have in front of us and the momentum we have. So that is our focus. Operator: Our next question will come from the line of John McDonald with Truist Securities. John McDonald: John, maybe just to follow up on your net interest margin comment. Just to clarify, you do expect the margin to continue expanding, maybe expand in the second quarter and move steadily upward. And are you still on a path to that 3% sometime next year? John Stern: Yes, John. Yes, we certainly still see a path to that 3%. The margin is not always linear, and I gave kind of the reasons why this quarter, the pluses and minuses, of course. I mean, if I think about just the underlying metrics, just to repeat, we feel like in terms of loan growth is a good indicator and good -- that will help in terms of the earning asset mix of how we think about the loan growth driving the balance sheet sizing. The deposits are stabilizing, as I mentioned. And then just our asset mix is improving. If I had to think about just the small business Amazon acquisition that will come on in the third quarter as an example. So it's things like that, that are going to be -- that we will continue to focus on that should help drive the net interest margin go forward. John McDonald: And that 3% target, is that still a good target for next year time frame? John Stern: Yes, we certainly feel there's a path in 2027 to get to that level. John McDonald: Okay. And then just maybe broader, your thoughts on the revenue growth guidance for this year? With the loan growth now looking a bit better and fees starting off strong in the first quarter, is it fair to say you're starting off the year feeling like the higher end of that 4% to 6% range is achievable? Maybe just some thoughts on what are the big swing factors for the low end versus the high end of that 4% to 6%. John Stern: Yes. No, good question. We have certainly had good momentum on a number of different areas in the fee categories. We've listed out capital markets has been extremely strong for us, you see that growth. Payments is -- we're starting to -- we've been making a clear inflection there. And things like the corporate payments after the second quarter are going to -- the drag of government spending from last year, that's going to fall away, and we have good pipelines in that area. And our institutional businesses are doing extremely well. So I would expect, yes, we'll -- my bias certainly is to be on the higher end of that 4% to 6% range on the fee revenue side of the equation. John McDonald: And I was thinking also on the total revenue guidance is also the 4% to 6%? John Stern: And the total -- yes, total revenue is 4% to 6%. We feel like that's the right level for us to be at this particular juncture. Gunjan Kedia: And John, on NII, we are very -- we are feeling optimistic about the volume demand for loans, and the deposits have stabilized. It's just the Iran war has a level of uncertainty around monetary policy and rate path that does impact the resi mortgage book and credit spreads. So we are staying with the 4% to 6% on the NII just because there's quite a heightened level of uncertainty around the rate path. Operator: Our next question will come from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: So 2 questions. One, I think on the regulatory stuff, or the regulatory changes, just talk to us, I think given you've obviously slightly crossed $700 billion this quarter. We have heard tailoring is front burner agenda for the Fed over the summer. If Category II moves to, I don't know, $900 billion, $1 trillion in assets, what does that mean for you strategically capital allocation-wise? Does it change anything? Does it not change anything? Would love your perspective there. John Stern: Yes. Sure, Ebrahim, thank you. I think from a Category II, certainly, we're watching to see what the rules are and how those come up. Right now, we have to focus on just kind of what the rule set is. So we are focusing on our Category II level. Of course, with the regulatory changes, we put the slide in on the 2 different proposals in terms of standardized and expanded versions. Both of those are better than the Category II regime. So that's going to be a better -- more of a help for us. And in the end, it's just going to give us more flexibility. So those are going to be kind of the helpful nature of the capital areas. Gunjan Kedia: Ebrahim, the big variable is timing of when the rules, either indexing and tailoring or even the proposed Basel III rules are effective. So to the extent that the indexing is forward-looking, it doesn't make a difference if the proposed rules get implemented sooner than we think, then we are in a good shape. But either which way, we're very prepared for Category II with full AOCI in our capital. That's what we are counting on, and we are very proximate to that. So it's not a meaningful change to anything we would anticipate doing with capital distributions. Ebrahim Poonawala: Got it. Clear. And then on your Slide 5 and 7, I'm just trying to right-size the idiosyncratic growth opportunity for USB. In Slide 5, California, super competitive. We have a Canadian bank that's also trying to gain share in California. And then on Slide 7 where you lay out Amazon, NFL, like I'm not sure if that's going to be a needle mover or it's a good logo to have. If it's possible to frame what the actual opportunity could be on both those as we think about the P&L over the next year or 2, I think that would be extremely helpful. Gunjan Kedia: Yes, thank you. These are quite needle moving. So John, why don't you give some color on that and I'll add on? John Stern: Yes. So on the Amazon side of the equation, we expect that to be coming online in the third quarter. The loan amount is going to be about $1.6 billion area, is likely in that area, and it's going to be about 70,000 co-brand clients. It's probably going to add in the neighborhood of $75 million to $85 million per quarter. A majority of that is going to be on the net interest income side of the equation. Again, this is all taken into our guidance, of course, as I mentioned in our prepared remarks. But we're going to expect to see that in the third quarter and we'll take a reserve with that at the appropriate time. That's about this kind of the same level that our current book represents. Gunjan Kedia: And I'll add on California. Yes, it is competitive, as are any other regions that have a big opportunity. But it's a very, very big market too, and we are becoming very significant as a player there, and we are seeing the growth be higher than the rest of our franchise. I'll say a word about what is the significance of the new co-brand relationships we are doing. We built our digital platform to nationally serve co-brand card clients with banking services for the first time with State Farm. We improved that platform with Edward Jones, and it's unique in the market today. And it's very attractive to partners because you can provide a full range of service to your clients under sort of your user experience. The Amazon deal allows us to take that platform and then expand it to the small business side, at which point it becomes a very big asset to attract big co-brand mandates. So that's a lot of revenue. We have 1.4 million small businesses today. These are banking clients. And the Amazon deal will bring 700,000 new small businesses to the co-brand side, with the opportunity to attract them to the business side. So it's a pathway to a very different type of growth that doesn't need to come with sort of deposit pricing erosion or any of the usual ways banks grow their business. So we are very excited about these possibilities. Ebrahim Poonawala: And if I may follow up just, Gunjan, on the State Farm and the Edward Jones, because it is idiosyncratic what you're doing there. Is the view that you can actually grow cards or grow fees in markets where you obviously don't have an on-the-ground presence? Or is the success there determined by converting that State Farm client into a core USB client? Like how do you -- what determines success? Gunjan Kedia: We think of it as an attractive value proposition for co-brand relationships, first and foremost. That's the easiest value proposition to the partner, because they like to provide the banking services. We think it's a good front-edge brand build with the local client base on the ground. It does not compete in size with what the deposit gathering machine of a bank generally is. But the results show up here in a very unique way to go to market on our card business on attracting new clients for a bank of our size, that's the fifth largest bank, and we're very, very well known within our own franchises, but trying very, in a very disciplined way, to build our brand out outside of our franchise. And that's what the NFL deal is about to. So it is an idiosyncratic approach. It has been very economically lucrative for us. And because the platform is now built and now we're going to expand it to small business, it also supports our own product sets, like the Bank Smartly product set that is attracting very meaningful level of deposits along with the card loyalty programs. Operator: Our next question will come from the line of Mike Mayo with Wells Fargo Securities. Michael Mayo: You certainly have come a long way with your CET1 when you highlight over the last 3 years going from 6% to 9%. So the days of "Are you going to be issuing capital?" are long behind you. But still, when you look back over time, the positive operating leverage is something relatively new. It's not U.S. Bancorp of old in terms of the efficiency ratio. And John, you mentioned this is the second quarter in a row of positive operating leverage. Is this something that you're going to kind of track quarter-to-quarter-to-quarter? And then on the other side of that, I'll contradict myself a little bit here, I think everybody wants to make sure you're investing for that growth, and you've highlighted all sorts of growth initiatives from partners to California, to small business, to middle market, to payments. If you were simply to highlight your 3 priority areas for investing for growth, what would those be? But first, the operating leverage, if you would. John Stern: You bet. Thanks, Mike. Yes, we've had 7 quarters in a row of positive operating leverage, which is we are very proud of, and we are very much committed to positive operating leverage. We are tracking that and we will continue to track that. We've -- we're going on with the mindset this year, while last year was more driven by expense management and finding savings within the company to become more efficient, we continue to do that, but what we're doing now is we're taking those savings and investing in some of these projects that we were talking about, and Gunjan will highlight some of the priorities here in a moment. But the things like the small business area, more of the marketing, more of the technology builds and all that sort of thing are really what we are very much focused on. But we are very much committed to positive operating leverage and having it more driven by revenue growth here as we look into 2026. Gunjan Kedia: Thank you, John. Mike, what I'd add is last year we were very focused on expense management and fee growth. Both of those were natural extensions of last 5 years of very heavy investments digitally into a really world-class product set. And the product set is very good, and it came with some sacrifice of efficiency ratio in the past. And going forward, our business mix is very, very helpful to delivering consistent positive operating leverage. And I want to just reiterate that we are very committed to sustaining that over time. The priorities in terms of growth are very simply to continue to grow out our fee categories. We want to always be known as very heavy in fee mix driving heavy returns for us as a bank. Our second real focus is to strengthen our consumer and small business franchise. And all of the examples that we are sharing here are towards that goal so that the consumer franchise and the core funding mix continues to strengthen over time. And we do want to go back to our DNA of being a very simplified, streamlined cost structure, which we think we can do. In the past, it was very much around the automations. And going forward, we are very focused on what AI can do. So that's the priorities: fee growth, strengthen the consumer franchise and go down the journey of becoming an AI-native organization. Michael Mayo: All right. That's clear. And then just one follow-up. You're saying you have credit card customer growth of 10%, but you've only had fee growth of 5%. So does that imply you expect much better fee growth ahead, or is it -- doesn't work that way? Gunjan Kedia: No, it does work that way. There is a leading gap between acquisitions and when revenue shows up. And that's just the reward structure and the upfront rewards of transitioning the book. So if you see what we've done really over the last 6 quarters is elevated our marketing and acquisition spend, and we track that very closely, across the 2 big types of segments: the balance revolvers and the transactors. We've always been quite strong on the balance side. If you look at our A&R, it has consistently exceeded HA data. But it was the fee side, the transactor side that we really accelerated acquisitions. Faster acquisitions are actually negative revenue on the core revenue pipeline. So you see this measured balance between acquiring new clients, and it's showing up in revenue. And so you see the acquisition numbers be much stronger, and they will lead to stronger strengthening revenue growth about 4 to 6 quarters out. Operator: Our next question comes from the line of Erika Najarian with UBS. L. Erika Penala: Just a few follow-up questions for me, please. Just on the forward look for deposit costs. If the Fed doesn't cut, John, do you think U.S. Bank can hold the line on deposit costs? And to that end, some investors were asking for clarity on your response to John's question. I just wanted to make sure we're taking away the right thing in that, fee revenue, you're confident you could be at the high end of the guide, but you're keeping your ranges for both net interest income and total revenue, because while loan growth is strong, the rate curve has a little bit more volatility in terms of the forward look? John Stern: Yes. Erika, so on your first question on the deposit side of the equation, yes, I think -- the short answer is yes. I think we've seen stabilization in our deposit mix. We are ultra-focused on the priorities that I just mentioned in terms of consumer deposit growth as well as on the wholesale side of the equation. What we've been doing, maybe just to add a little bit more color, is we have been doing a lot of work to reduce, and you'll see this in our numbers, CDs and higher cost institutional-type deposits and things like that, that have less value, maybe our one more -- one-off type transaction as opposed to multi-serve. So that's really where our focus is on the deposit side. And so we do see that. On the -- just to repeat what we've said, our bias is really on the high end of the range for fees just given the momentum we're seeing in all those categories. And we have that visibility because you can see the pipelines of the businesses that are coming online. You can see in all the different categories that I just talked about, including payments, including institutional services. And then capital markets just has been continuing to be robust. On the net interest income side, just we continue to expect mid-single-digit growth in that area. And that's a reflection of just the uncertainty in the marketplace right now. There's a lot of puts and takes that are occurring. And so while we have deposit stabilization, while we have good core loan growth, those are all things, some things are coming on at tighter spreads and the interest rate environment is uncertain, and we just are taking that into consideration here. L. Erika Penala: Got it. And the second question is just a follow-up on the capital discussion. So under the current rules, obviously, in theory, you'll be crossing Cat II at some point next year. If you do elect to the ERBA or enhanced risk-based approach, is your understanding that is the 5-year phase-in going to be the overarching sort of guide? Or does it -- does the AOCI cliff once you cross over? Or to Gunjan's earlier point, does it matter very little because of the timing issue and your AOCI would burn down by the time that's valid anyway? John Stern: Yes. It's a good question, Erika, and it's one we actually have for the regulators in terms of just clarification of it. We're unique in that we have proximity to Category II. So there is a little bit of a timing collision between the Category II timing of when we come online which is we expect that would to be under current rules sometime in 2027, the effective date of ERBA, and when does that occur? And then of course, Ebrahim, I believe, had the comment about, is there some rules that will change on the index? So a lot of things are moving. What I'll tell you is that we're preparing for a Cat II world. That is what we are -- have been ensuring that we have -- we'll be in compliance with. We have the capability to go to standardize or ERBA. That's -- technologically, that's very simple for us to execute. And I think overall, we will just have -- we'll monitor and we'll update you as we go. But we feel prepared, and we have a lot of -- we feel like we have a lot of flexibility now with the capital rules and how that will go -- how ultimately it will play out. L. Erika Penala: And just a quick follow-up question in terms of what Gunjan is saying with regards to optimizing the payout. Does the timing of the clarification impact sort of the path to optimization? Or does that really have to do with sort of the RWA demands from stronger loan growth, in terms of timing of capital payout optimization? Gunjan Kedia: Erika, I would say that we believe the regulators' intent is to allow all banks 5-year phase-in on AOCI to take the cliff effects away. But we are waiting for that clarification. A very good outcome from a capital distribution side for us will be, let's say, a very prompt date to have the current proposals of Basel III be effective and for us to get a 5-year phase-in period, in which case we'll be well ahead of our capital needs even as a Cat II, and we would bring forward the capital distributions. We are thinking here 1 or 2-quarter changes. So that's why I say it's not that material to our strategy or our timing. But it can move by 1 or 2 quarters in terms of how quickly we step up. Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: Just one question on the expense side. You did a great job holding the line as you had expected to on year-over-year growth in first. And we can see in the second quarter guide that it's, as expected, moving higher. Just wondering, first to second quarter costs last year were actually down. So understanding the year-over-year growth goes up a little bit. But kind of tied to the prior points about operating leverage and magnitude, if we get back into this 3% to 4% growth, is that how we kind of think about it as we just move forward on a regular basis, that the investment that you're making kind of and revenue-related leads you to a decently higher expense growth rate than what we had seen in the first quarter, which I don't think people thought was going to be the baseline? John Stern: Yes. Ken, yes, I appreciate that because, right, we've been operating at pretty much a flat expense base for several quarters now, I think it's 10 or something like that. And here, we are stepping that up. And it's -- I'll tie it back to some of the answers we have been giving on positive operating leverage. We're very much committed to positive operating leverage, but we want it to be driven by revenue. And so to the extent that revenue is at the levels that we are forecasting, for example, here in the second quarter, that 6% to 7% area, then that calls for expenses to be elevated and higher so that we can invest more into the business. Certainly, if the revenues don't materialize, we have levers to move that down. I think you can tell from our actions over the past 2 to 3 years plus, maybe decades, that we have the ability to manage expenses and have the different levers to do so. So we have a lot of confidence in our ability to achieve positive operating leverage. Gunjan Kedia: Thank you, John. I'll add, Ken, you can be confident in our degrees of freedom around expenses. We have quite a lot of flexibility in delivering the positive operating leverage and flex with the revenue set up. The productivity that the franchise is observing is very real and not just squeezing expenses, which I know investors worry about whether that is sustainable. So we are, as John said, very committed to positive operating leverage and with some ability to flex on the expenses as needed. Kenneth Usdin: And are you able to pull forward investments? Like if you are doing that well on the revenue side and you still want to keep closer to that 200, I mean, I think people are hoping for more than 200, but how much on the flex side, do you also kind of have the opportunity to just get some spending done and then set yourself up for even better results in the future? Gunjan Kedia: It's a combination. So there are things like branch investments and things like big technology builds that you don't think you can flex and change in the short term. But a lot of our expense is contra revenue in the sense of marketing expense for acquisition of card or marketing expense for brand building is very short-term flex. So that mix is flexible enough for us to think about it. And we do hear your point, I'm not ignoring it, that investors would prefer it to be more than 200 basis points. But as you know, the opportunity set in our portfolio is really very attractive. So we are leaning into it this year, while last year we realized that we really needed to put some points on board on positive operating leverage. And you saw from John's chart, we've reduced efficiency ratio by more than 400 basis points over the last 2 years. And we still have some aspirations to be just a lean bank, but not at the expense of really investing to capture some of the growth opportunities we have. Operator: Our next question will come from the line of Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Gunjan, can you share with us -- obviously, you were very clear about focusing in on organic growth. And we all know in the banking industry that consumer transaction accounts or DDA deposit accounts are the gold that really drives profitability from the liability side of the balance sheet for all the banks. And our industry or your industry has obviously consolidated. U.S. Bancorp has been a big consolidator over the years. And that's one way to grow those core deposits, of course. But with the organic growth, is there any plans for U.S. Bancorp maybe to follow some of the strategies your peers are pursuing now of building out nationwide or regional-wide branches to grow these core deposits? Even though I know online digital is a main driver of capturing new growth. But it seems like it's complemented by having physical branch presence. What are your thoughts on that? Gunjan Kedia: Gerard, well, we very much agree that the physical branch presence is very critical both to the quality of the deposits and the deposits per account. So the economics of a branch-based deposit acquisition are very attractive to us. As you know, we spend $200 million a year on our branch network. We still have work to do in changing the formats of the branch, to go from focus on servicing, which our legacy branch network very much had focused on, like these small branches, many times an in-store, what you see us building out even sometimes in the same location are these multiproduct branches where you can have a small business adviser, a wealth adviser, a mortgage adviser and, of course, our banking and loan and small business specialists. So we are very committed to branch expansion. The slight nuance here is that our focus is on densifying those parts of our existing footprint where our brand is very powerful to become the top 3 depositor in that geography. And so that's been our focus. We're building our branches in places like Nashville, Phoenix is a big focus for us, Reno, and pockets of sort of really new, young growth, is where we are building out the branches. What we want to do though is to leverage the uniqueness of our payments franchise and our digital capabilities to augment that branch-based growth. But all of this to say we strategically understand the need to be very highly focused on building out a high-quality consumer and small business franchise and improving the deposit quality over time. That's why we track the consumer deposits as a mix of our total deposits like a hawk now. And we are very focused on growing that mix. What would you add, John? John Stern: Yes. I mean, I think that's well said. And from a deposit standpoint, as I mentioned, we've been growing those deposits. And I think the opportunity for us to refurbish and to, where we have scale and lean in on those areas that you mentioned and then some, is really where we are focusing our investment and time. And that's where, ultimately, once you have scale in those markets, you can get the deposit features that you want that help us with the things like the deposit stabilization that we're getting in terms of not as much rotation in the consumer side of the equation and things like that. So that's very much a focus for us as we -- as Gunjan has articulated. Gerard Cassidy: Very good. And the follow-up question is, and I direct it to you, folks, because you're well respected on credit quality through a full cycle. You're one of the banks that has demonstrated consistent underwriting conservativeness. And I want to come back to the slides that you put out, John and Gunjan, 17 and 26, on the NDFI portfolios. And what's interesting is that many of the banks are giving us this information, which is very helpful, and it doesn't appear that these NDFI portfolios, even in the business credit intermediaries category, are that frightening, if you will, because of the structure of the portfolios. And so this is more of an educational question, I'm asking for myself and probably others. What kind of scenario -- and again, I'm not saying it's going to happen to you, folks, but again, it's more -- you guys know credit very well. What kind of scenario would you actually have to see for losses to show up in these types of credits? Because it doesn't appear that it's going to happen even in a traditional credit cycle? Or am I way off? John Stern: Well, thanks, Gerard, for that thoughtful question. I think a couple of points I'd make. One, we put the slide out there. This really started, I think, a couple of quarters ago, and there was a couple of unique losses that were in the marketplace and there was a reaction to, hey, what's in the book from an investor standpoint. And so I think more information, more education is helpful. I think getting more granular, like we did on Page 17 in terms of giving you some color on the structure and how it's set up to give, just how you -- what exactly you just said that we think there's very low loss likelihood in these sorts of structures. It would, in terms of like AAA CLOs, I mean, we've never really seen losses. And of course, as a banker, you want to never say the never say never because you -- that's why you have limits, that's why you have underwriting practices, that's where the risk management comes in. Because it's hard to envision any -- there's lots and lots of scenarios out there, and there could be one that could trigger something. I don't know what that would be. I don't know what the trigger item would be. But that's why we have the limits, that's why we have the rigor that we do. And we'll stay true to that, and that's -- we wanted to illustrate that on Page 17 and the other page in the appendix. Operator: Our next question will come from the line of Saul Martinez with HSBC. Saul Martinez: I want to go back to Amazon. You guys seem very excited at the opportunity set here. And Gunjan, I think you said it meaningfully expands your card growth. And John, you gave some numbers around it, $1.6 billion of loans and, I guess, $75 million, $80 million of revenue. But can you talk to the size of the opportunity? It seems like a relationship that can really grow. How big can this get either in terms of volumes, loans, revenues? And what can you do -- what are you doing to ensure that this partnership is enhancing value for yourselves and for Amazon? Gunjan Kedia: Saul, we have a portfolio of co-brand partners, and the growth in that book is very reliant on the growth of the customer base of our partner. So to that extent, just because Amazon's ability to grow its small business base, and their aspirations around this segment, give us optimism around our path forward. Just when we convert the book in the third quarter, what we are expecting is about $75 million to $85 million per quarter type of impact, which is meaningful from a growth standpoint. Our intention would be to have some of that show up in the revenue projections of the business, but some of that we'll reinvest in driving new client acquisition. But our goal here is to take our payments business to a more robust long-term growth trajectory. And that's what this platform helps us do, along with many others that we are building. Saul Martinez: Okay. That's helpful. And maybe to stay on payments, I wanted to ask about the merchant acquiring business. The merchant processing fees did grow nicely again, mid-single digits, 5%. The volumes have been a little soft though the last couple of quarters. I think it was 2% last year -- last quarter, 1% this quarter. It's actually a little bit lower than even the number of transactions, which grew slightly more than that, which would suggest lower ticket, average ticket. It's a little bit unusual in an inflationary backdrop. But anything to read from this? Are you seeing higher take rates? Does it reflect the mix shift? Are you seeing changes in consumer behavior or consumer spend patterns? I'm just curious if there's anything to read from this because, obviously, the volume eventually, I think you would want to have volumes growing a little bit faster than what they've been growing the last couple of quarters. John Stern: Saul, it's a great insight and question. I'll give you the quick fact on it is it's just -- it's basically 1 or 2 clients that have exited that have really no revenue impact on the numbers. And so the big picture then, therefore, is that the underlying trends of our clients are more reflective of the growth rate that you see. So if you were to take that -- and what I mean by that is the growth rates we had in card are kind of that 5% to 6% area. That's kind of more reflective of what we're seeing in our core for merchant, which is reflective of that growth rate of 5.1% that you see for the quarter. And broadly speaking, payment trends have been just very strong. Gunjan mentioned in her comments, despite the sentiment that is out there, the spend patterns that we've seen both in terms of high-FICO and in mid-FICO are about the same, discretionary versus nondiscretionary about the same. We're just -- it's broad-based strength in the spend despite the sentiment that you see out there. Gunjan Kedia: And over time, we do want to decouple from the volume growth. This is a vast industry and a lot of volume comes with very little revenue and a lot of risks. So we are going to be quite disciplined about only focusing on the revenue growth. And I do understand from your point of view, there's not that much visibility to revenue trends. A lot of the external reporting is only volume. And we'll try to bring as much transparency. But we are very committed to a profitable business that grows modestly, and not chase after sort of big volume that comes with very, very thin revenue, which you can do in this market quite a bit. Operator: Our next question will come from the line of Vivek Juneja with JPMorgan. Vivek Juneja: I have a couple of questions. One, to sort of follow up on payments. I think you have a new category now, it says corporate and treasury payments, pardon me, if I get that wrong, or is it treasury and corporate? I know you just changed, yes, corporate payment and treasury management revenues. You've reclassified it. The growth rate in that slowed to 2% year-on-year, and you have the fuel card, which benefited a lot from gas prices. So any color on what's going on there that you can help elaborate on that growth rate? John Stern: You bet, Vivek. Yes. So with the change, we combined treasury management as well as corporate payments, that's kind of the classification change based on how we manage the businesses here within the company, along with other changes that we put in the 8-K a week or 2 ago. In terms of the growth rate, just on the corporate payment side is where we're seeing the drag in that number. And that's really a reflection of last year at this time, recall, there was the tariff announcements and things of that variety and a lot of focus on government spend from DOGE and other things like that, that really we're beginning to lap that. In the second quarter, you'll start to see that lapped and fully in the third quarter. So we see the pipelines being really strong there. And so by the time we get to the third quarter, that will be more representative of what we believe that will be the true growth rate in that business. Vivek Juneja: A different question. John, thanks for the disclosure on the NDFI stuff. I know you gave BDCs and CLOs. How about private credit? And what's your exposure there? John Stern: Yes. So I think if I'm reading you right, just on the capital call facilities and things like that... Vivek Juneja: No, that's private equity, I was talking private credit, because that's going to be different from BDCs? Or is that in your mind synonymous? John Stern: Yes. I mean, I think Page 17 is a lot of the private credit type of exposures. So I think that's the laundry list is how I would lead to. Then the call facilities, which I know you mentioned private equity, that's going to be the other -- the equity component of NDFI. So I look at this page as really the private credit component and exposure, on Page 17. Vivek Juneja: Okay. You mean because you've got the 5 different categories, but not all of that should really be private credit? John Stern: Yes. No, true. True, true. Yes, CDF, BDCs and the CLOs, I would say, are really representative of the private credit components, yes, which is just under 3% of our total loans. Operator: Our next question comes from the line of David Chiaverini with Jefferies. David Chiaverini: The other bogeyman out there is AI disruption risk as opposed to just private credit. Can you frame to what extent any of your fee income businesses could be at risk from AI, particularly payments, and the moats you have to defend your position? Gunjan Kedia: Let me start. We don't see any particular business be truly exposed to an en masse sort of disruption either in terms of price collapse or volume transition. What we are seeing is a very rapid shift in customer search behavior in how they find products and services. So to the extent that we need to keep up with the discovery, and it's very like basic things like search engine optimization tools for marketing are very rapidly migrating to the AI world. The reason we don't think that is going to be impacting our business is because we are building those capabilities and transitioning our approaches pretty rapidly too and there's a lot of tool kit. So I will tell you we are watching these trends very carefully to see how it might be. But as of now, we are not seeing anything that would show a sudden discontinuity or shift here. John Stern: Maybe I'd just add. I mean, I think of -- we had a commentary from Stephen in the recent conference about the usage of AI. We have a lot of businesses that have complex operations that we do very well, if you think about fund services and corporate trust. So this is an opportunity for us to leverage AI and go on offense really and simplify our operations and the complexity that goes along with it. We have the knowledge of how these things work and so we should be able to take advantage of that faster than any other outside competitor or fintech or whatever the case may be. So that's kind of how we think about it. Operator: Our next question will come from the line of Chris McGratty with KBW. Christopher McGratty: I'm interested if any of the optimism on loan growth is perhaps nonbank lending turning back to the traditional banks such as yourself? John Stern: I don't think so. This is -- what we're seeing is if I think about private credit and where they've grown, they've grown in more of the leverage space, more in HLT and other places like that. And a lot of that we just -- because of our credit underwriting and the way we look at things, those are areas that we're not as focused on really. So we never really have truly competed head-to-head with the private credit wing, so to speak. This growth that we're seeing is going to be more in the large corporate space. I mentioned food and beverage and energy, utility, all these sorts of categories are really coming online. And that's unique. That has not shown up in the last several quarters. So I think that is why we wanted to call that out and why we have such optimism in our pipelines go forward. Christopher McGratty: Okay. And then given the optimism on growth, is the expectation core deposit funded? Do you think you'll need to rely on perhaps more expensive sources to fund the stronger growth? John Stern: Yes. Maybe just to link a couple of comments we made here, I think deposits will generally grow in line with loans, although it may not be one for one. It will probably be a little bit less. And the reason I say that is because our focus is really on consumer deposits and growing operational deposits and really limiting or eliminating things like CDs and higher-cost institutional or just kind of onetime clients that just -- that's all we have is just the deposit. So we're going to be more nimble on the deposit side of growth versus the loan side, I would imagine. Operator: Our next question is a follow-up from the line of John McDonald with Truist Securities. John McDonald: Just a quick modeling question on the BTIG. John, understanding it's not part of the guidance. When you say accretive for the year, does that include any integration charges, so that's kind of all in accretive to your results for the year is the expectation? John Stern: Yes, that's our expectation, John, is slightly accretive to inclusive of those charges. We'll start to provide some of that information as we come online. We're expecting kind of back half of the year in terms of that. So obviously, there'll be a bigger expense base. There's less of a margin with this business than most of our businesses. So you'll see that flow through. And then it's merger cost that we'll identify as well. John McDonald: Okay. So the financial impact, probably not much in the second quarter? This will all start hitting your numbers in the back half? John Stern: Yes, that's right. Yes. I wouldn't expect much of anything in the second quarter. Then the third and fourth quarter, we should be, pending regulatory approvals, yes. Operator: And there are no further questions at this time. I'll hand the call back over to Jen for closing comments. Jennifer Thompson: Thank you, everyone, for joining our call this morning. Please contact the Investor Relations department if you have any follow-up questions. Regina, you may now disconnect the call. Operator: This concludes our call today. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the hVIVO Annual Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and please do give that your attention. I'm sure the company will be most grateful. I'd now like to hand over to CEO and CFO, Mo, Stephen, good afternoon. Yamin Khan: Good afternoon. Thank you for the intro. So I'm Yamin Mo Khan. I'm the CEO of hVIVO. I've been with the company for just over 4 years, and I have with me our CFO, Stephen. Stephen Pinkerton: I'm Steve Pinkerton. I've been with the company for almost 9 years. I've been the CFO for the last 4 years. Yamin Khan: I would like to welcome you all to our full year 2025 results. The company has had a challenging 2025, at least financially. But operationally, I think we've done some great work, and we'll go through both our operational achievements as well as our key financial parameters. So we'll move straight on to the financial -- the normal disclaimer and then really to go through the company's overview of what we are planning to do from a strategy point of view and what we have achieved because it's key to have a strategy, of course, it is, but it's also key to see how we are progressing in executing that strategy. So as you all know, we are the world leader in human challenge trials, and we will remain so, and we are continuing working hard to expand our human challenge trial capabilities. But one of our key focus area is to continue to diversify and add new capability. And that's been part of our action for the whole of 2025 and 2026. And we'll really talk about how we are diversifying into new areas. So new stages of clinical development from preclinical all the way to end of Phase III, whereas historically, we've run the Phase II human challenge trial and also expanding our therapeutic expertise, not just doing infectious disease trials, but doing respiratory and cardiometabolic too. And on top of that, of course, through our acquisitions, we already have achieved a geographic expansion into Germany and pan-European presence. And I think the key thing is that in 2025, we have already achieved a number of the key criteria that we were looking at. So the expansion into Phase I is done. We are now retiring the brand names for Venn Life Sciences, CRS as well as Cryostore and rebranded ourselves under the single one hVIVO brand, which you may have seen launched yesterday on LinkedIn and other social media channels. Going forward, we want to provide our customers with an integrated end-to-end drug development platform under the hVIVO brand and operating ourselves under 4 different service lines, which I will describe later on. I will be focusing on the diversification of services, but please note that this is not at the cost of human challenge trials. We want to continue to build our human challenge trial capability and remain ahead of everyone else. But the key focus for us is to remain more diversified and offer a greater portfolio of services across the board. We have built a new challenge model. So we've launched contemporary human challenge models in influenza as well as the world's only commercial hMPV challenge model. We've also recognized some cross-selling opportunities whereas historically, we may have not approached customers in Phase I. Now we can offer them the Phase I, Phase II combination as well as Phase I and human challenge trial combination. Post period, we've had some really excellent highlights with the new trials contract we announced yesterday as a really good signal that human challenge trials are returning and back to normal. This is an influenza prophylactic antiviral challenge trial that will take place this year, and we expect to recognize the majority of revenue in 2026. We also are in the process of finalizing our agreement for our world's first Phase III human challenge trial in whooping cough with ILiAD Biotechnologies. With that, I'll hand over to Stephen to go through the key financials. Stephen Pinkerton: Good evening, everyone. 2025 has just -- has been a challenging year for this business. We delivered GBP 46.8 million. That's in line with our downgrade that we gave in May 2025. It happened quite quickly. We faced a number of cancellations right in the April, May time. Normally, the number of cancellations that we have is around about 2 on an average. And this -- and we had quite a bit more than 2 in the current year. And that is the main reason for the lower revenue performance. However, I think the business has adjusted well. We made a profit of GBP 1.4 million despite these headwinds from the U.S. and that's after the net acquisition losses of GBP 1.4 million. So the underlying performance of this business was profitable in the circumstances. Cost management was at the foreground, but the efficiencies that we achieved in 2025 to establish in 2025 pull through in 2025. One of the clearest examples is recruitment. We were able to leverage our database rather than go out for lead generation and spend money on advertising and things like that. But clearly, one of the clear reasons for the profitability was also these cancellation fees carried no variable spend attached to them and flowed through to the bottom line. And this gives you a sense of whilst HCT got impacted significantly by the headwinds in the U.S. with infectious diseases and vaccinations not being in favor, our contract model softened the blow somewhat in this -- on our HCT studies -- on our HCT revenues. Moving on to cash. Cash of GBP 14.3 million was a little bit better than the expectations, although this is much lower than we started the year at GBP 44.2 million. Just under 50% of that is due to the acquisitions supporting the working capital and also obviously, the consideration for acquiring -- making those acquisitions. Just over 50% of that is due to the core business and the limited number of HCT trials that we have signed in 2025 or before the end of the year. The Board has made the decision not to pay a dividend for 2025. That's really -- the value of the dividend is GBP 1.4 million, and we felt it's much better spent investing and growing in the long-term future of this business. The order book of GBP 30 million is -- compares to GBP 43.5 million has been restated. So previously, we would have included the full value of a contract at the time when the contract is signed. However -- when an SUA is signed, a study start-up agreement is signed. However, because we faced a number of cancellations and we have changed the methodology. At the time we set up a start-up agreement, we get start-up fees and we get a booking fee. And because that booking fee was seen as a commitment, we would use the CTA full value. However, we're now only including the contracted values in the order book. And we are also now only announcing contracts when the CTA value -- when the CTA has been signed with clients. So there is a bit of delay because, first of all, you've had headwinds affecting the HCT market. And we're now only announcing studies once the CTA is signed. And the time between SUA and CTA can be anything between 5 months to 12 months in Signature in terms of when they sign between the 2. But there's another slide further on, and Mo will take you through more on the order book going forward. Just touch on revenue. This is a waterfall from 2024 to 2025, the key sort of drivers and changes in the revenue makeup mix over 2025. Remember, in 2024, we did receive facility fees that clients paid us to effectively what we built up in Canary Wharf for a large study that was delivered in 2024, and that was roughly about GBP 4 million. HCT, we've just talked about, it did decline significantly. It's due to a number of cancellations. I also wanted just to highlight that some of that decline has got to do with -- in HCT, we also include manufacturing revenue, which is around about 10%. 10% of the HCT sales that we make is where we have manufactured challenge agents for clients. And so I don't want people to remember that this is an important part of our portfolio is being able to develop challenge agents. Clinical Trials were slightly up year-on-year. We did have a high volume in 2024, where we -- and we've managed to be able to repeat it in 2025. So I think that's quite a good performance. Labs is slightly up. It is off a low base, but we see a pretty good order book going forward on that. Consultancy was down, and that's mainly because a big pharma took some work in-house. But with the support of CRS, we're beginning to see some cross-selling from the CRS clients into our consultancy -- early clinical consultancy services, so that's improving. Looking at the acquisitions, Cryostore at 0.8 million, that was their revenue for the year. That's perfectly in line with our expectations and the due diligence work that we did on Cryostore. They are delivering as expected. It's a high margin. It is a business that has sort of 90% to 95% retention rate. So it's a great little business and it's doing very well. Clinical Trials, our German acquisition, GBP 12.3 million is a little lower than we expected at our due diligence stage. It was really down to the RFPs in 2024 not converting as expected as per previous sort of conversion rates, impacted definitely by the whole sector. The whole sector had a little bit of a hesitation and a hiccup across the CRO sector. So certainly that impacted. However, we have seen an uptick in the conversion rates in 2025, offsetting some of that shortfall in 2024 -- of the 2024 RFPs. And then just to touch on cash, a little bit of cash utilization here. I've just tried to split how we've utilized our cash. We have utilized some GBP 29 million. This is the core. We used GBP 15.4 million and inorganic work, it was GBP 14.5 million. Cash generated from operations of GBP 10.4 million is obviously due to the HCT where we've had unwinding of the deferred revenue and the new sales on HCT is still to come back and looking at the pipeline, that's looking positive. But obviously, it's impacted us for 2025. The purchase of PPE, the GBP 1.4 million is largely lab equipment. We did purchase the first digital PCR equipment in Europe, Hamilton. It's a great piece of kit. It's quite expensive, but it supports us with our field study work that we're doing on Cidara and new field work that we're going to do. It's much faster and it's much more efficient as well. Financing activities of GBP 4.6 million includes a dividend of GBP 1.4 million. And obviously, we're not paying that in 2025. It's in 2026. So there's no dividend going on. The other thing that we benefited in 2024 was we had a rent-free period in Canary Wharf. So our lease payments have jumped up by about GBP 2 million to GBP 3 million in 2025. So that's the makeup of the GBP 4.6 million. Then just the acquisitions, GBP 10.5 million spent on consideration costs and the GBP 4 million is really the sort of the working capital and funding the loss for the year. But overall, I think the business has reacted quite well to the headwinds that we have faced and try to reflect there is some resilience in the business in terms of the way we contract to soften the blow, and we're well set to go forward. And with that, I'll hand you over to Mo. Yamin Khan: Thank you, Stephen, for going through the numbers. I want to really focus on why do I feel bullish going forward. We've just been through a challenging 2025, and we had a profit warning in 2025. The share price has been depressed. But I still believe that as a company, we've had a transformational year. So we've gone through 2 acquisitions, Cryostore in London and 2 clinical research units in Germany from CRS. And we realigned our company under the single one hVIVO brand. The reason why that is important is we want to offer a one-stop shop for our customers to go from preclinical is at the consulting stage all the way to end of Phase II or end of proof of concept, basically to show a signal whether a drug works or not as well as offering Phase III site services. So under the 4 different arms we have right now that we are fully operational and currently in working practice, the consulting arm focuses on CMC, PK, regulatory type of consulting with majority of really falls under the former Venn team. But they work very closely with the clinical trial service arm in the sense that when we are running a Phase I trial, as part of that, we may be helping our customers to design protocols, write clinical development plans, obtain regulatory advice. So the clinical trial service unit works very closely with the consulting arm. Under the Clinical Trials unit, we also include the Phase II nonhuman challenge trials we run, both in Germany, but also in the United Kingdom, in London, in particular. The third arm is the human challenge trial arm. But this is a legacy arm where we manufacture new challenge models, we validate them and then we run the human challenge trial work on that. And the final piece to the [indiscernible] is, of course, is the laboratory piece, which historically has catered human challenge trials, but now is a stand-alone business on its own. So it will continue to provide services to the human challenge trial -- clinical trial business. But on top of that, we also expect to service third-party clients, trials run by third-party CROs. Cidara being a key example where we provided full center virology assistance in the laboratory aspect to 50 sites in Phase II to 150 sites in the Phase III. What this enables us to do is to handhold the client from the beginning to the proof of concept. It also means that we're able to access new clients independent of the stage they're at with regards to the clinical development program. Historically, we were a Phase II human challenge trial business. Now we can attract clients whether they're in preclinical Phase I, Phase II or Phase III. So this automatically increases the portfolio of our customers. Having said all of that, I want to reiterate human challenge trials remain a key component of our offerings. We are no longer relying on them as a sole provider of future revenue. In 2024, over 85% of our revenue was generated from human challenge trials. In this year, we are forecasting less than 50% of our revenue to come from human challenge trials. Of course, this is partly due to the downturn in the human challenge trial awards and the cancellations we've had in 2025. But it does show the progress we have made in the non-challenge trial business, the fact that we can now expect over 50% of our revenue to come from non-challenge trial business. The scale and breadth of the company has also radically changed. We now have over 200 beds in a variety of different locations where we can treat patients for all sorts of clinical trials. We've created centers of excellence for different type of therapeutic areas. So in infectious diseases and also respiratory in London, cardiometabolic in Mannheim, renal and hepatic special population studies in KIEL. Now this gives us, again, access to new customers that we have not had access before. CRS historically have mostly worked with German customers. Now we are targeting our sales activities to pan-European and also U.S. customers to run their trials in Germany with the -- for the Phase I part. We've seen volatility within the FDA and more and more customers looking to do early-stage clinical development outside of the U.S., whether that's in Australia or in Europe. And we want to play a key role in attracting those customers to you, especially in Germany when it comes to Phase I trials. On the human challenge trial business, as I said before, we want to continue to build on this and be the world leader. We do majority of the commercial human challenge trials that are conducted in the world. We've added a new human metapneumovirus model, hMPV challenge model. It is the only active challenge model commercially available in hMPV. We've renewed our influenza viruses in a number of different strains and Traws Pharma is taking advantage of a new contemporary viral model that we have in place that we launched last year. And we will continue to build on our human challenge trial business, and that's key. We're also potentially expanding into respiratory human challenge trials, challenging asthmatic or COPD patients to cause mild exacerbation and testing new antivirals or asthma and COPD products. So human challenge trials will remain a crucial part of the business. We have 3 other key growth initiatives that I want to walk you through. And the reason why they're important is I expect them to contribute significantly going forward as part of our non-human challenge trial business. The first one is the cardiometabolic. I'm sure you are all aware of the recent boom in anti-obesity drugs. And we want to be part of a clinical development team that tests new anti-obesity drugs. But cardiometabolic is more than just anti-obesity drugs. It also includes drugs targeted against diabetes, for example, hypertension, high cholesterol levels in patients. We have a world-renowned endocrinologist, key opinion leader in doctor -- Professor, sorry, Thomas Forst, who heads up our -- who is our Chief Medical Officer at CRS or now the clinical trial service arm, who is responsible for leading this franchise. He acts as a director on several advisory boards for Big Pharma. And we believe through our initiatives in attracting new customers outside of Germany, supplementing the patient recruitment with the U.K.-based FluCamp now fully implemented in Germany, we can run more trials in Germany. The key for us is that we offer Phase I and Phase II combo trial delivery platforms, Phase I in healthy volunteers and expanding into Phase II patient-based studies. Now in our group of service providers, there are not many vendors out there that can provide both healthy volunteer Phase I trials and Phase II patient studies. And there's a gap in the market, which we want to make the most of. Our second key driver is respiratory. So historically, on the human challenge side, almost all of our challenge trials have been run in infectious diseases that target the respiratory system. So we inherently have a really strong respiratory franchise with some really good experts and our facility is equipped already to monitor different respiratory parameters when it comes to running Phase II and Phase III trials. And that's something we are now making the most of in the sense that we are targeting clients, respiratory clients to conduct non-challenge trials. We run a number of non-challenge asthma trials. We have a huge database of patients both in asthma and COPD. And we're now seeing traction from our clients who are interested in running field studies with us on both asthma and COPD indications. And this is something, again, we want to build on and then build new indications on the back of delivering these types of patients. The third and final piece of the puzzle is a laboratory. We want to build the laboratories. As I mentioned earlier, historically, laboratory has catered for our human challenge trials. We now have a strong stand-alone business. We've added new capabilities to this. We have added a droplet digital PCR machine that can automate and speed up the analysis of samples for PCR purposes. We've also added a next-generation sequence capability, which is NGS capability. It means that we can sequence pathogens or other molecules much faster than we have previously done. In fact, we formally outsourced this piece of work because it was part of the human challenge trial business. And now by bringing it in-house, we can increase our revenues and improve our margins. And our goal is to continuously monitor the requirements in the market for different types of laboratory requirements and to target customers for repeat business in this area. And the end-to-end platform isn't just a fancy word that I say to try and promote hVIVO to you. It's something that we have seen in action. Cidara is a really good case study. Cidara is a U.S.-based biotech company that came to us 3 years ago almost when we ran the human challenge trial. On the back of positive results from our human challenge trial, we were a site -- a clinical site in the Phase II field study, where we contributed around 1 in 6 patients in the total recruitment base. On top of that, we acted at the central virology laboratory for the Phase II trial. That was a positive outcome for that trial. On the back of that trial, Cidara was sold to Merck for $9 billion. We are currently, again, working with Cidara, now Merck on a Phase III study, also acting as a clinical site and a central virology laboratory for over 150 sites or hospitals around the world who send their samples to our laboratory where we analyze the primary endpoints. This is something we want to do more of, and we have now diversified to include both the consulting and the Phase I. So now, for example, we can speak to a customer at the preclinical stage, help them formulate their product through our CMC and our PK consulting services, take them to the regulatory bodies through regulatory consultants, do and conduct the Phase I trial first in human clinical trial and then the Phase II trial in patients. And along this journey, by doing it under one contract, one roof, it means you improve the efficiencies, you enhance the quality and you reduce the cost. All these are very attractive sentiments to a biotech who is looking to get to and the proof of concept with -- as fast as possible and potentially as cheap as possible. The reason why I feel this is important is because I believe that going forward, we will see an increase in number of trials done by biotech to get to Phase II. That's because the Big Pharma are cash rich right now. But they also have a challenge of a very big patent cliff, around $300 billion worth of new branded drugs will expire their patents in the next 5 years. This means that after that, the revenue that these companies will get from the branded product will reduce significantly because there will be copycat generics on the market at a much cheaper price. To fulfill their pipeline, Big Pharma will spend money to buy new assets. And because they're cash rich, they can afford to pay a higher price and get a drug that is at a later stage of development, so lower risk of development. If that was to happen, the biotech companies need to run Phase I and Phase II trials. And that's where we come in. We can work with these biotech companies and give them an enhanced package to get to end of Phase II. And the therapeutic is we're working on what we call primary care indications. So these are indications where you would typically go to your GP for rather than a hospital. So we focus on infectious diseases, in respiratory, in cardiometabolic. We can add other franchises, for example, women's health or dermatology and so on. And the key for us here is to have an integrated end-to-end delivery system that requires minimum effort and resources from a biotech. So their team can remain small and nimble and we could be the workforce underneath them to get to the stage where they're ready to market themselves to Big Pharma, just like we helped Cidara to do. The diversification, again, isn't all talk, okay? I mentioned the fact that 50% of the revenue will come from non-challenge trials. And you can look at the order book. The order book is also diversified. Stephen explained our new algorithm when we announced the order book and new contracts. And the key to that is that it should be more resilient, more reliable because it's closer to the execution of the work rather than at the start-up agreement. It also means that our order book in this instance, as you can see, will be lower than previously stated because we are announcing this contract at a more mature stage. This order book for 2025, of course, does not include the Traws Pharma contract because that was signed in post period. But I would want you to focus on the other areas and the growth we are seeing across the board in the different service lines. And that's key for us. So we want to build the human challenge order book. Of course, we do, but we also want to continue to build and grow and accelerate the order book in the non-human challenge trial areas. When it comes to new proposals, we've also seen a really good uptick. So 2025 numbers were significantly better across the board compared to 2024. And this year already, in the first quarter of 2026, we've seen a 50% increase in new proposals submitted year-on-year. And the variety of clients we're getting is also much greater than ever before. And I want to reiterate this. We're now attracting clients in new therapeutic areas. We're also attracting clients at different stages of clinical development. And that's key for us to build a future to diversify and derisk. If something like what happened last year was ever happened again, we are much better placed to manage that. And the final slide, just to sum up where we're at. So I totally understand people's frustrations, investors' frustration with regards to the financial outcomes and the share price depression in 2025. But I hope I have relayed some of the key work we have done. We've been very busy in getting the acquisitions on board, realigning the company to diversify and integrated end-to-end delivery system. And that's something we want to continue to go forward with. The CRS and the Cryostore integration are fully complete. We have all the line management realigned. We have launched new group-wide systems that work across all our colleagues across the group. You've seen from the pipeline is strong. The short to medium-term outlook is very good. We have signed Traws Pharma as a major human challenge trial. We hope to finalize the ILiAD contract soon. So the pipeline is very strong. And in the meantime, by the way, we are continuously signing Phase 1 contracts. These are generally between GBP 600,000 to GBP 1 million in value. So they're not announceable. But I'm pleased to say we are continuously working with new clients as well as some repeat clients in the preferred providerships that we are building the order book on that side as well. And with having said all that, we are confident that we will achieve high single-digit revenue growth in 2026. Thank you for your attention. Operator: [Operator Instructions] Investors before we go into the Q&A session, a recording of this presentation will be available via the Investor Meet Company platform shortly after today's call. Mo, Stephen, you received a number of questions from investors both ahead of the event and during today's event. So thank you, firstly, to everyone for your engagement. If I may just hand back to you, Mo, maybe you could kindly navigate us through the Q&A, and I'll pick up from you at the end. Yamin Khan: Great. Thank you. Okay. I'll get straight on to it. What is the outlook of firming orders with ILiAD now that funding has been secured by the firm? So the funding has been secured by the firm. You're absolutely right. And part of the funding has been allocated to run a human challenge trial with us, of course. The contractual negotiations are almost fully complete, and we are near finalization of this contract. So look out for the, hopefully, the [indiscernible] soon with regards to the announcement of the fully signed contract with ILiAD, which will be the world's first Phase III pivotal whooping cough trial. And just to kind of comment on this further, this will create a significant press when it comes to human challenge trials because the FDA, the MHRA and the EMA, the European agency, have agreed to use a human challenge trial data as a part of the submission package to get to marketing authorization. This has not been done before proactively. So this sets a precedent, hopefully, for future clients and sponsors to ask the same from regulators to use a human challenge trial as a way to get to license here. So something we are very proud of. We are, of course, very delighted that ILiAD has preselected us as their preferred partner, but this is bigger than just hVIVO. This would impact the whole human challenge trial franchise once that data is produced. What is the value of Traws Pharma deal to hVIVO plc? As you know, we have not publish the value of the contract. I think what I know this is price sensitive and competitive sensitive. And I'm sure our clients would not like to share -- us share confidential information with you guys. But it's a good, strong contract with up to 150 people being enrolled into the study. And as I mentioned, this will start almost immediately. In fact, the proprietary work has already started, and we look to complete majority of the trial in 2026. In light of the new Traws Pharma, HCT, will we have better capacity for ILiAD? Yes. The way we have planned out all this work, of course, there is capacity to conduct both trials in 2026. But the ILiAD contract, by the way, is multiyear. So it will go from '26 but the majority of the revenue, in fact, now will be recognized in 2027. And I think it goes to show the resilience of the company now where if you ask me 12 months ago, ILiAD would have formed a large proportion of 2026 revenues. But for a variety of reasons, that study has been delayed, but we are still sticking to our guidance. So even though ILiAD will form a much smaller portion of the 2026 revenue, we still are very confident of our guidance we have put out there. But in 2027, we expect ILiAD to perform even more with regards to revenue recognition. Isn't the CRO market extremely crowded? In that case, why are you expanding your CRO offering instead of doubling down on human challenge? It's a very good question. So human challenge trial, I think we have doubled down, if you will. We are the world leader. We have over 12 different challenge models. Nobody comes near us. We have around 350,000 people on a database that we can use to recruit healthy volunteers. Again, nobody comes near that. We've done 50 trials to date, over 5,000 healthy volunteers in operated. So we are the world leader in this. There's no doubt about that. But we have to be careful as we've seen in 2025. If you rely on one single modality, you do risk your future growth. And for that reason, we do want to grow further. But your key point that the CRO market is crowded, it's correct. But it's crowded in certain stages of development. There are not many multisite CROs out there that can do healthy volunteer Phase I studies and then expand into multisite patient study. We own our own clinical sites. Most CROs will go to third-party sites and rely on their recruitment capability. 80% of the trials that are delayed, are delayed due to poor patient recruitment. And that is a problem we will solve by internalizing patient recruitment. So our own team, our patient recruitment team will recruit patients into the London facilities as well as the German facilities. So although the CRO market is crowded, I believe we have a niche that will grow because of the pharma requirements of a more [indiscernible] product from biotechs, and that's what we want to service. The choice to reduce your overdependent on human challenge trial studies and smooth out the revenue cycle. So we're not reducing our human challenge trial capability. But we are diluting it by increasing the non-challenge franchises, absolutely. And the reason behind that, of course, as you mentioned, is to reduce volatility and lumpiness and cycle, if you will. I think this one is for you, Stephen. Is hVIVO plc evaluating further cost-cutting measures given the business outlook? Stephen Pinkerton: So we have a very good operational team where we plan out all our known studies. So we plan based on our contracted work and then we always look to scale accordingly. So yes, we plan our costs based on known factors, on our known studies. And yes, so we are always looking at our cost base, but there's no significant change that we're expecting in the short term. Yamin Khan: Thank you. The next question is a long question. I'll just get to the end. Will the company ever start winning new HCT trials again? And if so, when? Well, we won one yesterday, which was announced. So that's something. And as I mentioned earlier, we are looking to finalize the agreement with ILiAD on what will be our largest ever human challenge trial. Will you -- Stephen, this is one for you. Will you be paying dividends as I'm sure shareholders will be quite disgruntled about the past few years? Stephen Pinkerton: Okay. So as I mentioned earlier in the presentation, the Board has decided not to pay a dividend this year. We'd rather spend the money on investing for the future growth of this business. And if you think about it, at the beginning of the year, we had GBP 44.2 million and it seemed churlish not to pay a dividend. But we -- now we have GBP 14 million, which is more than enough for our sustainable growth, but we think it's better to spend that money, all of that money going forward and investing and growing this business for. Yamin Khan: Why did you decide to have your largest facility in Canary Wharf instead of a cheaper location elsewhere in London? What tilted the decision in favor of Canary Wharf? It was an economical decision. So we did look at a number of options in and around London, and this was the optimum with regards to location to get access to healthy volunteers and patients, but also economically, it was a very favorable terms for us. Remember, Canary Wharf were and still are attracting more life science companies to this campus. And as part of that, they really wanted us to be involved and spearhead that campaign. Apart from ILiAD, are there any other HCT deals that are close to signing over the next 3 months or so? So I can't comment on next 3 months or so, but absolutely, there are multiple deals we are currently working on, which are currently at the proposal stage. You saw the increase in proposals that we have seen in 2025, which have increased by 50% in the first quarter of 2026. So the pipeline of work remains very strong, and we do hope to close a few of these in the coming months and in the future periods. If hVIVO plc evaluating further acquisitions, we always will keep an open eye on further acquisition for the right fit. I think that will be key rather than the size and the timing. If the deal is good and it gives us access to new therapeutic areas, new geographies, then we will seriously have a look at those options. This is one for you, Stephen. How would you say your fixed cost and variable cost split? Just a rough split would be useful. Stephen Pinkerton: So this is actually not a straightforward answer because we have quite a number of different contracts in place with our clients and different revenue types. So I mean, if you think about our consultancy business, it's got capacity, it's not fully utilized. So what is my variable spend in that case? There isn't any. I can take on more work. If I look at HCT trials, the sort of the variable spend on the HCT trial is maybe 15%. If I look at the Clinical Trials business, the variable spend will be roughly 25% to 30%. So it's very much dependent on your revenue mix. Yamin Khan: Thank you. I can see we are running out of time. I think we've got 1 minute left, so I'll quickly go through a couple of, I guess, different questions. So does the Lab only service samples taken in London? Or can you process samples from anywhere in the U.K. So we process samples that are taken anywhere in the world, to be honest. So we have a whole biologistic arm that works with courier partners and ships samples at the right temperature control environments to our Canary Wharf facility here on this floor, in fact, where we have all the equipment ready to process samples. So we do manage a large number of samples in any given week, especially for ongoing trials such as the Cidara trial. Is the strategic move towards diversifying our revenue sources also margin accretive in the medium to long run compared to previous revenue mix. Stephen, do you want to get that? Stephen Pinkerton: I missed that one. Yamin Khan: Is the strategic move towards diversifying our revenue sources also margin accretive in the medium, long run compared to the previous revenue mix? Stephen Pinkerton: No, HCT was definitely a much more profitable piece of the business, especially when you're running multiple HCT trials at the same time. So we're able to leverage our fixed cost base a lot more efficiently over HCT. Clinical Trials is a lot more outpatient. So obviously, you have a lot more sort of transactional type of work to get through. So Clinical Trials is a lot more competitive environment as well. So your margins are a little bit tighter. Labs is probably a bit better, your margins are a bit better there because it's a contact with the client and Consultancy has also got a different margin. So the new revenue streams don't necessarily improve the margin. But when you start dealing with scale, then you start getting an improvement in margin. So with HCT coming back and with the scale that we're envisaging and driving towards on the other new revenue streams, which should get closer to where we were previously. Yamin Khan: Thank you. On that note, I will close our presentation. I think we've gone 2 minutes over. Thank you, everyone. Operator: That's okay. Thank you, Mo, Stephen. And of course, we'll make any other questions available post today's call. Mo, Stephen, I know investor feedback, as usual, is very important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps final words over to you, Mo, and then I'll send investors to give you feedback. Yamin Khan: Yes. So I want to thank everyone for your loyalty in hVIVO. I hope we have described at least some of the key points that we have achieved in 2025 and continue to do so in 2026. I appreciate financially, it was a challenging year, but you've seen the actions we have completed, and I think our strategy is sound. We are going for a market gap that currently exists. We're offering services that are unique. And I think our future is now derisked, and we are a much more resilient and less volatile company. Operator: That's great. Mo, Stephen, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of hVIVO plc, I would like to thank you for attending today's presentation, and enjoy the rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rubin Ritter, Interim CEO. Please go ahead. Rubin Ritter: Welcome, everyone, also from my side. Thank you for joining. My name is Rubin. I'm Interim CEO at Kinnevik since about 4 weeks. This is my first earnings call. And so far, I'm enjoying the work with the team. It has been very busy weeks. So there is a lot to talk about. And I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks, and then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Kinnevik? And in my mind, there is kind of a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Kinnevik obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Kinnevik, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership. So I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus on simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that, and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth seeking debate in the team. So this is really the type of values that I want to strengthen within Kinnevik during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily 3 effects: The first one being a derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the Climate Tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently, and personally, I probably disagree with some of that, and I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed, and we are reflecting that really to the full extent in our NAV. Now as a first consequence of the ongoing portfolio review, which is not concluded, but has started, we have taken the first decision, which is to discontinue the sector of Climate Tech. I personally actually believe that Climate Tech has a great purpose. And so I don't really kind of like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed, we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. We have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings. But I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Kinnevik, so we will not report on that dimension going forward. Just to be clear, of course, all 5 of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders and not because they are core or strategic in nature. Now we have also worked intensely in the team to review our organization and our ways of working. And we have and the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Kinnevik. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views more towards a feeling of being one team where just people have different roles and different accountabilities, but ultimately, are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship. Because when we look at how we invest, we invest really from our own balance sheet, which means literally every krona that we spent unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think in this context, we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signals a significant savings potential that we want to realize by the end of this year. And we aim for a target level of management cash cost of around SEK 200 million per year, starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now also in the spirit of making every krona account, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should. And I think this is also exciting because the value of many of these companies lies in the future. So we should be investing. And I also believe that our role as investors is to support these companies on the journey. And sometimes also, that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company but also at the execution track record, the financial performance, the competitive moats and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder. But I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than SEK 1.5 billion in follow-up rounds in the existing portfolio. And we should not think of this as a budget, but more think of this as a cap. So some of the things that I outlined here will help us to preserve cash. And I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we're doing exactly that. And my expectation is that this would leave Kinnevik with around SEK 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provide authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on. So there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a long-standing history of doing just that. But we are also on a journey where many things will change, and we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now there are just 2 areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic. We have started with the 2025 reported management cost, which was SEK 341 million. We have then deducted all noncash items, which are primarily depreciation, amortization and LTIP and then have arrived at the management cash cost for 2025 of SEK 313 million, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king. So that's what we should be talking about. We have then made our considerations around the target of how we think the team should be set up for the coming years and the review of nonpersonnel costs. And on that basis, we have defined SEK 200 million as our new target annual management cash cost. Now you should think of this number as kind of a steady-state cost number. So it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance but also significant deal-related or other one-off costs. So to get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. So you should think of this chart not as an exact plan, but more as a way to think about it and an indication. So per the end of this quarter, of the Q1, so the last quarter, we have SEK 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what we have to spend going forward. It's, first of all, the cost for our own team, which I just talked about. If we take a reserve for that for the coming 5 years, 5 x 200, gets us to SEK 1 billion. And then I've talked about the follow-on where we want to stay below SEK 1.5 billion for the current portfolio, which brings us then to SEK 5 billion in cash that will be available to the next CEO, and my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections. Samuel Sjöström: Thanks, Rubin, and good morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which, Rubin will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Enveda continue to deliver on important milestones. Their discovery platforms, lead drug candidate, completed very successful Phase Ib studies demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results, which the company will now try to confirm in Phase II studies. So operationally, our larger companies outside of Climate Tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in 3 areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at Perk and Mews. Now we're yet to see that come through in actual reported performance, and our forecast do not incorporate this potential impact, but I should say that Perk shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there is continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now that's something we, probably you and Cityblock clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. Thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values and thereby, ultimately, share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer-term outlook for our companies. But moving to Page 7, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software like health care technology services. It is evident that capital is rotating into other sectors with public software being the weakest performer year-to-date with index declines of around 20% to 25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. Two in particular stand out and they also resonate with our own hypothesis. And that's, firstly, that fast-growing companies continue to command significant valuation premiums in public markets. And secondly, looking at share prices over a longer time period than just Q1, more vertical software companies that provide specialized services have outperformed less critical horizontal application companies. And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, the subcategorization may grow in importance going forward. Having said all of that, again, in Q1, the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarter's changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red label dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Mews and Oviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Pleo, we've been a bit harsher considering the lower growth profile of these companies relative to other industries. Our valuation model suggests that this is fairly proportionate to what we're seeing in public markets, where slower growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Cityblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers to try and reflect this underlying market narrative. Moving to Page 8 to put this multiple headwind in absolute terms, it brought an SEK 8.3 billion negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter and in Q1 at SEK 27.9 billion or SEK 101 per share. Going by sector. Health & Bio was down 20% and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our Climate Tech companies, meanwhile, were down a meaningful 56% in aggregate, and this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to EUR 10 million. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming 5 to 6 years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Rubin mentioned, we've narrowed our sector focus. That entails us not making any new investments in Climate Tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in Climate Tech and the valuation reassessments that we're making this quarter. And on our website, you will also find the spreadsheet providing a historical pro forma NAV overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widened and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful, nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to Page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our EUR 20 million participation in Mews' funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to SEK 116 million after the sale of a real estate property as part of the rightsizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter ending at SEK 7.5 billion. So our financial strength and flexibility remains strong, and is reinforced by the cost savings and the SEK 1.5 billion follow-on expectation for the existing portfolio that Rubin went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Rubin gives his closing remarks. Operator: [Operator Instructions] Now we're going to take our first question. And it comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: So starting if you could help us break down these SEK 1.5 billion you're talking about. Is this primarily through continued participation in primaries in the larger companies? Is it tilted more towards the emerging companies? I guess, especially, as you mentioned, it excludes some of the opportunities for follow-ons? Rubin Ritter: Yes, sure, happy to give some more color on that. So I think the SEK 1.5 billion is derived by going through the portfolio and looking at where do we see follow-on demand coming up in the coming years, and then just taking the sum of that. Of course, those things are difficult to foresee. So it might be more tilted towards younger companies. It might be tilted to companies that already have larger scale. But overall, the idea is that this is the amount that we expect we -- the limit to what we might need to bring the portfolio to profitability in follow-on rounds. I think separate from that, I just think it's important to underline that to me, if there is one company in the portfolio that reaches scale and profitable growth and starts to go into the phase where you would talk of them as a compounder that continues to execute, but on the basis of a much more mature profile or as being listed. And then if Kinnevik were to decide to double down on that asset and take a larger ownership stake, to me, that would be a different logic. And that would fall into the SEK 5 billion discretionary investment that we might choose to make going forward. So this is, I think, a bit how our thinking of the SEK 1.5 billion differs from the SEK 5 billion that the firm has available long term. Linus Sigurdson: Okay. That's clear. And then if you could talk a bit about how you've set up processes to make potential exits? I mean should we think about this as a portfolio wide effort? Are you targeting certain types of companies? And if this is what you mean when you say the portfolio review is not concluded. Rubin Ritter: No. I'm sorry. By saying that the portfolio review is not concluded, I'm just sort of indicating that in the 4 weeks that I have been here, I have not been able to dive deep into every one of those assets, right? So we have started with that, and you see that already some decisions have come out of that process. But I think for practical purpose, we are still in the middle of it. I mean, Kinnevik has more than 30 portfolio companies. And I think it takes time to go through that, and it will take us more time going forward. In terms of exits, so I think for Kinnevik in the midterm, it would be wise to move towards a more concentrated portfolio. At the same time, I think it's very difficult to time these things. And I also think it's not in the best interest of our shareholders to rush into exits. So there I think we just have to be balanced in how we approach it. Linus Sigurdson: Okay. I appreciate that. And then my final question, I mean, I can understand this waiting to pursue buybacks ahead of a permanent CEO being in place and your comments around optionality and the SEK 5 billion. But what types of actions do you envision a permanent CEO could take? Rubin Ritter: I'm not sure I fully understand the question, but I think a new CEO could take all sorts of actions, primarily also defining what will be new focus areas for investments going forward and how do we want to complement the existing portfolio that we do have that, as we know, consists primarily of younger companies, fast-growing companies, how do we want to complement that with investments potentially in other sectors or with a different maturity profile. Those will be decisions to be taken by a new CEO, also in line with the new strategy going forward. Operator: The question comes line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I appreciate the clarity. I wanted to follow up on the potential exits here going forward. I mean, how do you view the possibilities for that? And how high on the agenda is it right now as it could sort of change your outlook for what you provided for the balance sheet going forward? I mean looking at some of this, especially the prior core assets, it seems quite clear that they are quite attractive in sort of the private market space. So how do you think around that? Rubin Ritter: Yes, as indicated, I think directionally, over the next years, I would like to see a more concentrated portfolio. So I think that is something that we definitely will look at and consider. But then at the same time, we live in a very volatile world. I think it's very difficult to give more color or like a specific forecast on how exactly that will play out. So I think we just will be investing a lot of time to go through the portfolio to review the different options that we have. And I can promise to you, we'll be very active in thinking about where to take the portfolio and what actions would be in the best interest of our shareholders. I just find it very hard to make specific forecasts on that topic. So I would not want to promise something that is then hard to influence because it also depends on many other factors. And I think it would be wise for us -- like if I think of this as my portfolio, I think I would try to really carefully strike that balance to become more concentrated going forward, but then also to try to find the right time and the right moment and the right price if I wanted to make any exits. Derek Laliberte: Great. That's very understandable. And on the write-downs here, I mean, apart from the peer declines outside of Climate Tech, what do you mean about what has changed in your underlying view of the assets outside there because we see Perk being down 43% and Pleo down by 40%, which does some pretty extremely in the light of how peers have moved and also the latest transaction values in the market. Samuel Sjöström: Derek, it's Samuel. I'll try to answer that one. So naturally, our views and our companies are evolving continuously. But as we stated in today's report and in the prepared remarks, there hasn't been any meaningful changes to the outlooks for our larger companies in this quarter. So what we're trying to do here and what our process is trying to sort of apply onto our private portfolio is this very substantial drawdown in public markets. And there, we believe, and the models tell us that it should be affecting our investees in varying degrees. So as you rightfully state, Oviva and Mews have recently raised funding rounds. That typically leads to slightly milder but still meaningful write-downs because as I mentioned, the expiry date on transaction valuations in this type of volatile market is very, very short. And then we have companies that are growing slower, such as Cedar and Pleo. And the data tells us that those should be impacted slightly harder than a company growing a bit faster all else equal. And you mentioned Perk. Clearly, there, we have a comparable in Navan. That company is trading at around the same levels it was doing at the turn of the year. So our process makes us feel obliged to move closer to where Navan is trading, even though our view on Perk's long-term value creation potential has not changed one bit. So I'd say the write-downs you're seeing and the variations in write-downs you're seeing in this quarter is less driven by a change in view on our individual companies or their performance. It's about how to apply this very significant derating in public markets across a set of investees that share some characteristics and have some differences in between them. Derek Laliberte: Appreciate the clarity. And then looking at the 10 largest assets you list here, can you say something about which of these you are the most sort of comfortable with in light of the potential of AI disruption here? And where do you see the biggest risks in the portfolio? Samuel Sjöström: So naturally, as you can imagine, we and our companies are spending a lot of time assessing how our company's best can adapt to a changing environment, not something that clearly we're used to. I don't want to reduce the write-up that we've put up on our website to a 30-second answer. But to give you some examples, like we see very strong moats and aspects like Mews' ownership of quite complex workflows at hotels. We see moats and Enveda's ownership of proprietary data, and we see defensibility at Oviva in terms of the trust from customers and regulators that they've built up over several years of real-world operations. But I'd refer you to that write-up on our website. And I think in terms of how the risk of AI disruption is reflected in our valuations this quarter is mainly through this relatively indiscriminate derating that we're seeing in public peers. And we're not sort of trying to be smart when applying that in terms of thinking about the longer-term view on AI that we have in the piece on our website, but the valuation process is much more quantitatively driven. Derek Laliberte: Got it. Okay. And then just on this organizational simplification you're carrying out. I mean, looking forward, what will be sort of Kinnevik's action as an investor going forward as you see it? Rubin Ritter: Well, I think Kinnevik's focus really over the last years has been to invest into fast-growing challenger type companies that take on big problems and try to solve them differently through technology. And I think that is really the type of business that we have been focused on in the past. And of course, we'll also continue to work in that field and continue to evolve our view and continue to try to find great opportunities. But then I think in terms of how to build capabilities there, it's also, to a large extent, driven by what future strategies and future focus a permanent CEO looks at. And I think that can only be answered once that person is on board. When we think or when I think about the target org, we try to provide that flexibility in the way that we structure the work in our investment team, to do it in a way that we can continue to cover those sectors that we are focused on right now in a really good way. And in my mind, that's not always a function of the number of people. It's also a function of many other things. And then how to have the flexibility to add new ideas and investment themes that will define the future of Kinnevik once it is clear what those are. Derek Laliberte: Perfect. And finally, I mean, given that you're striving for more efficient operations, does having sort of 2 offices and teams align with that vision? Rubin Ritter: So in my mind, I think that going forward, Stockholm should be culturally, and also from where the team comes together, much more the center of gravity. We'll continue to have colleagues that live in different places across Europe and London will be one of them and will provide good opportunities for them to work there and meet companies. But I don't think we should think of that as a second half, not only in terms of the cost that presents, but also and maybe more importantly, in terms of what that presents in terms of having different cultures. I mean, Kinnevik is before the change and after the change, ultimately a small team. And I think there is a big benefit to have 1 physical place where the cultural center of gravity is. And I think, for Kinnevik, that should be in Stockholm. Operator: The question comes from the line of Bjorn Olsson SEB. Bjorn Olsson: Two questions on the organizational changes. First, could you give any more flavor in terms of where you expect to find the cost efficiencies? Is it from the investment teams, back office or just sort of across? And second, I mean, culture is something that's in the walls. So when you now strive to increase the performance culture in your company, do you have any sort of tangible actions planned in terms of either changed incentive schemes or any sort of change of key staff or similar? Rubin Ritter: Thank you for the question. So I think in terms of where we see savings potential, I think it's really -- we look at it across the board, and across all those different topics that you have mentioned. It comes down to a leaner target organization, but also then on nonemployee-related costs, there are opportunities that we see, such as office cost, IT cost and many others. So it gets very granular very quickly. But I think we just really also owe it to everybody that we do that tedious work. And essentially, we're looking at every single contract, and we are reviewing if we need it. And what is the value it creates, and is there a simpler and more efficient and better and also a cheaper way to do it. So that's clearly a focus. I think in terms of performance culture and achievement culture, you are 100% right that this is not something that can be impacted just within a few weeks. I think that is -- obviously, those processes take more time. And I think a lot of that will also be then hopefully brought forward by a new CEO. But to me, it is really a lot about leading by example, how do you take decision? What quality of argument do you accept? What do you not accept? So I think it's in the -- in many of the details of our daily collaboration that I think culture comes through. And just to be clear, that's also not just about me changing that, that's also about kind of the team bringing out the good things that we see and encouraging the team also to lead itself and each other in that regard. So I think that is something I'm quite passionate about and where I think we can make a lot of progress. You mentioned incentives. I mean incentives, of course, also play an important role. But to be fully frank, I haven't looked at that in the first 4 weeks, but I agree it's an important theme, and it will be important for the long-term success of the company that we get incentives right. That is, by the way, saying that they are not right, but they need to be right, and I haven't reviewed them yet. Bjorn Olsson: Good point. So then just a minor follow-up. So in terms of redundancy costs, when you're sort of rightsizing, that should probably be lower than if the FTE reduction is a smaller part of the SEK 100 million in cost savings? Rubin Ritter: I think personnel is a part, just like many other pieces, and there will be also redundancy costs related to personnel but also related maybe to other contracts that we might want to get out of. And the idea would be to incur the majority of that still this year. Operator: Now we're going to take our next question. And the question comes from the line of Oskar Lindstrom, Danske Bank. My apologies, there are no questions from Oskar. Now we'll proceed for the next question. And the question comes line of Johan Sjoberg from Nordea. Johan Sjoberg: I had a couple of questions actually. Starting off, Rubin, I mean, looking at your -- I understand you're 4 weeks into your temporary job and you have a lot on your plate right now. But on the other hand, I mean, you have tons of experience, you have aboard with a similar amount of experience. You have Samuel also, who is well on track, how things have been progressing with the 30 portfolio companies. So my question for you is how long time do you think it would take you to sort of get your head around all the companies, which was to sort of focus upon who will be sort of your concentrated portfolio over the coming -- in the foreseeable future? Rubin Ritter: Yes, sure. I mean I personally would think of it as a kind of ongoing process and ongoing discussions and considerations that we have in the team. And I think we also have many ideas in that regard already. And as you mentioned also, we're not doing everything from scratch. There is existing views and existing knowledge, obviously, in the team, right? So sometimes it's also just about following up on that and servicing those pieces. So I think we're incredibly focused on it. But I don't think it would be wise to now put ourselves in the corner by sharing specifically what our thoughts are on individual companies. I think that's not advisable. But as in any good investment company, I think those discussions should be ongoing as ordinary course of business also to just always be up-to-date on your portfolio on the different type of companies, and what our position on them should be going forward? Johan Sjoberg: I understand. So you have to sort of push a little bit here on the 30 portfolio companies. So when you talk about a more concentrated portfolio, what sort of range are we talking about here? Are we talking about below 20 or are we sort of -- once again, I understand it's early, and you don't want to sort of promise anything, but just for us to get some sort of feeling here. Rubin Ritter: Yes, right. I mean, to be frank, I think a lot of that also comes down to strategic decisions by a new CEO, but then I also don't want to shy away from an answer. In my view, it's not necessarily about a magic number. So I don't think there is kind of the perfect portfolio that is 10 or 15 or 25. But it's really about, in each of the companies to have a position that allows us to be a meaningful owner and to only have such a number of positions that you can cover with a kind of small, lean, but very experienced and high seniority team, that you have only positions where you can have a meaningful value add to those companies where you truly can be a great owner of that business and provide the right level of leadership to those companies. So those would be some of the considerations I would be focused on. And I don't have the number for you. I don't think of it in those terms, but I do think that the current number is too large. I think that is also given -- I mean we all know there is a large bucket of what we call other companies that has to do with previous strategies. And I think a lot of these things just have maybe a bit accumulated over time. And there we need to think through how to take that into a good direction going forward. Johan Sjoberg: Perfect. And we also talked a lot about the new CEO. Could you just give an update on how that process is ongoing here? It's been since November that the first decision was out. And you had a lot of time. I understand a lot of -- it's been a full headwind in Q1 in terms of how the market is viewing this sort of company, but also what is done right now. Rubin Ritter: Sure. I mean that search process is led by the Board and then more specifically, a subcommittee of the Board. And I'm sure they will give an update as soon as they have an update. But there's not really a whole lot more I can say on the issue. I'm on the subject. I'm right now incredibly focused on the inner workings of Kinnevik and all the work that we outlined in the presentation. Johan Sjoberg: Okay. Final question, Samuel, maybe you can help with this one. I mean just looking at the NAV or the write-down of NAV in the quarter, I think it's great that you have taken down the NAV because obviously, the market has not believed in sort of the underlying figures here. And sure, we've seen multiple contractions during the first quarter. But then on top of that, also you had some -- you also changed your view of growth for some of the few companies. And I guess, first of all, this is not a number, which I guess, Rubin, you feel much more comfortable with also, although just 4 weeks into the job. But just to get a feeling for, I mean, Samuel, maybe just looking at sort of the multiple impact on the write-down, how much would that be? And sort of what is the impact from your sort of changed view on the NAV also? Samuel Sjöström: Thanks, Johan. So I mean the easiest way to answer your question is to refer back to the page where we show that multiple contraction had a negative impact on NAV in excess of SEK 8 billion. And again, in terms of how we've applied the multiple compression we're seeing in public markets onto our portfolio, that is sort of flowing through our process, which is unchanged and is sort of intrinsically rigged, to be conservative, to be objective and to be as numbers driven as possible. And clearly, valuation levels in our portfolio has come down over the last quarters and last years. And I think that's 2 reasons mainly. Our portfolio has matured and that public comps have derated significantly. So in this quarter, specifically, we're taking that significant hit from the public peers. We've learned a lot over the last couple of years, and those learnings are clearly sort of ingested into our quantitative models. And then as always, there are individual considerations, but then again, those individual considerations are mainly of a technical and quantitative character in our different regression analysis and so on. So again, in terms of outlooks on our companies, looking at the larger investees as a group, those are largely unchanged. And in Q1, the larger companies have delivered on expectations. But yes, there is a lot to decipher in the public market moves in Q1. Johan Sjoberg: I'm just referring to sort of looking at the software down 38%. I mean just looking at sort of the presentation which you gave ahead of -- these are clearly below. And once again, I don't have a problem with it at all, but it seems like you have written it down more than sort of what the multiple seems to report, multiple contractions, that's sort of my -- maybe I'm wrong here. Rubin Ritter: To summarize, I think we are confident with the variations that we have put out in Q1. I think that's the bottom line of it. Operator: Now we're going to take our next question. And the question comes line of Oskar Lindstrom from Danske Bank. Oskar Lindström: I hope you can hear me this time. I have 2 sets of questions. The first one is on this ongoing portfolio review. And could you see adding back a cash flow-generating asset as opposed to more of the growth-oriented assets that you have today as part of the portfolio, again, to sort of have that balance between cash flow-generating assets and growth assets? That's my first question. Rubin Ritter: I think it's a very relevant question. And I think it also falls into that category of future strategy where, again, I just want to be careful with my own view, given that I'm also only here temporarily. But I think there is -- my personal view is, there is merit to what you are saying. And I think there needs to be the effort to make the portfolio more balanced. And my understanding is also, I don't oversee kind of the full 90-year history of Kinnevik, but my understanding is that also even though the company has a history of backing challengers and taking technology investments at early stages and kind of betting on the future in a way, in my understanding, that was at many times also balanced with more mature, more cash-generating assets in the portfolio, maybe also some of them being listed. And to me, that seems like an advisable idea because right now, of course, and that also became apparent when we went through the valuation exercise, one challenge that we clearly have, and I think it's also something that the team here internally really tries to live up to very hard, is that we have a portfolio of private fast-growing assets that are just really not easy to value. I think we can all agree on that. And then every quarter, of course, we have the expectation of public shareholders that want clarity and transparency, also for very understandable reasons. And every quarter, again, we have to kind of bridge that gap, and that's not an easy task to do, and that's also not easy on the team here internally. And I have also experienced that now firsthand when going through the valuations. So I think also in that regard, it might be a path to just make our lives a bit easier and also to generate a more balanced outcome for shareholders. So I think there's merits to that idea. But then again, I think it's also subject to the general strategic discussion going forward. Oskar Lindström: My second question is on the roughly SEK 1.5 billion of follow-up investments that you've talked about. How soon could that SEK 1.5 billion needs to be spent and you estimated? Is it like front loaded or sort of evenly over the years or how soon? Rubin Ritter: I really understand the question. And I think I would also love to know, I think that's the honest answer. I mean we have some view and some visibility on what demand might be coming in the coming months, but then it's also really difficult to forecast. And just maybe also to reiterate, I think it's really important to think of this not as a budget that we intend to spend, but it's more kind of an estimate or like a cap that we want to limit ourselves to because I also think in my perception in the market, there has been the perception that maybe the majority of the cash that we have might need to be deployed into the current portfolio. And I think our message is just that we really don't think that, that is the case necessarily. So that is the context why we have talked about this number, the SEK 1.5 billion. But then really, it will be a bottom-up exercise. I think every follow-on opportunity has to be assessed in its own right. I tried to speak to what are some of the characteristics and some of the analysis and some of the considerations we will make when we evaluate whether or not to participate in those rounds. And I think that is really what will be happening. So it's very much bottom-up. I wouldn't want to forecast it too detailed on a time line. And I think of the SEK 1.5 billion as an estimate and the maximum number. Oskar Lindström: Just a follow-up there. The SEK 1.5 billion, is that within the next 5 years? Just to clarify that once more. Rubin Ritter: Yes, I mean that's probably like a reasonable assumption. We talk about the existing portfolio, right? So like theoretically, it's a number into kind of eternity because we have the existing portfolio. It continues to drive towards profitability. And at some point, more and more of these companies just will not need further follow-on investments, right? So then they fall into a different category where we can, of course, always think about if we want to accrue to a larger stake because we think it's a company really want to be holding long term with a larger allocation, but that's been a different consideration, right? So as the portfolio grows towards profitability, that number will be deployed, and it's difficult to put a number on it, but probably 5 years is a valid assumption. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: I just have two from my end as well. Rubin, thank you for your thoughts. And I was just curious, there must be some sort of conversations that come your way that says, look, with valuations crashing the way they've had, aren't there any opportunities in the market also to sort of deploy capital in some very interesting assets that are now probably attractively valued, maybe in sectors that are topical like AI? How do you sort of deal with those kind of topics that come your way, given Kinnevik at the end of the day is an investment holding company? Some color there would be great. And second, I guess, we're halfway into April, have you all seen the valuations of the peers that you're using as comps stabilize so far in Q2? Or has it also been volatile with the geopolitical sort of news that's out there? Some color there on what's going on with the comp base would be great quarter-to-date. Rubin Ritter: Great. Thank you. Maybe I can comment on the first question, and then Samuel can take the second question. So I think you have a great observation that obviously volatility always also creates opportunities. And it is exactly in that context that I also see Kinnevik's SEK 5 billion of cash available to investments as a great asset to be able to potentially act on opportunities. And I also expect the Board will continue to be volatile going forward. So I think in that context, that balance sheet just becomes a very strong asset in the way that I look at it. In terms of AI, I mean, Kinnevik already today has exposure also not only to software companies that are taking this new technology onboard very decisively, but also to some AI native companies. And here, maybe I can also point you to the piece that Samuel already has referred to on our website on building business -- our thoughts on building businesses in the age of AI. Samuel Sjöström: Yes, Nizla on what we're seeing in peers, April to date, I'd say that volatility remains very high. If you look at cloud ETFs, they were up 5% yesterday and a week ago, they were 10% lower than they are today. So it seems to continue to sort of bounce around, both in terms of share prices, but I'd say sort of the volatility and the underlying drivers seems high as well with new AI product releases every week and clearly, what's going on in the Middle East and the posturing from the U.S. administration. So volatility is persisting in April. In terms of absolute levels, they are roughly around where we ended Q1. But again, very volatile still out there. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to Rubin Ritter for any closing remarks. Rubin Ritter: Great. Thank you all for your participation, for your time, for your questions and the good discussion. Maybe just to reiterate, as we have also pointed out in the Q&A, Q1 has been a tough quarter in many ways to our shareholders, to the team, to the company overall. A lot of things have been happening. And I also think that during Q2, we will just be very busy as the world continues to be volatile, and as we start to take some of the steps that we have been discussing. We have been talking about the cultural shift that we want to work on, how we want to work on preserving cash, for optionality for the future and how we want to move towards a gradual portfolio concentration by balancing that with the time that it might need. And I think many of those changes will also take time and hard work. But at the same time, when I try to see through this, I also see many positive things. I'm just really convinced that the changes that we have talked about will make the company stronger. And I really think that the cash position that the company has will create options going forward. And as we just discussed, I think that's particularly valuable in a world that is as volatile as ours. I do think we have great companies with great potential in the portfolio. And even though we have talked about the NAV impact on this quarter, I think we just should not forget that these companies are there and that they continue to execute. And I see a quite good path and a good chance that their value will also become much more tangible going forward. So I think this provides the basis for the company being significantly stronger in the future than it may seem today, and that is what we as a team are really focused on. So thank you again for your time, and have a good day.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you. Abhishek Jain: Yes, [ Sashi ]. Thank you. Warm welcome to our Q4 FY '26 earnings call. We'll begin the call with business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer; we also have our CHRO, Saurabh Govil; and our Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms at 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainty and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srini, Over to you. Srinivas Pallia: Thanks, Abhishek. Hello, everyone. Thank you for joining us today. Geopolitical and policy disruptions have become the new normal. Despite these headwinds, IT spending has shown resilience. Cloud, data and AI continue to attract investments as they provide infrastructure for future growth. Client priorities are shifting with spending decisions increasingly tied to outcomes. And at Wipro, we continue to make decisive investments to navigate the AI-first world. With that context, let me now turn to our performance in quarter 4 and for the full year FY 2025 '26. All growth numbers I shared will be in constant currency. Our IT Services revenue for quarter 4 was $2.65 billion, reflecting a sequential growth of 0.2% and degrowth of 2% on a year-on-year basis. Our operating margin came at 17.3%, a contraction of 30 basis points sequentially. The order booking for quarter 4 was at $3.5 billion, which is a growth of 3.2% sequentially and a degrowth of 13.9% on a year-on-year basis. We had 14 large deals totaling $1.4 billion this quarter. For the full year, IT Services revenue were $10.5 billion, reflecting a year-on-year degrowth of 1.6%. Our operating margin was at 17.2%, an expansion of almost 15 basis points as compared to FY '25. Now to our strategic market unit performance in quarter 4. Americas 1 delivered sequential and year-on-year growth, driven by strong performance in consumer, technology and communications. The health care center was impacted by seasonality and policy changes. Americas 2 decline sequentially and on a year-on-year basis. The BFSI sector was impacted by delayed ramp-ups on some large deals that were closed earlier this year and by certain client-specific issues. Europe grew sequentially and has remained flat on a year-on-year basis. We see good traction in the U.K., specifically in the BFSI sector. We also see strong deal momentum in Germany. APMEA grew sequentially and on a year-on-year basis. Growth driven by Southeast Asia. We are seeing traction in the BFSI, technology and communication sectors. We are encouraged by the momentum we are seeing in the APMEA region both in performing and bets we continue to make there. A strong example is the strategic deal we announced recently with the [indiscernible] expected to exceed $1 billion in contract value with a committed spend of $800 million. This is 1 of our largest engagements to date in APMEA. In this quarter, we also closed several strategic engagements. Let me highlight 2 examples with global technology leaders to drive AI at scale and how Wipro is partnering with them. In my first example, a leading global technology company has engaged Wipro to help run and improve its frontier AI models. Wipro will manage the end-to-end operation of these AI models from training, governance and evaluation to domain-specific validation. In fact, this engagement will be done to a specialized global delivery platform. We will make these models more accurate, reliable and safe while ensuring they can be deployed and managed at scale. In my second example, we have been selected by a leading global semiconductor company to provide engineering services that accelerate product development and manufacturing across its complex hardware platforms at locations distributed globally. We will support the entire engineering life cycle from product development to performance testing analysis. Before final shipment is made by our clients to their end clients. This will help our clients achieve faster resolution management, higher yield and improved governance with AI-driven analytics and automation. As intelligence becomes industrialized and widely accessible, we are making a deliberate strategic pivot to stay ahead. As you might be aware, we have launched a dedicated AI-native business and platforms unit to expand beyond a services-only model to a services-as-a-software approach. This unit will operate with dedicated leadership, focus investments and a distinct operating model to accelerate enterprise-grade agentic AI solutions. [indiscernible] will also incubate new AI businesses through an invest build partner approach in addition to collaborating with Wipro Ventures and our partner ecosystems. Together with core services, this creates a dual engine model, driving transformation at scale while building AI-native platforms that differentiate services enable repeatable deployments and unlock nonlinear growth. With that, let me move on to our guidance for the next quarter. In Q1, we are guiding for a sequential growth of minus 2% to 0% in constant currency terms. Thank you. I'll now hand it over to Aparna, our CFO. Aparna Iyer: Good evening, everyone. Let me share a quick update, and then we can open it up for Q&A. Our IT services revenue for Q4 grew 0.2% sequentially in constant currency terms, and 0.6% in reported currency. Our revenues declined 0.2% on a year-on-year basis in constant currency terms. For the full year FY '26, IT Services revenues declined by 1.6% in constant currency. Our operating margin for the quarter was at 17.3%, a contraction of 0.3% over Q3 '26, and a 0.2% contraction on a year-on-year basis. With this, our full year operating margin stands at 17.2% and expansion of 15 basis points year-on-year. We maintained the margins within a narrow band even after absorbing 2 incremental months of DTS HARMAN. And we also rolled out salary increases effective first March. As we move into Q1, we will have the headwinds of 2 months of salary increase and a few large deals that we've won and the volatility could be there in our quarterly performance. Having said that, our endeavor would be to maintain these margins in a narrow band in the medium term. Net income for the quarter was at INR 35 billion. Adjusted for the impact of labor code changes, our net income increased 3.7% sequentially. For the full year, our net income increased 2.2% year-on-year. This was after absorbing the impact of restructuring charges in both Q1 and Q3 of last year. EPS for the quarter was at INR 3.3 and INR 12.6 for the full year. Moving on to our strategic market unit and sector performance. All the growth numbers that I will be sharing will be in constant currency. Americas 1 grew 0.3% sequentially and grew 2.9% on a year-on-year basis. Americas 2 declined 2.6% sequentially and 6.7% on a year-on-year basis. Europe grew 2% sequentially and was flat on a year-on-year basis. APMEA grew 3.1% sequentially and 0.8% on a year-on-year basis. Moving on to sector performance. BFSI declined 1.3% sequentially and 0.5% year-on-year, Health declined 4.4% sequentially and was flat year-on-year. Consumer grew 1.7% sequentially and declined 2.9% year-on-year. Technology and Communication grew 5.3% sequentially and 10.4% year-on-year. EMR grew 1.1% sequentially and declined 5.9% year-on-year. Let me share some other key financial metrics. Our operating cash flow continues to be higher than the net income and stood at 112.6% of net income for FY '26. Our gross cash including investments was at [ 5.9 billion ]. Accounting yield on average investment held in India was at 7.3%. Our ETR was at 23.5%. In terms of guidance to reiterate the Srini said, we expect our revenue from IT Services business segment to be in the range of $2.597 billion to $2.651 billion. This translates to a sequential guidance of minus in constant currency terms. Lastly, I'd like to share that in our recently concluded Board meeting, the Board of Directors have announced and approved a buyback of INR 15,000 crores at a price of [ INR 250 ] per share. This is the largest buyback that Wipro has announced, and we expect to buy back 5.7% of the paid-up capital. The buyback is expected to complete in Q1 '27 subject to shareholder approval. Our endeavor has always been to return a substantial portion of the cash generated in our -- through our operations back to our shareholders in FY '26 alone, we distributed dividends of $1.3 billion, taking our total payout ratio for 3-year block ending FY '26 to about 88%, which is significantly higher than the minimum threshold of 70% that we have as per our capital allocation policy. With that, I will hand it over for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of [ Pratik Maheshwari ] from HSBC Securities..Sorry, his line is disconnected. We'll go on to the next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Sir, the first question is, there has been a good large deal wins, which has happened on the one end as well as fourth quarter of last year. And we kept on telling about delay in these large deals, which was expected to come in Q3, then we said Q4, then we said it will come 1Q, but the guidance does not show that. despite the nature of the deal being cost takeout when it comes to consolidation. Why is this delays happening? Srinivas Pallia: Thanks, Sandeep. This is Srini here. Thanks for your question. Let me just talk about the quarter 4 performance in the context of the 4 SMUs we had. Three out of the 4 SMUs, Americas, well, Europe and APMEA have grown sequentially. Having said that, specifically Americas 2, we saw significant softness. And this is specific to the BFSI sector there. This has been a combination of both client-specific issue and delayed ramp-up that you're talking about. The reason for the delay is a very client specific, but we see that opportunity coming up sooner than later, and that will give us the growth in that particular account and that particular sector. Sandeep Shah: Okay. And do you believe second quarter onwards, there could be ramp-up can actually pull up the growth? Or you believe plan-specific issue because of the geopolitical issuance macro may continue? Srinivas Pallia: So as far as this particular client is concerned, it will end in quarter 1, Sandeep, and there is no further impact for us materially. That's number one. Number two, as far as geopolitics is concerned and we have not seen any clients at this point in time, demonstrating any specific behavior. And also, if you reflect on the pipeline that we have across the market, including countries and across the sectors, a very strong pipeline. Of course, it's a very competitive landscape, and the competition is very intense. And the way we have gone ahead with the Olam deal, which is a very transformational deal, long-term deal also taking their entire IT into Wipro welcoming them into the Wipro family. The second one that we announced yesterday, which was part of the vendor consolidation, the kind of deals that are coming off are very different but very strategic, and we are staying focused on execution for us, which will help us quarters ahead. Sandeep Shah: Okay. And just last two, there has been a notable decline in our top line. What is the reason for the same? And second, can you give us the inorganic growth contribution you were factored in the first quarter growth guidance? Aparna Iyer: So these 2 deals that we've announced in this month, Sandeep, are a part of our guidance. At the midpoint, we've assumed both these deals to start yielding revenues for 1.5 months, halfway through the quarter. To your point on the top count growth, it's a sequential decline. But from a year-on-year standpoint, it continues to have grown. And we are very confident that it will continue to come back as we go through the quarters. Sandeep Shah: Okay. Okay. Is it possible to quantify inorganic growth in the guidance? Aparna Iyer: They are not inorganic. They are actually strategic deal wins. If you look at it, Olam is a strategic deal win with -- it's a relationship that is -- has committed revenue. So -- and even the other 1 that we announced was part of the vendor consolidation strategy, for 1 of our top clients, and we continue to participate in these kind of deals. And both will be a part of our numbers and our guided range. Operator: Next question is from the line of Ravi Menon from Axis Capital. Ravi Menon: Beyond the top customers where we've seen a sharp decline, we also been top 25 customers also declined slightly. The top customer decline although we said it's temporary. It's a very sharp decline. Can you talk a bit about what led to this? And why -- what gives you confidence that this will be temporary. Aparna Iyer: Ravi, if you look at it, our top client has been producing a healthy growth for us for a fairly long size right? This kind of one-off quarter volatility is not something that we are unduly concerned about. The relationship remains very strong, and you should continue to see it bounce back. Ravi Menon: And the unbilled revenue has grown this quarter more than $80 million. And then we also see some long-term unbilled revenue. Could you talk a bit about what's led to the [indiscernible] how should we see that trend? Aparna Iyer: No. So I don't think -- see, the unbilled revenue that has gone up is more a quarterly aberration. It should correct itself from a quarter on. I mean, from a year-on-year standpoint, actually, our DSO has remained flattish. Like I said, our operating cash flow has remained 112% of net income we are not seeing any large exposures or pile up of unbilled in our balance sheet. From a unbilled standpoint as well, I think it's fairly content and we have some consistent improvement. Yes, some of the larger deals as they pick up, we are open to -- they will come with some amount of balance sheet leverage, but nothing that's unduly different than what we do as business as usual, Ravi. Operator: Next question is from the line of Dipesh Mehta from Emkay Global. Dipesh Mehta: A couple of questions. First on the -- part. You said BFSI weakness was because of 2 factors. One is client specific and second is delay in ramp-up. And 1 of the question answer you indicated about some of this is likely to be ending by quarter 1, which part you are indicating by Q1? Aparna Iyer: We have said that the client-specific issue that we have seen in 1 of our clients in Americas 2 has had an impact on both Q4 and Q1 and there won't be a continuing impact of that going forward. Dipesh Mehta: And what about the delay in ramp-up part? Aparna Iyer: Yes. So if I have to characterize, we've had several large deal bookings, right? Now the 1 that we announced on [ Phoenix ], it is fully ramped up 2 plants. There's no delay, right? If you look at the other 3 mega deals that we spoke of, 1 of them is on plan, and we are continuing to ramp up. We are seeing challenging 1 of those -- as we spoke about, where we are seeing a delayed ramp-up, which is, in particular, impacting the growth rate of that particular sector in that particular market unit. Outside of that, BFSI growth rate of pretty good in Europe and APMEA. As that client comes back and we start to ramp up, you will see those growth rates improve it. That is our job. Dipesh Mehta: And can you give some sense about that the what factor is leading to delay in ramp up whether -- so if you can provide some details around it, qualitatively, what is leading to some of those delays? Second question which I have is, if I look, let's say, the couple of projects in which we close or in the process of closing, we included in the guidance, if, let's say, any delay in some of those closures, do you see risk to that guidance kind of thing? Aparna Iyer: We guide in a range. There is -- like I said, we guided a range and there is a midpoint, and we have some cushion, both on the downside and on the upside. And for now, we are comfortable within that guidance. On the first point, Srini. Srinivas Pallia: Yes. Dipesh, Srini here. On the first point, this is a very client-specific issue, where they have changed a little bit of the strategy around some of the things as part of the business because of which they have delayed it. But having said that, we have the clear visibility going forward. It's about the matter of timing, when and how much, and that should help us going forward, Dipesh. Dipesh Mehta: Understood. And last question from my side. I just want to get some sense about how Capco is playing out. Srinivas Pallia: So Dipesh, as you know, Capco is a tip of the spear for the consulting piece on the -- side. They are definitely doing well. And if you look at sequentially, Capco is performing very well and also on the year-on-year, both have been very positive. And in fact, Capco had 1 of the highest revenues in the last several quarters. So Capco is making a big difference in terms of the whole AI advisory and consulting. And the way they are being proactively shaping the clients thought process in terms of the whole geopolitics and in terms of the trade and tariff and the technology transition has been really good. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats Srini and Aparna for the buyback announcement finally. I know the market participants have been waiting for this 1 for quite a while. Two questions from my side... Operator: Sorry, Vibhor, you're sounding different. Vibhor Singhal: I'm sorry, sorry, just give me a second. [indiscernible]. Operator: Can you -- are you on your handset mode. Vibhor Singhal: Switch to the handset now? Operator: Yes, it is clear. Now please go ahead. Vibhor Singhal: Okay. Sorry for that. Yes. So a couple of questions from my side. Srini, on the energy and the -- verticals. This has been a vertical in which we've been very strong for quite a while. Just wanted to pick as to what are the conversations that you're having with the clients at this point of time because of the -- that is going around, will the crude prices and the volatility in it impact our business in this vertical, either positive or negative? Any conversations that have already started on that regard? Or is it too early to call out any impact of that on the segment? Srinivas Pallia: So Vibhor, from our perspective, if you look at the quarter 4, we have seen a sequential growth. And both manufacturing, particularly auto industrial, as seen impact otherwise on the reason for tariffs. Now coming specifically in the context of geopolitics, wherever, I think there is -- some of the clients are waiting and watching. But having said that, not dramatically changed their strategy. For example, what they're trying to do, especially in the manufacturing sector, if you will, they're looking at how do you secure the supply chain, make it more visible and more dynamic going forward. And that's some of the opportunities that we are looking at in the context of AI that can actually help. So that's the trend that we are seeing. Auto industry. Obviously, they're also looking at how the markets are going, and it varies from country to country in terms of how the business is going. And the third is in terms of overall manufacturing, we have not seen any clear change, but they have been constantly under pressure because of tariff flood disruptions that they're going through. And they're also looking at what kind of consumer demand they can have. And also they are keeping a close watch on the input cost because that will also impact their final product cost. So they are trying to sharpen their budgeting, I would say, tightening at this point in time. Vibhor Singhal: Got it. Got it. Good. My second question, Srini, was basically on -- again, sorry to have on the Q1 guidance, once again, as Aparna mentioned, we are taking around half -- 1.5 months of contribution from the new deal that would approximately come to around 0.7%, 0.8% of revenue. Then another -- 0.8% from the 1-month integral of HARMAN integration. That leads [indiscernible]. Operator: I'm sorry, Vibhor, you're sounding muffled again. Can you repeat the last part please? [Technical Difficulty] Okay. Now it's fine. Vibhor Singhal: Yes. I'm so sorry for the poor connectivity. Yes. So as -- I think the 2 deals will contribute 1.5 months of revenue, that's around 0.7%, 0.8% of revenue. HARMAN acquisition, 1 incremental month in Q1, again, that's another maybe 0.7%, 0.8%. So around 1.5% growth is coming from these 3 factors. So these aside, I think the remaining business seems to be quite a sharp line in Q1. You mentioned 1 of the client-specific issues, which you will continue to face in Q1. But are there any other significant client ramp-downs or any other delays that we are seeing because of which this Q1 growth -- organic growth or if I can call the growth beyond these 3 seems to be so weak? Aparna Iyer: You know DTS HARMAN is fully in our Q4 numbers... Vibhor Singhal: But in Q4, that was only 2 months. So on Q2, this will add another month in Q1? Aparna Iyer: No. No. Q4 was all 3 months. Yes. So that is not -- that is the only inorganic piece and our growth for Q1 is -- yes, there are these 2 deals that we've spoken about, which will be there, and it will add to our revenues in Q1. And we've assumed that they will start yielding revenues mid-quarter. Vibhor Singhal: Mid-quarter. Got it, got it. Aparna Iyer: Yes. [indiscernible] organic growth, are these strategies taken. Yes. Vibhor Singhal: Very much point taken. Just my last question on the margins. I think very strong performance on the margins in this quarter despite wage hike and HARMAN integration as well. Do we believe these margins are sustainable in the coming quarters as well, given that we'll have a couple of these deals -- out deals also that we will be factoring in? Do you believe you will be able to maintain their margins at around the current levels as we have always maintained. As we've always stated that this is our target range? Aparna Iyer: Yes, there are 3 areas where we are going to be investing in. We've already rolled out the wage hike effective first March. So we will have 2 months incremental impact, which will have to be absorbed, right, in Q1. Two, we are winning among these large deals, and they are 1 in a competitive environment. They will come with their share of lower margins, especially as we start these deals, right? Second, there is certainly around capabilities. We've acquired the DTS HARMAN connected services fees, which will -- which is also putting pressure on margins. And as I look ahead, we will continue to actually accelerate investments, especially around Wipro Intelligence, the platform unit that we have announced. And it will need a lot of investment that we will work through and share with you transparently as we go through the process as we form our strategy around it, that will also be an area of focus for investment. Given all this, we will have to drive operational improvement that is a continuous process, as you know. And like I said, maybe we see some quarter-on-quarter volatility, but our endeavor is going to be that in medium term, we continue to drive that productivity and cost takeout and deliver on the promise of actually AI helping us to deliver our fix-price programs better. And we continue to optimize all other over. Now as we do that, hopefully, we are able to keep our margins in the medium term in [indiscernible]. Operator: We'll take our next question from the line of [ Prateek Maheshwari ] from HSBC Securities. Unknown Analyst: So Srini, I've got a couple of questions. So I'm sorry for harping again on Americas 2. Just wanted to understand that, there are the client specific issue that you guys have faced in the fourth quarter and you facing the first quarter spend. However, if I look at Americas 2 over a 1-year period or a 3-year period, it seems that there's been a [indiscernible] there been multiple clients specific issues that have happened. So just wondering to understand your thoughts on this if it is a mere coincidence or how -- what are your thoughts on this? And just second question from [indiscernible] around the AI partnerships. So we are seeing our larger peers have -- along the parties with probably [indiscernible] like once said[indiscernible] but we haven't heard a lot from you -- so just wanted to understand how you guys are planning around this. And if you were the planning for [ GTM ] these models as well. Srinivas Pallia: Thanks, Pratik. You're right, AI is a central strategy for Wipro. 2 quarters back, we had launched Wipro Intelligence, which is a combination of industry and cross industry and functional platforms and solutions. And this quarter, the last quarter, we announced the formation of year native business and platform unit. The reason why we are doing it is in the last 2 quarters based on our experience, both in terms of industry platforms and the delivery platforms, which is WINGS for run and operate and Vega our [ DLC ] life cycle, which is more on the change in transform side. We have seen a very good traction. The clients feel very comfortable with the way we have put the guardrails making sure we align the technology to what they are actually using, making sure it is secure, reliable and responsible as well. Also, in terms of the productivity benefits that we can offer to them, both in the existing engagement and also the new engagements we plan to do. And we will continue to invest in this. And I think Aparna called out as well that Wipro Intelligence and the new AI-native business and platform unit is going to pivot us into our services as a software industry. So while we continue to deliver the services to our clients, this should help us to actually create a software-as-a-service through our platform model. We already saw some success with our platforms. be it in Health Care, be it in Banking, Insurance, Telecom. So we want to see that because the clients are actually feeling very comfortable with the fact that the whole platform is native, which is AI powered and it's able to well integrate into their domain with the kind of agent and agentic operations we're trying to bring in. So that investment will continue, [ Prateek ]. Unknown Analyst: First question, if you could share also -- so the question was that there's been multiple client issues over the years. Just wanted to understand what your thoughts on that. Srinivas Pallia: Yes. I think this quarter, last quarter, it was something that we called out as well, very specifically for the 2 reasons like you mentioned in your question itself. But 1 is the specific client ramp-up that has not happened upon I talked in detail about that. But we feel -- and I also answered that question, we feel fairly confident that clients come back because there was some directional change, and they wanted to pause before they had the clarity around that. The second 1 was something that the account-specific issue that happened, which impacted for us in quarter 1 and in addition to quarter 4. Having said that, if you look at our top accounts, they continue to stay focused on our top accounts with a very clear account management strategy. And in fact, many of our clients are asking us to come back and help them in terms of AI advisory and consulting in terms of how to navigate in the AI world. So what's important for our account team is to be very proactive and leverage to Wipro and platforms and solutions and kind of help the client through this disruption process. Unknown Analyst: Srini, If you could allow me to squeeze 1 more question. I just wanted to ask, you said that you have a positive view on BFSI in APMEA and also in Europe. So just wanted to ask outside of the client-specific issue that you may face in the first quarter, do you have a positive view on the USPs as side well. Srinivas Pallia: So I think from an overall -- I think the best way for me to reflect, [ Prateek ], in your question is the kind of pipeline that we have. And -- talk about having a very secular pipeline across industries and across markets. And your question specifically to BFSI, if you were to look at Americas and Europe and APMEA. And also the Capco question that came up. We continue to see very good traction. We continue to see a very good pipeline. And some of this, what the kind of work that Capco does is very consulting-led and advisory-led. And we also want to see how those implementations for the clients can happen. And for me, clearly, from a BFSI perspective, right, very clearly, the client wants to invest in AI around data platforms and agentic workflows and security. And while they are continuing to optimize but the spend in this specific area around AI, data and cloud continues. Operator: We'll take our next question from the line of Abhishek Shindadkar from Incred Research. Abhishek Shindadkar: Can you hear me? Operator: Yes. Abhishek Shindadkar: The first question is regarding the contribution for HARMAN. So when we gave the guidance last time, in the third quarter, the 0.8% was the contribution. And incrementally, 2 months was assumed when we gave the fourth quarter guidance. Can you just quantify what would have been the contribution for this quarter? Or if you can just quantify the organic growth for us? That's the first question. And I'll just ask the second 1 later. Aparna Iyer: So your question is around how much did the HARMAN acquisition contribute in Q4? Is that your question? Abhishek Shindadkar: Yes. Aparna Iyer: So we actually made a stock exchange filing around the revenues of the organization. You can assume the quarterly run rate around that much. Abhishek Shindadkar: Understood. That's helpful. The second thing is on the top client and maybe it has been asked, but not just the top, but if I look at the top 5. And if I look at the client metric and the attrition across some of the larger accounts, do you for this kind of stopping or halting in the next quarter? Or we may continue to see some challenges in the accounts, larger accounts even in the next quarter? Aparna Iyer: I think our overall growth rate also tend to reflect in our top client metric growth rates as well, right? That said, if you -- like if you had to look at the year-on-year performance of our top client and it's been largely flattish year-on-year constant currency actually has grown on a year-on-year constant currency by 0.2%. And top 10 have grown a positive 1.5% on year-on-year constant balance. And therefore, are we unduly worried about the top relationships that we have, no, we're not worried about it. That said, our constant endeavor is to continue to win with our largest client in the market. and some of the wins that we have announced even this bag are towards that. So you will continue to see us growing and expanding this because this is the way in which our growth will come from. It's our #1 strategic priority. We will work with large clients, and that is the endeavor. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Thank you all joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the Investor Relations. Have a nice day. Thank you. Operator: On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the hVIVO Annual Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and please do give that your attention. I'm sure the company will be most grateful. I'd now like to hand over to CEO and CFO, Mo, Stephen, good afternoon. Yamin Khan: Good afternoon. Thank you for the intro. So I'm Yamin Mo Khan. I'm the CEO of hVIVO. I've been with the company for just over 4 years, and I have with me our CFO, Stephen. Stephen Pinkerton: I'm Steve Pinkerton. I've been with the company for almost 9 years. I've been the CFO for the last 4 years. Yamin Khan: I would like to welcome you all to our full year 2025 results. The company has had a challenging 2025, at least financially. But operationally, I think we've done some great work, and we'll go through both our operational achievements as well as our key financial parameters. So we'll move straight on to the financial -- the normal disclaimer and then really to go through the company's overview of what we are planning to do from a strategy point of view and what we have achieved because it's key to have a strategy, of course, it is, but it's also key to see how we are progressing in executing that strategy. So as you all know, we are the world leader in human challenge trials, and we will remain so, and we are continuing working hard to expand our human challenge trial capabilities. But one of our key focus area is to continue to diversify and add new capability. And that's been part of our action for the whole of 2025 and 2026. And we'll really talk about how we are diversifying into new areas. So new stages of clinical development from preclinical all the way to end of Phase III, whereas historically, we've run the Phase II human challenge trial and also expanding our therapeutic expertise, not just doing infectious disease trials, but doing respiratory and cardiometabolic too. And on top of that, of course, through our acquisitions, we already have achieved a geographic expansion into Germany and pan-European presence. And I think the key thing is that in 2025, we have already achieved a number of the key criteria that we were looking at. So the expansion into Phase I is done. We are now retiring the brand names for Venn Life Sciences, CRS as well as Cryostore and rebranded ourselves under the single one hVIVO brand, which you may have seen launched yesterday on LinkedIn and other social media channels. Going forward, we want to provide our customers with an integrated end-to-end drug development platform under the hVIVO brand and operating ourselves under 4 different service lines, which I will describe later on. I will be focusing on the diversification of services, but please note that this is not at the cost of human challenge trials. We want to continue to build our human challenge trial capability and remain ahead of everyone else. But the key focus for us is to remain more diversified and offer a greater portfolio of services across the board. We have built a new challenge model. So we've launched contemporary human challenge models in influenza as well as the world's only commercial hMPV challenge model. We've also recognized some cross-selling opportunities whereas historically, we may have not approached customers in Phase I. Now we can offer them the Phase I, Phase II combination as well as Phase I and human challenge trial combination. Post period, we've had some really excellent highlights with the new trials contract we announced yesterday as a really good signal that human challenge trials are returning and back to normal. This is an influenza prophylactic antiviral challenge trial that will take place this year, and we expect to recognize the majority of revenue in 2026. We also are in the process of finalizing our agreement for our world's first Phase III human challenge trial in whooping cough with ILiAD Biotechnologies. With that, I'll hand over to Stephen to go through the key financials. Stephen Pinkerton: Good evening, everyone. 2025 has just -- has been a challenging year for this business. We delivered GBP 46.8 million. That's in line with our downgrade that we gave in May 2025. It happened quite quickly. We faced a number of cancellations right in the April, May time. Normally, the number of cancellations that we have is around about 2 on an average. And this -- and we had quite a bit more than 2 in the current year. And that is the main reason for the lower revenue performance. However, I think the business has adjusted well. We made a profit of GBP 1.4 million despite these headwinds from the U.S. and that's after the net acquisition losses of GBP 1.4 million. So the underlying performance of this business was profitable in the circumstances. Cost management was at the foreground, but the efficiencies that we achieved in 2025 to establish in 2025 pull through in 2025. One of the clearest examples is recruitment. We were able to leverage our database rather than go out for lead generation and spend money on advertising and things like that. But clearly, one of the clear reasons for the profitability was also these cancellation fees carried no variable spend attached to them and flowed through to the bottom line. And this gives you a sense of whilst HCT got impacted significantly by the headwinds in the U.S. with infectious diseases and vaccinations not being in favor, our contract model softened the blow somewhat in this -- on our HCT studies -- on our HCT revenues. Moving on to cash. Cash of GBP 14.3 million was a little bit better than the expectations, although this is much lower than we started the year at GBP 44.2 million. Just under 50% of that is due to the acquisitions supporting the working capital and also obviously, the consideration for acquiring -- making those acquisitions. Just over 50% of that is due to the core business and the limited number of HCT trials that we have signed in 2025 or before the end of the year. The Board has made the decision not to pay a dividend for 2025. That's really -- the value of the dividend is GBP 1.4 million, and we felt it's much better spent investing and growing in the long-term future of this business. The order book of GBP 30 million is -- compares to GBP 43.5 million has been restated. So previously, we would have included the full value of a contract at the time when the contract is signed. However -- when an SUA is signed, a study start-up agreement is signed. However, because we faced a number of cancellations and we have changed the methodology. At the time we set up a start-up agreement, we get start-up fees and we get a booking fee. And because that booking fee was seen as a commitment, we would use the CTA full value. However, we're now only including the contracted values in the order book. And we are also now only announcing contracts when the CTA value -- when the CTA has been signed with clients. So there is a bit of delay because, first of all, you've had headwinds affecting the HCT market. And we're now only announcing studies once the CTA is signed. And the time between SUA and CTA can be anything between 5 months to 12 months in Signature in terms of when they sign between the 2. But there's another slide further on, and Mo will take you through more on the order book going forward. Just touch on revenue. This is a waterfall from 2024 to 2025, the key sort of drivers and changes in the revenue makeup mix over 2025. Remember, in 2024, we did receive facility fees that clients paid us to effectively what we built up in Canary Wharf for a large study that was delivered in 2024, and that was roughly about GBP 4 million. HCT, we've just talked about, it did decline significantly. It's due to a number of cancellations. I also wanted just to highlight that some of that decline has got to do with -- in HCT, we also include manufacturing revenue, which is around about 10%. 10% of the HCT sales that we make is where we have manufactured challenge agents for clients. And so I don't want people to remember that this is an important part of our portfolio is being able to develop challenge agents. Clinical Trials were slightly up year-on-year. We did have a high volume in 2024, where we -- and we've managed to be able to repeat it in 2025. So I think that's quite a good performance. Labs is slightly up. It is off a low base, but we see a pretty good order book going forward on that. Consultancy was down, and that's mainly because a big pharma took some work in-house. But with the support of CRS, we're beginning to see some cross-selling from the CRS clients into our consultancy -- early clinical consultancy services, so that's improving. Looking at the acquisitions, Cryostore at 0.8 million, that was their revenue for the year. That's perfectly in line with our expectations and the due diligence work that we did on Cryostore. They are delivering as expected. It's a high margin. It is a business that has sort of 90% to 95% retention rate. So it's a great little business and it's doing very well. Clinical Trials, our German acquisition, GBP 12.3 million is a little lower than we expected at our due diligence stage. It was really down to the RFPs in 2024 not converting as expected as per previous sort of conversion rates, impacted definitely by the whole sector. The whole sector had a little bit of a hesitation and a hiccup across the CRO sector. So certainly that impacted. However, we have seen an uptick in the conversion rates in 2025, offsetting some of that shortfall in 2024 -- of the 2024 RFPs. And then just to touch on cash, a little bit of cash utilization here. I've just tried to split how we've utilized our cash. We have utilized some GBP 29 million. This is the core. We used GBP 15.4 million and inorganic work, it was GBP 14.5 million. Cash generated from operations of GBP 10.4 million is obviously due to the HCT where we've had unwinding of the deferred revenue and the new sales on HCT is still to come back and looking at the pipeline, that's looking positive. But obviously, it's impacted us for 2025. The purchase of PPE, the GBP 1.4 million is largely lab equipment. We did purchase the first digital PCR equipment in Europe, Hamilton. It's a great piece of kit. It's quite expensive, but it supports us with our field study work that we're doing on Cidara and new field work that we're going to do. It's much faster and it's much more efficient as well. Financing activities of GBP 4.6 million includes a dividend of GBP 1.4 million. And obviously, we're not paying that in 2025. It's in 2026. So there's no dividend going on. The other thing that we benefited in 2024 was we had a rent-free period in Canary Wharf. So our lease payments have jumped up by about GBP 2 million to GBP 3 million in 2025. So that's the makeup of the GBP 4.6 million. Then just the acquisitions, GBP 10.5 million spent on consideration costs and the GBP 4 million is really the sort of the working capital and funding the loss for the year. But overall, I think the business has reacted quite well to the headwinds that we have faced and try to reflect there is some resilience in the business in terms of the way we contract to soften the blow, and we're well set to go forward. And with that, I'll hand you over to Mo. Yamin Khan: Thank you, Stephen, for going through the numbers. I want to really focus on why do I feel bullish going forward. We've just been through a challenging 2025, and we had a profit warning in 2025. The share price has been depressed. But I still believe that as a company, we've had a transformational year. So we've gone through 2 acquisitions, Cryostore in London and 2 clinical research units in Germany from CRS. And we realigned our company under the single one hVIVO brand. The reason why that is important is we want to offer a one-stop shop for our customers to go from preclinical is at the consulting stage all the way to end of Phase II or end of proof of concept, basically to show a signal whether a drug works or not as well as offering Phase III site services. So under the 4 different arms we have right now that we are fully operational and currently in working practice, the consulting arm focuses on CMC, PK, regulatory type of consulting with majority of really falls under the former Venn team. But they work very closely with the clinical trial service arm in the sense that when we are running a Phase I trial, as part of that, we may be helping our customers to design protocols, write clinical development plans, obtain regulatory advice. So the clinical trial service unit works very closely with the consulting arm. Under the Clinical Trials unit, we also include the Phase II nonhuman challenge trials we run, both in Germany, but also in the United Kingdom, in London, in particular. The third arm is the human challenge trial arm. But this is a legacy arm where we manufacture new challenge models, we validate them and then we run the human challenge trial work on that. And the final piece to the [indiscernible] is, of course, is the laboratory piece, which historically has catered human challenge trials, but now is a stand-alone business on its own. So it will continue to provide services to the human challenge trial -- clinical trial business. But on top of that, we also expect to service third-party clients, trials run by third-party CROs. Cidara being a key example where we provided full center virology assistance in the laboratory aspect to 50 sites in Phase II to 150 sites in the Phase III. What this enables us to do is to handhold the client from the beginning to the proof of concept. It also means that we're able to access new clients independent of the stage they're at with regards to the clinical development program. Historically, we were a Phase II human challenge trial business. Now we can attract clients whether they're in preclinical Phase I, Phase II or Phase III. So this automatically increases the portfolio of our customers. Having said all of that, I want to reiterate human challenge trials remain a key component of our offerings. We are no longer relying on them as a sole provider of future revenue. In 2024, over 85% of our revenue was generated from human challenge trials. In this year, we are forecasting less than 50% of our revenue to come from human challenge trials. Of course, this is partly due to the downturn in the human challenge trial awards and the cancellations we've had in 2025. But it does show the progress we have made in the non-challenge trial business, the fact that we can now expect over 50% of our revenue to come from non-challenge trial business. The scale and breadth of the company has also radically changed. We now have over 200 beds in a variety of different locations where we can treat patients for all sorts of clinical trials. We've created centers of excellence for different type of therapeutic areas. So in infectious diseases and also respiratory in London, cardiometabolic in Mannheim, renal and hepatic special population studies in KIEL. Now this gives us, again, access to new customers that we have not had access before. CRS historically have mostly worked with German customers. Now we are targeting our sales activities to pan-European and also U.S. customers to run their trials in Germany with the -- for the Phase I part. We've seen volatility within the FDA and more and more customers looking to do early-stage clinical development outside of the U.S., whether that's in Australia or in Europe. And we want to play a key role in attracting those customers to you, especially in Germany when it comes to Phase I trials. On the human challenge trial business, as I said before, we want to continue to build on this and be the world leader. We do majority of the commercial human challenge trials that are conducted in the world. We've added a new human metapneumovirus model, hMPV challenge model. It is the only active challenge model commercially available in hMPV. We've renewed our influenza viruses in a number of different strains and Traws Pharma is taking advantage of a new contemporary viral model that we have in place that we launched last year. And we will continue to build on our human challenge trial business, and that's key. We're also potentially expanding into respiratory human challenge trials, challenging asthmatic or COPD patients to cause mild exacerbation and testing new antivirals or asthma and COPD products. So human challenge trials will remain a crucial part of the business. We have 3 other key growth initiatives that I want to walk you through. And the reason why they're important is I expect them to contribute significantly going forward as part of our non-human challenge trial business. The first one is the cardiometabolic. I'm sure you are all aware of the recent boom in anti-obesity drugs. And we want to be part of a clinical development team that tests new anti-obesity drugs. But cardiometabolic is more than just anti-obesity drugs. It also includes drugs targeted against diabetes, for example, hypertension, high cholesterol levels in patients. We have a world-renowned endocrinologist, key opinion leader in doctor -- Professor, sorry, Thomas Forst, who heads up our -- who is our Chief Medical Officer at CRS or now the clinical trial service arm, who is responsible for leading this franchise. He acts as a director on several advisory boards for Big Pharma. And we believe through our initiatives in attracting new customers outside of Germany, supplementing the patient recruitment with the U.K.-based FluCamp now fully implemented in Germany, we can run more trials in Germany. The key for us is that we offer Phase I and Phase II combo trial delivery platforms, Phase I in healthy volunteers and expanding into Phase II patient-based studies. Now in our group of service providers, there are not many vendors out there that can provide both healthy volunteer Phase I trials and Phase II patient studies. And there's a gap in the market, which we want to make the most of. Our second key driver is respiratory. So historically, on the human challenge side, almost all of our challenge trials have been run in infectious diseases that target the respiratory system. So we inherently have a really strong respiratory franchise with some really good experts and our facility is equipped already to monitor different respiratory parameters when it comes to running Phase II and Phase III trials. And that's something we are now making the most of in the sense that we are targeting clients, respiratory clients to conduct non-challenge trials. We run a number of non-challenge asthma trials. We have a huge database of patients both in asthma and COPD. And we're now seeing traction from our clients who are interested in running field studies with us on both asthma and COPD indications. And this is something, again, we want to build on and then build new indications on the back of delivering these types of patients. The third and final piece of the puzzle is a laboratory. We want to build the laboratories. As I mentioned earlier, historically, laboratory has catered for our human challenge trials. We now have a strong stand-alone business. We've added new capabilities to this. We have added a droplet digital PCR machine that can automate and speed up the analysis of samples for PCR purposes. We've also added a next-generation sequence capability, which is NGS capability. It means that we can sequence pathogens or other molecules much faster than we have previously done. In fact, we formally outsourced this piece of work because it was part of the human challenge trial business. And now by bringing it in-house, we can increase our revenues and improve our margins. And our goal is to continuously monitor the requirements in the market for different types of laboratory requirements and to target customers for repeat business in this area. And the end-to-end platform isn't just a fancy word that I say to try and promote hVIVO to you. It's something that we have seen in action. Cidara is a really good case study. Cidara is a U.S.-based biotech company that came to us 3 years ago almost when we ran the human challenge trial. On the back of positive results from our human challenge trial, we were a site -- a clinical site in the Phase II field study, where we contributed around 1 in 6 patients in the total recruitment base. On top of that, we acted at the central virology laboratory for the Phase II trial. That was a positive outcome for that trial. On the back of that trial, Cidara was sold to Merck for $9 billion. We are currently, again, working with Cidara, now Merck on a Phase III study, also acting as a clinical site and a central virology laboratory for over 150 sites or hospitals around the world who send their samples to our laboratory where we analyze the primary endpoints. This is something we want to do more of, and we have now diversified to include both the consulting and the Phase I. So now, for example, we can speak to a customer at the preclinical stage, help them formulate their product through our CMC and our PK consulting services, take them to the regulatory bodies through regulatory consultants, do and conduct the Phase I trial first in human clinical trial and then the Phase II trial in patients. And along this journey, by doing it under one contract, one roof, it means you improve the efficiencies, you enhance the quality and you reduce the cost. All these are very attractive sentiments to a biotech who is looking to get to and the proof of concept with -- as fast as possible and potentially as cheap as possible. The reason why I feel this is important is because I believe that going forward, we will see an increase in number of trials done by biotech to get to Phase II. That's because the Big Pharma are cash rich right now. But they also have a challenge of a very big patent cliff, around $300 billion worth of new branded drugs will expire their patents in the next 5 years. This means that after that, the revenue that these companies will get from the branded product will reduce significantly because there will be copycat generics on the market at a much cheaper price. To fulfill their pipeline, Big Pharma will spend money to buy new assets. And because they're cash rich, they can afford to pay a higher price and get a drug that is at a later stage of development, so lower risk of development. If that was to happen, the biotech companies need to run Phase I and Phase II trials. And that's where we come in. We can work with these biotech companies and give them an enhanced package to get to end of Phase II. And the therapeutic is we're working on what we call primary care indications. So these are indications where you would typically go to your GP for rather than a hospital. So we focus on infectious diseases, in respiratory, in cardiometabolic. We can add other franchises, for example, women's health or dermatology and so on. And the key for us here is to have an integrated end-to-end delivery system that requires minimum effort and resources from a biotech. So their team can remain small and nimble and we could be the workforce underneath them to get to the stage where they're ready to market themselves to Big Pharma, just like we helped Cidara to do. The diversification, again, isn't all talk, okay? I mentioned the fact that 50% of the revenue will come from non-challenge trials. And you can look at the order book. The order book is also diversified. Stephen explained our new algorithm when we announced the order book and new contracts. And the key to that is that it should be more resilient, more reliable because it's closer to the execution of the work rather than at the start-up agreement. It also means that our order book in this instance, as you can see, will be lower than previously stated because we are announcing this contract at a more mature stage. This order book for 2025, of course, does not include the Traws Pharma contract because that was signed in post period. But I would want you to focus on the other areas and the growth we are seeing across the board in the different service lines. And that's key for us. So we want to build the human challenge order book. Of course, we do, but we also want to continue to build and grow and accelerate the order book in the non-human challenge trial areas. When it comes to new proposals, we've also seen a really good uptick. So 2025 numbers were significantly better across the board compared to 2024. And this year already, in the first quarter of 2026, we've seen a 50% increase in new proposals submitted year-on-year. And the variety of clients we're getting is also much greater than ever before. And I want to reiterate this. We're now attracting clients in new therapeutic areas. We're also attracting clients at different stages of clinical development. And that's key for us to build a future to diversify and derisk. If something like what happened last year was ever happened again, we are much better placed to manage that. And the final slide, just to sum up where we're at. So I totally understand people's frustrations, investors' frustration with regards to the financial outcomes and the share price depression in 2025. But I hope I have relayed some of the key work we have done. We've been very busy in getting the acquisitions on board, realigning the company to diversify and integrated end-to-end delivery system. And that's something we want to continue to go forward with. The CRS and the Cryostore integration are fully complete. We have all the line management realigned. We have launched new group-wide systems that work across all our colleagues across the group. You've seen from the pipeline is strong. The short to medium-term outlook is very good. We have signed Traws Pharma as a major human challenge trial. We hope to finalize the ILiAD contract soon. So the pipeline is very strong. And in the meantime, by the way, we are continuously signing Phase 1 contracts. These are generally between GBP 600,000 to GBP 1 million in value. So they're not announceable. But I'm pleased to say we are continuously working with new clients as well as some repeat clients in the preferred providerships that we are building the order book on that side as well. And with having said all that, we are confident that we will achieve high single-digit revenue growth in 2026. Thank you for your attention. Operator: [Operator Instructions] Investors before we go into the Q&A session, a recording of this presentation will be available via the Investor Meet Company platform shortly after today's call. Mo, Stephen, you received a number of questions from investors both ahead of the event and during today's event. So thank you, firstly, to everyone for your engagement. If I may just hand back to you, Mo, maybe you could kindly navigate us through the Q&A, and I'll pick up from you at the end. Yamin Khan: Great. Thank you. Okay. I'll get straight on to it. What is the outlook of firming orders with ILiAD now that funding has been secured by the firm? So the funding has been secured by the firm. You're absolutely right. And part of the funding has been allocated to run a human challenge trial with us, of course. The contractual negotiations are almost fully complete, and we are near finalization of this contract. So look out for the, hopefully, the [indiscernible] soon with regards to the announcement of the fully signed contract with ILiAD, which will be the world's first Phase III pivotal whooping cough trial. And just to kind of comment on this further, this will create a significant press when it comes to human challenge trials because the FDA, the MHRA and the EMA, the European agency, have agreed to use a human challenge trial data as a part of the submission package to get to marketing authorization. This has not been done before proactively. So this sets a precedent, hopefully, for future clients and sponsors to ask the same from regulators to use a human challenge trial as a way to get to license here. So something we are very proud of. We are, of course, very delighted that ILiAD has preselected us as their preferred partner, but this is bigger than just hVIVO. This would impact the whole human challenge trial franchise once that data is produced. What is the value of Traws Pharma deal to hVIVO plc? As you know, we have not publish the value of the contract. I think what I know this is price sensitive and competitive sensitive. And I'm sure our clients would not like to share -- us share confidential information with you guys. But it's a good, strong contract with up to 150 people being enrolled into the study. And as I mentioned, this will start almost immediately. In fact, the proprietary work has already started, and we look to complete majority of the trial in 2026. In light of the new Traws Pharma, HCT, will we have better capacity for ILiAD? Yes. The way we have planned out all this work, of course, there is capacity to conduct both trials in 2026. But the ILiAD contract, by the way, is multiyear. So it will go from '26 but the majority of the revenue, in fact, now will be recognized in 2027. And I think it goes to show the resilience of the company now where if you ask me 12 months ago, ILiAD would have formed a large proportion of 2026 revenues. But for a variety of reasons, that study has been delayed, but we are still sticking to our guidance. So even though ILiAD will form a much smaller portion of the 2026 revenue, we still are very confident of our guidance we have put out there. But in 2027, we expect ILiAD to perform even more with regards to revenue recognition. Isn't the CRO market extremely crowded? In that case, why are you expanding your CRO offering instead of doubling down on human challenge? It's a very good question. So human challenge trial, I think we have doubled down, if you will. We are the world leader. We have over 12 different challenge models. Nobody comes near us. We have around 350,000 people on a database that we can use to recruit healthy volunteers. Again, nobody comes near that. We've done 50 trials to date, over 5,000 healthy volunteers in operated. So we are the world leader in this. There's no doubt about that. But we have to be careful as we've seen in 2025. If you rely on one single modality, you do risk your future growth. And for that reason, we do want to grow further. But your key point that the CRO market is crowded, it's correct. But it's crowded in certain stages of development. There are not many multisite CROs out there that can do healthy volunteer Phase I studies and then expand into multisite patient study. We own our own clinical sites. Most CROs will go to third-party sites and rely on their recruitment capability. 80% of the trials that are delayed, are delayed due to poor patient recruitment. And that is a problem we will solve by internalizing patient recruitment. So our own team, our patient recruitment team will recruit patients into the London facilities as well as the German facilities. So although the CRO market is crowded, I believe we have a niche that will grow because of the pharma requirements of a more [indiscernible] product from biotechs, and that's what we want to service. The choice to reduce your overdependent on human challenge trial studies and smooth out the revenue cycle. So we're not reducing our human challenge trial capability. But we are diluting it by increasing the non-challenge franchises, absolutely. And the reason behind that, of course, as you mentioned, is to reduce volatility and lumpiness and cycle, if you will. I think this one is for you, Stephen. Is hVIVO plc evaluating further cost-cutting measures given the business outlook? Stephen Pinkerton: So we have a very good operational team where we plan out all our known studies. So we plan based on our contracted work and then we always look to scale accordingly. So yes, we plan our costs based on known factors, on our known studies. And yes, so we are always looking at our cost base, but there's no significant change that we're expecting in the short term. Yamin Khan: Thank you. The next question is a long question. I'll just get to the end. Will the company ever start winning new HCT trials again? And if so, when? Well, we won one yesterday, which was announced. So that's something. And as I mentioned earlier, we are looking to finalize the agreement with ILiAD on what will be our largest ever human challenge trial. Will you -- Stephen, this is one for you. Will you be paying dividends as I'm sure shareholders will be quite disgruntled about the past few years? Stephen Pinkerton: Okay. So as I mentioned earlier in the presentation, the Board has decided not to pay a dividend this year. We'd rather spend the money on investing for the future growth of this business. And if you think about it, at the beginning of the year, we had GBP 44.2 million and it seemed churlish not to pay a dividend. But we -- now we have GBP 14 million, which is more than enough for our sustainable growth, but we think it's better to spend that money, all of that money going forward and investing and growing this business for. Yamin Khan: Why did you decide to have your largest facility in Canary Wharf instead of a cheaper location elsewhere in London? What tilted the decision in favor of Canary Wharf? It was an economical decision. So we did look at a number of options in and around London, and this was the optimum with regards to location to get access to healthy volunteers and patients, but also economically, it was a very favorable terms for us. Remember, Canary Wharf were and still are attracting more life science companies to this campus. And as part of that, they really wanted us to be involved and spearhead that campaign. Apart from ILiAD, are there any other HCT deals that are close to signing over the next 3 months or so? So I can't comment on next 3 months or so, but absolutely, there are multiple deals we are currently working on, which are currently at the proposal stage. You saw the increase in proposals that we have seen in 2025, which have increased by 50% in the first quarter of 2026. So the pipeline of work remains very strong, and we do hope to close a few of these in the coming months and in the future periods. If hVIVO plc evaluating further acquisitions, we always will keep an open eye on further acquisition for the right fit. I think that will be key rather than the size and the timing. If the deal is good and it gives us access to new therapeutic areas, new geographies, then we will seriously have a look at those options. This is one for you, Stephen. How would you say your fixed cost and variable cost split? Just a rough split would be useful. Stephen Pinkerton: So this is actually not a straightforward answer because we have quite a number of different contracts in place with our clients and different revenue types. So I mean, if you think about our consultancy business, it's got capacity, it's not fully utilized. So what is my variable spend in that case? There isn't any. I can take on more work. If I look at HCT trials, the sort of the variable spend on the HCT trial is maybe 15%. If I look at the Clinical Trials business, the variable spend will be roughly 25% to 30%. So it's very much dependent on your revenue mix. Yamin Khan: Thank you. I can see we are running out of time. I think we've got 1 minute left, so I'll quickly go through a couple of, I guess, different questions. So does the Lab only service samples taken in London? Or can you process samples from anywhere in the U.K. So we process samples that are taken anywhere in the world, to be honest. So we have a whole biologistic arm that works with courier partners and ships samples at the right temperature control environments to our Canary Wharf facility here on this floor, in fact, where we have all the equipment ready to process samples. So we do manage a large number of samples in any given week, especially for ongoing trials such as the Cidara trial. Is the strategic move towards diversifying our revenue sources also margin accretive in the medium to long run compared to previous revenue mix. Stephen, do you want to get that? Stephen Pinkerton: I missed that one. Yamin Khan: Is the strategic move towards diversifying our revenue sources also margin accretive in the medium, long run compared to the previous revenue mix? Stephen Pinkerton: No, HCT was definitely a much more profitable piece of the business, especially when you're running multiple HCT trials at the same time. So we're able to leverage our fixed cost base a lot more efficiently over HCT. Clinical Trials is a lot more outpatient. So obviously, you have a lot more sort of transactional type of work to get through. So Clinical Trials is a lot more competitive environment as well. So your margins are a little bit tighter. Labs is probably a bit better, your margins are a bit better there because it's a contact with the client and Consultancy has also got a different margin. So the new revenue streams don't necessarily improve the margin. But when you start dealing with scale, then you start getting an improvement in margin. So with HCT coming back and with the scale that we're envisaging and driving towards on the other new revenue streams, which should get closer to where we were previously. Yamin Khan: Thank you. On that note, I will close our presentation. I think we've gone 2 minutes over. Thank you, everyone. Operator: That's okay. Thank you, Mo, Stephen. And of course, we'll make any other questions available post today's call. Mo, Stephen, I know investor feedback, as usual, is very important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps final words over to you, Mo, and then I'll send investors to give you feedback. Yamin Khan: Yes. So I want to thank everyone for your loyalty in hVIVO. I hope we have described at least some of the key points that we have achieved in 2025 and continue to do so in 2026. I appreciate financially, it was a challenging year, but you've seen the actions we have completed, and I think our strategy is sound. We are going for a market gap that currently exists. We're offering services that are unique. And I think our future is now derisked, and we are a much more resilient and less volatile company. Operator: That's great. Mo, Stephen, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of hVIVO plc, I would like to thank you for attending today's presentation, and enjoy the rest of your day.
Operator: Good day, ladies and gentlemen. Welcome to TomTom's First Quarter 2026 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to your host for today's conference, Claudia Janssen, Investor Relations. You may begin. Claudia Janssen: Yes. Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the Q1 2026 operational highlights and financial results with Harold Goddijn and Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financials. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. With that, Harold, let me, for the last time, hand it over to you. Harold Goddijn: Yes. Thank you. Thank you very much, Claudia, and good afternoon, everyone. Thank you for joining us. I will start with a brief update on our strategic and operational progress, and then I'll hand over to Taco for the financials. The first quarter of 2026 execution was solid. Profitability continued to improve. Our core Location Technology business, Automotive and Enterprise, both made good progress, while revenue trends reflect the transition we expected this year. In Automotive, we see carmakers accelerating their software strategies and taking more control of the in-vehicle stack. And at the same time, the industry continues to move towards higher levels of automation. Our Lane Model Maps are becoming an important differentiator. We're building on that, working closely with OEMs to support advanced driver assistance and autonomous driving. In Enterprise, we extended both our customer base and our use cases. We strengthened our position in traffic and traffic analytics through new partnerships, including AECOM, Kapsch TrafficCom and LOCUS. These partnerships extend our real-time traffic data into infrastructure planning, traffic management, location intelligence. They also underline the value customers place on quality and depth of our data and on TomTom as a trusted partner. Overall, we are confident in our progress. The steps we are taking, advancing our maps platform and building strategic partnerships position us well for 2026 and beyond. Before I hand over, a few words on the leadership transition we announced in March. Following a structured succession process, Mike Schoofs has been appointed CEO in today's general meeting. Mike has been with TomTom for over 20 years and built our global commercial organization. He knows the company, he knows our customers, and he knows the market inside out. I'm confident he will lead the next phase of our strategy with clarity and momentum. As a co-founder, it's very satisfying to see TomTom move in this next chapter with strong leadership in place. And with that, I'll hand over to Taco for the financials. Taco Titulaer: Thank you, Harold. Let me discuss the financials and after that, we can take your questions. In the first quarter of 2026, group revenue was EUR 129 million, an 8% decrease from last year's EUR 140 million. The decline was in line with the expectations and guidance we provided with our Q4 results. Let me briefly break down our top line performance. Automotive IFRS revenue came in at EUR 76 million for the quarter. That's a 5% decrease compared with the same quarter last year. Automotive operational revenue was EUR 70 million, which is 16% lower year-on-year. The decrease in revenue related from the gradual discontinuation of certain customer programs, along with the effect of a stronger euro relative to the U.S. dollar. Enterprise revenue was EUR 38 million, down 8% year-on-year. Adjusted for currency fluctuations, Enterprise revenue showed a slight increase year-on-year. Taken together, our Location Technology segment generated EUR 114 million in revenue, which is 6% lower than Q1 last year. On a constant currency basis, Location Technology revenue increased marginally. The Consumer segment, as expected, declined versus prior year. Consumer revenue was EUR 15 million, down 21% year-on-year. Q1 2025 was EUR 19 million, reflecting the development of the portable navigation device market. Consumer now represents a smaller part of our total revenue. Gross margin improved to 90% this quarter, up from 88% in Q1 last year. The 2 percentage point increase was driven by a higher proportion of high-margin Location Technology revenue in our revenue mix. Operating expenses were EUR 103 million, a reduction of EUR 15 million compared with the same quarter last year. The decrease is mainly the result of the organizational realignment we carried out last year, which lowered our cost base, combined with the higher capitalization of our investment in Lane Model Maps. As a result of higher gross margin and lower cost, our operating result was EUR 14 million for the quarter, a sharp improvement from EUR 6 million in Q1 last year. Our operating margin was 11%, up from 4% in the same quarter last year. Finally, free cash flow for the quarter improved to a positive inflow of EUR 1 million when excluding restructuring payments compared to a EUR 3 million outflow in Q1 2025. We continued our share buyback program during the quarter. By the end of Q1, we have completed EUR 11 million of the EUR 15 million announced in December last year. We ended Q1 [indiscernible] of EUR 248 million with no debt on the balance sheet. This cash position provides us sufficient stability and flexibility. Our first quarter performance confirms that we are on track for 2026. The revenue decline we saw in Q1, as mentioned before, was anticipated, and we managed to improve our profitability despite the lower revenue. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of EUR 495 million to EUR 555 million in 2026, with Location Technology revenue of EUR 435 million to EUR 485 million and an operating margin around 3% for the full year. As we indicated previously, some transitional headwinds, like the phaseout of certain customer programs, will weigh on this year's top line, but this impact is temporary. Therefore, we're continuing to invest in our Lane Model Maps, which are critical for a higher level of automated driving. As a result, free cash flow for 2026 is expected to be negative. As new automotive programs ramp up and newer products gain traction, we expect higher revenues combined with our ongoing cost discipline to drive a further step-up in operating margin in the long term. And with that, we are ready to take your questions. Operator, please start the Q&A. Operator: [Operator Instructions] We will take our first question. And the question comes from the line of Marc Hesselink from ING. Marc Hesselink: Yes. Thanks, Harold, for all the conversations over the years. I would take the opportunity to also look a little bit beyond for the long term on the question. I think when I started to cover TomTom, like more than a decade ago, one of the big promises was always autonomous driving, driving the long term. I think if you're looking at the market today because of all the developments in AI, both on the side of producing the map, but also on using it and now maybe autonomous driving being much nearer than it has ever been. How do you see that next phase? Is that do you really see that we are now at the start of that next phase and we are going to see major differences for how the map is going to be used and the opportunities in the map and how important it is for autonomous driving? Just giving a little bit your long-term view on how this developed over the years and what's coming in the next few years. Harold Goddijn: Yes, Marc, thank you. Yes. So you're right, the self-driving technology has been a big promise for a very long time. And it has always until recently, I would say, failed to live up to the expectations. What we now witness is a new approach to self-driving technology, more based on AI and self-learning, which is much more promising. And at least in the laboratory, we can see sophisticated levels of self-driving technology being deployed in real cars. So I think from a technology perspective, we are closer to solving the problem than ever before. What remains are the economics and also the regulatory framework, which will follow the technology. But I think from a technology perspective, we are motoring now literally. And we see that also in the demand for our products. Carmakers are now asking for higher levels of accuracy, more dynamic data, lane level information to enable self-driving technology and to provide a powerful additional data set next to the Edge processing that's placed in the car based on sensor information. We have seen that coming back also in the orders and the -- so first of all, the interest in our products and the way we produce our products. But we've also seen it coming back in the order book. We had a big win last year with Volkswagen, as you know, which was a significant contract. And that is a product and a contract clearly aimed at higher levels of automation. To what level exactly, remains to be seen. But what we do see is higher degree of automation than we have seen before. And also that technology will enter into the mainstream sooner or later. And we've seen comparable questions and demands from other OEMs. Some of those demands have translated into contracts, but there's also a healthy pipeline in '26, '27 to go further than that. Last thing, I think, is another trend that we're witnessing, is that carmakers want to have -- seem to prefer a unified map offering that is both suitable for navigation and display and map rendering and at the same time, can power the robot of the self-driving system. And the reason for that is that the self-driving system is also looking for a way to communicate with the driver what's happening. And when you do that on the same data set, it's technically an easier problem to solve. So we see a preference developing for united -- unified map that does both the traditional navigation and route planning, traffic information as well as being the sensor for the robot, for the self-driving part of the vehicle. Marc Hesselink: Okay. That is clear. Maybe as a follow-up, I think also there, the debate has been the same for a long period of time, which is, is a map layer needed for this autonomous driving, yes or no? And I think there is still a debate, at least reading through all kinds of articles on that one. I guess there's still the redundancy element of the map. Anything which you can add in the most recent conversations with your clients why a map would be required for functioning autonomous driving in the right way? Harold Goddijn: Yes. So it's a bit of a marketing story as well, I think, from vendors who are offering self-driving technology that is "mapless." We don't know of those systems that are mapless. They don't -- they do not exist other than in the laboratory and are not battle-hardened. The -- I think one of -- the way to think about it is that it makes self-driving technology easier when you do have a map and more reliable and redundant. And the big challenge for software developers is not to fix the first 95% of accuracy. That is kind of a solved problem. The real problem is to solve for the last 5%. That is the hardest bit. And solving that last 5% is a whole lot easier if you have a reliable map underpinning your system than doing it without a map. And we see that also translated in our own interactions with customers, both OEMs, but also providers of self-driving systems that we are closely aligned with and talking to, to see how we can collectively come up with a system that is robust, reliable, but also, I have to say, affordable. One of the reasons that the old HD Map never took off is cost. And cost was a problem because we were driving those roads ourselves with mapping vans. And that's, A, expensive; and B, does not provide for regular updates and a too long cycle time. With the new technology, the new approach, we have solved for both those problems, cost as well as cycle time and freshness. So I think the market opportunity is wide open. And I think that battle will play over the next 2, 3 years, I think, for presence in that self-driving ecosystem. Marc Hesselink: Great. And then final question from my side is, leveraging that one also in the enterprise segment, because I can imagine that the point you just mentioned, cost, freshness, cycle time, eventually also very important beyond automotive. I think at the Capital Markets Day, this point was quite promising, then it leveled off a bit. But maybe now with the progress we've made over the last 2 years, is it time that this one also can see some reignited growth? Harold Goddijn: I think the product challenges on the enterprise side are slightly different. There is some overlap, but the challenges are not the same. The Lane Model Maps is -- the development of that is predominantly driven by the requirements of carmakers and systems providers of automated driving systems. But I do expect overlap in the Enterprise world. And I think given its sufficient time, it will be harder to start distinguishing between what we call SD Map or -- and a lane-level map. So those worlds will come together. There will be some overlap, but growth in the Enterprise sector will come from mostly initially from other initiatives that we are deploying. And I think we're getting on track also a little bit better on the Enterprise side, in filling that pipeline better than we have been able to do in 2025. So I think the initial signs on the Enter sides are encouraging. Marc Hesselink: Okay. Great. Thanks for all the conversations over the years. Harold Goddijn: Thank you. Thank you for covering us. It was a pleasure. Operator: [Operator Instructions] We will take our next question. And the question comes from the line of Andrew Hayman from Independent Minds. Andrew Hayman: Yes, Harold, just maybe one clarification. You just mentioned that the old HD Maps never took off because of cost. Does that mean you've changed the pricing on the lane-level maps? Harold Goddijn: No, we have not necessarily changed the pricing. But the -- I think everybody understood that scaling that Edge-level HD Map, as we did it 10 years ago, was just too expensive and prohibitive. We have seen traction on the HD Map, and we still have customers driving with that HD Map. But everybody understands that if you want to improve the freshness and more importantly, if you want to improve the coverage, and when I say coverage, it's basically beyond motorways, there you end up in an unprofitable business case very, very quickly. So it's not the unit price so much that I'm talking about, but it's more the capabilities of the product. Carmakers as well as systems providers are looking for coverage and accuracy on all roads, not just motorways. And motorways is only, what is it, 5% of the total road network, is motorways. The rest is all secondary and tertiary and local roads. And so if you want to do an accurate product on all roads, including freshness, then the old technology could never deliver that. Andrew Hayman: Okay. And then maybe if I look at the forecast for 2026, it's quite a large range for revenue overall. It's a span of EUR 60 million. And then for the Location Technology component, it's a span of EUR 50 million. What's the thought process behind that range? Is it just that there's so much uncertainty at the moment about car production levels? Taco Titulaer: Yes. It's a bit of that, of course. Currency plays a role as well. So for all the 3 revenue-generating units, there is a bell curve of expectations. We do think that the middle of both revenue ranges is the best guidance that we can give. Andrew Hayman: Okay. Okay. And then on the change in management, I mean, there's clearly considerable continuity because Mike has been with TomTom for a long time and Harold, you're moving up to the Supervisory Board. But any new CEO is going to want to make adjustments or emphasize different areas or components. Do you -- what changes do you see happening under Mike going forward? Harold Goddijn: Well, that's for Mike to talk through, and I'm sure he will do that in -- when it's his turn in 3 months from now and start to give you some of his ideas. What I want to say is this, I think we have [indiscernible]. We've gone through a major product transition over the last years that has led to a competitive product. Based on the product, there is market share to be gained. And I think we're well positioned. That needs to land, and there's all sort of things that can go wrong, obviously. But net-net, I think that is a -- that gives focus and clarity of what we need to do at least in the next 12 to 24 months. And I think that's good. But of course, the world is changing rapidly. It's not only what we see geopolitically in terms of tariffs and in terms of energy and whatnot, but it's also the impact of AI potentially going forward that will have a significant effect on how we do things, how customers are consuming upward. I think the -- our anchor product, the map, is safe, and we will use AI to optimize processes and make it cheaper to maintain it. But that anchor product is good. And AI will have -- and the way we deploy AI going forward will -- and how the world evolves around AI, will affect the company like any other company in the world. So those are the -- I think, for the moment, the 2 big axes where we need to follow progress going forward. Andrew Hayman: And then maybe on a smaller note. On enterprise, it's -- if you adjust for currency, it's growing, but it's not having the easiest time. And if we look back to you joining with OSM, the idea was that you get more detailed maps and that may open up more market opportunities or expand the potential market for your maps, maybe social, travel and food delivery. How is that going? I mean, are you making some progress, but the clients are quite small in those areas that you're getting through? And how do you see that progressing? Harold Goddijn: Well, yes, I think it's a good question, Andrew. I think -- and then 2025 was slightly disappointing in terms of order intake and traction around -- always in the Enterprise market. But I think we have turned the corner, and we see some early green shoots. I think that central promise of having a better map that's easier to maintain is valid also for the Enterprise world. And we are now pitching for contracts and opportunities that we could not win based on the old technology. So the addressable market is -- and I mean, there's tons of examples of that. So it's slightly disappointing that it's taken longer. But I think the central idea of having a better map, more detail, more freshness, more efficient to maintain is still valid. And I hope that we will see that also being translated into Enterprise growth in 2026 and beyond. Operator: We will take our next question. The next question comes from the line of Wim Gille from ABN AMRO-ODDO. Wim Gille: This is Wim from ABN ODDO. Apologies for the noise, but I'm in the train. So I hope you can hear me. First, on the rollout of the lane-level maps, you started off just in Germany. So can you give us a bit of clarity on where you are in the rollout in terms of number of countries? But also, are you still just on the motorways? Or are you basically doing all the other roads as well throughout Germany as well as the other countries that you're rolling out? The second question would be on capitalized R&D. That seems to suggest you're accelerating the investments that you're doing in the rollout. So can you give us a bit more clarity on that decision? Is that based on the demand? Or are you basically just needing to invest more to get to the same results that you were looking for? And what is the reception of clients since you introduced this concept earlier last year? Harold Goddijn: Yes, Wim. Yes, you're coming through loud and clear. So no worries on that side. Yes. So the Lane Model product, our goal is to build it completely automated. So expanding coverage is just a matter of compute and electricity, but no other practical limitations on coverage and speed of production. That's where we want to end up. That's not where we are. There is a certain level of fallout following those automated processes. And that means that manual labor and operator interaction, in some cases, is required to filter out inconsistencies to checks and so on and so forth. So -- and we are in a position now where we are producing, but we are also making investments to reduce that fallout in order to prevent manual labor and improve the speed of the process and the associated coverage. The idea is that by the end of the year, we have a fully lane-level map, both for North America and for Europe. We're producing it now for parts of Germany, whilst improving the processes, improving the factory in the pipelines, if you like. And the aim is to reduce the amount of manual labor we need to produce those maps close to zero. It will probably never get to zero, but it needs to get close to zero because that gives us speed, flexibility and efficiency but also quality. Wim Gille: And what are clients saying about the products? Harold Goddijn: So people are excited that it's possible. We are producing a product that could not be produced before. They're excited that it has been developed with a view to serve security and safety critical applications. So it's an industry strength product. That's also how the quality systems are designed to make sure that we meet those standards. So yes, both carmakers and systems providers are excited that there is a product that can play an important role, and they're looking at progress with interest. We will start doing test driving with integrated systems now or in the next couple of months or something like that where we get for the first time, real-time feedback on how the system, not the map, but the system with the map is behaving in practice and in real-life situations. So those are important milestones. Taco Titulaer: Yes. If I can add to that. Then you also had a question about CapEx. So in the cash flow statement, you see that line investment in intangible assets, that's indeed higher than what it was last year same quarter. I expect that to normalize between "below EUR 10 million" going forward. So it is more -- yes, I wouldn't call a one-off, but it's not a clear trend that it now will go up every quarter. Wim Gille: Very good. And if you are now participating in RFQs, specifically related to HD, I can suspect that most of the RFQs that you're participating in are now HD driven and no longer [indiscernible]. But how is your product [indiscernible] up against the competition? So are you still producing HD Maps in the old way? And what does it do to your competitive pricing advantage? And which parties do you actually engage in these RFQs? I can only assume that here -- is there -- and in some cases, Google. But do you also see newcomers joining in these RFQs? Harold Goddijn: Sorry, Wim, I tried to understand your question. It was not entirely clear, to be honest, the first part in particular. Yes. So in terms of market position, I think we are currently leading in specs in ambition. Of course, we need to deliver all that goodness as well. And our internal target is by the end of this year to have significant coverage on both continents. And I think that will be a leading and it is a leading product both in terms of what it does and how it is produced, which is not a minor point actually. In this case, it really matters how you produce it because it tells you something about economics, quality, repeatability and so on and so forth. And there is significant interest, I think, from industry players, in what's going on. And so we feel good about that. I think Google obviously is an important competitor, but Google has a tendency to leverage consumer-grade products for the automotive world. And this is not typically an area where they're focusing on. Wim Gille: And are you encountering any new competition in RFQ processes? Harold Goddijn: No, no, we do not. It depends how you define competition, but I think there's no one else that I know of that has an integrated approach to both navigation, self-driving, ADAS, all on one product stack. Wim Gille: And with respect to enterprise, I do have a question on kind of the conversion and basically the acceleration that you are seeing at the moment. Can you give us a bit of feeling on kind of what types of, let's say, projects you are now converting or are close to converting? Are these still the smaller projects? Are we also now looking at the bigger clients and the ones that can really move the needle? Harold Goddijn: Yes. Yes, I think I wouldn't say acceleration. I think what I've said, I've used the word green shoots, some -- both contracts but also a pipeline that is building. A couple of areas where we see good traction, insurtech, defense. There are significant opportunities opening up, intelligence, public usage of our data, both traffic planning, intelligence. Those are the sectors where we see the order book and the pipeline really filling up. And some of those opportunities are significant as well, multiple millions per annum. Wim Gille: Thank you. And that leaves me with, yes, basically one last comment. So I would like to thank you for, I think, close to 80 earnings calls that we did together. No doubts. Harold Goddijn: this sounds like an awful lot, Wim. Wim Gille: It is. Harold Goddijn: This sounds like an awful lot. But thank you very much. It's been a privilege and a pleasure. Wim Gille: likewise. Thank you. Operator: [Operator Instructions] Claudia Janssen: As there seem to be no additional questions, I want to thank you all for joining us today. And Heidi, you may now close the call. Operator: Thank you. This concludes today's presentation. Thank you for your participance. You may now disconnect.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Half Year Results Presentation for 2025/ 2026. I'm Sophie Lang, Head of Investor Relations. And today's session will be hosted by our CEO, Hein Schumacher; and our CFO, Peter Vanneste. Our presentation today will start with Hein's initial reflections and observations then Peter will go into the half year results and the outlook. And finally, Hein will conclude with a preview of the Focus for Growth plan. Following the presentation, we'll have a Q&A session for analysts and investors. [Operator Instructions]. Before we start, take note of the disclaimer on Slide 2, and I'd also like to inform you that today's session is being recorded. And with that, I hand you over to our CEO, Hein Schumacher. Hein M. Schumacher: Thank you, Sophie, and good morning, everyone. It's my pleasure to be speaking with you as part of my first results presentation here at Barry Callebaut and I'm now approaching my first 100 days, and I wanted to start by sharing my initial observations and reflections before I hand it over to Peter to cover the results. So far, I've been in a listen and learn mode and spending a lot of time across the business to gather a broad range of perspectives from our people. And I've had the opportunity to visit a number of our factories and offices around the world and gain insights into our operations and the culture of the company. What has stood out most to me is the passion, the expertise and the resilience that defines this organization. I've also met with several of our key customers, which has sharpened my understanding of what truly matters for them and how we can support them on their growth journey. Back in February, we formed the Growth Accelerator coalition, which is a diverse group of around 30 deeply experienced colleagues, talents from around regions, functions and nationalities. And this working group from within is designed to advise, challenge and co-shape our path back to volume growth. And through a series of focus sessions, this group has developed a unified view of where we stand today, identified key bottlenecks that hold us back and is helping define a set of high-impact priority initiatives. And collecting these insights from across our organization is enabling me to shape a clear and decisive action plan that will sharpen our strategic direction and set our key priorities. Now I will come back to that later in more detail. But first, let me share some initial observations. Over the past years, the company has been navigating a very turbulent period marked by transformation, significant industry volatility as well as supply disruptions. The Barry Callebaut Next Level program was launched with all the right intentions. However, the sheer number of initiatives proved too ambitious for the organization to absorb at once and particularly against the backdrop of unprecedented industry disruption. And frankly, without sufficient course correction in priorities, this created a perfect storm. Now that said, several important steps were taken on the Next Level because the program did deliver savings of around CHF 150 million, and these enabled much-needed capability investments in core fundamentals such as digital, quality and supply processes. But at the same time, these savings were more than offset by the impact of volume declines, higher operating costs, particularly from the cocoa market and supply disruption as well as from a more competitive environment. And the combined effect was an organization that it become overstretched and quite internally focused. And with too many quality incidents, the business also began to lose market share. And as a result, we find ourselves in a position today with clear improvement areas that need to be addressed. I'm calling out 3 areas: First, our manufacturing network. We do have capacity constraints in key growth areas with site upgrades that are still work in progress. A lot has happened, but it's still work in progress. It has contributed to quality incidents with longer recovery times due to limited business continuity plans and we have made progress on the Next Level without a doubt, especially in strengthening quality foundations, but more work is to be done. And our service levels are currently below industry benchmarks. We need to improve. Second, our digital transformation. A good direction, but initiatives were decoupled from core business priorities and the scope was very broad. We moved very quickly before co-processes were sufficiently stabilized and before our data and operating systems had reached the required level of maturity. And third, our operating model and the organization. Historically, Barry Callebaut was highly decentralized and the intention of Next Level was to introduce a greater degree of centralization and standardization and that was the right direction. But in some areas, for example, in customer service, we went too far and probably too quick. In others, we ended up with a hybrid central regional model, and that has created an ambiguity in accountabilities. It added complexity to the organization and it limited regional empowerment, where essentially, the customer is where the market is, and where we need to drive local decisions. Because I believe that food is fundamentally a local business. And our region should define the what, whilst global functions should support the how with scale, expertise and obviously, consistency. And that makes the value of the corporation essentially bigger. Now importantly, while there is work to be done, as I said, we are building from a position of strength because Barry Callebaut has strong and solid foundations, and I'm confident that we can return to growth and reinvigorate ourselves as a reliable industry leader. Because we have a truly unique market position with leading relationships, strong customer relationships and a strong portfolio with benefits from our integrated end-to-end cocoa and chocolate model, very important for our group. And in turn, this gives us deep expertise across R&D, innovation, cocoa and sustainability and these are capabilities that are highly valued and appreciated by our customers around the world. And my conversations with CEOs of our largest customers have reinforced this view. And they see Barry Callebaut as an important partner and they want to grow with us. They expect us to step up and play a key role in unlocking and supporting their growth agendas. And let's not forget that we operate in a fantastic category with strong underlying fundamentals. And as a market leader, we are well positioned to capture significant long-term growth opportunities. And underpinning all of this is our people, as I said in the very beginning, people with deep commitment and passion for what we do. And that's critical to ensure that we can fully deliver on the fundamental opportunities ahead. Now bringing all of this together, clearly, we have strong foundations from our unique market position to the depth of our expertise, and that positions us to win in this industry. And at the same time, to fully deliver on the opportunity ahead, we must refocus behind a reduced set of priorities to stabilize key fundamentals as well as to step up execution. And in turn, if we do that well, it will unlock sustained profitable growth and it will reinvigorate Barry Callebaut as a reliable, innovative global leader. And that is the objective of our Focus for Growth action plan. And I will share a preview of the plan later. But before I go there, let me hand it over to Peter to walk you through the first half year results. Peter, here you go. Peter Vanneste: Thank you, Hein. Good morning, everyone. Let me walk you through the half year performance first, and I'll start with a short summary. Cocoa bean prices have decreased strongly in H1 and especially in the last few months, and this is surely positive for the recovery of the chocolate demand. On volumes, we saw a sequential quarterly improvement to minus 3.6% in the second quarter, supported by double-digit growth in Asia and continued momentum in Latin America. Recurring EBIT decreased by 4.2% and strong cocoa profitability was more than offset by the impact of lower volume, supply disruption and a highly competitive overcapacity environment. In Gourmet, margins were pressured with the context of the very rapid drop of bean prices, and I will come back to that a bit later in the presentation. Despite the decrease in EBIT, however, we grew recurring profit before tax and net profit, thanks to lower finance costs and income tax. And very importantly, despite the peak harvest and heavy cocoa buying season, we generated strong free cash flow and further deleveraged to 3.9x [ net ] debt over EBITDA. Let me get into some details now. Starting with the cocoa market. The cocoa bean prices have decreased very, very rapidly, falling by 53% in just 8 weeks in Jan and February and closing at GBP 2,057 at the end of February. And that's driven by good main crop arrivals in West Africa over the past few months, and favorable recent weather conditions that are supporting output for the mid crop. At the same level, the market is still seeing some demand softness. So global stocks have replenished to healthier levels. Overall, this means we expect a surplus this year for the second year in a row. Importantly, the structure of the cocoa futures markets has also improved significantly. We now have a carry structure meaning that the cost of buying spot cocoa today is cheaper than buying cocoa in the future. This means it is less costly for the industry to carry physical stocks and it's indicative for a more stable outlook. In the short term, given that this is demand-driven surplus, we expect bean prices to remain in the GBP 2,000 to GBP 3,000 range. That said, we continue to monitor the markets very closely as the demand recovers and thus we assess potential supplier risk linked to El Nino and potentially speculative volatility as we have seen in the past. Over the medium term, depending on supply and demand dynamics, we believe prices could move back into the GBP 3,000 to GBP 5,000 range. Lower cocoa bean prices are certainly positive for the future recovery of both the cocoa and the chocolate markets. We're seeing indications of this through our forward bookings. As you know, we contract several months in advance for our customers and in recent months, we've seen a greater willingness to book further ahead again. At the end of February, our futures booking portfolio was much, much higher than at the same time last year when cocoa bean prices were spiking. At the same time, our customers have priced through to their end consumer. As a result, consumer pricing and the rate of end consumer volume declines have started to stabilize. In the most recent quarter, Nielsen global chocolate/confectionery volumes decreased by 6.3% with plus 13.7% pricing. And importantly, we're now seeing our customers gradually shift their focus back to its category investments to stimulate growth. And I'll just quote a few examples. In North America, Ferrero launched their Go All In promotion from April 1 backed by a $100 million investment. It marks their first portfolio-wide campaign and largest marketing commitment in the company's history. Another example is Hershey is boosting media investments by double digit this year with the new quarter 1 media campaigns on Reese's and Hershey, the first launches of this nature. We're also seeing increased interest in innovation from our customers. In half year 1, we saw a significant increase in number of projects in Western Europe for ChoViva, our non-cocoa chocolate offering as well as a growing traction on Vitalcoa, our high flavanol solution, especially in AMEA. Beyond these benefits, the magnitude and the pace of the decline in the cocoa bean prices, as mentioned, just now more than 50% down in the last 8 weeks, helps, of course, the demand and the cash front but has also created some challenges on the short term as well and mainly on profitability. And there's 5 key impacts I just would like to highlight. First, in the past few months, we've seen very favorable margin environment for cocoa. In half year 1, this helped to offset some headwinds we saw in chocolate. Looking ahead, we expect this cocoa margin tailwind to normalize in the second half as market conditions have become less favorable. Second, as we just saw from the Nielsen data, demand has been down for some time. And given the high prices that have been put into the market in the past, this has resulted in some industry overcapacity, which is intensifying competition with more aggressive pricing and commercial actions. In this competitive environment, we've seen a temporary margin effect in Gourmet. The Gourmet business typically works with a 3 to 6 month price list where forecasted sales are covered and then a price list is determined. Given the unique speed now we've seen of the cocoa bean price decreases in half year 1, the result was a long position in a declining market, creating a high price list with not all players following the same approach. And this impacted our volume and profitability through the need for some short-term commercial investments. Also, next to that, there's a more technical effect related to the shift between EBIT and profit before tax due to lowering financing costs. The opposite, if you want, of what we've seen last year. This is a reversal of the finance cost pass-through, again, as we saw last year, and we now have lower finance costs as the bean prices come down. And it also means then a lower pass-through at the EBIT level. But it is -- importantly, it is neutral at the profit before tax level. Finally, there's also a BC-specific headwind in supply disruption. We had operational incidents in North America in the St. Hya factory, resulting in some volume losses and higher operating costs. Before we move to the half year 1 figures specifically, I'd like to spend also a moment to highlight potential implications from the Middle East situation. As many, many industries, the primary impact for us is on the supply chain side. It includes shipping disruptions, increased transit times resulting from port closures or limited container availability and of course, as we all know, there's a sharp increase in energy prices. In some markets, fuel rationing has been introduced combined with higher freight and insurance costs and all of that is adding complexity and costs across our supply chain. Next to the supply side, we've also seen some regional demand effects. Within AMEA, the Middle East and North Africa cluster represents about 10% of the volume there. This cluster has a specific high gourmet exposure and is experiencing therefore, disruption to imported premium products. Clearly, HoReCa food service segments are negatively impacted by the tourism levels in those areas as well as the closure of the schools, offices, rules on working from home and so on. Beyond directly in the Middle East and North Africa, we also see an indirect impact in India, where we have an important business where LNG imports are disrupted and constraining the energy availability for food manufacturers, commercial kitchens has been impacting their operations and, therefore, also ours. Overall, this obviously remains a highly dynamic and uncertain situation that we are monitoring, obviously, as per the latest developments every day. Now let me get into the numbers in a bit more detail, starting with volume. Overall, the group saw a sequential volume improvement in the second quarter to minus 3.6%, meaning we landed the first half with a decrease of 6.9%. Looking to the left of the chart by segment, Food Manufacturers continue to be impacted by negative market dynamics with our customers adapting behaviors in the context of high prices and lower demand. And there was the supply disruption in North America that impacted this segment for us. Gourmet, while more resilient, our competitiveness was temporarily pressured by the high price list in a sharply declining bean price environment, as I just explained. Also -- and also here, there was some impact of the St. Hya closure we saw in the first quarter. Global Cocoa declined as a result, mainly of a negative market demand, especially in AMEA and secondly, also due to our choice to prioritize higher profitability segments, which did have its impact on volumes in certain areas. This business, the cocoa business saw early signs of market improvement in the second quarter with a sequential volume improvement of minus 5.2%, so significantly better than in the first quarter. Now moving to the right-hand side of the chart, to global chocolate. Globally, we've seen chocolate volumes decline by 5.1%, which is ahead of the 6.5% decline of the market as reported by Nielsen. In Western Europe, we saw a 4.2% volume decline as demand continues to be impacted by market softness. Central and Eastern Europe declined for us by 3.6%. And way better than the market as our local accounts saw solid growth, especially in Turkey. North America decreased by 12.6% impacted by a strongly declining market as well, but as well as the network supply disruption we've seen from the temporary closure in St. Hya in the first quarter. Importantly, though, North America saw recent months improvements as the business is rebuilding inventories and meeting increasing customer orders. Latin America grew by 1.5%, well ahead of the market, driven by a strong momentum in Gourmet that we've seen multiple quarters in a row now. Finally, volumes in AMEA grew by a strong 8.5% and reached double-digit growth in the second quarter, driven by strong market share gains in China, momentum with key customers in India and additional business that we secured in Australia. Moving to EBIT now. Recurring EBIT decreased in local currencies by 4.2% to CHF 316 million (sic) [ CHF 310.9 million ]. The EBIT bridge on the page shows the respective moving parts. Cocoa, first of all, the green block on the chart saw strong profitability in half year 1, given a more favorable market environment -- margin environment, sorry, and market volatility where we're able to capture the volatility and increases of the prices and the decrease of the prices that we have seen. In half year 1, this has helped to offset some of the other headwinds that we're facing in chocolate. The impact of the half year 1 volume decrease was meaningful. This is clear when we look at our EBIT per tonne as well, which increased by 3%, whereas our EBIT in absolute declined by 4%. So the impact of volume was meaningful in the first half, and this is something that we'll see turning around in the second half. Next, there was an impact of the intense competitive environment and particularly within Gourmet. As I explained earlier, our high Gourmet price list and long position in the context of this very rapid decline of bean prices required temporary commercial investments. In addition, supply disruption resulted in higher operating costs to maintain service and deliver products to our customers. Finally, we also saw the shift between EBIT and profit before tax that I explained as a result of a lower financing cost year-on-year and therefore, a lower pass-through on the EBIT level. And this effect will get bigger in the second half of the year. While our recurring EBIT decreased, it's important to note, we were able to grow the absolute profit before tax and our net profit. And to be more precise. As you can see on the left-hand side of this chart, our recurring EBIT in local currencies was CHF 14 million lower than last year. This is the minus 4%. In the middle, our profit before tax increased by CHF 2 million or plus 1.3% as a result of a CHF 16 million decrease in financing costs in local currencies driven by our actions to reduce debt and, of course, in the lower bean price environment. To the right, our net profit increased even further by CHF 42 million or by 66%, given significantly lower income tax expense compared to what we saw last year. Recurring income tax expense decreased to CHF 29.6 million versus the CHF 69.4 million we saw in half year 1 last year. This corresponds to an effective tax rate of 21.4%, which mainly resulted from a more favorable mix of profit before taxes and much lower nontax effective losses in some of the countries. Free cash. Free cash flow delivered strongly in the half year at CHF 802 million across the 6 months despite the peak buying season that we're having always this time of year. Now when we look, as always, at the moving parts behind this cash generation, we saw -- and that's the dark black bar, we saw CHF 1.5 billion positive impact from the cocoa bean price this half year. Bean prices decreased significantly in half year 1, especially in the second quarter, as I mentioned. And this has benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model as Ivory Coast and Ghana have. There was a, next to that, a CHF 472 million negative impact on operational free cash flow, as you can see in the green bar. This has all got to do with the peak buying season. Half year 1 is always operationally like that with a negative cash out for the bean buying given the timing of the cocoa harvest. This was offset, however, partly by continued operational benefits from actions on the cash cycle reduction that we explained largely already in the previous communications. We continue to do so with our efforts to diversify our origin mix, reduce forward contracting and so on. As a result, actually, our inventory was now this time of year in February, 10% lower than February last year. So that also helped to generate the cash. up to this level. And finally, there was a CHF 183 million CapEx investments, as you can see in the yellow bar in the chart. Leverage. Leverage came down to -- strongly to 3.9x, and that's significantly below the 6.5x we saw in February last year and also well below the 4.5x we saw last August despite, again, the seasonality we always have in half year 1, with an important net debt reduction of CHF 2.5 billion, enabled by the strong cash flow that I've been talking about before. So leverage landed at 3.9x. But in fact, if you would exclude cocoa bean inventories from the net debt, and I'm talking only cocoa bean inventories, so not even correcting for cocoa products or chocolate stocks, our adjusted leverage RMI would be 2.7x. This progress mostly came from a lower inventory value given significantly lower bean prices, which is about 1.3x leverage in this decrease. But also through the actions to reduce our inventory volume, as I talked about, which made up about 0.6x in this reduction of leverage. In terms of gross debt reduction, we repaid EUR 263 million term loan in September '25, so a few months ago and EUR 191 million in February on the Schuldschein. We've also reduced significantly our commercial paper and bilateral facilities over this time. Obviously, all of this has been an important contributor to the lower net year-on-year finance costs that we've seen in the first half already. And we will certainly continue to focus strongly on the deleverage in half year 2. It remains a key priority. We want to end much lower than where we are even today. So with the further actions that we're defining on the cash cycle will bear further fruit going forward. This could be and this will be partly offset to some degree because of the safety stocks that we will be watching and potentially reinforcing a bit in a few key segments. Again, back to the support we need to have on the service levels following some disruptions that we have seen over the last months. So before I conclude the half year 1 section and staying on the financing. Earlier this week, we signed a EUR 2 billion sustainability-linked borrowing base facility. The borrowing base is linked to our underlying inventory asset base and represents an important step in the diversification of our funding sources. The facility strengthens our funding flexibility, particularly in periods of prolonged higher or lower bean price environments. It increases our agility and the agility of our capital structure and our ability to actively manage financing costs more in sync with cocoa price moves. Just to share a few additional details. The facility comprises of a EUR 1.6 billion of committed financing, complemented by an uncommitted tranche of EUR 400 million which is providing additional liquidity flexibility. So moving now to the outlook of the fiscal year. We've updated our guidance, reflecting our focus on volume and deleverage while taking short-term action to protect our market share and drive growth. We have, first, raised our expectations on volume. We now expect a decrease for the group between minus 1% to minus 3%. And this implies a return to positive growth overall in the second half. We've also raised our guidance on leverage. We now expect net debt over EBITDA below 3x using a working mean price assumption of GBP 3,000, so with the continued tight focus on this and further progress despite our updated profit assumptions. At the same time, we have lowered our outlook on EBIT. We now expect a mid-teens decrease on a recurring basis in local currencies. And this reflects short-term actions to protect market share and prioritize growth in the context of the rapidly declined cocoa bean prices. Important to note that a significant reduction in financing costs in half year 2 is an important factor in the reduced EBIT guidance. We expect to recover more than half of the absolute decrease in EBIT at the profit before tax level. Clearly, this outlook is subject to potential impact from the ongoing disruption in the Middle East that I commented on a little bit earlier. Now before I hand back to Hein, I want to take a moment to explain the half year 2 moving parts on EBIT. Our return to positive volume growth will be a clear tailwind for half year 2, of course. However, this will be offset by a number of factors. One is short-term actions in global chocolate. We are prioritizing restoring Gourmet share following this unique and temporary long position impact that I talked about. We're also taking some temporary customer-centric interventions to restore service levels, and Hein will talk about it a bit more later, but action is needed to stabilize supply after a number of incidents that we've seen. Customer centricity is our #1 focus going forward, and we're taking action to reclassify lines, increase spend on staffing, maintenance and quality. Second, as already discussed, cocoa profitability is expected to now normalize in half year 2 following an exceptional half year 1. Third, we are taking further actions to reduce finance costs. This means significantly lower year-on-year pass-through in finance cost at the EBIT level, while neutral on profit before tax. And finally, we have the uncertain and volatile situation in Middle East, which is bringing additional cost and supply chain disruption depending on how it will evolve further. Finally, the uncertain and volatile situation in the Middle East brings additional costs and supply chain disruption. And I will now hand over to Hein to share more on our Focus for Growth. Hein M. Schumacher: Thank you, Peter. Now let's talk about Focus for Growth. And this has been shaped, as I said before, by the insights and learnings from our growth accelerator coalition that I mentioned earlier. And at this stage, me being in the company now for 2 months plus, the plan is directional as we continue to refine and deepen our assessment of the actions as well as the opportunities ahead of us. And I'm looking forward to sharing the full detailed update with all of you in early June. And in the meantime, I wanted to be transparent and therefore, share the direction that we are heading in. Now before we go into details, let me start with why focus is so critical for Barry Callebaut. Because what really struck me when I started engaging with the team on our business portfolio is actually how concentrated we are. As you can see here on the chart, a few examples. So if we look at our top 7, top 7 markets represent 56% of our total volume. And of course, if you would extend that to 10 markets, the concentration increases even further. Similarly, with customers, our top 7 global customers are approximately 1/3 of our volume. In our Gourmet branded business, our top 7 brands or top 7 propositions generate 85% of our volume. And on the sourcing side, 90% of our cocoa is sourced from our 7 origin countries. And finally, although we operate around 30 specialty categories around the world, the top 7 represent approximately 90% of the growth opportunities that we see today. So as we focus on stabilizing the fundamentals, which we talked about and focusing our resources behind reduced priorities, getting these top 7 really right already moves the needle meaningfully. And this is why focus sits at the heart of our growth agenda for the future. Now turning to our Focus for Growth action plan. We do see that compelling need to increase focus across 3 areas. First one is commercially. So concentrating on a defined set of distinct growth opportunities and prioritizing key markets and segments where we see the greatest potential. Second, operationally by restoring fundamentals. I talked about that, and particularly in the areas that matter most for our customers in terms of reliability, quality and service. Customer centricity is absolutely vital. Third is organizationally by prioritizing a reduced number of the most impactful initiatives and restoring that customer-centric winning culture and by driving focus, restoring fundamentals and putting the customer firmly at the center of what we do, our objective is to reinvigorate the company and return to sustained profitable growth, and market share gains and, therefore, unlock strong financial performance going forward. Now let me share some details on each. I'm starting with commercial focus. And we are defining a clear and distinct set of growth opportunities where we will intentionally concentrate our resources and our attention. And this starts with markets. And as we discussed earlier, our top markets truly move the needle, not only in terms of volume but also in profitability. Let me start with the U.S., our largest market, representing approximately 17% of our revenue and ensuring the right level of focus and execution in such markets is critical to deliver growth. But also other markets stand out with clear growth potential, for example, Brazil, where we have a meaningful presence, Indonesia, India, Peter talked about that, and China, where we're experiencing strong growth right now. And it is therefore clear that our resources need to over proportionately support these priority markets, a distinct set. And importantly, this focus must be actionable, value-added defining a set of focus markets within AMEA rather than spreading our attention across that vast region thinly. The same logic applies with Gourmet & Specialties, where we need to concentrate on the right segments and opportunities, and I will come back to that in some detail in the next chart. In cocoa, in itself, we see clear opportunities to unlock growth by increasing our focus on high value-added powders, whilst ensuring that we have the right growth capacity, of course, in place. So across all of these areas, a key enabler will be strong innovation platforms. Not many, but a few strong platforms that will allow us to lead in the market and that we can leverage across the portfolio to drive growth, greater level of differentiation versus our competitors and of course, to support our customers around the world. Now let me talk about Gourmet, such an important segment for our profitable growth, and we are reintroducing here a clear brand hierarchy and customer propositions. Callebaut, Masters of Taste, that will continue to be our group commercial identity. And then we have a clear brand tiering after that to serve the different customer needs with a greater impact. And as you can see here on the top of the pyramid, we anchor the portfolio around our super premium global brands, led by the Callebaut Signature Collection and Cacao Barry. Now Callebaut brings over a century of Belgian craftsmanship and unrivaled bean to bar expertise and Cacao Barry brings 2 centuries of Cocoa Origins mastery and French pastry heritage, important brands on top of the pyramid at a higher price level, strong quality focus. Now beneath that, our core Gourmet portfolio is firmly positioned in that premium segment with the Callebaut core section. And here, the focus is on delivering consistent quality, reliability and strong performance for professional customers in their day-to-day operations. Complementing these, we continue to develop strong regional propositions. Typically, one per region, such as Sicao, Chocovic or Van Houten in Asia, for example, ensuring that local relevance. And across all these tiers, our brands are supported by end-to-end services from the chocolate academies that we have around the world to innovation and technical expertise. These help our customers to succeed. And the objective is simple and clear, a more focused Gourmet portfolio with clearly differentiated propositions and price tiers that enable to serve our customers better, and it will allow us to allocate resources more effectively and drive the profitable growth in this important segment. Now let's turn to specialties. Our plan here is to be a bit more selective, focused on a defined number of margin-accretive specialty categories that we believe we can integrate in the company, and the core of the company and by doing that, scale them first regionally and then globally. And while the final list is currently being defined, we already see clear and compelling opportunities in a number of areas, such as filled and baked inclusions, which you find in products like ice cream, where we have a very strong presence in that segment. But also both chocolate decorations, including toppings for bakery applications and fillings and coatings, for example, solutions with reduced sugar functionality. And once this prioritization is finalized, the intent is to bring these selected specialties much closer to the core on the regional responsibility including, therefore, a tighter system integration. At this moment, they're not that fully integrated in our operating system. And that means we will invest behind them to ensure there is sufficient growth capacity, clear ownership, P&L ownership within the region and stronger category management. And we believe that this more focused approach will allow us to scale what really works. It will simplify the specialty portfolio, and it will concentrate resources where we see the strongest combination of growth, margin expansion and, of course, customer relevance. Now moving to operational focus, where the clear goal is to restore some of the fundamentals. And Peter talked about the disruptions. Our #1 priority is to restore service levels and on-time in full performance that we are now measuring consistently every day, every week, every month. I'm absolutely determined to get us there and to improve on that particular KPI. And as I mentioned earlier, a combination of transformation complexity, industry disruption that we've had and many operational incidents, this has taken our focus a bit away from the basics. And as a result, service levels have been below industry standards. Now that's something that I'm keen to turn around for the company. We have to get this right. Now beyond service, we also need to ensure that our network, our factory network is fit for purpose, both for the portfolio that we operate today, but also where our customers will go tomorrow. And at the factory level, we see currently mismatches between line utilization, so specific line utilization and the overall capacity available in our network. So in the short term, that means we will make targeted and tactical adjustments to unlock available capacity. On the midterm and the long term, we will invest selectively behind those growth capacities that I talked about -- we talked about the focus areas, for example, ensuring that we deploy there for our capital towards the right opportunities. And finally, restoring the fundamentals also means strengthening the core processes and enablers of the organization, very much the intention of Next Level, and we will build on that. We do need better data visibility, more effective end-to-end decision-making on a number of processes. And therefore, the priority for us is to focus on the core process as the company first, get them really right, such as the overall demand and supply planning processes, customer service processes and, of course, the quality and the usability of our data. We made strong progress, but now we need to finish it behind those few big priorities. Going into more detail, there are a few areas where we need to focus operationally. So North America, as I said already, this region contains our largest market in the U.S., and we need to get it right. And as Peter has described, we've seen broad supply disruption across the network, and that resulted in longer lead times for our customers and capacity constraints in several high-demand product categories. Network investments under Next Level were there, but some of them were postponed given the macro backdrop. Now there's an immediate need to stabilize the network and rapidly improve service levels, focusing over the coming months on increasing staffing and adapting shift patterns at relevant sites as well as targeted initiatives to stabilize critical facilities, particularly across maintenance, quality, infrastructure and planning processes. In parallel, we are reclassifying and redeploying existing product lines across the network to better utilize the available overall capacity. We are developing a midterm plan to future-proof the network in order to sustainably support future growth. On emerging markets, here, our focus will be on a select number of key growth markets, large markets, though, but where we have a meaningful presence already and where we intend to invest to support evolving customer needs. Think of countries like Indonesia and Brazil. On this, we will update you in much more detail in June. Service and OTIF, on time in full, we are taking targeted actions not only in North America but also in Europe to immediately improve reliability and to step up our safety stocks in selected categories. Peter talked about that. This will stabilize our key business processes and in turn, it will improve customer service in the months to come. And then finally, core processes. I talked about digital efforts before. We need to focus our digital efforts and investments behind those core processes, such as planning as well as customer service, driving better data visibility and transparency, and this will, therefore, strengthen these processes and, therefore, increase service levels for our customers. Now turning finally to organizational focus. Our objective is to reestablish that winning culture with customers at the heart of everything that we do, while refocusing the organization, as I said, on a set of impactful initiatives that truly matter. And a key priority here is to increase the empowerment and accountability of our commercial regions because these regions are the closest to our customers and our markets, and they should clearly drive what needs to be done to win locally. And of course, supported by global functions. They provide the how. They provide the scale, the expertise and the consistency behind those core processes that I talked about. By doing that, we need to be, therefore, more disciplined on prioritization because the organization, as I said, has been overloaded by a significant number of initiatives during a time of also intense industry disruption. And that, in itself, dilutes the focus and the execution capacity. So by intentionally reducing the number of priorities on the table, we will free up time, energy and resources. And this will allow us to focus on what truly matters. That's what we're going to do in the next couple of months. Before closing, let me briefly highlight some of the initial steps that we have already taken as we start to put the Focus for Growth strategy into action. We've reduced the executive leadership team. I had a team of 20, we've reduced it to 12 members. This creates a smaller, more agile and more importantly, a more commercially focused leadership team in the company, which will enhance the speed of decision-making that we need. We also removed the global transformation office related to Next Level, and we significantly reduced our consultancy spend for the months to come. And this reflects a shift away from a separate transformation office towards a more integrated business ownership and execution. And as such, we have fully integrated the remaining Next Level initiatives into our global functions as well as into our regions. And that has stopped a stand-alone program tracking savings, for example, and therefore, we're now much more focused on the bottom line delivery and therefore, the net impact of these changes. We've also strengthened our global customer account alignment, and the global 7 accounts that I've talked about before are now reporting directly to me. And this is designed to reinforce regional execution actually, but also to accelerate the deployment of global innovation where it matters most for our customers. Now these are early but important steps. Obviously, there's more to come, but the momentum in the company has started. So that concludes my preview of Focus for Growth and we're not reinventing our strategy, as you've seen. What is different is the level of focus, the level of energy and depth supported by clear choices and strong resource prioritization. So to summarize, our priorities are clear: drive focus and discipline and put the customer back at the center of everything that we do. And I'm confident that our unparalleled industry leadership that we have and our truly unique business model will provide that strong foundation to sharpen that customer focus and return to profitable growth. I'm looking forward to coming back to you in early June with a more detailed plan and to share our financial ambitions in parallel. And in the meantime, this concludes today's results presentation, and we are delighted to now take your questions. And with that, I will hand over to the operator to open the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Sloane from Barclays. Alexander Sloane: I'll have 2, please. I guess, overall, you previously guided to double-digit PBT growth in fiscal '26 based on today's guidance. Is it fair to assume you're now expecting PBT in constant FX to decline at sort of mid-single-digit rate for this year? And I guess if that's the case, within that potential 15%-plus downgrade, how much do you see as '26 specific or transitional versus perhaps more structural and put another way, how much of that do you think investors should reasonably expect to sort of bounce back in fiscal '27 would be the first one. And I guess the second one, somewhat related, but in terms of the commercial investments that you've talked about to restore competitiveness in Gourmet, can I just say, does this purely relate to price gaps or -- in Gourmet? Are you also potentially suffering from some of the service level issues highlighted at the beginning of the presentation? Hein M. Schumacher: Thank you, Alex. For the first question on the -- on PBT and this year's guidance, I'll let Peter answer. I'll come back to some of the points on structural as well as take your second question on Gourmet. So Peter, first on PBT. Peter Vanneste: Yes. So Alex, thanks for the question. We will have a significant reduction of finance costs over the year, up to CHF 60 million, so CHF 50 million to CHF 60 million versus last year, which means that a very significant part of the gap that we see on EBIT will be offset towards the PBT level. So profit before tax will be down for the fiscal year, but to a lesser extent than EBIT because of that recovery on the finance cost. Hein M. Schumacher: And Alex, I think a few remarks on the structural nature of the guidance for this year. Look, there are a few things that I would call pretty temporary. These are, for example, the gourmet positions that you talked about. The other one is supply disruptions that we have seen as well as the volume declines that we've seen in the first half. I expect those to -- over time, of course, to come back. Some of that will go faster than others. But more structurally, and Peter talked about that, our finance cost with a lower bean price, overall, the finance cost are not as high as in the EBIT definition, but they will come back and they will be neutralized on a PBT and on a net profit level. So some aspects are structural and some are temporary, but I wouldn't call it overall a rebasing of the company. I think your second question on Gourmet. Yes. So we had long positions out there and -- in Gourmet, which is partially a price listed business. We are seeking to retain market share. Obviously, we're going to drive volume. I think that's super important for us. We have, of course, fixed cost, but also we want to retain our customers after having had some years of disruption. So we're very keen to put the customer right -- front and center for everything that we do. So that's something that we're investing in. But if you look at Gourmet, yes, there have been disruptions also for Gourmet. Some of that in the North American part, but some of that in Europe, obviously, from somewhat longer time ago, but we're still sort of rebuilding capacity, and we're still rebuilding customer service. So this is something that we're now going to do on an accelerated pace. All the key factories are under hypercare. We've added some resources to make sure that we can deliver. We're also pushing some tactical investments through the sites because the customers have evolved their portfolio needs. We were a bit behind. We're stepping that -- we're really stepping that up and going fast after that. And therefore, I'm quite confident that in the second half of the year, overall, as a company, we are going to return to growth, and that will then sequentially improve the volume picture by quarter including Gourmet, which of course, is an important profit segment for us. Next question, please. Operator: Our next question comes from Jörn Iffert from UBS. Joern Iffert: The first one would be, please, on the reinvestment needs to restore customer service levels. For how long do you think it will last that this is more pronounced? And do you think despite these reinvestments, there could be operating leverage benefits for EBIT in fiscal year '27? So just to get a feeling for the time line here? And the second question, please, a technical one. Into the core segment, I assume it is, in particular, the spread, not the combined ratio, which was beneficial in the first half, I mean, what do you expect as a more normalized profitability on the current cocoa bean versus butter and powder spread going forward from here? Hein M. Schumacher: Thanks, Jörn. I'll take the first question. Peter, you can take -- if you would take the second one, that will be good. On the -- yes, on the investments, look, as I said, there's a few different types of investment here. And so the first one as I said, it's around evolved customer needs of what they need in their portfolio. And I think whilst we have an overall capacity that is sort of sufficient given, of course, the volume reductions that we have and the existing capacity that we had, on a line basis, the capacity wasn't always keeping pace with the changes of what customers really wanted. And therefore, we're doing a number of tactical investments predominantly in North America to keep pace and to satisfy the evolving customer needs. Some of that is in compound production. Some of that is in inclusion, for example, we need to step it up there. And so that's part number one. And that's partially CapEx. But of course, with all -- with quite a number of changes that we're doing and these are happening literally to date, that was in North America in the last couple of days and witnessing firsthand of what we're doing to step up that customer service and change portfolio. So that's number one. And that, of course, comes with some extra cost. The second one, given the disruptions that we had, we absolutely want to make sure that food quality and food safety is paramount. So yes, we are investing a bit extra also in manual operations to secure that. We've had incidents over the last couple of years. We simply cannot repeat that. The reputation of the company is essentially what safeguards the value of the company. So I'm very, very keen to focus on that as well. And then thirdly, as I talked about, investments when it comes to the long positions that we -- and we already mentioned that a few times, the long positions that we've had on cocoa and the impact on price listed business. So we're making here the right trade-offs, but we want to stick with our customers and we prioritize volume and we prioritize market share now and that's the third area of investment that we're making. Yes, I mean those are the main ones. But clearly, again, customer centricity and stepping up our efforts to evolve our capacity to that -- to the exact needs of the customer, that for me is really a priority now. And that's pretty short term. But I think in the midterm, that means that we will -- we need to continue to evolve our network, our supply chain through changing needs. And I think we can do that. And obviously, more to come on that in June. Peter? Peter Vanneste: Thanks for your question on cocoa. We've seen a strong EBIT growth on cocoa in the half year 1 year-on-year in local currencies. And very much linked to the fact that we're able to profit in cocoa and benefit from a more favorable margin environment and also the market volatility considering the speed of the market movements we've seen some time ago already with higher butter, higher powder prices, and we were able to capture that. We expect this to normalize in half year 2 going forward because the butter ratios have continued to drop in line with the terminal market evolution. Butter is now below powder and trading at a discount actually to CBE, which means that some of those benefits that we've seen linked to that volatility and the whole market that we captured in half year 1 and to some extent, a bit as well in half year 2 last year is at least, for the short term, not coming back. And then, of course, we'll see how the market evolves further to be more specific about that. Operator: Our next question comes from Ed Hockin from JPMorgan. Edward Hockin: Thank you, Hein, for your preview on your Focus for Growth strategy that I look forward to learning more in June. But on the Focus for Growth strategy, what I wanted to clarify a little bit following on from the last question, is on some of these initiatives you've outlined on capacity investments on focus and scaling of innovations, whether these are a refocus of existing resource or whether these are incremental investments? And within that, how we're thinking about the cash flow? Should we be, therefore, presuming that CapEx is higher for longer? And of your higher safety stocks in H2 that you mentioned, should we also expect that this is something longer lasting. So will you be holding inventory levels as a norm going forward? Or is this specifically an H2 comment? And then my second question, please, is on your volumes outlook for H2 and the return to volume growth. The industry, as you noted, is currently tracking minus 6.5% volumes. So to return to volume growth in the second half of the year, can you try and help me to bridge that? Is it that the industry volumes, you should expect some improvement in the second half of the year? And how significant contribution should the actions you're taking in gourmet have? Is it some reversal of shrink inflations or some reversal of the temporary in-sourcing that you've seen in previous years. Just if you could help me bridge that gap between the current industry volumes and improved picture for your volumes in the second half? Hein M. Schumacher: Thank you, Ed. And let me take first go at it, and Peter, please add where you see fit. So I mean, first of all, this is not about incremental resources. I talked very much in focus for growth around galvanizing and rallying our people, and that is people's component, but also indeed capital expenditure as well as cost behind less initiatives. We're choosing essentially 6 to 8 initiatives in the company right now to focus our resources on. We've been looking at many, many process improvements as a company over the last couple of years, ranging from HR processes to supply chain processes to essentially covering absolutely everything. What I'm really keen now is to focus our resources behind those processes that touch the customer first, and that is planning, so demand planning, supply planning, and making sure that we link up with our customer seamlessly and that we optimize our planning processes. So that means also digital efforts behind that. So that's the number one. Number two, customer service. Over the last year, customer service has been pretty much standardized and, in some cases, has been moved from a decentralized model to a more centralized global shared services model for customer service. That was a decision taken. It didn't always go well. So we absolutely have to nail it now and be there for the customer and make sure that, that customer service process runs extraordinarily well. So this is not about incrementalism. No, it's about everything that we were doing under the Next Level program, it's to choose those things that are meaningful and impactful and putting our people behind those. So that's very much the mantra. Not an extra. We're not going to expand on that. When it comes to capital expenditure, also for this year, we're not increasing the guidance. We have redirected some of the capital expenditure spend through the tactical investments that I talked about. And on the medium term, whether that's going to lead to a higher level, I'm going to come back to in June. However, we are very, very committed to deleveraging the company, as Peter has talked about. So that will remain an important priority. We will live within our means, but at the same time, I want to make sure that we spend the CapEx behind tangible, thought through, thorough growth initiatives, in a select number of markets, in our most meaningful segments. Gourmet, I talked to a few specialty categories, for example, and then, of course, in customer processes related to our Food Manufacturing segment. So more focused, clear and not incremental. So that, I think, hopefully answers your first question. When it comes to the volume picture in the second half, a few comments. Obviously, with lower bean prices, what we're seeing is that customers ordering for longer, that's clear, and that's helping the volume picture for us. We also see that customers, and we said that in the presentation, customers themselves are going for growth. And we've seen a number of initiatives from Hershey's, for example. We've seen initiatives from Nestle. And I think that's really important. We are seeing an enhanced growth picture in some of our key markets. In ice cream, for example, in North America, we're seeing overall an increased demand picture. And again, I think the lower bean prices helped. At the same time, and I think this is very important for us, when I talk about our efforts to restore growth, we believe that, in the very recent months, we are growing a bit ahead of the market with a reinvigorated focus on growth. And if we keep the pace, we make those necessary investments, we restore our processes and our credibility and stability, I'm actually very convinced that we will continue to do that in the very near future. So that's going to help us. So with less disruptions, we should see some growth. There's one important caveat, and that's, of course, the situation in the Middle East. At this moment, I mean, that's the latest one this morning. We believe that in the next week or so, business activity in the Middle East will resume somewhat, but obviously, it's very, very volatile. So that's something that we need to manage. So that's more on a high-level basis. I don't know, Peter, if you want to make some further comment on what we have been doing? Peter Vanneste: I'm risking to repeat a lot of what you said. So no. Hein M. Schumacher: Okay. Operator: Our next question comes from Jon Cox from Kepler Cheuvreux. Jon Cox: I have 2 questions really. One, just on what's happened in the last couple of years and what you're doing now to sort of maybe unwind some of that, maybe it went too far. I think under the first program, you laid off about 20% of your workforce and did a couple of factory closures and that sort of stuff. Just wondering, should we assume that maybe you're going to unwind the staff by about 10%, so maybe going back a little bit, or halfway from what you've done? As an add on that, do you think there's anything more needs to be done in terms of the factory network? Or is it more, as you mentioned, it's all about quality issues and maybe some lines are not working as well as you want to? So that's the first question. The second question, more on the top line outlook. I'm quite surprised that we're not really seeing volumes recover given the fact that cocoa prices have declined. I know there's a lag and so on and so on. But in terms of -- I'd imagine the whole industry is short chocolate in various places. Are you worried that maybe structurally, the chocolate market has changed in the last few years, maybe with GLP-1s and we see various data points suggesting that maybe chocolate demand volume growth won't come back to that on average 1% or 2% we've seen historically, maybe it's going to be closer to flat going forward. Any thoughts on that sort of long-term chocolate market outlook? Hein M. Schumacher: Thanks, Jon. I mean, first of all, on the Next Level program, as I said, in the plan on the Focus for Growth plan, look, I think that the Next Level program, again, the intentions to standardize more in the company, to reduce our cost by progressing our network into fewer, bigger sites into doing more with digital, intentionally definitely the right program. But what I'm saying is, therefore, we will build on that. And I have no intention to unwind necessarily what was going on. But I feel that efforts in the company were quite diluted. We have lost a lot of people. We have had quite some incidents and disruptions, and we have let customers down and customer service. So hey, I'm just very keen now to restore that confidence, go back behind a number of core priorities. So that means that we're not going to unwind, but we're going to phase and pace it. We'll go deeper, we're going to finish a number of initiatives, and we're going to do it well, but always with the customer in mind. So yes, we will continue to evolve our network, and that may end up in less factories. But before you close a factory, you need to make absolutely sure that the volumes that you provide to a customer from that factory are then, of course, transferred to another place, and you can help the customer to succeed. So I'm very keen to progress, but again, in a thoughtful manner. There's no point in adding necessarily resources. As I said, we are making some selective investments now in the supply chain, particularly in North America as well as in quality assurance. But overall, I do not foresee that we're sort of adding cost on a structural basis. That is definitely not the intention. And I don't want to talk about unwinding. I want to talk about focus, and I want to talk about fewer, bigger and better. with a strong focus on operations discipline and customer centricity. I think when you talk about volumes, actually, we are pointing towards a volume recovery in the second half. So of course, progressively, quarter 2 was a little bit better than quarter 1, in terms of volume, still negative. But going forward, as you sort of follow the algorithm, we're guiding to minus 1% to minus 3%. And that means mathematically that we're going to have to see a positive territory in half 2. Now where does that come from? And I talked about that lower bean prices? Yes, from our end, a better competitive position, strong focus and of course, with the caveat that I already talked about in the Middle East. But overall, we are actually seeing good signs of restored volumes. So in that sense, certainly on the midterm, we're looking more positively. On GLP-1, I think yes, I mean, several of our customers have also talked about that. And I just wanted to highlight that quality chocolate, the more premium style chocolate, we believe that's actually benefiting in some cases. We're seeing that also in interest for our Gourmet products. So I think, yes, look, there will be some impact, but at this point, it will not be significant for the company. Peter Vanneste: And maybe just to add, there's some reassurance, of course, from the past on the market rebounding. I mean the market pricing has been significant, of course, this time, but also a few years ago on the back of COVID, there was a 20% pricing up in the market, and you could see the chocolate category bounce up well after that. And maybe last, as you said yourself, I mean, there is this lag, right? We had ourselves for the first time now a quarter in Q2 where our pricing was negative year-on-year. So we had our peak pricing, plus 70% a year ago. We had still plus 25% pricing from us to our customers in quarter 1. Quarter 2 was the first quarter where it started to come down. So there is this lag that the market needs to cycle through before it starts hitting the consumer. Hein M. Schumacher: I think, Peter, there's also -- and I think that on your question or the question before, I want to come back on one point, which are inventory levels. We've obviously seen inventories coming down, and that's partially bean price, but also operationally, our inventories are showing a healthy development. What I do believe towards year-end, again, tactically and particularly on what I call the runners in our portfolio, Gourmet products that are pretty standard, we are increasing the inventory levels somewhat to make sure that we have a very positive start into the new year. I believe by the end of last year, the inventory levels were very, very low, and it hampered us a bit in satisfying customer needs. And again, with the positive signs that we are seeing in the market, we believe there is room, again, tactically and in a few areas to increase the safety stocks a bit to safeguard service. Again, a major priority for us going forward. Operator: Our next question comes from David Roux from Morgan Stanley. David Roux: I just want to come back to Alex's question on the guidance. Can you perhaps quantify how much of the cut in the PBT guidance was attributed to the investments in Gourmet, Middle East conflict and then other factors? And then my second question is on Global Chocolate. On the Food Manufacturer client cohort specifically, do you see any need or any risk here that you need to invest in pricing here? I appreciate there's a mechanical cost-plus model with this cohort of customer. But I mean, how robust are these agreements? And then just my follow-up question on Global Chocolate is, where do you see manufacturer inventory levels at the moment? Hein M. Schumacher: Peter, you take the first. I'll come back on the Food Manufacturing. Peter Vanneste: Yes. So David, the first question on the moving parts on EBIT and then PBT overall versus the guidance that we now put into the market. Overall, as we said, still for the full year, there's a positive on cocoa considering the high and the strong benefit that we took on volatility and the increases of the market in the past, normalizing half year 2, as I mentioned. Now if we look at then where the delta comes from in terms of the negative impact, you could basically argue that about 70% or 2/3 is triggered by this very rapidly declining bean price, which had an impact on, first of all, our financing costs, that pass-through had reversed basically on the EBIT line. Secondly, the impact that we've seen on Gourmet, where our long position and high price list forced us to do some commercial investments to secure the volumes that we have. So 2/3 is really coming from that rapid decline of the bean price. The remaining part, basically, there's 2 components. One is volume that over the year will still be slightly negative. And secondly, some of the increased costs that we are taking to manage through the supply disruption, making sure that we can deliver our customers despite some of those disruptions that we've seen. So this is basically the different blocks that you should be considering within our guidance. Hein M. Schumacher: When it comes to the Food Manufacturing segment, you're right. I mean, most of our contracts, they follow the price of cocoa. So I'm not overly -- from everything that I'm seeing margin-wise and so forth, I don't see major volatility in that. I feel pretty confident about the segment going into the second half. And we will move with customers and of course, based on the contracts that we have. So when I talked about the major impact from the long position, that is more related to price-listed businesses. When it comes to global stock levels, as I said, I think there are some -- we see customers buying a bit longer. I can't comment on exact stock levels. I'm not long enough here to give a really educated answer on that. But it's a fact that at this point, with the current bean prices, there is room for some increases globally. That's all I can say at the moment, unless, Peter, you would have further comments? Operator: Our next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the capacity expansion that you're putting into North America and your comments to the earlier question around longer-term demand. I mean, if you're investing into compounds, which is the majority, I believe, of your Food Manufacturing business, are you not just signaling that there is a permanent reduction in cocoa demand even if it's not chocolate demand and that's coming from compound growth rather than cocoa content, if you like? And then just on Gourmet, where would your gross profit per unit be standing versus 12 months ago? And are you saying that you're going to be cutting that even more? Because if you do have this shift towards more compounds and we're in a sort of excess capacity, I suppose, are we not just going to see a rebasing of Gourmet pricing? And indeed, is it still going down? Hein M. Schumacher: Thanks, Tom. I mean, first of all, in investing in North America, as I said, I think the network overall probably didn't keep sort of the pace with evolving customer needs. So I think it's more that we were a bit behind. And we are very, very keen to fill in some of the blanks. We have very good relationships with many customers. Obviously, in North America, we are the market leader. But I want to make sure that for particular needs, and indeed, there could be compound production, that they don't go to alternative suppliers. So what we're doing is we fill in tactical needs, and I believe that, that will strengthen our position with customers significantly. At this point, with the bean price where it is now, we don't see compound necessarily growing faster than chocolate. We're seeing some movements that chocolate is actually back, and we're seeing some customers going back to chocolate. And again, with the current bean price, I believe that is overall probably even beneficial for them. We're sort of at that inflection point. So no, I don't think that compound will continue to always gain. I think what is more important for companies like us is that we're agile and that we can fill in the blanks of the portfolio that customers need. And they will have a need for compound for particular parts of what -- in their portfolio, and they have a need for chocolate. And of course, there is the volatility of the bean price. So I think what is important for us, given our role in the industry, is that we are agile, that we have the ability to supply what is needed. And that is exactly what we're going to do in North America with a number of shorter-term investments. So that's, I would say, for the next 4 to 5 months or so. I want to come back in June, as I said, with a more midterm picture for North America as well as coping with growth in a select number of large emerging markets, and I'm talking mainly Brazil, Indonesia, for example. India, we have ample capacity that can continue to grow. I mean we've done that double digit, and I feel that going to happen, that's going to go -- that will happen going forward. But I want to choose a few of the bigger markets where we have an emerging presence where I think we can succeed, but where we have some bottlenecks that we need to resolve. So I hope that answers the first question on investments. On Gourmet profit, I wasn't exactly sure on the precise question. But I would say there's no rebasing on profitability as such. As I said, there were long positions out there, and then you need to determine what you do, what is your priority. And we feel that retaining customers is driving growth, whilst at some point these positions will unwind and we will be returning to normalized profitability on Gourmet. That's at least what I'm seeing going forward. But in the meantime, we want to make sure that we keep the customer connection that we can compete in our geographies. And that's what we're doing. Peter Vanneste: And maybe just one addition because I think I might have understood in your message that for compound production, we need an entirely new setup of factories, which is not the case, right? We can produce from our existing factories. There's a few interventions you need to do in terms of tanks. But overall, I mean, we can convert our lines. So it's not that if any move happens to compound, that is an entirely new network that we need. Operator: Our next question comes from Antoine Prevot from Bank of America. Antoine Prevot: I have 2 questions, please. First, on coatings. So within Global Chocolate, I mean, could you quantify the volume growth of coating versus true chocolates and especially considering that now CBE is more expensive than cocoa butter, are you seeing maybe some pressure there overall, especially as a pretty big buffer on volume for the past couple of years? And second, on Gourmet, so could you quantify a bit how much of your chocolate profit comes from the Gourmet side? I mean, it's about 20% of your volume, but I would suspect it's much higher on the profit. And considering the reinvestments and like the price change you're doing into like H2, how quickly do you expect a situation to improve there on volume? Hein M. Schumacher: Thank you, Antoine. So I think Peter takes the second question on the composition of the profit, if I got it right. I think on your first question, overall on compounds, by the way, we call it cacao coatings, we saw flat growth in the first half, but with a double-digit growth for particular super compound products. Don't forget that I'm talking about investments in compounds. And yes, we need to follow the customer, but we are the leader actually globally in cacao coatings. And we have quite a few R&D projects with many of our customers on the way to continue to compete in that well. So if I sort of take a step back, as a company, what we are offering, we're offering the chocolate solution, we're offering the cacao coatings, but also non-cocoa solutions. And in that sense, we are partnering with Planet A Foods. We're working on what we call ChoViva, which is a non-cocoa product, which also has its own cost structure, and we will continue to invest in those type of alternatives. So we're very keen to provide the whole portfolio. Now again, flat growth in the first half with particular double-digit growth in a subsegment what we call super compound products. Peter Vanneste: Yes. And on Gourmet, Antoine, yes, it's about 20% of our volumes and it's over-proportional in terms of our profit split. We're not really disclosing a lot of details on it. But as you mentioned, it's a lot more accretive than the FM business. Volume-wise, 20%, despite the challenges, it's still performing relatively better than the FM business as we speak. And also in H2, I mean, we will invest, as we said, some of that long position, but it doesn't mean that we'll be cutting even more. We expect actually positive evolution in our business in chocolate, both on the FM and the Gourmet side going forward in the second half. Yes, I think that's where we are on the Gourmet side and everything else I think we said before, as it is linked to the very steep decline of the bean price, we do expect this to be a temporary phenomenon. Operator: Our next question comes from Samantha Darbyshire from Goldman Sachs. Samantha Darbyshire: My first question is just around the end markets. It would be really helpful to get some context from you around how you're expecting them to progress from here. You've got pretty good visibility on the order book, it seems. How much of this is kind of because your customers are innovating, having to bring out new products to kind of support that volume growth? And how much of it is that you think that consumers are adjusting to the price levels of chocolate products right now? And kind of along those lines, are you starting to see any appetite from your customers to reduce prices or increase promotions, increase pack sizes to get the volume coming back in the market? And if there's any regional context as well, that would be super helpful. And then just switching to, just thinking about your service levels, can you perhaps contextualize where they are versus history? I know that it's been quite volatile. There's been a lot of disruption. But if we think about where Barry Callebaut used to be, say, 5 years ago, how significantly below that are we? I know that the company is below industry levels. But any kind of indication of the delta would be really helpful. Hein M. Schumacher: Thanks, Sam, for the questions. So first, I would like to talk a bit about the market and our customers and what consumers are doing. Let me just make a few points here. And some of it will be repetitive, I hope you don't mind. But obviously, there are lower bean prices and we're seeing a flattening as well of the futures curve. So there are some early signs, as I said, of market stabilization for our customers. So customers are therefore also willing to book further in advance. As I call it, these are longer positions, and there is some room for higher inventories overall. I think we're seeing that customers are pricing through to some extent. Obviously, that's a customer decision. I don't want to go too deep on that. But I'm very encouraged by what I'm seeing with some of our large customers in particularly North America. Ferrero, and we said it in the presentation, they launched their go all-in promotion lasting from April to July, and that's backed up by significant investments. They've made a very public statement about that $100 million investment. Hershey also making significant media investments in this year with a very big launch around Reese's and Hershey. It's the first launch for them since a number of years that is sort of at this magnitude. So we're seeing restored confidence. Obviously, the margin profile will help given the lower bean prices. So these are, I think, very positive signs for recovery going forward. We're also seeing, therefore, some increased innovation interest from our CPG customers. And as I said, that we do across the whole portfolio. We're seeing -- particularly in Western Europe, we're seeing interest in the non-cocoa solutions for ChoViva, the brand that I talked about before, but also the high flavanol opportunity, the high flavanol innovation in AMEA, and this is gaining really good traction in Japan as well as in China. So if I sort of summarize lower bean prices, so therefore, customers going a bit long. Secondly, a very specific big initiative from some of our large customers that will help the market. And third, we're seeing if we are focusing our efforts behind scalable innovation platforms, we believe that particularly on a regional basis, we're seeing increased interest. So I would say, these are very positive signs. And therefore, we believe that the second half, we can return to a growth picture. On customer service levels, yes, I look back to a number of years ago. And particularly in the last 1.5 years or so, we have been below our historical averages. I don't want to call out one customer service level, because you need to drill down a little bit. And customer service can, for example, become low if your portfolio is not exactly the customer needs. So can you deliver against an unconstrained demand? That's a question. And in many cases, we haven't been able to do so, and that's why we're making these investments. The second one is, due to disruptions, do you need to cancel contracts or cancel deliveries that the customer has asked for. So in some of our key segments, we've seen customer service levels even somewhat below 80%. They are now improving fast. And again, that's where we're laser-focused on to get them to the highest possible level now. And I think that's something that we do progressively well. So without calling particularly percentages too much, I would say we weren't at the level that we were a number of years ago due to disruptions, due to many process changes, due to the whole transformation impact. We're now going back to fewer initiatives, restoring customer service on those areas where we really need it and preparing for a midterm picture. And obviously, I'd like to come back to you in June on what that looks like. I think that concludes the overall -- if I'm not wrong, this was the last question? Operator: Correct. We currently have no further questions. Hein M. Schumacher: Thank you, everyone, for spending time with us this morning. We are looking forward to come back to you in June with a full update on the Focus for Growth program and to have more interactions with you in the next couple of days as well as after the June conference. Thanks a lot, and speak soon. Peter Vanneste: Thank you.