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Operator: Welcome to the SuRo Capital's First Quarter 2026 Earnings Call. My name is Ellen, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Evan Schlossman, to begin today's conference. Evan Schlossman: Thank you for joining us on today's call. I am joined by the Chairman and Chief Executive Officer at SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and the reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. With respect to the externalization, these risks and uncertainties include, but are not limited to, the ability to obtain the required stockholder approval, the ability to retain key personnel, the ability to realize anticipated benefits of the externalization and the impact of the externalization on the company's business, financial condition and results of operations. Management does not undertake to update its forward-looking statements unless required to do so by law. To obtain copies of SuRo Capital's filings, please visit our website at www.surocap.com or the SEC website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. This is a defining moment for SuRo Capital. Our strong performance in 2025 carried directly into the first quarter of 2026. For the quarter, our net asset value increased from $8.09 per share to $14.24 per share. That is a $6.15 per share increase or approximately 76% quarter-over-quarter. This is the largest quarter-over-quarter NAV increase in our history. This increase reflects the strength of our portfolio and the quality of the companies we have invested in. It also reinforces the strategy we have followed for more than a decade, giving public market investors access to high-growth venture-backed private companies that are otherwise difficult to access. We believe this access is especially valuable when it is paired with selectivity, identifying important private companies before they're strategic is broadly reflected in public market awareness. At the same time, NAV is a point-in-time measurement. It does not, by itself, capture the full opportunity we believe remains ahead. The larger story is what is in front of us as our portfolio companies continue to mature, scale their businesses and move toward potential liquidity events. Several recent financings illustrate the larger story. WHOOP recently announced a $575 million Series G financing at a $10.1 billion valuation. The company reported that 2.5 million members globally, 103% year-over-year bookings growth in 2025, a $1.1 billion exit run rate and positive operating cash flow in 2025. For us, WHOOP sits within a broader shift towards health, longevity and actionable self-knowledge. As the category evolves, we believe WHOOP can benefit from AI's ability to convert personal data into more useful individualized guidance for users. OpenAI closed its latest financing round with $122 billion in committed capital at an $852 billion post-money valuation. This financing speaks to the scale of capital formation around artificial intelligence. AI is no longer a narrow software category. It is becoming a foundational technology layer across compute, data centers, enterprise software, developer tools, healthcare, education and productivity. VAST Data was valued at $30 billion in its recent Series F financing, more than tripling its prior $9.1 billion valuation from 2023. The round included approximately $1 billion of primary and secondary capital and reflects continued demand for infrastructure supporting artificial intelligence, including data centers and high-performance computing. Canva launched an employee stock sale at a reported $42 billion valuation, led by existing shareholder, Fidelity, with JPMorgan Asset Management joining as a new investor. The transaction came as Canva continued investing in AI tools for its more than 265 million monthly active users. Taken together, these are not isolated events. They tell a consistent story. Private market capital is concentrating around scaled private companies with durable growth, strategic relevance and credible path to liquidity. These financings are significant not only for their scale, but for what they signal. Private market capital continues to validate the companies and infrastructure layers that we believe are becoming increasingly important to the next phase of technology. Our objective is to build exposure to those opportunities with discipline before they are broadly available. We are not simply observing this market. We continue to participate in it. Recent hyperscaler results continue to reinforce the scale of demand behind AI infrastructure. The next phase of AI growth depends not only on models and applications, but also on the compute capacity, power, data center infrastructure and specialized systems required to support them. During the quarter, we funded $5 million to a Magnetar special purpose vehicle invested in TensorWave. This investment was part of a commitment of up to $20 million. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions, including company-level operational milestones. TensorWave fits within our broader investment strategy and further expands our exposure to AI infrastructure. We view it as the type of opportunity we seek to identify before it becomes more broadly familiar to the broad investor base. The company is positioned around a significant technology shift with meaningful room to scale in part of the market where demand for performance, capacity and specialized infrastructure remains structurally important. That approach is consistent with the discipline we applied in building our exposure to CoreWeave, where we sought exposure to an important infrastructure company before its role in the AI ecosystem was more broadly recognized. We also believe the stage structure gave us a measured way to increase exposure to TensorWave within a framework tied to execution. More broadly, we intend to remain disciplined in how we deploy capital while being decisive when we see opportunities aligned with our strategy and with areas we believe long-term value is being created. This participation continued after year-end. Following quarter's end, we made a new investment of approximately $10 million in ClickHouse, a company we believe is well positioned at the intersection of data infrastructure, artificial intelligence and real-time analytics. ClickHouse helps enterprises query, analyze and act on massive volumes of data quickly and efficiently, a capability that is becoming increasingly important across observability, security analytics, product telemetry, cloud data warehousing and AI-driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. ClickHouse's relevance is already visible in demanding AI environments, including Anthropic, which ClickHouse has publicly described as using its technology to scale observability for all AI workloads. ClickHouse is another example of the kind of company we seek to invest in. It is already a scaled venture-backed technology leader, but we believe its strategic relevance is becoming greater as real-time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31 net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC, an adviser jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC, and our investment focus will remain centered on high-growth, venture-backed private companies. While the core strategy will remain the same, we believe the proposed structure will enhance the platform, supporting the strategy and better positioning us to pursue high-quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The NAV increase this quarter is evidence of that work. At the same time, the market has evolved. Leading private companies have more choices today, and they increasingly look for investors who can bring more than capital, including scale, relationships, strategic support, capital markets experience and a long-term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in assets under management, more than 20 years of investment experience and a track record of investing in differentiated technology, venture-backed companies across artificial intelligence and technology-enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital-intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture-backed private companies. Public venture capital has historically been a fragmented market, and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high-quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder-friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders. Under the proposed advisory agreement, pre-existing investments are not included in the incentive fee calculation. In plain English, the value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder-friendly feature. Additionally, subject to the conditions described in the proxy materials, an affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher NAV. Our goal is to convert portfolio value into long-term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter-over-quarter NAV increase we have ever reported. Our NAV increased approximately 76% quarter-over-quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy, giving public stockholders access to high-growth venture-backed companies aligned with important technology trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including TensorWave and ClickHouse, reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors is designed to provide SuRo Capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of high-growth private companies. NAV captures the progress we have made, the opportunity is what comes next. Our focus now is straightforward, build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value. To our stockholders, thank you for your continued trust and support. With that, I will turn the call over to Allison Green to review our financial results. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent to quarter end, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown and a more detailed review of our first quarter financial results, including our current liquidity as of March 31. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board-approved externalization. On December 31, SuRo Capital's $20 million to Magnetar Opportunity 2025-4 LP, a special purpose vehicle invested in TensorWave, Inc. During the quarter, on January 2, SuRo Capital funded $5 million of the $20 million capital commitment. As of May 5, $5 million of the $20 million capital commitment to Magnetar Opportunity 2025-4 LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of GrabAGunDigital Holdings Inc following the removal of lockup restrictions on January 15. These sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000. As of March 31, we hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter, we received a distribution from our True Global Ventures 4 Plus venture capital fund investment for approximately $246,000. Subsequent to quarter end, on April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs, Inc. through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment, excluding fees, in the Series A preferred shares of ClickHouse Inc. through a secondary transaction. Subsequent to quarter end, SuRo Capital received 2 distributions from CW Opportunity 2 LP, totaling approximately $3 million in net proceeds. CW Opportunity 2 LP is an SPV for which the Class A interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital has invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A interest of CW Opportunity 2 LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as of quarter end. Our top 5 positions as of March 31 were WHOOP, OpenAI, VAST, Blink Health and CW Opportunity 2 LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio. Segmented by 7 general investment themes, the top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investment [Technical Difficulty] and Software as a Service were the next largest categories with approximately 29% and 12% of our portfolio, respectively. Approximately 6% of our portfolio was invested in education technology companies and the Financial Technology & Services segment accounted for approximately 5% of the fair value of our portfolio. The Logistics & Supply Chain accounted for approximately 4% of the fair value of our portfolio, and SuRo Sports accounted for 2% as of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investments, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter, and a $0.02 per share related to stock-based compensation. The increase in NAV per share was partially offset by a $0.16 per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity at quarter end. We ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWeave via our Class A interest of CW Opportunity 2 LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end, on April 2, SuRo Capital's Board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neostellar Advisors LLC, an entity jointly owned by certain current SuRo Capital employees and Magnetar Holdings LLC, which is affiliated with Magnetar's multi-strategy alternative investment platform. The externalization is expected to process to enhance investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the company's existing portfolio for the benefit of stockholders through the exclusion of pre-existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the company's current report on Form 8-K filed with the Securities and Exchange Commission on April 7. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Alex Paris, Barrington Research. Alexander Paris: Congrats on the superb Q1 and the plan for externalization. So that's going to be my question, the externalization. As I recall, prior to 2019, the portfolio was externally managed. You took it in and now you're externalizing it again. So point number one. Point number two, I had a quick review of the process, and I see not only are you creating a joint venture with Magnetar under the name Neostellar Advisors LLC, but actually SuRo's name will be changed to Neostellar Capital Corp. under the symbol NSLR. I guess it's a 2-part question. Number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund? Mark Klein: Thanks, Alex. That's the longest one question ever, but I appreciate it. So let's start with we were externally managed. We made a determination to be internally managed as we took the management -- the group that managed the portfolio and brought it in-house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets. And we came to the conclusion that in order for us to be at the top of the pyramid of all have the largest asset management platform available to invest in public markets, having greater depth from both investment, sourcing, diligence, support, infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture-backed securities. I think that matters right now. I think size matters, I think scale matters. I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in CoreWeave, we're investing with them in TensorWave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it, and we started 15 years ago, and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy, this will be less expensive for our investors, certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occurs up until the externalization. There's no incentive fee being charged at all. That is for all of our shareholders in the future as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our Board took and we took as management, and we're really excited about that. The vote is on June 10. This -- upon approval by our shareholders, we will enter into a management agreement with Neostellar. We will rebrand to Neostellar, and that will be effective on July 1. Thank you. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Congrats as well and looking forward to the externalization. I just have a big picture question after all the success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunity and ClickHouse is another you were able to get in on. But can you -- are you seeing opportunities like you're done with TensorWave to -- that are milestone based and can offer some protection and that these companies actually have to succeed in order to gain access to further capital. Can you expect kind of more structures like that? Or just kind of describe in general what are you seeing out there? Mark Klein: Thanks, Marvin. Great question. And I'll answer it in 2 parts. First of all, we are really excited about ClickHouse. ClickHouse has quickly become the de facto real-time analytics platform. They position themselves to benefit from AI applications, which demand real-time data. This company is growing at 250% year-over-year. It's phenomenal. It provides they're 10x that the rate, the speed of their competitors at approximately 1/10 of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with VAST when no one heard of it or even CoreWeave when no one heard of it. That's how we view ClickHouse. And I suspect as we move towards the end of the year, they will become more notable. That's one. Two, I think -- and you and I have talked about and I talked about it publicly, the markets are robust or perhaps broadly in the AI space, specifically in the private market side. We see an awful lot. We are seeing more deals now than we've ever seen before. And as we talked about it, you have to start is -- are you in the right -- are the tailwinds still there? Are you in the right sector, subtenant sector? Are you one of many in the space or one of a few? Do you have the right to win? Once you get to all that, can we actually [ invest ], whether it's like TensorWave, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns. And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was ClickHouse and TensorWave, as we've discussed before, we are really set up to win. They are to AMD what CoreWeave was to NVIDIA. As most of you can probably see, AMD just reported a blowout quarter. TensorWave is going to be where they're housing their AMD chips. It's an extremely exciting investment. The investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute [ raging ] success. We're really looking forward to TensorWave's future. Operator: We will take our next question from Jon Hickman with Ladenburg. Jon Hickman: I have a question about -- in the past, the top 5 positions have generally around -- they've been around 50% of your portfolio. And currently, the Top 5... Mark Klein: Jon, you still there? Operator: Participant line disconnected. We will take our next question from Brian McKenna, Citizens. Nate Saur: This is Nate Saur on for Brian McKenna. So first of all, congrats on the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little -- or get a little bit more specific on the timing? Like why is right now the... Mark Klein: I think we lost him as well, operator. Operator: Yes, we lost Brian's line. We will take our next question from Alex Fuhrman, Lucid Capital Markets. Alex Fuhrman: I'll try to ask it real quick here and sneak it in. But congratulations guys on the really strong start to the year. I wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously, your investment in WHOOP has been tremendously successful here when you think about that as well as the wind down in your position [Technical Difficulty]. You're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with ClickHouse. But just any kind of high-level thoughts on sort of the composition of your portfolio by sectors and what we should expect to see going forward? Mark Klein: Sure. Thanks, Alex. Yes, in some ways, I guess, we're victims of our own success with WHOOP as WHOOP just completed a $575 million funding over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That was -- that is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into ClickHouse. We're funding another $15 million into TensorWave. And you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again, be the largest focus of our fund. But as you did note, right now, with the success of WHOOP, that has caused a bit of concentration in that space. Operator: There are no further questions on the line. So I will now hand you back to your host for closing remarks. Mark Klein: Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions. But we're very excited here. We had obviously the best quarter we've had on a quarter-over-quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to Neostellar. We're always available for your questions or comments, feel free to reach out to us. And thank you again for attending the call. We greatly appreciate it. Operator: Thank you for joining today's call. You may now disconnect.
Operator: [Operator Instructions] With that, I'll hand it over to CEO, Jan Rindbo; and CFO, Martin Badsted. Mr. Jan, please go ahead. Jan Rindbo: Thank you very much, and hello to everyone. Thank you for joining. Let me start by just giving you just a brief introduction to NORDEN. We are a leading global operator transporting the essential commodities for industrial customers worldwide. We have a capital-efficient fleet strategy combining owned and chartered vessels, which enable us to navigate market cycles and deliver competitive returns. So today, we will take you through our performance and the strategic positioning of the company. So let's dive straight into it, and let's do that with probably one of the most discussed topics at the moment, the conflict in the Middle East, which obviously are having big impact on both the markets and operations. So we see, obviously, on the tanker side, strong support on the tanker rate. We've seen surging spot rates where tankers are in high demand to help rebalancing oil markets in view of the lack of the oil supply that's coming out of the Middle East. The dry cargo market reaction has been more muted. And here, it's probably more the additional operational impacts and costs that affect the business. We have seen, obviously, with higher oil prices, a significant increase in the bunker costs. So they're up roughly around 50% since the start of the conflict. That does not directly impact NORDEN because we hedge the directional risk of the oil price, but we are seeing physical delivery premiums have spiked that cannot be hedged. NORDEN has, as you can see here on the map, we have 7 vessels inside -- trapped inside the Persian Gulf, 6 dry cargo vessels and 1 tanker. And we have obviously suspended all new business coming into the region. But we'll obviously touch much more on the situation in the Middle East later in the presentation. If we look at the highlights, the financial highlights of the quarter, we've made $11 million net profit in the quarter, which is giving us a return of just under 8% on the return on invested capital. We have a very strong operational cash flow of $172 million in the quarter. And what is probably the most significant development overall in the quarter has been this increase in the net asset value of our business and our fleet of 11% since the end of the year. So in just 1 quarter, the net asset value of the company has actually gone up by 11% to now stand at DKK 422 per share. And we continue to return cash to investors. In this quarter, we are continuing with a quarterly dividend of DKK 2 per share. And on top of that, we have a share buyback program of $25 million, and that brings the total payout to $35 million for this quarter. When we look at the group fleet overview, we continue to be very active in optimizing the fleet. We have, in this quarter, sold 7 vessels, 4 of those are from declared purchase options. We also continue to lock in longer-term earnings through time charter out. So we've done 8 long-term deals on time charter to secure forward earnings. We also continue to add ships. So we have actually added more ships than we have sold. We've added 11 vessels in the quarter, 8 leases with purchase options, and then we have purchased 3 vessels. And we continue to sit on this big portfolio of purchase options. We have 91 in the portfolio, of which 33 can be declared over the next 2 years at prices that are currently 22% below current market prices. And if we dive a little bit more into the fleet and look at the fleet composition, you will notice here that we are mainly on the ships that are exposed to what we call the positioning margin. So that's more the ships that are dependent on directional market calls. So typically, the larger dry bulk vessels, but also the MR ships. So here, we have specifically sold 1 Cape and chartered out 3. We've sold 2 Panamaxes. On MRs, we have sold 2 ships and time chartered out 5 ships. So quite a lot of activity on these large and medium ships but predominantly reducing exposure in those segments. And then the ships that we are adding to the fleet have all been in what we call the smaller vessel sizes. They are more exposed to the base margin part of the business. This is the core operating margin that is not dependent on the market direction, but this is where a combination of cargoes, reducing ballast time, loading more niche type cargoes add additional margin. And here, we have added 2 Handysize ships to the core fleet and then 9 Multipurpose ships. So we now have built a core fleet of Multipurpose ships of 22 vessels. And strategically, this is sort of one of the areas that we are focused on building. Most of these ships are newbuildings. The first one will deliver later this year, and then this fleet will deliver in the coming years. One deal stands out in the quarter, and that is that we have signed a newbuilding contract for two ice-class multipurpose vessels. Those ships are ordered against a long-term contract that we have signed with a Swedish mining company, and the ships will be used partly to perform that contract when they deliver in 2028. With that, I will hand you over to Martin, who will talk a little bit more about our NAV. Martin Badsted: Thank you very much. Yes, as Jan already alluded to at the highlights page, the NAV developed quite positively during the quarter, up 11% to DKK 422 per share. And it was actually a broad-based increase in the value of assets, both in dry and in tankers. You'll see from the table here that currently, actually, in terms of our own fleet, the majority of the value, $800 million lies within dry, whereas $200 million are in tankers. But when you look at the value of the TC portfolio, including purchase options, it's actually a little bit overweight tankers with $263 million. On the right-hand side, you will see a sensitivity analysis of what happens to the DKK 422 per share if we change both the forward curve and the asset values by 10% or 20%. And you will see the outcome ranging from DKK 308 to DKK 559 per share, all actually either in line or above the current share price. Sorry for that. It's a little bit slow. So looking at the market development in dry, it was actually a fairly strong quarter. When you look at the turquoise line in the middle of the graph, you will see that the spot rates for Supers, as an example, were far higher than 2025. Actually, they were up 41% over the quarter. And that was mainly driven by the standard commodities, iron ore, bauxite, grains, whereas coal was actually quite weak, although we are seeing that changing currently. We do have a firm view on the long-term outlook for dry cargo, not least based on a favorable supply side, where you'll see on the right-hand side that the order book is actually matched more or less by the share of the fleet, which is over 20 years. So there's good reason to believe that you can actually still have favorable fundamentals in the dry cargo market going forward. Looking at our earnings in dry cargo, you will see that we made on an EBIT level, a loss of $45 million, which is, of course, unsatisfactory. It was mainly driven by dry operator large and small, which both made a loss in the quarter. Of course, some of this was related to cost as a result of the Persian Gulf conflict, where we both have vessels stuck within the Persian Gulf, but certainly also the regional bunker premium that Jan talked about in the beginning, which are hedged to the extent possible, but there is still some non-hedgeable items of the bunker exposure we have that has costed us quite dearly during the quarter. Of course, it's not all the Persian Gulf. It's also what we call regional positioning, which really means that we have decided to reposition some of our vessels from the Pacific into the Atlantic in expectations of higher Atlantic rates. The benefits from this have yet to materialize, but we still expect some of that to show up in Q2 earnings, and we do see gradual improvement in earnings in dry operators going forward. In tankers, it was a super strong spot market during the quarter, of course, driven by the dislocation of trade flows following the closure of the Strait of Hormuz. You'll see the graph here actually coming up to close to $70,000 a day. That was actually an average of very large regional discrepancies where the U.S. Gulf ramped up exports quite aggressively and paying rates close to $100,000 a day, whereas it was a little bit more muted, but still good rates of, call it, $30,000 a day in the East. The development in rates has turned around in recent days. And of course, the underlying problem here is that with the closure of the Strait of Hormuz, we are lagging 15% to 20% of volumes that will normally have occupied a lot of seaborne capacity. But also here, actually, fundamentally, we are not so worried about the supply side, as you will see on the right-hand side also here, the order book is matched more or less with the share of the fleet being more than 20 years old. But we do think some of this order book is starting to accelerate deliveries during the second half that should put some pressure on rates going forward. In tankers, we made a total EBIT of $47 million, and it was actually mainly in the dry owner, which has some spot exposure through our NORDEN product pool. The tanker owner made $37 million and the tanker operator just over $10 million in the quarter. And that brings me to the full year guidance, which, as you know, we upgraded end of April, and we raised it by $40 million to a new guidance of $70 million to $140 million and that includes a reservation of $30 million to cover possible costs for the 6 TC vessels that we have stocked within the Persian Gulf, which is really based on an assumption that those vessels may stay there actually until the end of the year before they can get out. The earnings that we expect for 2026 are quite front-end loaded, meaning that much of it should come in Q2 and then taper off within the second half of the year. And in terms of risk exposure, we have about 2,300 open tanker days and close to 7,000 open dry cargo days, all being long against the market. That concludes my part of the slides, and I'll hand you back to Jan. Jan Rindbo: Thank you, Martin. So this is just a reminder of the key drivers in the business model and how we approach markets. So we have these 4 drivers: dry cargo and tankers are 2 and then asset heavy and asset light the operating business. So we have these four. Our exposure to the prevailing market conditions. And what we are seeing now is that in a very, very high tanker market, we have decided to reduce exposure there and move more of that exposure towards dry cargo. And as we explained earlier on some of the previous slides, we have done a few deals to both sell tanker vessels but also take longer-term time charter contracts on tankers. And we now have, on average, around 80% cover for our tanker business until the end of 2028. So taking advantage of these high tanker rates and locking in long-term profits in that part of the business. That means that we have more exposure in the dry side. And within the dry cargo business, as we explained on one of the previous slides, we are moving exposure more towards the smaller segments where we have more impact on the earnings than just being driven by the market. And we think this flexibility in the business model where we have several drivers, realizing that it's not always all 4 drivers that will go at the same time. But over a rolling 5-year period, we can see that this generates higher returns than industry peers that are more specialized in just one segment. So this ability to switch between the segments actually has a lot of value for NORDEN in the long run. If we move to the next slide and then look a bit more at the direction we are taking towards 2030, we see an opportunity to go even deeper in our relationships with customers. At a time where there is a lot of focus on supply chains and geopolitical uncertainty, NORDEN stands out as a reliable service provider in the freight industry, and that is something that we want to leverage and continue to build both more cargo networks with complementing contracts, but also have more efficiencies in the way that we operate the cargo book and the fleet. The expansion towards the smaller vessel sizes within dry cargo is also with a view to focus more on what we call the base margin, the core operating margins in the business and thereby reduce the volatility in our earnings because in the smaller segments, project cargo, minor bulk commodities, but also the logistics part of our business, it is less exposed to market fluctuations and thereby giving more stable returns through the expertise that we can provide in those segments. We will, however, continue to be focused on this adjusting our exposure and remaining what we call asset agile and continue to take the opportunities that we see in the market. So both buying and selling our vessels as an example, is largely driven by the opportunities that we come across in the market. And that sort of is an important part of providing strong upside in better markets. And that's exactly what we're seeing right now through the whole optionality portfolio where we have a lot of extension options and a lot of purchase options in our fleet. And in rising markets, there's a lot of value there that we can realize. And that brings me just to the last slide and just a few points here on the investment story in NORDEN. When you zoom out and look at the industry, we think actually the macro view of the industry is fundamentally very positive because when you take a longer-term view towards 2030 and beyond, we see an aging global fleet, both in dry cargo and in tankers. And we currently have a low order book, especially on the dry cargo side. So this replacement need of all these older vessels is not currently being met by the order book. And as we've also previously explained, all the geopolitical uncertainty and the dislocations are creating longer distances for transportation. And that means that we have a very healthy market balance as we see it. And even if -- even at times of lower economic activity, the inherent risk of a prolonged oversupply situation is much, much smaller than what we have seen historically over the last couple of decades. Our business model, point #2 here that we can adjust to the different markets that we are in, gives us huge flexibility to manage the risk through the market cycle and deliver better returns compared to a pure-play company. And then we have the strategic focus on expanding in areas where we believe we have even more impact ourselves in terms of our operating capabilities and really building this business that is more sophisticated, not least with the AI-driven opportunities that we also see in enhancing our decision-making and really bringing out the -- what we call the NORDEN platform, the value of being one of the largest operators in the industry and having a global network of offices close to our customers bring out all of that value as an important part of our strategic focus. And then the last point we're making here is that we continue with a relatively asset-light approach in our business model, but with the upside from purchase options on the asset upside that enables us to return a lot of cash to shareholders and have this disciplined capital allocation that over time, at least historically have driven a ROIC outperformance compared to the industry. I think with those words, let's turn over to the Q&A session. And hopefully, there are questions where we can put a little bit more color to some of the points that we have made here today. Operator: Thank you, Jan and Martin. And yes, we are now ready for the Q&A session. [Operator Instructions] But let's start off with a couple of the written questions here. They were originally in Danish, so this will be our translation. So the energy company, MASH Makes, which among other things, was supposed to produce biofuel for DS NORDEN's fleet, has gone bankrupt. It is reported that they were unable to raise capital for the next phase. You have been invested in the company since 2023. Can you tell us what loss you'll be taking in NORDEN's future financial reports in connection with this bankruptcy? Martin Badsted: Yes, I can respond to that. So when you look at the future financials, this will have no impact because all of it has been provided for in the current accounts already. So of course, we have been very happy to work together with the team behind MASH Makes and I think they have a very interesting technology. But I think the phase that they are coming into now means that they will need new investors to take this forward. Operator: And a follow-up question in connection with this. Can you tell us how this will affect your transition to biofuel? Are there new partners on the horizon or any concrete partnerships in the works? Martin Badsted: Our efforts to work on decarbonization and offering that also as a product or service to some of our clients is unaltered. So we have a strong belief still that biofuel is part of the answer for the shipping industry, and we are working with several partners to help them actually realize zero emission transportation based on our products. Operator: And the next question here is, as an investor, one has noticed that the bulk/dry cargo market for what is by now an almost excessively long period has not been optimal for NORDEN. The tanker market, on the other hand, is booming. Looking a bit into the future, where we also see risk of, for example, lower Chinese growth, wouldn't it make good sense for NORDEN to look more towards the tanker market over the coming 1, 2 years and prioritize this business leg more heavily? And do you agree with this analysis is also stated? Jan Rindbo: Yes. I think let me start by saying that going back to the business model that we have, both being in dry cargo and in tankers, there will be periods where one leg is more attractive than the other. And only a few years ago, it was the dry bulk business where we actually got the same question, why are we not just focusing on that? I think we've shown over time that the strength of having both activities, that's important. If you talk about the risk reward from where we are today, yes, clearly, tanker earnings are very strong right now, and it's attractive to be in tankers. But to invest further in tankers right now is also very expensive and quite risky. So the risk reward, we think, is more skewed towards the dry cargo side. That's also why we're running with relatively high coverage on the tanker business. We have actually made money overall in dry cargo last year. We are, of course, having a more difficult first quarter in dry bulk, which Martin also explained, there are some different drivers, some repositioning costs that will come back. So we do expect better dry cargo performance in the coming quarters. And of course, our focus is on obviously ensuring that we have the best possible performance. It also, a little bit, ties in with the strategic choice of going towards the smaller vessels where we have more impact on the results through our own operation and not just being driven by the market. Operator: And then a question related to the current situation in the Middle East. It goes, how do you see the scenario for yourself when the Strait of Hormuz is reopened, and peace returns to the region there? One would imagine you'll be extremely busy for an extended period with simultaneously high freight rates primarily for tankers. Do you agree with that expectation? If yes, how long might one expect it to last? And would you also have a positive impact on the dry cargo from this? Martin Badsted: Yes. So that's a very good question or a number of questions actually baked in there. But I think overall, our view is that the closure of the Hormuz Strait as we are seeing now is fundamentally negative for the tanker market. Yes, there have been some super short-term spot rate earnings in the last couple of months, but we think those are temporary. And after that, if it continues for that long, there will be a lag of 15% to 20% of normal seaborne volumes, which we think if such a demand hits that the market will be under pressure. But of course, if the Strait of Hormuz were to open tomorrow, I think you're right that there could be an added employment for, again, a temporary period because countries and companies would need to restock, and there would be quite a lot to do in that case. So it's very dependent on the time frame that we are discussing here. It's less of an issue on the dry side, where I think the impact on the market is more indirect through the impact on the macroeconomic environment. So if global economy suffers because the oil price goes to $150 a barrel, then that will also lead to pressure on demand within dry cargo. But overall, we think it's a fundamentally negative story with some very strong positive temporary effects that we have experienced in the last couple of months. I hope that answers your question. Operator: And then a more specific question towards the Tanker segment. Rindbo mentioned earlier today in the radio show Millionaerklubben that NORDEN has already secured coverage of 80% of the tanker order book through the end of 2028. Is that understood correctly? And does that mean you're looking to bring more tanker vessels into the business going forward? Jan Rindbo: Yes. So that is correct that we have covered now around 80% of our tanker capacity until the end of 2028. And bringing more tankers into the book probably right now in terms of long-term deals, so time chartering in ships on long-term contracts and buying ships. Right now, we don't think that that's the right time to do that. Prices are very high; rates are very high. That's why we've done the opposite, selling ships and taking in cover by charting out ships. Now, of course, how the market plays out in the coming quarters, if there's an opportunity, for example, in the scenario that Martin described that if there is a softening in tanker rates, then that could be an opportunity then to step in and take more capacity on again. So that is obviously part of the playbook in our business model that we can do that. But right now, we feel that the risk reward is not there to add tanker tonnage. Operator: A question related to this, tanker outlook beyond Q2. You say the market eases or expect to be easing in second half of '26. How severe could this easing be if Hormuz reopens quickly versus stay closed? Martin Badsted: Yes, that is a very difficult question. As I said before, if it opens immediately, there will be some short-term benefits from, I think, desired restocking. But if it lasts for a very long time, then we think, as we said, then the easing will come and being driven to a large extent by the lack of volumes, but also by newbuilding deliveries that will accelerate in the second half of the year. Operator: And we will then look at the dry cargo segment. There are a few questions here related to this. There's one here. Entering Q1, you were short on the dry bulk market. How much of the dry cargo loss can be attributed to a wrong positioning? Jan Rindbo: Yes. So that is part of the explanation, but it's not actually the main driver of the results in the first quarter, and we now have a long position also in dry going forward. The main driver of the results in the first quarter is the additional costs that we've seen following the conflict in the Middle East and then this repositioning of ships on lower-paying backhaul routes from the Pacific into the Atlantic and the benefit of then positioning those ships back at fronthaul rates will only come in the coming quarters. Operator: And another question related to dry cargo. Could you provide more detail on the bunker price impact in dry cargo during Q1, especially while the sharply higher regional bunker prices following the Persian Gulf conflict could only be partially hedged? And how much of this impact you expect to reverse or normalize over the coming quarters? Martin Badsted: Yes. So that's actually a very interesting question. And I think there are multiple sorts of impacts on the oil market overall. What you normally see based on quotes in the media and so forth is typically the development in the standard barrel of oil, where you've seen rising prices may be from $70 before the crisis up closer to $120, $125 per barrel. But on top of this, when you look at the diesel and gasoline and some of these refined products, then the price changes have been even more vehement and if you then look into the specific prices when you actually go into a bunker port in different regions, you've seen spikes that we probably have never seen before. And this goes to explain why even though we have a hedge framework that actually hedges all our flat rate exposure, if you will, sort of the standard price of oil, then you can't hedge what happens in local bunker ports here and there because there are no price indices, there are no derivatives to do the hedging. And that means that when you have to perform a cargo and you go into bunker, then suddenly you are met with very unpredictable and in this case, very high bunker prices that will then seriously affect the voyage results that you can incur. Operator: And another question to the dry operator segment here, you're still loss-making at USD 9.2 million. When do the multipurpose Handysize additions start to show up positively in this segment? Jan Rindbo: So the core fleet that we are building, so the 22 ships that we referred to earlier, the majority of those ships are newbuildings that will deliver in the future. And the first newbuilding will deliver to our fleet during Q3. That is the latest estimate for that delivery. And then it will ramp up through '27 and '28. So it will come over the next sort of 2 to 3 years in terms of that core fleet. And that includes these 2-ice class newbuildings that will deliver in 2028. Operator: And then a question related to the fleet and the options that you have here, let me just have a look. You sold 7 vessels year-to-date and then you have 33 purchase options in the money at strikes 22% below broker values. What's stopping you from declaring more of these now while asset values are at a multiyear high? Jan Rindbo: Well, one thing is that the underlying charter rate is very attractive compared to the current market rates, and then we have options to extend that as well. So in addition to the purchase optionality that we have, and there is also value in that. And when we look at the development on asset prices, we are quite optimistic that the prices are not going to decline substantially from the current levels because new yards are full with newbuildings. The markets, especially on both dry and tankers, underbuilt the current asset values. So we would like to both get the value out of the extension options and then subsequently also get the value out of the purchase options. And then I think it's also important to highlight that we are also from time to time, declaring purchase options without necessarily also selling the vessels at the same time. So we could also -- and we are also looking at declaring some of these options and then actually keeping the vessels in our fleet as owned vessels. Operator: And then a question related to your net asset value and capital allocation and what now seems to be the last question. Now it's up to DKK 422 per share, while the share price is around DKK 294, that's a 30% discount. You're distributing around USD 35 million for Q1. That's DKK 2 in dividend and a buyback of $25 million. With the share-trading well below now, would you not lean more aggressively into the buybacks rather than dividends? Martin Badsted: Yes, that I think it is a good question and something that we, of course, also have discussed. There is one problem, which is really that there are some legal limitations as to how big a share buyback program you can undertake compared to the general liquidity in the share in the market. So we can't actually do much more on the share buyback side than what we are doing. So we actually agree in the argument that it's trading at a discount. So it's a good place to actually invest, but we have maxed out on that opportunity already. Operator: Thank you. There seems to be no further questions. So I will leave the word to management for a final remark. Jan Rindbo: All right. Well, thank you for tuning in. Thank you for great questions related to the Q1 report. So thank you again for joining us here, and we look forward to seeing you again for the next quarterly presentation. Thank you. Martin Badsted: Thank you.
Operator: Good day, and welcome to the Versigent Q1 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Annalisa Bluhm. Please go ahead. Annalisa Bluhm: Thank you, and good afternoon, everyone. I'm joined today by Joe Liotine, our Chief Executive Officer; and Doug Ostermann, our Chief Financial Officer. Today's call includes forward-looking information reflecting our current view of future financial performance and may be materially different for reasons that we cite in our Form 10-Q, earnings materials and other filings with the Securities and Exchange Commission, including the Risk Factors section of our registration statement on Form 10 and 12B&A filed on March 6, 2026. Our guidance reflects management's current expectations and should not be relied upon as a guarantee of future performance. We undertake no obligation to update these statements, except as required by law. We may also reference non-GAAP financial measures during the call. Reconciliations to the most directly comparable GAAP measures are included in today's earnings release and are available on our Investor Relations website. I will now turn the call over to Joe. Joseph Liotine: Thank you, Annalisa, and good afternoon, everyone. Today marks an important moment for Versigent. On April 1, we entered the public market with clarity about who we are, how we compete and how we create value. Versigent launched from a position of strength, generating close to $9 billion in annual revenue, not as a concept, but as a scaled, profitable and disciplined business and I'm pleased to be here speaking with you today on our first earnings call as an independent company. Before we get into the numbers, I want to take a moment to thank the hundreds of customers, thousands of suppliers and our incredible employees, nearly 140,000 of them around the world who made this historic moment possible. As we begin, I want to take a moment to outline how we will spend our time this afternoon. I'll start by describing what Versigent does and the problem we solve, then walk through how our business model drives sustained growth and margin expansion, outline our strategic imperatives as a stand-alone company and then provide a brief update on how the first quarter unfolded. Doug will then walk you through the financials in more detail. As a reminder, the financial information we will discuss today reflects results from a period when Versigent operated as part of Aptiv and is presented on a carve-out accounting basis. Versigent exists to solve a challenge that is intensifying across many sectors, including mobility, industrial and energy systems. Today's innovations are creating products with more autonomy, more connectivity and more features, resulting in increased power demand, increased sensing capabilities and much more sophisticated and complex products. Customers need to deliver these innovations while still finding ways to reduce complexity and create productivity opportunities. That's where Versigent comes in. Power and data distribution are critical to unlock advanced functionality. It is the nervous system of modern products, and that shift plays directly to our strength. At its core, Versigent designs, manufactures and delivers low- and high-voltage power, signal and data distribution architectures. Each architecture is unique. These advanced systems connect and power the critical components that enable modern vehicles and equipment to function safely and reliably. Increasing complexity means these architectures must be carefully designed early, optimized holistically and executed consistently at scale. That is where Versigent operates. What differentiates Versigent is not just scale, but how we apply it. Our systems are embedded in the design of leading OEM programs globally. And we work with every major auto manufacturer, including growing automotive leaders in China. More than 75% of our revenue comes from solutions our engineers influence, often early in the program life cycle when architecture decisions matter most. While Versigent is often categorized alongside other automotive suppliers, we operate as a highly engineered design-driven company supported by an intelligent and proprietary design and engineering tool suite. These tools allow us to model, simulate and optimize complex electrical architectures, helping customers reduce weight, cost and risk, while accelerating development and improving quality and the efficient manufacturability of these products. Importantly, they are deeply integrated into our engineering workflows and customer engagements creating a sustained competitive advantage. Our unique engineering capabilities provide expertise that differentiate us from others. As architectures evolve, simplified systems remove pass-through content such as copper and increase the value of optimization with elegant systems and digital design capabilities. That is where Versigent leads and why our new architectures are margin accretive over time. This shift towards greater capabilities played directly into our operating model. We combine design influence, proprietary tools, disciplined manufacturing and automation to drive structural margin improvement through execution. Versigent is fundamentally resilient. Our growth is content driven, supported by long-term secular tailwinds, including electrification, connectivity and software-enabled functionality. We are platform agnostic, whether customers deploy ICE, hybrid or battery electric architectures. The complexity of these programs continues to rise and Versigent benefits. We also see attractive opportunities beyond automotive, adjacent markets face many of the same pressures we already solved for, more content and features, greater reliability and tighter tolerances. We are approaching these adjacencies selectively, extending proven capabilities into areas such as commercial vehicles, energy storage and selected industrial applications without changing our operating model, our execution discipline or our technical expertise. As we begin this next chapter, Versigent enters the market with clear priorities, strengthen our market-leading position by leveraging our full service capabilities, continue optimizing our cost structure through automation and footprint discipline, deliver consistent financial results through execution, allocate capital in a disciplined manner to drive long-term shareholder value. These priorities reflect how we operate as an independent company, focused, accountable and execution driven. With those priorities as our foundation, the first quarter provided clear evidence of how they are taking shape in the business. The progress we delivered across launches, customer wins and quality reflects disciplined execution and reinforces our positioning with leading OEMs and global programs. During the first quarter, our teams executed across a broad set of programs globally with a high level of launch activity and complexity. We successfully delivered multiple launches across regions and programs including complex premium and high content vehicle programs requiring advanced electrical architectures in close coordination with OEM engineering teams, all with stable ramps, with more than 99% quality and more than 99% on-time performance. We also continue to build go-to-market momentum through new program wins and extensions with leading OEM customers. These awards span regions and programs and reflect continued demand for Versigent's low- and high-voltage solutions as electrical content and system integration requirements increase. Quality and delivery remained a clear differentiator in the quarter. Customer recognition and quality awards reinforced Versigent's reputation as a partner that executes consistently, particularly on complex global platforms where reliability and performance are critical. In addition, we made tangible progress in nonautomotive markets, beginning [indiscernible] on an energy-related power program. This program expands our served applications beyond traditional vehicle architectures while leveraging the same engineering, manufacturing and systems capabilities that underpin our automotive leadership. Together, these execution outcomes supported the volume growth achieved in the quarter and demonstrate how our priorities are translating into results. From a financial standpoint, the quarter was a strong start to the year for Versigent. Revenue increased 9% year-over-year to $2.2 billion with 3% adjusted growth, adjusting for foreign currency and commodity pass-through, reflecting solid underlying volume performance across the business. Doug will walk through the financial details in more depth. But at a high level, the results reflect strong execution and demand across the business. In addition, we had a strong start to the year with $2.6 billion in new bookings this quarter and the start of 24 new programs, putting us on track for the most new major launches in our history, including the production on an energy storage program. Regionally, performance was strong in the Americas where adjusted growth was 6% year-over-year, supported by higher volumes on key programs and new business wins. In Asia Pacific, adjusted revenue growth of 12% was driven by new platform launches, including a greenfield program in India and continued momentum with both global and regional OEMs. In EMEA, revenue was down 12% on an adjusted basis, consistent with the softer production environment. We continue to see progress through incremental program wins and successful launch of our premium vehicle mid-cycle refresh. Overall, the regional results reinforce the strength of Versigent's global footprint and customer relationships with the volume growth driven by launches, program execution and expanding content on key programs. Taken together, the quarter reflects a solid operational and financial performance as we move into the rest of the year and reinforces our confidence. As Versigent enters the next phase, we do so to unlock greater value. We are highly engineered, globally scaled and cash-generative industrial company, supported by clear priorities, strong execution capabilities and disciplined capital allocation. With that, I'll turn the call over to Doug Ostermann, our Chief Financial Officer, to walk through the financial details of the quarter and our outlook for 2026. Douglas R. Ostermann: Thanks, Joe. I'll begin with a review of our first quarter financial results. As a reminder, results for the quarter are presented on a carve-out basis, reflecting Versigent's operations as part of Aptiv through March 31. The separation was completed on April 1 and financial information for periods prior to that date have been prepared as if Versigent had operated as a stand-alone entity derived from Aptiv's historical accounting records. With that context, I'll walk through the quarter starting with revenue on the next slide. Overall, Versigent had a strong first quarter. First quarter revenue was $2.2 billion, representing 9% growth year-over-year on a reported basis and 3% growth on an adjusted basis, excluding the impacts of foreign exchange and commodity pass-throughs. The quarter reflected solid underlying volume performance driven by sustained demand from core OEM customers. Despite the lower global vehicle production environment, volumes increased across a number of key programs and demand remains strong. Growth in the quarter was supported by Versigent's solid position on global platforms where electrical architectures are becoming more complex and increasingly integrated into vehicle performance and functionality. We continue to work closely with our OEM partners in the early stages of design, which supports both volume growth and durability of business over time. In the Americas, we achieved adjusted growth of 6%, driven primarily by higher volumes on truck and SUV platforms and strong execution across ongoing programs. Versigent continues to be well positioned with leading North American OEMs, particularly on large truck and SUV platforms where electrical architectures require high levels of reliability, scale and integration. In Asia Pacific, adjusted growth was 12%, reflecting growth with both global OEMs and domestic customers. Performance in the region was supported by launch activity, program extensions and continued demand across China, India and other growth markets. One area where we continue to see growth is with customers in China that are benefiting from the increased demand for vehicles exported to different countries. As architectures evolve and regional platforms become more differentiated, customers increasingly value Versigent's distinct engineering depth and local manufacturing capabilities, which contributed to the quarter's volume growth. In EMEA, revenue declined 12% on an adjusted basis, reflecting lower production levels in the region and the end of production of certain programs. Customer engagement across the region remains strong, and the program portfolio continues to support future growth as production normalizes. Across all regions, the quarter reinforced the importance of Versigent's global footprint and its ability to consistently support OEMs across continents, platforms and vehicle segments. Adjusted EBITDA for the first quarter was $203 million. That's an increase of 3% year-over-year with an adjusted EBITDA margin of 9.2%. Adjusted EBITDA reflects contributions from higher volumes, alongside ongoing operational execution, offset primarily by foreign currency exchange and commodity headwinds. As you can see on Slide 10, the increase in sales specifically related to foreign currency exchange and commodity pass-through was $122 million. This increase alone drove a degradation of about 50 basis points of margin in the quarter on a year-over-year basis, but we believe we are on track to meet our full year margin targets. EBITDA performance in the quarter was driven by operational execution and certain cost dynamics, such as material productivity from supplier negotiations, value-add engineering and content reduction initiatives. The quarter also reflected higher commodity costs and foreign currency exchange impacts, including the timing of customer pass-throughs. You can see on Slide 11, an unfavorable impact of $46 million on a year-over-year basis. This primarily reflects 2 factors: first, an increase in the copper index of over 25%, driving about 2/3 of the impact; and second, a strengthening of the Mexican peso of about 15%, which is the primary driver of the remaining impact. For copper, we have escalation agreements that cover roughly 3/4 of our exposure. However, there is a lag on average of about 3 to 4 months between when our costs increase and when we update the pricing with our customers. This causes temporary margin dilution when indices increase rapidly as we saw in Q1. Assuming copper indices stay consistent with Q1 average rates, we expect the lag impact to cease as our prices will be adjusted to align with our costs. We factor both higher copper prices and stronger Mexican peso into our planning for the year. We will continue to manage these risks through customer agreements, financial hedges and cost reduction initiatives. Looking ahead, margin performance is expected to continue to be driven by profitable growth, execution on manufacturing and materials initiatives with cost actions in place to manage external pressures. Turning to income taxes. The U.S. GAAP income tax benefit for the first quarter was $9 million compared with an income tax expense of $29 million in the prior year quarter. The quarter-over-quarter change was driven almost entirely by a favorable tax reserve adjustment during the first quarter of 2026. For full year 2026, we expect an adjusted effective tax rate of approximately 23% with a comparable cash tax rate. Operating cash flow in the first quarter was $36 million, and free cash flow was an outflow of $30 million. Cash flow in the quarter reflected several timing-related factors. Capital expenditures totaled $66 million. In addition, the quarter included restructuring cash outflows aligned with actions already underway as well as $26 million of onetime separation costs. Working capital was also a use of cash during the quarter as we experienced our typical seasonal build required to ramp back up from customer shutdowns during the last couple of weeks of the calendar year. As the year progresses, continued execution and working capital normalization will support significant free cash flow generation. From a financial position standpoint, Versigent ended the quarter with $282 million of cash on hand, $1.1 billion of overall liquidity. This is supported by an $850 million revolving credit facility that remains undrawn. Our cash balance at quarter end reflects the timing of certain separation-related cash settlement with our former parent company, much of which has been settled after the quarter end, bringing our cash balances directionally in line with the $400 million pro forma level outlined in our Form 10. Turning to our outlook for the full year. We are reaffirming our financial guidance for 2026, for the year, we expect revenue of $9.1 billion to $9.4 billion, which represents approximately 2% adjusted growth despite a production environment that is expected to be down about 1% year-over-year. From a profitability standpoint, we expect adjusted EBITDA of $950 million to $1.03 billion, with an adjusted EBITDA margin of approximately 10.7% at the midpoint. This outlook reflects profitable sales growth and continued progress on operational and performance initiatives. This includes manufacturing efficiency, material productivity, and automation, which are expected to drive continued margin expansion. From a cash flow perspective, we expect free cash flow of $200 million to $300 million for the year, which includes approximately $70 million of separation-related costs. Our free cash flow outlook reflects the expected cadence of earnings growth, working capital normalization and the reduction of separation cash outflows as the year progresses. Turning now to capital allocation. Versigent remains committed to a disciplined and balanced capital allocation framework. Prioritizing continued growth while returning cash to shareholders. As part of our capital allocation framework, we intend to return a portion of future earnings to shareholders through a regular dividend. This policy reflects our confidence in the durability of our cash flow profile and our ability to support recurring returns to shareholders. The initial dividend is expected to be declared following the end of the second quarter in the range of $0.13 per share per quarter. Of course, any dividend is subject to the approval and declaration by our Board. In addition, our board approved a share repurchase program for up to $250 million. The program does not have an expiration date and may be amended, suspended or terminated by the Board. Under the program, we intend to repurchase shares opportunistically from time to time subject to management's discretion. Our intention will be to fund share repurchases with operational cash flows, which typically are weighted towards the latter half of the year. Together, the dividend policy and share repurchase program reinforce our commitment to returning capital to shareholders while enabling continued execution of our business priorities and maintaining a disciplined balance sheet. With that, I'll turn it back to you, Joe. Joseph Liotine: Thanks, Doug. Versigent launched into the public market with a strong vision. We delivered solid performance with strong revenue growth, all while reinforcing our position as an industry leader. Above all, our team remains focused on the right things, driving revenue, increasing cash flow and executing with a high level of operational discipline across the business to unlock greater value for our customers and our shareholders. With that, we are happy to take your questions. Operator, please open the line. Operator: [Operator Instructions] We'll now take your first question coming from the line of Chris McNally with Evercore ISI. Chris McNally: Congratulations on the first quarter out of the box. Maybe just one housekeeping and then we'll go a little bit more strategic. On the housekeeping, could you just kind of give a sense for how -- you mentioned the 3 to 4 months on copper, Q1 seasonally light and took the copper hit. Could you just give us a sense for how we may see those sort of the earnings cadence over the course of Q2 to Q4? And when probably at this sort of $6 level, what's a good quarter that we could sort of expect to be fully recouped by? Douglas R. Ostermann: Yes. Thanks for the question, Chris. We saw a pretty significant move up in the copper price during the first quarter, as you know, and it seems to have stabilized a little bit in the last week or two. But really with this kind of 3- to 4-month lag that we talked about that's built into the escalation of the contract. Typically, we're going to see that start to play out in the first month of the second quarter and really should be, for the most part, normalized by the time we get to kind of end of the second quarter, beginning of the third quarter. That, of course, assumes that copper pricing stays stable. But that really should be kind of the cadence of the catch-up. Now in addition, as you know, we do hedge the portion of our contract -- or our copper exposure that is not covered by contract escalation. And really, that just provides us some time to have conversations with our customers about the amount of copper and the change in the price and that sort of thing. But that's really the other 25%. But that obviously has an immediately offsetting effect. Chris McNally: No, that makes sense. And we've seen that smoothing effect in years past like 2024 when you had the copper strike. Okay. That all makes sense. Maybe a little bit on the strategic side. I think we talked a little bit about it in your parent or former parent in Aptiv, sort of the secondary TAM extensions that we're seeing in industrial and you had some pretty exciting news over the course of marketing Versigent, about $150 million of wins to battery storage, $3 billion TAM. Is it fair to think of a couple of years out that you could be a significant player here sort of that similar mid-teens, 20% market share that you've carried in auto? I just think investors -- we all don't know a lot about wire harness in that market. So anything that you can add about color of who's playing in that market now because it seems like there's a lot of runway for you to grow? Joseph Liotine: Yes. Thanks, Chris. This is Joe. Just if we zoom out a little bit, we we're focused there for a reason. We've looked at our engineering skills and capabilities, and they apply quite well there without a lot of change or adaptation. We've looked at our manufacturing and that applies as well. So from an asset intensity and a capability development standpoint, we really don't require effort there. What we have seen though is there is some go-to-market weakness and nuances that we need to kind of refine to make sure we're ready for all those opportunities. We're in quite a few predevelopment programs already. We have our first serial production here launched in Q1. So this is beyond just theory, we're seeing progress there. I think the competitive market there from a supply standpoint is pretty diverse versus battery storage or robotics or even commercial vehicles. So it's not necessarily 1 cohesive group. But everything we've seen points to either customers are coming to us and asking us to participate or we're engaging with customers and getting very good receptivity. Now again, the battery side and robotics side is quite small today. So even if the growth is big, the starting point, the absolute value is smaller. But we feel really good about both our applicability and the potential of those TAMs. So I would say early days, but we're just essentially reinforcing the strategy and the thesis that we laid out just a couple of months ago. Douglas R. Ostermann: Yes. And the customer overlap is really, really encouraging. Operator: We'll take your next question coming from the line of Joseph Spak with UBS. Gabriel Gonzales: This is Gabriel on for Joe. Doug, you outlined the $0.13 quarterly dividend. So maybe a 1.4% current div yield. Can you help us think about how that could evolve over time, especially given similar auto supplier peers generally screen somewhat higher? Is this more of a starting point that will be reevaluated. And I guess just more broadly with the new authorization, how should we think about the balance across your capital priorities going forward? Douglas R. Ostermann: Thanks for the question, Gabriel. And really, what we wanted to do was -- we have stated previously that we would have a competitive dividend. We wanted to provide some additional definition around that. We think the $0.13 a share is a good range that we'll discuss with the Board at the end once we have kind of Q2 earnings in the bag. And we think that's a good way to start returning some capital to our shareholders. Of course, as earnings progress we'll revisit that with board from time to time. But I think that should help you get some order of magnitude on what we mean by a competitive dividend out of the chute. Now when we look, of course, at the authorized buyback program that we discussed with the Board, I just want to revisit the fact that really when we look at our overall capital allocation strategy, our #1 priority, of course, is to continue to grow the business. And we have a lot of nice organic opportunities. Joe just discussed a few of those. But really, even running at kind of the 3% of revenue in terms of CapEx, we should be generating a lot of cash beyond that. And so we thought it was important to get a buyback program authorized by the Board. Of course, we would seek to time that in coordination when the cash is being generated by the business. And as you probably know from our history, cash generation is typically a second half. So I wouldn't see us getting -- or even thinking about getting active on that front until kind of that time period. Gabriel Gonzales: Got it. That's really helpful. And Joe, just following up on a question that was asked on the Aptiv call this morning on the conquest business, a competitor announced. I know there was a lot of color provided, but wanted to ask if you had any further comments on your own on that? And more broadly, can you discuss your competitive positioning going forward as a stand-alone company versus when you were a part of Aptiv? Joseph Liotine: Yes. Appreciate the question. Just to maybe clarify or reiterate a couple of things that were said by Kevin, again, we retain the vast majority of that program. A small amount was awarded to a competitor and on smaller, more basic harnesses. And so I thought Kevin did a really good job bringing facts to the discussion, in a comprehensive way and a well-constructed way, and not just hyperbole. I think it's important that GM took the time, so I'm appreciative of that, they took the time to say the things they did in a sanctioned [indiscernible] real comments that they stand behind and they cited us as the gold standard in wire harnesses. They cited us as a company in which they expect us to have incremental opportunities. And then they also cited that we had 0 operational issues. So it's just a testament to, I would say, a very valued customer of ours to go out of their way to do that. And I think maybe the last thing I would say is if we zoom out and look at the facts, in 2025, our growth over market was strong and better than competition as was our bookings. In Q1, our growth over market was strong and better than competition as was our bookings. And then our future outlook in terms of what we shared in our Investor Day and our thesis was strong growth over market as well. And so if you take all of those, that's a comprehensive view of business. That's not just the shiny object to maybe distract from the broader dialogue. And I think that's important to keep that context together. Operator: We'll now take your next question come from the line of Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Great. I was curious if you could give us a little bit of color on how do you think potentially about the current quarter. I think what makes it a little bit complicated in terms of understanding cadence exactly. So, obviously, these commodity headwinds were very large, but then the recovery suggests -- I would think that makes it a little bit more back-end-loaded when you get the recoveries, but in terms of margin. But anything you can give us in terms of how do you think you do about Q2 or about the cadence of first half versus second half? Douglas R. Ostermann: Yes. Thanks for the question, Emmanuel. We certainly started with a strong first quarter, and that gives us a lot of confidence in reaffirming our guidance. But in terms of cadence, as you know, in the automotive industry, typically, from a volume perspective, Q1 is a bit lower. So if you look at kind of the seasonality of the industry, we would expect more production in Q2, Q3 and Q4. For us, our margins historically have kind of peaked in Q3. And really, when I look at this year, as we talked about, if copper prices stay relatively stable. We should see a majority of this copper headwind from a timing perspective that we saw in Q1 work its way through the system kind of by the end of Q2, beginning of Q3. So we would expect margin progression. The other thing is, of course, you know from our business that when we have higher volumes as we expect in Q2, Q3 and Q4 had a 23% contribution margin, that also enhances of course, our overall margin. So I would say -- when we think about the guide that we have kind of the midpoint, say, at 10.7% adjusted EBITDA margin for the full year, I would say, as we progress probably 2/3 of that would be additional volumes that we expect in coming quarters above kind of our current run rate, maybe 1/3 of that would be related to this copper escalation as well as additional performance initiatives that will offset some of the headwinds that are a natural part of our business. Joseph Liotine: And maybe just to support the comments made by Doug, if you look at what we did in Q1, and maybe what we did operationally in 2025 in terms of improvements, we're essentially just continuing some of these things on the revenue side, the mix side and operational improvements. Obviously, the commodity side is a little bit more nuanced. And so there isn't a big change in business composition to achieve that. It's more a continuation. Emmanuel Rosner: Okay. Just one quick clarification, and then I've got another question, but Doug, when you're saying that by end of Q2 and start of Q3, most of it would basically be an offset. Do you mean that the entirety of the net headwind that we saw in Q1 would already be recovered sort of like by end of Q2, beginning of Q3 or that this is when it's no longer a headwind and then you have to recover it in the second half? Douglas R. Ostermann: Yes. If the copper prices stay relatively stable, what we would see is the escalation that's built into the contracts, we'd see the commodity portion of the headwind, right, work its way through. Today, it's just in our cost, but it would join -- go into our revenue as the contracts escalate the pricing, right? And so what you're left with is really just a little bit of dilution to margin, which should be relatively small overall from the higher copper price. But majority of that headwind would have worked its way through. Emmanuel Rosner: Okay. And then just coming back to the color you gave and Kevin gave about this GM business and I think a lot of the fair points that you've highlighted. I think one of the things Kevin was saying was, hey, this is a sort of build to print type of business, sort of like lower margin. Can you clarify from a strategic and focused point of view on a go-forward basis. Is that still sort of like attractive business you're looking to win and capture and continue to grow? Or is there sort of like also a strategy, which is to sort of like refocus on a more profitable part of the business? Joseph Liotine: Yes. So I think it's a great question. I think if you come back to what we've talked about is our competitive advantage and what we've demonstrated over a long period of time, that really stems from engineering expertise. And I'd say a tool suite that's proprietary from an engineering standpoint. So we certainly want to gravitate toward the things that are most complex towards the things that are most innovative. So that's true. And maybe it's a bit of a bias in our strategic approach for sure. Having said that, we want to win all the business we can, in many cases. So I wouldn't say it was necessarily us deselecting but there is a bit of a natural bias for us. And sometimes, we're willing to do things a little more or a little less based on the margin profile that's certainly a consequence there. And so what Kevin was trying to share is "hey, this is a little bit of the more basic things. And so it's not going to have the best margin and characteristics like that." Having said that, we do a lot of that product as well. So I don't want to make it sound like we never do that because that wouldn't be accurate. But we certainly have a bias to the biggest, most complex and that will remain going forward, for sure. Operator: Next question will come from the line of Colin Langan with Wells Fargo. Colin Langan: This morning, I think Aptiv said that commodities were about a 50 basis point margin drag relative to their expectations. I assume you were using a similar assumption on raw materials. So you were able to hold the guide. So how much worse was commodity and what are the offsets that you were seeing that enables you to hold the guide? Douglas R. Ostermann: Yes. Thanks for the question. I think when we look at the 50 basis points. That's really the portion of the commodity activity that has been built into our pricing and our cost now. So that -- when you look year-over-year, right, there is some copper movement that happened prior to Q1 that has now worked its way into our contracts. It is in our revenue line. It is also in our cost line, but there's no margin associated with that. So it has a bit of a dilutive effect, right? That's the 50 basis points that we talked about. The more important headwind is when we have it built into the cost as we saw the rapid rise in copper in the first quarter, right, that builds into our cost, but has not worked its way into the escalation of the contracts yet. We expect that to happen in the -- majority of that to happen in the second quarter, right? And that headwind then will be significantly reduced. So if you look at the kind of 210 basis points that we talked about for FX and commodities, in the chart on the adjusted EBITDA walk, about 2/3 of that is commodity related. Once that's passed through, that will drop to like 20 basis points, that portion of it. So -- in terms of just dilution, right, from the revenue being higher. So it's a headwind that is transitory and temporary in nature because of the way we've structured our contracts but it needs to work its way through the system. And I think it's important of us to understand the margin profile in Q1 versus what we expect for the rest of the year. And really, as it works its way through, that's why we're still very confident in being able to, of course, meet our margin projections for the full year. Colin Langan: I guess just a follow-up on this. Shouldn't this have raised your sales, the higher copper pass-through going through revenue and dilute your margin. I guess I'm trying to understand what maybe the offset would be? And is -- I guess, on that, is production lower now then? Is that the offset that higher copper and more lower production? Douglas R. Ostermann: No. I mean when we get higher copper and it passed through the contracts, of course, it raises the overall margins -- sorry, it raises the overall revenue picture. And that's why we typically will talk about this adjusted growth on revenue, where we adjust out the commodities and FX to give you an idea of kind of what is the organic growth, and that's the 3% adjusted figure that we talked about in the call dialogue earlier. So that's really the driver in terms of this kind of enhancement to revenue. Now once that -- as I said, once it moves from our cost to also being in the revenue line, those equal each other out, but there's no margin on that piece of it. So it's a bit dilutive because the divisor being larger, right, in terms of the overall revenue picture. But really, the key to understand the commodities exposure, I think, is to understand that 75% of our contracts have escalation in them. The other 25% we hedge on a 2-year horizon. So we do have coverage for this. It just takes time to work through the system. Colin Langan: Okay. If I look at Slide 11, you had really strong net performance of $31 million. And if I look at the Aptiv slides from this morning, they actually said something about favorable commercial. Is some of that a commercial settlement in there that's helping that? Or is that the run rate we should be thinking about for the rest of the year? It seems quite helpful. Douglas R. Ostermann: Yes. Really, what you're seeing in that performance of -- positive performance of $31 million is materials performance. I talked a little bit about this in the dialogue. So materials performance that is negotiation with our suppliers. And importantly, value add and value engineering done by our engineering teams. And this is really a big differentiator that Joe has talked about many times about the value that our engineering teams are adding to our customers' products. And really that material performance as well as some manufacturing productivity and things like that, are outweighing the labor economics and some of the mix that we see within the net performance figure. So positive number overall this quarter. And we expect to have further gains in that category as the year progresses. Joseph Liotine: Yes. And just as a build, a little bit to my comments earlier, we had demonstrated that ability in full year 2025 as well. Much of that came out of North America, we will continue those efforts because we believe there's more value across the globe to continue that. And hence, that's part of our story as we talk about a 2-point margin improvement over the next couple of years, so part of that is the operational improvements along the way. Colin Langan: Okay. But there's no -- because I think the Aptiv slide said favorable timing of recoveries was a help. So we shouldn't expect that there's a one-off nature in this number and that it maybe softens the rest of the year because there was some one-off recovery. Joseph Liotine: Yes. No, I would think of it as a relatively clean quarter in terms of income or profit. We did have obviously some onetime events related to the restructure or the separation. But from a profit standpoint, relatively clean quarter, nothing lumpy from a recovery standpoint, nothing that would subtract from Q2 to Q4. Operator: Next question will come from the line of Itay Michaeli with TD Cowen. Itay Michaeli: I just wanted to start off to talk about kind of growth over market or your outlook there for the rest of the year. I think Q1, you were about roughly 5 points above market. It sounds like the guide for the year is more like 3. Maybe just talk about the puts and takes of how we should think about the rest of the year and maybe -- whether there's any kind of upside potential to that? Douglas R. Ostermann: Yes. I mean I think you're exactly on when you're looking at kind of our growth above market in the first quarter was pretty strong. And really, I think some of the positives we saw in the first quarter, as you saw from the regional detail that we shared was we kind of over-indexed with some of the customers in China who are very focused on export and frankly, outperformed some of the volumes that we had assumed in the budget and business plan. So some nice upside there that may or may not continue through the year, but right now, has been pretty strong. I would say when we look at kind of the overall growth. You're right. When we look at the way the market is expected to progress in terms of volumes, we would need to run at just a couple of percent above market growth to be well within the range of the guidance that we provided from a revenue standpoint. So that's -- we feel pretty comfortable that right now, given the outlook. And we have pretty good visibility, of course, on schedules in Q2 at this point. So we feel pretty comfortable reaffirming our guidance. When we look at puts and takes, of course, there are a couple of things to keep in mind as the year progresses. One, we've talked about whether commodities will kind of stabilize or continue to move around. Now of course, that's something that we're used to and that we deal with on a regular basis. But that could impact kind of the cadence from quarter-to-quarter. We do have some very significant launches this year. It's a big launch year for us. So as you can imagine, our team is laser-focused on execution this year, a very important year for some big launches. Of course, the macro impacts, as everybody, we're focused on all the geopolitical events and whether there could be knock-on effects on overall vehicle demand among our customer groups. And then I would just say, really taking a look at our plans and really being focused on controlling the controllables. So the things that we execute on daily, our team is going to deliver day in, day out, and that's really where our focus is. But when you ask any kind of puts and takes, those are kind of, I think, the big hitters that I see. Itay Michaeli: Very helpful. And then just to ask 2 quick follow-ups. First, it looks like kind of the gross incremental margin was more like 30%, just looking at the volume on EBITDA versus revenue. I'm curious if that potentially could be sustainable as well? And second, on the bookings in Q1, I think that was up year-over-year, but curious just any thoughts there and any perhaps target to share for 2026 for bookings. Douglas R. Ostermann: You're just comparing the EBITDA contribution from volume of 20 over the 66 volume? Itay Michaeli: That's right. Douglas R. Ostermann: Yes. I think that's pretty much in line with the 23% that we typically quote as our contribution margin. So I don't see -- it's maybe kind of right in that range. Sometimes, there can be some smaller recoveries or things like that impact the number a bit, but... Joseph Liotine: A little bit of mix in there as well. We did have favorable program growth in North America and a little bit on the export side. So a little bit of mix in there as well. Itay Michaeli: Got it. That's very helpful. Joseph Liotine: And the second part of your question was? Sorry, then back to bookings. Yes. So we did have a good Q1, frankly, exactly on plan. So we feel good about the bookings progress, and we feel good about the full year revenue forecast, as Doug shared just a few moments ago. So from that standpoint, I'd say exactly on track. Operator: We'll now go to your next question coming from the line of Tom Narayan with RBC Capital Markets. Thomas Ito: This is Thomas Ito on for Tom. So we've been seeing some improving electrification trends through Europe recently, especially with like hybrids and EVs, given the elevated energy prices. Can you just help us understand whether that's translating into any potential increased demand for your high-voltage portfolio? Joseph Liotine: Yes. So as it pertains to EVs, both hybrid and full battery electric. I think it's important to understand and remember that all BEVs have low voltage and high voltage. And all hybrids have both low voltage and high voltage. And so oftentimes, people maybe take a shortcut, assuming high voltage is just BEV. But a lot of the content on a BEV is low voltage. And so what I would say is we are seeing some of those trends. They vary a little bit by region, a bit more hybrid in America, a bit more BEV and maybe a lot more BEV in APAC, specifically China. And so as we've shared in other discussions, it's about a 50% increase of content for a hybrid and greater than a 70% increase for BEV. So as those trends continue, they also happened in unison, right, they always happen together with more autonomous, more connected and more features. So those things are all kind of moving at the same time. And so as that continues, we do think vehicles get more complex, architectures get more complex and the content per vehicle generally moves in those kind of heuristic trends. And so that is going to be beneficial if they continue to move maybe more than people expected. Thomas Ito: Okay. Got you. Very helpful. And then as a quick follow-up. So on your APAC growth and maybe specifically to focus on China, are there any updates you can give us on maybe your overall exposure to the Chinese OEMs versus some of the global OEMs? And maybe is there like any target percentage of APAC revenues coming from the Chinese OEMs? Joseph Liotine: Yes. So for us, strategically, and this is true across every region, our goal, our aspiration is always to match the market with how the market is constructed. And then after that, what we do is we layer in our strategy and our strategic filters. And what that does is there's a natural selection toward more complex vehicles, as we talked about a little bit toward things that really fit for us. And so the China market, in particular, has greater than 110 or 118 brands. We don't necessarily need to match 118 or 110. So we picked the ones that kind of really have the right volume, have the right complexity, we think are most sustainable. We biased toward the OEMs that do a lot of export and they also want to localize in other regions because, again, as a global provider, we're a very good partner as they want to do those things. And so as we look at that, we're continuing to increase our local Chinese OEM share, and that's been true for the last couple of years. And I think we've shared publicly in 2025 greater than 75% of all of our bookings was with local Chinese OEMs. So essentially showing the trend, showing our competitiveness and our credibility in that market, and that will continue. But again, we will look to match the market but with our strategic filter in place as well. Operator: Next question will come from the line of Edison Yu with Deutsche Bank. Xin Yu: Great. Congrats on the first quarter out. I want to come back on the growth. Is there anything you can kind of break down the growth for both the quarter and the full year for your expectations for high versus low voltage? Douglas R. Ostermann: So yes, as we talked about, growth in the first quarter, year-over-year was 9%. Once we adjust out the FX and commodities, we're roughly at 3%. When we think about growth over market, the market was down 2% or 3%. So growth over market, probably 5% to 6% overall in the first quarter. When we look at our outlook and the guidance that we've reaffirmed, if we look at the step up in volumes, it's just part of the seasonality of the industry, right? We see volumes growing significantly as does IHS in Q2, Q3 and Q4. And really to hit our guidance, we would need to run at just a couple of percent above that, which is typical for us from a revenue standpoint to run a couple of percentage above just a standard vehicle production growth. So that's really where we need to run. It's just a couple of percentage above market growth. And then in terms of electrification mix, Joe, I don't know if you want to take that. Joseph Liotine: Yes. I would say continue growth there kind of with the market, nothing unique about the composition of our revenue in Q1 that was different than the market trends, again, different by region. So weighting that to our business in the region, but within region, fairly consistent with the IHS trends on electrification. Xin Yu: Got it. And just a follow-up on China. Anything you can point to in terms of the dynamics there, whether it's on high voltage versus low voltage or on the growth over market going through the rest of the year? Joseph Liotine: Just generally, I think what we saw, I would say, really in the back half of last year in 2025 in terms of trends, in terms of the export volume, in terms of electrification and BEVs specifically, less so on hybrid. Those trends continue, frankly, even accelerated a little bit in Q1, export in particular, I think as that local market has a bit more downward pressure. There on the market, you're seeing the export and the localization dialogue increase from the local Chinese OEMs and, frankly, from the global OEMs who are based in China. And so I think thematically, that's probably the biggest move in the last 6 or 9 months is that how will that dynamic play out? How long will those export trends happen, how much localization will happen in EMEA or South America or elsewhere. That's probably the biggest new news that really is kind of maturing. Operator: We will now go to our next question coming from the line of Steven Fox with Fox Advisors. Steven Fox: I had 2 as well. I guess, first of all, I just was wondering, structurally in terms of passing through and then recovering higher copper costs. Is it -- is this industry standard sort of here to stay? The reason I ask is because I know in other industries like network and cable, the recovery can be like within a month. So what's the prospects for sort of improving on that recovery time? And I don't know if it has improved over the years. And also, just can you address how you're hedging as well? And then I had a follow-up. Joseph Liotine: Maybe I'll start with some of the contract and strategy and then Doug can complement on the hedging approach and strategy as well. I think on the copper, whenever there's big changes, everyone kind of wants to reevaluate the structure of everything as they should. So the context is quite different. We've not seen necessarily the amount of movement in a small window of time that we've seen in the last let's say, 6 or so months. So maybe there's going to be some changes that come. I would say there are some differences already by region, and there are some differences already by customer. And so it's really thinking about if the context is going to be a bit more dynamic, are there better mechanisms to do this, both from the supply standpoint as well as the customer standpoint, because those need to be kind of done in unison. And so I would say, reevaluating some of those things. We'd obviously like less gap, less lag and some of these things. And so we'll see if anything changes. Part of that has to do with negotiation with customers. And then by region, there's different nuances as well. So I would say that's more an open question than it is maybe a commitment that something is going to be different in the future. But when there's times change, we should probably reevaluate and say there are better way to do things. So that's going to be more on the contract strategy side, and I'll turn it back to Doug on the hedge strategy side. Douglas R. Ostermann: Yes. On the portion that -- where we don't have escalation built specifically into the contracts, for that roughly, say, 20% to 25% of our overall copper buy, we do hedge that position through the financial markets. We hedge it typically on a 2-year horizon, we kind of leg into those positions over time. So it basically kind of delays the impact of the copper move on our financials and gives us time, frankly, to have some discussions with those customers about the impact that it's having on the cost structure of the products that we provide to them. And that those conversations are pretty transparent. I mean our customers understand how much copper is in their product. We can -- obviously, the indexes are easily observed. And so those tend to be pretty transparent and productive discussions. But the hedging obviously gives us some time to have those conversations and then work out the proper adjustment. Steven Fox: Great. That's helpful. And then just as a follow-up. I know build to print is not a big portion of your revenue base. But, I guess, how do we think about it? Is it a necessary evil to maintaining these customer relationships? Why can't you sort of move entirely away from that and focus more on where you have design control and can make a better margin? Joseph Liotine: Yes. So to your point, about 25% of our revenue is non-influenced design. It's not necessarily synonymous with build-to-print because there are instances that, that are somewhere in the middle. And I think what I would say is, we obviously do those things today and we do them for a reason. And there could be very complex build-to-print architectures that still fall into what we think are important and still can drive quality improvements and other design improvements along the way as we see them. So to me, it's not as simple as build-to-print or not. What's more critical is it's complexity and the value we can drive along the way. It's just common though that some of the more basic, simpler, shorter, smaller harnesses end up being build to print. Because there isn't much to solve for. So -- but they're not exactly synonymous. I would say, we evaluate things based on our criteria, value creation, our ability to really make a better product for our customer, even more, even better. And then sometimes there's some consequences where build-to-print product just doesn't meet our criteria and they fall out or we don't necessarily bid or maybe we don't necessarily win in some cases. And I think that's okay. Our goal is not to win everything. Our goal is to win the most value-creating businesses and support our business behind that, where we're adding the most value to customers. Operator: We'll now take your next question coming from the line of James Picariello with BNP Paribas. James Picariello: Hi, everybody. So I want to ask about the free cash flow for this year. So $250 million at the midpoint, the $70 million of separation costs go to 0 for next year. Is that right? And then is your restructuring cash spend also running elevated this year as well. Just any color on that amount for this year and the normalized run rate would be great. Douglas R. Ostermann: Yes. So I can give you some perspective on that. We did talk about restructuring -- onetime restructuring expenses of about $70 million for the full year. Our -- sorry, onetime separation expense of $70 million for the full year. Those expenses really in the first quarter were right around $26 million within the cash flow. So we're kind of a little bit higher run rate than the $70 million. But we really, as I kind of outlined, expect those to decline over time. So we feel like we're pretty much on track for the $70 million that I mentioned. We do expect those to drop in about half that number for next year and then disappear altogether. So onetime total between the 2 years of about $100 million, but constantly declining from kind of the $26 million that we saw this quarter. And then if we look at restructuring, some years is higher than others, tends to be kind of lumpy. This year, we did talk about the fact that restructuring would be kind of higher than normal right around the kind of $100 million range. And we saw roughly 1/4 of that kind of in the cash impact, about $26 million, $27 million in the cash flow this quarter. So I would say right on track. I would say the other thing to recognize when we look at year-over-year cash flow is that last year, we had a relatively low level of CapEx spending for this business. So last year, when I look at the CapEx, we only spent about $160 million. This year, we've talked about kind of 3% of revenue right around the $240 million range. So you should expect kind of that $80 million difference to play out over the quarter. So roughly say, $20 million more per quarter. And because of the launch expenses, this quarter, we were more like $30 million more than a year ago first quarter. So that's really, I would say, back to a more normalized level of CapEx. But in terms of go forward kind of more normalized rate, I think like I said, next year, you'd see that $70 million drop into about half. We don't have a full restructuring plan for next year, but I think this year will be kind of unusually high. So I would anticipate that, that may come down as well a bit. And then in terms of cadence, I think your second part of your question was kind of cadence throughout the year. I would just say that if you look at our history, typically, we're ramping up from kind of the seasonal downtime with our customers at the end of the calendar year in the first quarter that tends to be an outflow of working capital. We typically also see a step-up in use of working capital second quarter. Third and fourth quarter is really where we see the stronger cash generation typically. James Picariello: Perfect. No, that's really helpful. And then just to go back to Colin's question, maybe it's addressed in other questions as well. But on the full year FX and commodities margin dilution, right, the first quarter combined, it was 260 basis points dilutive, right, which speaks to the great underlying profitability that you guys showed in the first quarter. Is the full year expectation still at that 50 basis points dilution target? Or is it running a little heavier with some offsets? Douglas R. Ostermann: Yes. I think if commodity prices stay roughly in the range where they're at today, I think we might see another, say, 15 to 20 basis points of headwind as we work it into the revenue picture. So you're talking about total headwinds from just the larger revenue base of maybe 70 basis points overall. But we do feel like there's a real opportunity to offset that. And so we are still holding our guidance at the 10.7%. We have a lot of productivity initiatives that we're working on. We feel pretty good about the margin outlook as volumes increase later in the year. And we think that the 10.7% that we've guided towards is still very achievable. Operator: Your final question is coming from the line of Dan Levy with Barclays. Dan Levy: I wanted to ask more of a strategic question. And sort of in light of the copper prices that continue to go up and could just be structurally going up. You're 75% pass-through. Now we've also heard that on the performance side, you've talked a lot about automation. I guess the question is, where are you on the automation journey? How much more is there to unlock on automation? And is that effectively sort of the structural hedge against the higher copper prices that as it just becomes more expensive, you're going to lean more heavily on the automation side? Joseph Liotine: Yes. Good question. I think of it slightly differently. The automation side is more of a natural hedge for labor wage inflation because we're able to essentially do the work differently, and as a consequence, have less direct labor. So I think that's more the natural hedge. The copper side of things is more on engineering design, engineering optimization, potentially substrate and metallurgy changes. We can do with aluminum or other things. So that's more on the technical side for copper because you're really changing the product and the characteristics of the product have to meet performance requirements about thermal and peak and other things, whereas the automation is changing how we construct the product, not the product itself. Hence, it's more of a labor wage hedge. It's maybe the simple way to think about it, not perfect, but simple, I think. Dan Levy: Right. And so where are you in that journey on automation? Joseph Liotine: Yes. So I would say we've made a lot of progress. Most of our progress stems in our China model in plants. And so we've done a really good job there. We have essentially a strategic approach on how to tackle it. We have a lot of really productive ideas that we think have really short paybacks. And so we're really kind of amplifying that work and that scaling. And so that's one of the things, as we look at what conversion do differently and better as a separate stand-alone company. Frankly, capital deployment is one of the big value creators and part of our thesis to really fund these ideas that improve our operations that likely have a benefit to margin, as we talked about, 0.5 point over the next couple of years of the 2-point improvement. And then, frankly, quality and other benefits on top of that. So I think that's what you really see to date. We've made progress globally, but specifically, and maybe most in China and really our plan for the next couple of years is to accelerate that scaling throughout the globe because we think they're quite good in terms of payback standpoint. Dan Levy: Great. And then a follow-up, again, another strategic question. It was asked earlier on build-to-print and that on the flip side, 75% of your revenue is highly engineered. Can you maybe talk about where the booking trends are, especially as automakers are starting to revisit some of their architectures. How is that impacting that 75% rate of highly engineered versus 25%, that's a bit more sort of base content build-to-print? Joseph Liotine: Yes. So obviously, the world is getting more and more complex and so these architectures are getting more and more complex with it. So no matter what people would like to do, there's the natural practicality of sometimes you need to help to get these complex solutions to be more optimized. And 5 years ago, I think it is, we were 20 points less revenue that were -- it was influenced by our engineers than we are today. So the trend in the last 5 years has grown dramatically. We were at about 50, 55 points, and now we're at 75 points of revenue. And I expect some continued appreciation there, but it's not like we're going to go to 100%. There's lots of reasons for that. But I don't see it going or reverting back towards the 50% anytime soon either. And then as we enter adjacent markets, I think those needs are the same. If you think about autonomous, remote diagnostics, connectivity, all these complexities are absolutely growing in those areas as well. And so that need for technical expertise that need for joint development, predevelopment, I don't see that going dramatically different than where it is today. It might not increase to 100%, but kind of where we are today feels like a pretty good equilibrium what we're seeing in the future. I have no reason to believe it's different than what we're doing today. Operator: And it appears there are no additional questions at this time. I will now turn it back to Joe for closing remarks. Joseph Liotine: Great. Thank you. Thank you all for joining us today and for your interest in Versigent. On behalf of our entire leadership team, we're pleased with the execution and progress delivered in the first quarter and remain focused on building on the momentum as we move in through 2026. We look forward to sharing further updates with you next quarter. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Mirko Hurmerinta: Good morning, everyone, and welcome to Sampo Group's Conference Call on the first quarter '26 results. My name is Mirko Hurmerinta, and I am the Interim Head of Investor Relations at Sampo. I'm joined on the call today by Group CEO, Morten Thorsrud; and Group CFO, Lars Kufall Beck. The call will include a short presentation by Morten and Lars, followed by Q&A. A recording of the call will later be available at sampo.com. With that, I hand over to you, Morten. Please go ahead. Morten Thorsrud: Thanks, Mirko, and very good morning, and welcome to the Sampo Q1 conference call on my behalf as well. Sampo had an excellent start to 2026 with continued strong operational momentum in all our segments, both in the Nordics as well as in the U.K. We delivered strong underwriting results, supported both by cost ratio improvements and favorable underlying risk ratio development. Our balance sheet remains robust in a somewhat volatile financial market, and we are increasing our full year guidance for the underwriting result as well as launching a new EUR 350 million buyback program. But starting with the top line. Our insurance revenue increased with 8%, fueled by excellent GWP growth over the last 12 months. Reported GWP for Q1 isolated is a bit softer, however, largely affected by a mix of different factors, which I will cover more in detail shortly. Whilst the underlying trends continue to be highly supportive. On the claims side, the Nordics saw a wintry start of the year, followed by an early spring and markedly more benign conditions towards the end of the quarter. This led to better claims outcome being more favorable than we had anticipated at the beginning of the year. Driven by robust operational momentum, favorable claims experience and continued positive underlying development, our underwriting results increased by 9% on a like-for-like basis. Our operating EPS strengthened by 19%. This was driven by higher underwriting results, but also supported by certain technical factors related to currency hedging. Over time, you should expect an operating EPS that is more in line with the underwriting result growth. I also would like to highlight the resilience of our balance sheet amid elevated market volatility, which Lars will elaborate on later in this call. On top of this, I would like to emphasize our reserve strength, where our prudent approach allows us to expect that we could cover the negative effects from the Danish workers' comp case within our existing reserves. Following the favorable start of the year, we have raised our financial outlook for 2026 and at the same time, enabled by our strong balance sheet, we have announced a new EUR 350 million buyback program. Let's take a closer look then at our different segments. Starting with the largest business area, Private Nordic, where we saw a continued strong top line growth of 6%, supported by positive development in all countries and product lines. Norway continued to stand out with 13% growth, largely driven by rate increases. We also saw strong development in Finland, driven by an increase in customer count and new sales growth. In Sweden, the soft new car sales continue to be a drag on our white label motor insurance. However, our If branded motor portfolio continued to develop well, and we saw 10% growth in the quarter. In the U.K., the motor insurance market saw a modest increase in prices during the quarter. However, overall, the market remained competitive but rational. We continue to find pockets of growth, which translated to 3% policy growth over the quarter and helped to offset the effect from lower average premiums. I would say that the market in the U.K. is still in a wait-and-see mode, and our focus remains on underwriting discipline and securing the portfolio quality, which has translated into our stable and strong margins during this somewhat softer part of the pricing cycle. Moving to corporate business lines, where the competition landscape is a bit more mixed. The SME portfolio, which represents the majority of Nordic Commercial, continued to see good top line growth of 4%, fell in line with Q1 last year and supported by digital sales and increase in the number of customers. On the large corporate side, on the other hand, the market environment is more price sensitive. This affected Nordic Industrial as well as the upper part of Nordic Commercial, where we did lose a few larger clients. However, both corporate segments reported strong underlying margins, and we saw another quarter of favorable large claims outcome, partly supported by the derisking actions that we've done to reduce the large property exposure. Here, we also benefited from lower reinsurance prices at the first of first reinsurance renewal. Moving to Topdanmark and the integration. After faster-than-expected synergy realization in 2025, we have now updated the phasing of the Topdanmark synergies. We have almost doubled the expected outcome for 2026 and now expect to achieve a run rate of EUR 105 million for this year and correspondingly EUR 125 million in 2027. We remain firmly committed to reaching at least the EUR 140 million target by end of 2028. Going forward after 2026, we expect synergy realization pace to be more stable as we shift from more corporate center synergies towards more operational benefits. Before letting Lars dive into the financial results and the balance sheet, let me make some few remarks on the inflationary risks related to higher oil prices caused by the disruptions in the Strait of Hormuz. Firstly, our operational exposure to the Persian Gulf region is, of course, very limited and zero exposure to Iran. In the Nordics, claims inflation continued to come down over the last 12 months, but is still a bit elevated in some countries and with notable variations between the countries. In particular, Norway continues to see higher claims inflation. We naturally carefully monitor any potential uptick in claims inflation and remain disciplined in pricing. In the short term, inflationary risks from this situation primarily affect motor insurance due to higher freight cost for spare parts. The property sector, on the other hand, is more labor-intensive and less affected short term. Our scale and diversified profile with long-term agreements with suppliers, repair shops, and other partners help us control costs and to take early actions on the pricing side whenever needed. In the U.K., the inflation risk is somewhat higher, both as a result of our business mix as well as a result of larger exposure to total losses and bodily injury losses. Consequently, our pricing in the U.K. already factors in an expected uptick in inflation. So with that, over to Lars. Lars Beck: Thank you so much, Morten. And talking about our investment returns. As you know, the first quarter was very volatile in the capital markets, and it was actually somewhat unfortunate that uncertainty peaked right at quarter end. Of course, our investment portfolio is not immune to market volatility. And in particular, the flattening of the yield curve, where the short end increased more than the longer end impacted our results negatively. However, if you take a closer look at the drivers behind the investment returns, you will see that our negative investment income was primarily driven by our legacy assets, NOBA and Nexi. Excluding these, our investment return was broadly flat in a quarter of significant uncertainty and volatility. Meanwhile, our portfolio continued to provide a stable interest and dividend income. And thanks to our relatively short duration on the fixed income side, we are now able to benefit from the increase in interest rates by reinvesting at higher rates. Turning to our balance sheet. I'm very, very pleased that amid all of this volatility, our solvency remained robust, underscoring the strength and resilience of our balance sheet with low sensitivity to various market shocks. Excluding NOBA, which had a net positive effect on solvency, market movements had only 4 percentage points negative effect on our solvency for the quarter, more than offset by the continued strong operational performance. In late March, we received the approval from the Swedish FSA to extend the partial internal model to cover our Danish operations that formerly were under Topdanmark. This had around a 6 percentage points positive effect on solvency in Q1. And yes, including our U.K. operations is the next phase from an internal model point of view, but that will be a longer project as it means extending the model into a new market. It does require more data, use case experience, et cetera, et cetera. Our strong solvency and balance sheet, of course, allows us to continue delivering attractive capital returns. As you can see, there's two accrual bars in the chart. The first one is the regular distribution accrual. And starting from Q1 this year, we are deducting a full 90% of our quarterly operating results as distribution accrual following the update of our distribution policy. This reflects the commitment to return around 90% of our operating results through regular dividend and buybacks to shareholders in a typical year. The second bar is the new buyback program, EUR 350 million that we announced today. Of this, approximately EUR 250 million is based on the 2025 operating result and EUR 100 million on the proceeds from the NOBA sale we did in February. With the latter, we have now delivered half of the up to EUR 500 million communicated at the last CMD, in terms of distribution from legacy assets. And we are, of course, remain committed to deliver the other half, but timing, of course, depends on the NOBA sell-down process. Then finally, before I hand back to Morten, some words on the Danish Supreme Court ruling on workers' compensation last week. I'm sure that you're all well aware of the ruling by now, so I will not recap the background of the case. Firstly, this is, of course, an adverse outcome, not only for the Danish insurance industry, but also for the state and municipalities in Denmark, which are self-insured. Sampo, in line with the industry, expects the state of Denmark to take responsibility for the retrospective financial consequences. Regarding the potential impact on Sampo, disciplined risk management is in our DNA, and this applies also, of course, to our reserving practices. For many years, a significant part of our reserves for Danish workers' comp has been allocated to what we call our ENID reserve, which stands for Events Not In Data, to cover for exactly this type of risk and exposure. We have established a number of scenarios for the impact of the ruling and continue to analyze it. Our current best estimate based on our conservative assumptions is that the potential impact on Sampo is expected to be covered within our existing reserves. And hence, we do not need to book an additional provision for this, meaning the effect on net profit and solvency is naturally expected to be limited. And our financial outlook, which was raised today, remains unaffected from the ruling as well. So with that, I hand back to you, Morten. Morten Thorsrud: Thank you, Lars. As mentioned, after an excellent start of the year, we have raised our financial outlook for 2026. We now expect 6% to 8% insurance revenue growth with an updated range from EUR 9.6 billion to EUR 9.8 billion and a 3% to 9% underwriting result growth with an updated range of EUR 1,525 million to EUR 1,625 million. The increase in underwriting result outlook is mainly attributable to better-than-expected weather and large claims outcome in the first quarter. To sum up, our performance in the first quarter provided a solid foundation for attractive value creation for 2026, which is also the last year of our current strategic period. Therefore, we have now circled 17th of November in the calendar for our investor update. And I look forward to updating investors and analysts on our financial and operational ambitions for the next strategic period. Mirko Hurmerinta: Thank you, Morten and Lars. Operator, we are now ready for questions. Operator: [Operator Instructions] The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia, your line is now unmuted. Please go ahead. Mirko Hurmerinta: Next question and get back to Vash in a moment. Operator: The next question comes from Youdish Chicooree from Autonomous Research. Youdish Chicooree: My first question is on the top line development in the Nordic segments. Obviously, in Private, the growth is still solid, even if lower than last year. But in Commercial, there has been quite a big step down, and you mentioned the loss of a few large clients. I was wondering if you could comment on the competitive environment who are the competitors and what is the outlook for the segment? That's my first question. Secondly, on the U.K. market, you described the pricing environment as rational in Q1. But to my mind, rational pricing would have been price increases that match inflation at least, so 5% or more. So can you elaborate exactly what or why would you say the market is rational currently? And again, if you could just tell us a bit about what are your expectations for the coming quarters? Morten Thorsrud: Yes. Good. I'll try to answer these two questions. First, on top line in the Nordics. Yes, we continue to have a really excellent performance in the Private segment, 6% growth, 7% if you exclude the headwind that we still have from the white label motor insurance in Sweden. On the SME side, also good development, 4%, roughly in line with what we saw last year, where we had 5%. And then we did see some loss of larger customers in the upper Commercial and Industrial. This is, as I would say, sort of just normal volatility. I mean, sometimes you win a few large customers, sometimes you lose a few large customers. On the large corporate side, some of these losses are more on a gross level than net. So we actually have a much better net written premium development than gross written premium development in the Industrial segment. And then one should also bear in mind when looking at reported gross written premium that this reflects in a way, renewal patterns. And a very large part of the Industrial book is being renewed in the first quarter, very large part of the Commercial book, in particular, upper Commercial book is renewed in the first quarter. Which means that you kind of technically a little bit of a drag in the beginning of the year, whilst the areas where we see strong growth, Private SME is more renewing throughout the year. So there are also some effects like this, that makes Q1 a little bit soft on the outset. To the U.K. market, yes, it's rational, and that includes also slight price increases. I think as I said in my introduction, it's probably too early to say that it has changed totally, but we definitely see slight price increases. And Hastings is also now gradually including more pricing for inflation and is able to get that through in the market. So, a slight positive development, I would say, on that front. Operator: The next question comes from Hans Rettedal Christiansen from Danske Bank Markets. Hans Rettedal Christiansen: Just firstly on the sort of better or the very good results this quarter on weather, could you just explain, is it sort of frequencies that are more favorable? Or is it the claims mix that has been kind of better than budget for the quarter? And then secondly, on your premium growth in the Private Nordic segment. I guess it's still at a very high level, but trying to understand the step down on perhaps private property and also on motor from the previous quarter and from 2025 and sort of how we should think about that developing here going forward? And just relating to that question, you had a very interesting chart on Page 11, I think, in the presentation where you're showing the average motor repair costs across the countries. So I was just wondering if you could kind of touch upon that one against the sort of pricing as well on the Private Nordic segment. Morten Thorsrud: Yes. I'll see if I manage to answer these ones as well. When it comes to weather, I guess it was a little bit surprising, I mean, given how harsh the winter was and definitely felt in January and February. It was a very cold winter in the Nordics. But it was also very stable winter. And typically, it's more when you have large variations in weather that you see an uptick in claims frequency. So what we've seen is that the frequencies are more benign than what we expect in a normal winter. And then also the winter came almost overnight, and it also disappeared almost overnight. So March was a very benign month from a weather perspective. Then, of course, on top of this, also a positive large claim outcome that is, of course, also driving a favorable underwriting result development. On the Private Nordic growth, yes, we continue to see good growth momentum. And as I said, 6%, 7%, excluding the white label insurance in Sweden. And that part, of course, is what's driving down also the growth in motor overall a little bit. And then I think looking at growth on property and motor on a quarterly basis, it can always be a little bit of volatility. Then, of course, price increases in motor has clearly been more elevated than price increases in property, partially because you have repair cost of repairing new cars being higher than for, sort of, the somewhat older cars. So there's more inflation elements, I would say, into the motor market than in the property market. And then repair cost and inflation per country, the country that really sticks out there, I guess, is Norway, where inflation has been clearly elevated over the last few years even. Of course, underlying inflation in Norway is higher than the other Nordic countries. Wage increases in Norway is higher than in the other Nordic countries. But then also the share of new electric vehicles are higher in Norway than in other countries. And again, this technology development in cars makes it more expensive for us to repair cars and again, is increasing the underlying inflation in a way in the motor market. So that's perhaps some comments on repair cost or sort of rather inflation in the different Nordic markets. Hans Rettedal Christiansen: And just as a follow-up, could you perhaps say what the Y-axis on that chart is, to get an understanding of what the sort of inflation is that you're expecting for 2026? Morten Thorsrud: That's just inflation in percentages, and we kind of are careful sort of not disclosing the exact percentages. I think it's something that we look upon as information we would like to keep for ourselves and not share with our competitors in particular. It's sort of estimate of inflation in the different countries. Operator: The next question comes from Vinit Malhotra from Mediobanca. Vinit Malhotra: So my 2 or maybe 2.5 questions, let's say, is firstly, on the weather, the encouraging comments you made about frequency and how the weather was not so bad eventually. I'm just wondering if given -- I mean, sometimes weather also affects frequency, as you mentioned, should the underlying loss ratio not have been a bit stronger then because -- or was there something else, when we noted the 20 basis points year-on-year improvement in the underlying loss ratio in Nordics. I'm just curious if there was something else that you think is worth flagging? My second question is on the Topdanmark synergies when you mentioned, please correct me if I'm wrong, but I think you -- I haven't heard at least in the EUR 140 million. This faster run rate, should investors get more excited about the ultimate level of the synergies as well and what could drive that? And lastly, my quick follow-up on just the question just now on Slide 11. The 40 basis points, that's a very interesting number. Could you just say what is the assumptions about the actual conflict? Or is it 6 months? I don't know, I don't want to put a number. What's the duration you're expecting for the conflict that will lead to 40 basis points? Is it based on the data from Ukraine last time? Or just a little bit more on that 40 basis points and the underlying thoughts would be magic. Morten Thorsrud: Yes. When it comes to weather and the 20 basis points underlying improvement, we do our best in really assessing the weather effects, large claims effects and factor that in when we calculate the underlying improvement in the risk ratio. You might remember in Q1 last year, we even said that weather was clearly more favorable than a normal winter and therefore, sort of adjusted for that. So the weather development is already, in a way, taken care of when we have the estimate of 20 basis points. So that's our kind of best estimate of the real underlying improvement in the risk ratio. Topdanmark synergies, yes, we are realizing the synergies quite a bit faster than anticipated. But bear in mind, this is run rate synergies. So they are sort of not yet sort of materializing fully in the P&L, but this is sort of the run rate synergies that we have achieved so far. And when we set a target, and in this case of EUR 140 million, of course, we want to reach at least that target. We have not done any new bottom-up estimate of the synergies. So we still have the EUR 140 million as a target and of course, are really firm on delivering at least that. On the inflation assumption related to the current situation in the Persian Gulf, this is, of course, extremely difficult to estimate. And it is a moving target. It kind of almost changes on a daily basis. What is important for us to communicate is that we are able, of course, to price for this. We are always looking ahead when pricing for inflation. And it's also quite likely that this will creep in quite gradually into our business since we do have long contracts with suppliers, body shops, and so forth. And also in particular in the Nordic region, salary processes is a yearly process. So we have a lot of visibility, of course, on the salary part of inflation also for the next year. And again, 40 basis points is the best estimate so far. We are, of course, pricing ahead of this in our motor pricing and it's mainly coming from increased cost of spare parts. So we've done sort of modeling of what spare parts on what brands are being transported on a long distance and would be sort of more impacted and so forth. But again, of course, the situation is very uncertain, and this is sort of estimates which change more or less on a daily basis. Operator: The next question comes from Ulrik Zürcher from Nordea. Ulrik Zürcher: I have two. I don't know if you said it, but the SME growth or commercial growth without this loss of big clients, roughly what would that be? And then secondly, I'm just wondering with this updated Topdanmark synergies and in the Middle East and it might add some revenue, I don't know. But how does all of this affect your 40 bps improvement sort of target in the Nordic cost ratio? Will that be more front-end loaded or just continue roughly at that level for some years? Morten Thorsrud: Yes. SME growth, 4% in the quarter. So that's the answer to that. And the Topdanmark synergies, Lars, how will that impact us? Lars Beck: I think what we are committed to is the 40 bps improvement year-on-year throughout the years, the few years to come in our period as we have committed to. As I said, we now do see a flattening of the speed or acceleration as the IT part is still ahead of us. So we stay committed to the 40 bps improvement in our Nordic cost ratio that we've stated. Operator: The next question comes from Nadia Claressa from JPMorgan. Nadia Claressa: I have two. So first is just on the impact from the Danish ruling, clearly a positive on the current view. But I think you mentioned that you've established a number of scenarios and that you will continue to analyze this. So what key variables really drive the difference between, I guess, the low and high end of the range? I think I'm just trying to understand how sensitive the current best estimate could be to changes in assumptions and under what circumstances could we perhaps see a revision on this front? That's my first question. And my second was on the share buyback and timing going forward. Given that the Danish ruling impact appears to be contained and assuming you'll be able to sell off more of NOBA sometime this year, is a buyback top-up later in 2026 something you would consider? Or should we take this off the table and assume that you will stick to the once every 12-month time line? Morten Thorsrud: I'll leave these 2 questions to Lars, who is not only the CFO, but also the Danish workers' comp expert. Lars Beck: Thanks, Morten, and thanks a lot for the question, Nadia. As you rightfully say, we do not disclose our best estimates for the impact as we believe it is covered within our existing reserves. I think secondly, let me just make this very clear. It's no surprise to us that we are exposed to this kind of risks when underwriting Danish workers' comp. And that is, as I said earlier, exactly why we, over a number of years, have been building up and allocating quite a significant part of our Danish workers' comp liabilities to an ENID reserve, i.e., Events Not In Data. If you do want to compare us with competitors out there, we have been analyzing the case in great detail and established, as you said, a number of scenarios. And the comparable expected net of tax impact from those scenarios ranges somewhere between EUR 80 million and EUR 160 million with our best estimate falling well into that range. As you said, there are many, many variables in this. I mean I think the simplest one may be taking market share. Even in non-life insurance, a lot has happened in the market over the last 30 years. So just taking last year's market share does not reflect the exposure correctly, we believe. However, when you look into that, analyzing the market share data, that's actually complicated because official market data statistics only go back to 2008, and this covers back to 1996. But as you know, we are a data-driven underwriter. And in our data pool, we actually have very good data and proxies for not only our own portfolio, but also market data going back to well before 1996 actually. Another key variable just to mention it, is the pickup rate of those that are now eligible to have their case reopened. Here, we don't have much, I would say, empirical data to go by, but one data point we do have is the so-called Section 17a ruling from the Supreme Court that came out early 2025, i.e., more than a year ago. And based upon that, we do see that the pickup rate for those eligible to having their case reopened following that ruling after more than a year now is only about 5%. And I would say some of the market impact estimates you see out there and also the higher end of our internal scenario building, actually assumes a 20% pickup rate from the recent ruling. And as you have seen probably also both public or public info on ranges for the market impact that are out there ranges from billions of kroner to the estimate that was actually put forward in the Supreme Court by the plaintiff of DKK 235 million. So just to give you a view of where the ranges are. Finally, let me just say that we still believe that the state of Denmark should intervene and should take the cost for this recent ruling, not because of the size or potential size of the bill, but because the AES or the Labor Market Insurance is a public authority who by law is responsible for claim settlement in the relevant cases here. A public authority, which we now know have not been acting in accordance with the law for the last 40 years. And the consequence of that should not end up with the risk carriers. Being that the private insurance sector as ourselves nor the self-insured municipalities and similar. So I hope that answers the question on the workers' comp. When it comes to buyback, I mean, the new buyback that we just came is in line with our distribution policy. And as I said, we are committed to deliver up to EUR 500 million of buyback or release from our legacy assets. Normally, as we also communicated earlier, we believe Q1 is actually a good opportunity to discuss capital structure and buyback following the annual results for last year. And I said with that, we have announced that we will have an investor update in November, and that is where we would then return to this. But as I said earlier, I just want to reiterate, we are still committed to delivering up to -- returning up to EUR 500 million from the disposal of legacy assets. But the timing, of course, depends on actual sell-down of NOBA. Nadia Claressa: Just a quick follow-up on the potential for a top-up in the share buyback, if I may. I mean, clearly, it depends on the timing of further NOBA sell-downs. But could we also expect some of the benefit from the PIM expansion to be returned as well? Lars Beck: I think I would approach it a little bit from a different angle here. I think not saying anything about the impact -- positive impact from the PIM approval this time around, is a result of us looking at the world around us we are in, we are going through, I believe it's fair to say and have been going through very stormy waters throughout the Q1 in the financial markets and in the world surrounding us. And hence, at this point in time, we believe it is better to be a little bit safe rather than risk of being sorry later. So I think having a little bit of conservatism and not maxing out on our buyback potential, that has been our approach for the Q1 closing. Depending on what happens, of course, in the world surrounding us, we might change that view or our view on that later in the year, but that remains to be seen. Operator: The next question comes from Carl Lofthagen from Berenberg. Carl Lofthagen: Two, please. The first is on the Middle East impact. Are you seeing any early frequency benefits in your motor book from people perhaps choosing to drive less as a result of higher fuel prices? And then the second is just on pricing in the U.K. I'm just trying to understand the changes throughout the quarter, whether as we kind of reach the tail end, whether you saw kind of accelerated pickup in pricing compared to the start of the year? Morten Thorsrud: Yes. Very simple answer to the first one, no. We don't see any changes in driving pattern so far. One could, however, expect if inflation increases a lot, then you could expect that potentially could be a situation. But so far, we haven't seen any changes in driving pattern despite high fuel prices. Pricing in the U.K. throughout the quarter, I think already on the full year conference call, mentioned that prices went slightly down at the very beginning of the year following a favorable reinsurance renewal for probably most insurers. And part of that was brought forward to the customers then. And after that, we've seen a gradual uptick in the pricing in the U.K. Operator: The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia: Hopefully, you can hear me this time around. I have two questions and one quick follow-up. The first one is just following up on the Danish workers' comp. Here, I just wanted to clarify something. So you mentioned that you've been reserving for this issue for many years. But as I understand it, in the context of the case that this only became an issue last year post the January 2025 ruling. So just trying to understand what did I miss over there? And how is it that you've been sort of reserving for this for many years? That's the first one. The second one is just on your guidance for your underwriting profit for the year versus the synergies that you've accelerated for the year. So you have around EUR 50 million benefit from synergies that you expect in 2026, but then your underwriting guidance only moves up by roughly EUR 25 million. And as you stated, that's driven by weather and large losses. So can you just help us understand the bridge between both these numbers? Because I would have expected in that case, your increase in underwriting profit or guidance to be much higher than what you have done today. And then the last one, just on the U.K. Are you able to share with us as to what is happening between renewal pricing and new business pricing? Because I'm just trying to understand here what is keeping the prices low or basically what could be one of the reasons why pricing does not increase at a faster rate? Lars Beck: I'll take the first one, Vash, in terms of workers' comp. I'm sorry if it was misunderstood. What I did say was that this case was not -- has not been known to us for many years. But what I did say is that the exposure to these kind of risks and court rulings, et cetera, is no surprise to us. And that is why over a number of years, we have been building up and allocating, as I said, a significant part of our Danish workers' comp liabilities to this ENID reserve, so for Events Not In Data. So no, we have not known about this case for many years, but we have known and we are very aware of the risks that you take on when you underwrite workers' comp, and that is why we also have the prudent reserving principles in our balance sheet. Vash Gosalia: Makes sense and then on the other two, please. Morten Thorsrud: On the underwriting profit, first of all, synergies, of course, are already included in the 40 basis points expectation for the coming few years. We have now realized them somewhat faster than expected. But what we're reporting is a run rate synergy. So it's not yet sort of fully materializing in the P&L. And at the same time, it allows us also to do some of the investments in terms of digitalization of the Danish business a little bit faster. So we stick to our 40 basis points cost ratio improvement for the Nordic business for the coming few years and again, largely supported by exactly these synergies. When it comes to renewal price versus new business price in the U.K., of course, with GIPP reform, this is more or less one-to-one. We need to price new business just in the same way as we price renewal business. I'm not really surprised about the development in the market. If you look at the large motor insurers, you see that they are sort of typically reporting a fair profit for 2025. Then, of course, pricing was clearly higher at the first half of the year, sort of where we saw kind of really the reduction, then being more flat towards the second half of last year, and now it's starting to creep up a little bit. So I kind of remain optimistic about the U.K. market. And I think, of course, over time, we will need to price for inflation, and we do that and the competitors will need to price for inflation. And again, as I already mentioned, we are even adding on slightly more price increases now given the inflation outlook that we have in the U.K. market and see that we managed to get that through in the pricing. Operator: The next question comes from Youdish Chicooree from Autonomous Research. Youdish Chicooree: The first one is a technical question on the workers' comp charge that you're not taking actually. I just wanted to understand like this Event Not In Data buffers that you hold. As you use those up when the claims come in, in the coming years, does that mean that ultimately, you have to replenish them. So basically, it absorbs the initial cost, but ultimately, you will have to actually reserve more in the future? So that's the first question, which is a technical one. The second one is just on the Nordic segment underlying risk ratio. I mean pricing in the Nordic region peaked in May last year and your repricing actions are largely complete. Should we expect a more flattish trajectory going forward as opposed to the 20, 30 basis points improvements we've been accustomed to in recent years? Lars Beck: Thanks for the question. Youdish, if I take the workers' comp part first. Yes, as I said, the current ENID reserve we have is something that has been built up over many, many years. So it's clearly not something that you just all of a sudden wake up a quarter and say, "Let's put this in our balance sheet." So it has come over many, many years. And hence, any drawdown on this that would be taken out from the recent ruling, we would, of course, have to build up the ENID reserve again. But again, that will be done over time. It would not be something that will be done from quarter-to-quarter or even year-to-year, it is something that has been built up over more than 10 years. And as I said, replenishing it would also happen over a longer time horizon as we do not fortunately see these kind of rulings every year. So I hope that answers the question. Morten Thorsrud: Yes. And to the Nordic underlying risk ratio improvement, we are at a combined ratio level now that is highly attractive in the Nordic region and typically in all countries, all segments. So I think it's fair to expect that the improvement in the underlying risk ratio will be somewhat smaller at least going forward. I still think there is some potential for improvements in pockets of the business. But again, we have a very attractive combined ratio. And of course, there is a limit for how many years and how far down you can push a risk ratio. So a bit more moderate improvement going forward, I think, is fair to expect. Operator: The next question comes from Simon Brun from ABG Sundal Collier. Simon Skaland Brun: Just a couple of questions. Starting with Denmark and the premium growth in Denmark seems to be a nice uptick and somewhat of a trend shift in the premium growth. And I appreciate that there's always some element of volatility here, but does it also reflect some sort of revenue synergies from the Topdanmark merger? I just wonder if you could comment briefly on whether you see sort of strength and relevance in new or existing markets that now translate into accelerating premium growth Or am I reading too much into it? That's my first question. Morten Thorsrud: Yes. I think an integration process is, of course, never an easy process. And as you see sort of from the synergy estimates, we've done quite a lot of changes to the Danish organization starting to change the business model. Of course, that is always creating a bit of worries sort of internally and also can create some turbulence sort of towards the customers externally. We did see a small drop in retention rate in the private business throughout 2025 in Denmark, which was exactly as expected, again, when merging two companies, then closing down Topdanmark as a legal entity, when we notify 750,000 customers about the change of insurance provider and so forth, that will have an effect. So that was as expected. And then we've seen that this is now gradually improving and even starting to see a slight uptick in retention rates. And at the same time, we've been rebuilding a little bit the distribution capacity, both in Private and SME in Denmark during this process. So I'm at least very optimistic about the outlook for Denmark. I think the most difficult part of the integration is now behind us and that the customers now also will start to see really benefits of being part of a larger group with even better processes, better services, more digital tools in particular. So yes. Simon Skaland Brun: Second question, continuing in Denmark, I guess, and on the workers' comp. Maybe not looking so much into sort of the -- maybe looking more to the future, looking for the -- just curious to hear your thoughts on the sort of the sustainability of you staying in that segment, obviously, you have a pretty big market share. Is this segment still attractive to you? What needs to be done on the pricing to sort of cover the -- what seems to be clearly a wider scope of future claims. How long will it take to adjust prices? Where do you see them going? And could this be sort of a short-term boost to the premium growth as you reprice this quite meaningfully, I assume? Lars Beck: To start out, yes, we still believe workers' comp in Denmark is a highly attractive segment. We are the market leader, not only in terms of volume, but I would claim also in terms of knowledge when it comes to underwriting, when it comes to claim handling and when it comes to our actuarial skills. So yes, definitely an attractive segment to us. I think it's clear that, as always, we price for risk. So it's natural -- if risk changes, then it's natural to expect prices to change accordingly. I think it's important to note that actually, there's a fairly high degree of flexibility in here in the Danish workers' comp wordings in the sense that changes in law and ruling like this, you can actually adjust prices in the middle of a policy term or policy period. However, we are not doing anything yet. We are, of course, analyzing and then we are waiting to see what will happen, both in terms of what the state of Denmark would ultimately do before we make any final decisions. But of course, we are prepared. We will change or we will price according to risk. And yes, we believe Danish workers' comp is an attractive segment and market. Operator: The next question comes from Emil Immonen from DNB Carnegie. Emil Immonen: Just maybe one more on the workers' comp and the decision in general. How does that impact your outlook on the insurance market overall, does it change it in any way? And what kind of decisions these courts take? Or is it kind of expected that this is normal business to you? Morten Thorsrud: Let's say this is normal business. We do have some lines of businesses, some products that are exposed to changes like this, workers' comp, some of the bodily injury claims you have on motor. There are risks, new rulings, changes in, say, pension age, base of calculating loss of income. And this is sort of normal business risk to us. And this is exactly also why we are reserving for this type of risk, which is what Lars explained with these Events Not In Data. If you have a reserve model that just look at data, it will be backward looking. And of course, our reserving needs to be forward-looking. And that's why we try to factor in these things in our reserving and in our pricing. So this is normal business for us, and that's also why we are able to cover the effect of this case within our existing reserves. Operator: So I hand the conference back to the speakers for any closing comments. Mirko Hurmerinta: All right. Thank you very much. That concludes the call for today. Thank you for listening in.
Jody Ford: Good morning, everyone. Thank you for joining us today for our results presentation. It's great to be here. I'm Jody Ford, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer. On to the agenda for today. I'll give an introduction briefly discussing the progress we've made this year and updating you on the regulatory backdrop in the U.K. Pete will talk you through our financial performance. I'll update you on how we're progressing against our strategic priorities, and we'll finish with an overview of our AI strategy, which is becoming a core part of how we compete. After that, we'll open up to the floor for questions. Trainline is Europe's #1 rail app built on a market-leading customer experience. Our core purpose is to empower greener travel choices. And each of these 3 business units is a leader in its market segment with clear opportunities to scale. In the U.K., we are the #1 travel app. We are helping to grow the rail market and increasing the value of our 18 million customer base. In international, we are the largest rail aggregator in Europe. We will deploy our proven aggregation playbook across France, Italy and Spain, markets expected to be worth EUR 23 billion by 2030, including EUR 12 billion on aggregated high-speed routes. And in Trainline Solutions, we have the leading B2B rail platform across the U.K. and Europe, which now generates over GBP 1 billion of net ticket sales. We plan to grow further into the EUR 6 billion business travel opportunity in European rail. This year, we've made strong progress in each of our business units. In the U.K., we've delivered growth while strengthening customer engagement through new rail disruption features and digital railcards. In international, our aggregation playbook drove positive momentum in the Southeast France following Trenitalia 's expansion. And in Trainline Solutions, B2B sales grew strongly, particularly in Europe. We delivered robust net ticket sales and revenue as well as double-digit growth in profitability. And we've delivered strong EPS growth further accelerated by ongoing share buybacks. Before I hand over to Pete, let me update you on the U.K. regulatory and industry backdrop. A key focus for investors is the U.K. government's intention to launch GBR Online Retail, its consolidated app and website as well as the design of the future retail market. In November, the government published the output of its GBR consultation. This included plans to develop, for the first time, a Code of Practice owned and managed by the independent regulator, the ORR. This will codify how GBR should interact with third-party retailers. In December, the government published pre-tender documentation outlining procurement plans for the launch of GBR Online Retail. It included a stated aim to award a contract by January 2027. However, the tender process has yet to begin. We'll engage positively with both processes and maintain our assertive stance with government to deliver on its commitment to a fair, open and competitive retail market. Today, there are instances where operators self-reference their own retail channels. Through our sustained engagement, we are making progress to remove these instances. The government has confirmed our access to all temporary fares and granted our ability to advertise in stations and on trains. Furthermore, in March, they announced that, once GBR is established, passengers will be able to claim Delay Repay compensation from wherever they purchase their ticket, including through Trainline. This was a meaningful step forward. However, it will take some time for this change to come into effect, so Delay Repay remains a pain point for our customers. Similarly, we remain unable to offer customers access to train operator loyalty schemes. We continue to engage government stakeholders and the wider industry to remove examples where we are discriminated against. We're also engaging with the industry to protect and grow the U.K. rail market. We are trialing our digital pay-as-you-go technology with East Midlands Railway. Our technology is performing strongly, and we've received excellent customer feedback. The trial is due to end in the summer, and we'll look to update you thereafter. We continue to take steps to protect industry revenue by blocking fraudulent processes and refunds, and we're sharing data with operators to enhance their revenue protection while assisting their fraud prevention measures. And with that, I'll hand over to Pete to talk through our financial performance. Peter Wood: Thanks, Jody. Good morning, everyone. Before I step into the financial performance for the group, let's briefly unpack the performance of each of our business units. Starting first with U.K. Consumer. Net ticket sales grew 6% to GBP 4.1 billion. This reflected market recovery within the commuter segment in the first half as well as growth in leisure travel sales. Growth slowed in the second half, reflecting the impact of Project Oval as well as operators self-preferencing their own retail channels with features such as one-click Delay Repay. Turning next to International, where we maintained a disciplined focus on our core markets. Net ticket sales grew 3% to GBP 1.1 billion. We saw strong momentum on newly aggregated routes in Southeast France. Growth in Spain moderated, reflecting a more balanced approach to growth and profitability as well as a series of tragic rail accidents, the impact of which is ongoing. In foreign travel, growth reaccelerated to 5% in the second half as we lapped the headwind from changes to Google's search results page. As a reminder, Google made a series of changes that suppressed organic results while increasing the prominence of paid ads. This disproportionately affected foreign travel sales, which relied more heavily on web acquisition. Growth rates varied across our international markets as we prioritized marketing investments on routes with carrier competition. Starting with Spain and Southeast France, which together represent 22% of international net ticket sales, growth was up 9%. Elsewhere in France and in Italy, growth was more modest, up 2%. These markets account for around 2/3 of international net ticket sales and are expected to benefit from the expansion of carrier competition in the coming years. Germany and the rest of Europe declined 6% as we prioritized our core markets with these regions representing longer-term growth opportunities. Overall, our International business is becoming increasingly profitable. It's benefiting from higher-margin foreign travel, strong growth in ancillary revenue and disciplined marketing investments, including in Spain, as we balance growth and profitability. Two years ago, our international business broke even on a pre-transaction fee basis. And in the year ahead, we expect international to break even on a headline post-transaction fee basis. Now turning to Trainline Solutions. Net ticket sales grew 14% to GBP 1.1 billion. Growth was led by B2B distribution, which grew 36%. This reflected new and expanding travel management company partnerships. It was particularly evident in Europe where B2B sales through our global API grew 58%. Sales growth was partly offset by the loss of Trainline's white label contract with U.K. rail operator CrossCountry, and we expect the loss of our ScotRail contract this year as they seek a different partnership to better align their online and offline sales. In the long run, the rail industry anticipates that operator apps and websites will be replaced by GBR Online Retail. Bringing this together, group net ticket sales grew 7% to GBP 6.3 billion. Revenue grew 2% to GBP 453 million, given the reduction in the U.K. commission rate. Gross profit was up 6% to GBP 374 million, outpacing revenue growth. This reflected lower cost of sales, given step reductions in U.K. industry costs and group-wide efficiency savings in customer service and payment processing. We continue to drive strong cost discipline across the business. Our cost-to-income ratio reduced 4 points to 70%. This represents operating leverage, cost optimization in the prior year and ongoing cost discipline. Importantly, these efficiencies have more than offset the impact of the U.K. commission rate reduction. As a result, adjusted EBITDA grew 11% to GBP 177 million, outpacing revenue and net ticket sales growth and landing within our previously upgraded guidance range. We continue to execute our share buyback program at pace, supported by strong cash generation. Since September 2023, we have repurchased GBP 294 million of our shares, equivalent to 23% of issued share capital. Upon completion of our current GBP 150 million program, we will have returned a total of GBP 350 million to shareholders over a 3-year period. Together with strong earnings growth, this has driven a significant increase in earnings per share. EPS has more than quadrupled over the past 3 years with a compound annual growth rate of 62%. Altogether, I'm pleased with our performance, particularly the strong earnings growth and cash generation. Looking forward, we see opportunities for growth alongside some near-term headwinds. And in the year ahead, we expect net ticket sales of around $6.2 billion to $6.45 billion, revenue of around $440 million to $455 million and EBITDA of around 2.9% of net ticket sales, which would represent a 10 basis point increase, reflecting the benefit of International Consumer breaking even. Thank you, and I'll now hand back to Jody. Jody Ford: Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities. We are the U.K.'s #1 travel app. Our app is designed to meet the everyday needs of rail users. Rail is a high-frequency mode of transport, but booking can be complicated and travelers often face journey disruption. Our app provides end-to-end booking flow and travel companion features that support customers on the go. This has become central to our customer experience and our core customer touch point. In fact, the app is used for over 90% of our customer transactions in the U.K. Our U.K. customer flywheel is strengthening the competitive position of our app. It focuses on unlocking value, solving customer needs, building loyalty and increasing engagement. Let's look at some examples from the year. In terms of solving customer needs, this year, we launched AI-powered disruption features in the app, helping customers navigate the rail network. They include Travel Forecast, our AI travel assistant, and Delay Repay notifications. We supported the launch with a targeted brand campaign highlighting a better Way to Train for our customers. I'll talk more about these features later in the AI section. Trainline has cultivated strong brand affinity with customers over many years. We are the most trusted brand in U.K. rail retailing and our brand consideration significantly outperforms all other rail retailers. This has supported Trainline's continued growth in the U.K. even in the face of strong competition, and it's becoming increasingly important in an AI-driven search world. We are scaling in-app railcards as a way to drive customer engagement with enhanced upselling within the booking flow, highlighting to customers how much they could save by buying a railcard alongside their ticket. And we've improved the renewals process too. As a result, we now have 2.7 million digital railcard users, up 16%. We're gaining good traction with younger cohorts. Our share of the 16- to 30-year-old railcard segment has now increased to 45%. This is driving greater customer engagement with railcard users transacting 4x more often than non-railcard holders. We increasingly focus on growing our ancillary products and services. This year, we delivered strong double-digit growth in hotel bookings and insurance sales, having enhanced their prominence within the app. This includes visually engaging placements as well as improved benefit-led copy for our insurance products. We'll continue to broaden our ancillary products, testing adjacent services like car hire and investing behind those we see resonating with our customers. We are taking steps to enhance advertisements within the app. We are shifting from traditional ad placements to integrated, targeted and contextual advertising through the customer journey. This improves relevance for our customers and effectiveness for our partners. Now turning to international, where we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel and driving improved profitability. Starting first with Southeast France, where Trenitalia significantly expanded their services this year. As the region liberalized, we rolled out our aggregation playbook. We leveraged our highly rated mobile app to showcase all the fares from high-speed carriers. We launched sponsored search, a paid service that allows carriers to increase their prominence within our search function. And we deployed features to unlock value for customers like TopCombo, which allow customers to stitch together different carriers for return and multi-leg journeys. We've also resumed brand marketing in Southeast France. Through innovative campaigns and sponsorship deals, we've increased brand awareness to 50% across Paris, Leon and Marseille. As a result, we've grown net ticket sales by 26% in the region. Our success in Southeast France builds on the aggregation playbook that we refined in Spain over recent years. As a result of our investment, we significantly scaled net ticket sales. This has given us considerable lead versus other market aggregators. While we continue to see runway for further growth in Spain, this year, we evolved our approach to strike more of a balance between growth and profitability. We are normalizing brand investment while placing more emphasis upon customer engagement and monetization. As a result, Spain's EBITDA took a big step towards breakeven in the second half of the year prior to recent rail disruption. Spain and Southeast France represented the first wave of carrier competition in Europe. We're now preparing for the second wave, which will sweep across Italy and the rest of France. This is set to commence from late '27 with SNCF's entry into Italy, followed by several new entrants launching in France from 2028 onwards. This includes Velvet, Le Train and Ilisto who are due to launch domestic services, and Trenitalia and Virgin Trains who are due to launch services between London and Paris. The second wave of carrier competition in Europe will open a considerably larger market for Trainline over the coming years. By 2030, the French and Italian rail markets are set to be worth around EUR 20 billion, EUR 10 billion of which will be from aggregated high-speed routes. And the market opportunity for newly aggregated routes may expand further. News flow last week suggested that from 2028, Italian operator, Italo, are planning to launch high-speed services in Germany, one of the largest rail markets in Europe. Foreign travel represents a large and attractive growth opportunity. It comprises global customers from the U.S., U.K. and the rest of the world traveling in Europe by rail alongside intra-EU cross-border travel. The foreign travel market in Europe today is estimated to be around EUR 4 billion, so offers significant headroom for growth. Foreign travel provides favorable economics with a less price-elastic customer base and a greater skew towards long-distance travel. It's also a higher-margin business, generating double-digit revenue take rates, given higher attach rates for ancillary products and carriers willing to pay higher commission rates for inbound customers. As a result, foreign travel is a major contributor towards international profitability. We see signals of generative AI playing an increasing role for foreign travel, given its ability to inspire travel plans and compress research time. Trainline is the early market leader in GEO, which currently contributes around 3% of new foreign travel customers. Foreign travel is an area of competitive advantage for Trainline. We combine broad inventory coverage, including recently wiring on Poland and Ireland alongside helpful travel content to inspire customers' travel plans. And that's delivered through our market-leading user experience, offering a wide range of features tailored to international travelers such as multi-language support, flexible payment options and consistent post-sale support. So foreign travelers can plan, book and manage their journey seamlessly and with confidence. Moving on to Trainline Solutions, our fastest-growing business unit, which now generates over GBP 1 billion in net ticket sales. Business travel is our main growth opportunity here and represents over 50% of Trainline Solutions sales. This is primarily generated through our B2B distribution business and our own branded channels. B2B distribution allows travel management companies and other business travel platforms to offer rail tickets to their respective customers. We increasingly support our partners to sell tickets from multiple European carriers as well, diversifying ourselves into a truly international business. They can do all through one simple seamless connection, our global API, rather than tackle the complexity of connecting to multiple different carriers. As a result, international B2B distribution grew 58%. Trainline-branded business travel also performed well. We invested to improve the experience for users and client companies over the past few years and now serve over 35,000 business customer clients, an increase of 47% year-on-year. Let's now move on to AI, which is rapidly becoming a core capability for Trainline, powering our product, our distribution and how we operate. Before we start, it's worth spending a minute discussing the barriers to AI disintermediation. Rail retailing is inherently complex. Customers expect a simple, consistent and reliable user experience with end-to-end transaction capability from search to purchase to post-sales. And that's across multiple carriers with all fares, ticket types and railcards available. With no GDS for rail, online retailers must deeply integrate into a wide array of carrier APIs to offer full functionality. Those carrier APIs are nonpublic, so the retailer needs commercial relationships and accreditations with those carriers supported by funding obligations. This complexity creates a clear barrier to disintermediation, and that's exacerbated by the relatively low commission rates offered by carrier partners. In that context, we see AI as less of a threat, more of an opportunity. And we've been on the front foot for a number of years, building our foundational investment in data and our broad application of machine learning. Our strategy centers on bringing AI capabilities to rail around 3 core areas: AI-powered products and features, extending distribution through emerging AI channels and AI-enabled acceleration across the group. Let's discuss each area in turn. We increasingly use AI together with industry and first-party data to enhance the user experience of our app. This is reflected in our new rail distribution disruption features, which are underpinned by our scalable multi-agent AI system. To bring our AI disruption features to life, let's take the example of Callum, a Trainline customer who has booked a 9:30 a.m. LNER train from London to Edinburgh. Unfortunately, there's disruption elsewhere on the rail network. Our Travel Forecast feature notifies Callum that his journey is likely to be affected, estimating his train will arrive in Edinburgh an hour later than scheduled. This feature is powered by our proprietary algorithms trained on complex data sets. So as a Trainline customer, Callum gets more accurate real-time insights. Travel Forecast also provides a map-view interface powered by our Signalbox technology, so customers can see the location of their train in real time. Since launch, Travel Forecast has delivered updates to over 3 million users. Given the expected delay, Callum consults the AI Travel Assistant, our in-app conversational support feature. It provides real-time travel advice, giving Callum options for alternative trains he can take. It offers agentic refund processing, allowing Callum to get his money back at the click of a button. Our AI system has handled over 2 million conversations since launch, reducing workloads for our customer service team. Callum decides to stick with his original booking. As predicted, his train arrived in Edinburgh an hour late and Callum receives a Delay Repay notification. Trainline's AI system identifies the delay, calculates he's entitled to compensation of GBP 37 and provides a punchout to LNER's website to complete the claim. Since launch, we've redirected over 1 million customers to complete their claim. Moving on to emerging AI channels, which present a new way for Trainline to attract customers and drive incremental demand. We've made a strong start, and we are showing clear leadership in GEO. In fact, we're the most cited rail app in Google AI search in all core markets as well as in ChatGPT across all but one core market. This reflects our strength in SEO and the power of our brand. Building on this progress, we've recently integrated the Trainline app within ChatGPT. Users can now seamlessly search for routes and compare options, all within a conversational interface before completing their booking with Trainline. While we've made good early progress, GEO still represents relatively low levels of sales traffic, making up less than 1% of new customers within international. As mentioned earlier, though, it's playing more of a role in foreign travel. Moving on to AI-enabled acceleration, driving faster execution, greater agility and more scalable innovation across the group. Our software development teams increasingly use AI to code as well as to accelerate auxiliary tasks like updating documentation, generating tests and reviewing code. Their focus is increasingly shifting towards AI agents, moving from experimentation to scaling agent capabilities. In marketing, AI agents now generate around 20% of our in-house studio content. Creating and applying imagery and copywriting that's aligned to Trainline brand has enabled us to scale the production of performance marketing ads to 19x our previous output using traditional design methods. And in customer service, we will soon roll out voice AI in partnership with ElevenLabs to progressively automate inquiry handling. We've also introduced Zendesk, a new CRM system providing AI agent tools and language translation. Taking all of this together, AI is enhancing our products, expanding our distribution and increasing the velocity of which we execute. Before we open the floor for questions, let me summarize the key takeaways from today's presentation. This year, we have delivered a robust operating performance, double-digit growth in EBITDA and a significant increase in earnings per share. We've maintained our assertive stance with the U.K. government to deliver on their commitment to a fair, open and competitive retail market. And we've made strong progress against our strategic priorities. In U.K. Consumer, we are strengthening our app proposition while deepening engagement with our 18 million customers. In International Consumer, we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel, and driving improved profitability with the business set to breakeven this year. And in Trainline Solutions, we continue to grow business travel sales within B2B distribution, enabling partners to expand their rail offering across Europe. Finally, we're increasingly leveraging AI to power our products and services, extend our distribution and accelerate our execution. Thank you very much for listening. I'll now open the floor for questions. [Operator Instructions] Timothy Ramskill: It's Tim Ramskill from Bank of America. I'm going to try and tackle 3, if that's okay. So just firstly, in terms of the guidance for 2027 and specifically with regards to NTS, there's obviously a lot of moving parts, whether that's overall self-preferencing kind of dynamics. I guess if you think about it long term, you've pretty much always grown ahead of the market, but it's likely that in 2027, that might not be the case. So just your observations around how much of that kind of guidance you think is a reflection of known factors like overall versus kind of that slippage in market share? Secondly, in terms of international, obviously, very encouraging to see the guidance around breakeven. What do you think the key drivers of that are going to be to get from the EUR 11 million of loss to flat. How much of that is likely to be marketing expenses or other cost actions versus growth in revenues? And then thirdly, you obviously referenced the kind of the TopCombo product in international, which I guess is effectively the same as SplitSave. Just interested to know are the kind of consumer saving opportunities kind of very similar to what we'd see here in the U.K. or do they do differ? Jody Ford: Great. Thank you very much for the questions. I think we'll be teaming up through these ones. Pete, do you want to start with the guidance upfront, and then I'll take the other 2? Peter Wood: Yes, certainly. Inevitably, U.K. Consumer is a significant driver in the overall guidance. And the way I think about it is there are some nearer-term headwinds that will affect this year. And we've been talking about them for a while. but they unwind over time. So the expansion of Oval will eventually cease. There's a little bit more to go. We're halfway through or so. The rail fares have been frozen this year. Our base case is that, that won't extend beyond March 2027. So that will again provide some uplift going forward. And then finally, the self-preferencing. I think the Delay Repay announcement that we had a month ago or so is clearly a good step forward. We don't have that API available today, so we aren't able to wire it in. But the direction of intent is clear, and I do think we will resolve these issues that we've flagged. So those all unwind. And then looking beyond that, there will be a moment when we are seeing the GBR shutting down other websites and apps, and that will present an opportunity for us to acquire customers that are then in the market. And of course, with digital pay-as-you-go, we've also created a seed here that could flourish as well. So in the longer term, I do see opportunity for further growth, but these headwinds remain with us in the meantime. Jody Ford: Great. Thanks, Pete. And just to kind of add there, I mean, in terms of where the question is going, absolutely see these things over the next couple of years, they lap through, and then we're pretty well positioned going forward vis-a-vis the competition and we're sort of picking that up. We don't see particular growth from those third-party players in terms of the market. And our sort of primary competition effectively remains the 14 different top operators where a number of those, as we've discussed, have got this self-referencing, which will be phased out and then we'll be competing on a kind of level playing field with them. Coming to your second question on international profitability. Look, I think the drivers there really have been this very strong growth we have seen over the last 3 or 4 years, which is great. As we look forward there, part of that story is foreign travel, which continues to be a nice growth driver, temporarily impacted by what's going on in the kind of Middle East right now, but that's a relatively small part. But we see the kind of appetite for cross-border travel increasing, and you can see new services launching. And we see opportunity there, which helps drive profitability going forward as scale does. And then where we're going on sort of the marketing point here, I think the way to sort of frame this around Spain is we have a launch period. And as a reminder, we were starting from zero brand awareness in Spain. And that ultimately meant that we had to come out with a strong kind of above-the-line campaign supported by the usual below-the-line to get our brand awareness at the point that we had all operators launching on all routes over a pretty short period of time. And having kind of worked through that, we're now, by distance, the #1 third-party player, and we've moved to this kind of position of optimization of that [ Spain ] having got our leadership position. In France and Italy, we already have that leadership position. We already have -- we shared strong brand awareness, and we will invest going forward as it makes sense in a kind of hub-and-spoke way. In France, of course, we'll invest in Paris, but we'll also invest in the cities where the new operators are going, for example, Bordeaux when Velvet launches. But that will be much more targeted than it was in Spain where we come into the whole country at once. And so we'll kind of keep discipline around that. If really big opportunities arise, we said before, we would lean in behind those as is required. But for now, we've kind of got this transition year where we think we're in pretty good shape. And then to your question -- the final question on TopCombo versus SplitSave in the U.K. Yes, they're slightly different in that SplitSave is really arbitraging, if you like, the U.K. rail pricing system. TopCombo is really doing kind of a level above that by taking 2 different operators and putting those pricing together. But you're right, the spirit is helping the customer find value through the inherent complexity of rail. And the more carriers that launch, the more of those kind of opportunities become available and the more railcards we wire on in these markets and the more we're able to kind of support an advanced purchase and help customers understand how to navigate, the more we see value for growth in those markets. So yes, and we keep finding those new areas to invest behind. And bringing TopCombo to life has been one of the kind of compelling points for our customers. Thanks for the questions. Timothy Ramskill: Just wanted to clarify. I mean on the point around international breakeven, I recognize you want to kind of keep options open in terms of what comes next, but are you confident that once you get to breakeven, you'll stay above that level? Jody Ford: I think our position is the current -- in the current setup, we would say that's right. But if a new opportunity comes in, in France, and we see multiple carriers launch and it makes sense in that year to kind of go harder with top line marketing, then we would go and invest behind it. We're not constrained by that. But the underlying market, which I think is where the underlying business -- where the question is going, we feel good about where that's headed. Yes. Gareth Davies: Gareth Davies, Deutsche Numis. Just following on really from the guidance question again. trying to dig a little more on self-preferencing. If we were to sort of hit the bottom end of the guidance range on revenue, does that assume a meaningful kind of pickup in the impact of self-preferencing? And just trying to really get a context of how big a headwind you're facing from that and what your sort of fear is there. And then secondly, just on white label, the pre-close flagged a couple of white labels sort of rolling off. Can you just talk around any potential time line for other roll-offs or possible roll-offs? And in the international white label, what kind of opportunity, if any, are you seeing there at the moment? Jody Ford: Pete, do you want to pick up the first? Peter Wood: Yes. So as ever at a group level, there are a number of factors for the guidance range and self-preferencing is one moving part, but there are others. If I think about the foreign travel impact that we are seeing, it's unclear at the moment how the macro backdrop will evolve and what impact there might be. I think we've got first order effects, which are about travel plans and their disruption, particularly from travelers coming from East towards West. But if there are impacts on jet fuel availability and prices, then that could extend to Western or South American travelers into Europe as well. And then Spain is another moving part here. We had, after these accidents, a significant dip in demand. That has somewhat recovered and moderated, but it's still, year-on-year, negative. And so that's exactly how that unfolds and rolls forward. So it's not just the U.K. that is driving this. There are other factors as well. Jody Ford: Do you want to -- briefly, you want to speak to the white label? Peter Wood: Yes, certainly. Look, we've had these 2 white label contracts, each with their individual backdrop. One was around the group -- owning group wanting to consolidate their supply base. And then ScotRail, as I said, are looking to consolidate their online and offline and wanting a different partnership for that. Our base case on the go forward is that these will run until the point at which the government turns off these websites and apps. And at that point, of course, the contract will cease. So yes, that's how I am thinking about it. And then international point? Jody Ford: Yes. I think on international, that's not a focus for us at the moment. There aren't really the same sort of size operators that we have in the U.K., which we're uniquely positioned for. So that's a priority. However, I would say we are seeing, within Solutions business, very strong demand, as I outlined in the speech, around our broader distribution business, and that is ramping up very, very nicely with quite a lot stacked back that we can see over the next few years. This is not kind of a one-off coming through as further businesses will integrate and then we grow them once they are integrated. Edward Young: Ed Young from Morgan Stanley. Two questions. First, sorry to labor on NTS growth guidance. On international, you mentioned there the moving parts. But I wonder if you could be specific about the assumptions you've embedded in recovery in Spain and in international travel, given you mentioned that some of those lines just reopened [indiscernible], the impact has been significant. International has obviously uncertainty in terms of forecasting. So are you expecting this to recover this year fully, within the year? How are you thinking about it within the guidance construct? And then second of all, with digital pay-to-go, you were probably given the most complex trial area. How is that going? Can you give some color on it? And how should we think about the next steps following this round of trials ending in the summer? Jody Ford: Great. I'll take the second one first and give some thoughts on the first and pass to Pete. Digital pay-as-you-go trial is going -- performing very well. We've been really impressed with the technology and kind of proven to ourselves and the industry that we can stand up. And with the feedback from customers, from the media and from the kind of industry/government has been really encouraging. I think we're putting the government in a place now where they can understand what this technology can do. It's really groundbreaking and for them to begin to work through how they would want to take it forward. Look, I don't think it'd be crazy to expect the trial potentially would continue as the government think through how it might want to expand it. So we're feeling good there. We'll kind of come back, post-trial, and explain where we've got to on that. And then let me give you the high level on kind of international and recovery, and Pete can speak to any specific points on guidance. Spain, obviously, those tragic incidents, we saw a very significant jump off in the sort of weeks after that. And we're now seeing that still down, but more kind of contained. And so I would expect to see a full recovery within -- probably by the end of the year, but it's obviously kind of hard to gauge that. And then just to speak to the broader point on international travel, we obviously don't know what the inbound piece looks like. There's a number of scenarios, and I think Pete spoke to kind of within the jaws of -- to be able to handle those off guidance. But underlying, it's very encouraging. We spoke kind of a year or so ago about some of the headwinds we have within Google Search. We are seeing those headwinds have effectively stopped and to some degree, a little bit of a tailwind there. And then we spoke to what that looks like within the kind of the more broader LLM platform and we're seeing just a little bit of goodness there coming through and it speaks to our opportunity there if they do indeed grow going forward. Pete, do you want to add anything on the kind of guidance specific? Peter Wood: Only really to frame this somewhat as a transitional year. You heard Jody talk about wave 1 of aggregation has completed. There is a wave 2 on the horizon, and that will come. The trains are bought and the safety certificates are being processed, if you like. But at the moment, it's adjusting our playbook for the landscape we find pulling back a little bit, focusing a bit more on profitability. And of course, there's a balance on growth. Alastair Reid: Alastair Reid, Investec. A couple for me. Obviously, you talked about the expansion of the Project Oval. I think there's been some indications that TfL might be looking at introducing barcodes. Talk about the opportunity potentially for you to get into the Oyster zone and how you might think about the opportunity that you have, if that was to happen? And then secondly, you touched on it in a couple of areas when you touched on ancillaries and really strong growth in business clients. How do you think about the future runway for both of those areas? Jody Ford: Yes. Look, I think early days to speculate on barcodes in Oval, we kind of noticed that as well. I think we think the future is ultimately the kind of digital pay-as-you-go scheme. And if those gatelines ultimately allow barcodes, then that would realize or allow the realization of that vision. It's probably quite a long way before that will actually happen and reasonable amount of CapEx spend on TfL part. So I won't speculate now, but I do think, as we look at the future of what this could hold, that's an important part of the jigsaw to come through. So it's good to see that it's being talked about. And then I think on the ancillary products, I'll give quick thoughts and then pass to Pete. I think the high level, what we're seeing is that we have a very -- 18 million customers in the U.K. and they are interested in buying other things, and that's what we've proved to ourselves over the last couple of years. Hotels, insurance are the obvious places. And we're seeing that we're getting really good kind of endemic ads and the quality of the ad partners that we've got now is really premium top tier. And they are -- we need to -- as ever, this is a playbook that others have done over the last 10-plus years. We need to develop the placements and the targeting that allow them to realize their campaigns and allows us to push up the value we get from them. And so we're encouraged by where that goes. So that's very encouraging. I don't know, Pete, you want to speak to any specifics on businesses more broadly? Peter Wood: Yes. Alastair, the ancillary is certainly an opportunity even within, say, insurance, like fine-tuning, exploring what other products might work. We are testing out this idea of a Trainline flex product, which combines the tickets that are available with some flexibility in the insurance around it and how we package that up. So I still think there's optimization to do in these areas and further to expand. So yes, it's interesting to explore that. And then you also asked about the kind of business customer and how we serve them. Look, I think their challenges are much the same as a consumer traveler and we continue to explore how we can best solve some of those. At the moment, the API is principally around the transaction and delivering a ticket. But that doesn't mean that, over time, we can't package up other aspects of our proposition in some way or other and to find ways to serve them. And in particular, in Europe, the growth is fundamentally driven by the fragmentation of the supply and trying to draw that together. And again, as a traveler, not only to buy your ticket, there are opportunities to explore that. So yes, I think that's an interesting customer set to further explore. Lara Simpson: It's Lara Simpson from JPMorgan. I also just want to come back to the guidance and the outlook on profitability. Obviously, we're getting more upgrades, which is driven by international. But it feels like there's a small inherent downgrade in the U.K. Consumer profitability outlook. So could you just talk a bit about incremental costs that you're expecting to see from cost around GBR public affairs there? Are we likely to see a step-up in marketing in the U.K. as we move to GBR standard? So just the moving parts there, I think would be helpful. And then maybe one just on capital allocation. I know we still have some way to go on the buyback, GBP 150 million share buyback, but maybe on a 12- to 18-month view, how are you thinking about organic [indiscernible] business or any inorganic opportunity to start to think about? Otherwise, could we expect to see a reload on the share buyback from the midterm perspective? Jody Ford: Great. Thanks, Lara, for the question. Let me sort of talk more broadly about GBR and then we can -- Pete can pick up on specific guidance and capital allocation. In terms of time lines of what GBR -- how we expect that to play out, I think from the kind of point of view or the delivery of that, the procurement process hasn't started yet. So it begins to look ambitious that, that would be awarded before kind of spring '27 perhaps and then whoever wins it to actually bring the GBR app to life. It's probably early '28, probably the earliest and these things do have a habit of slipping. And then we expect there to be dual running if there's 14 different top apps that need to be consolidated, that's likely to happen through '28. We're obviously -- we've got lots of time here. Very well understood in terms of the opportunity we see into where you're going on the marketing question. At the right moment, yes, look, if we feel it's appropriate, we potentially will spend up to acquire what we think is quite a potential uplift in number of customers, which is pretty interesting to us because the old app will turn off and the new app will come on. So we'll look pretty hard at that, and we've got time for [indiscernible]. Pete, do you want to speak to any specific guidance points on capital allocation? Peter Wood: Yes. No, I think you've got the right ingredients there. We are certainly taking a step forward in profitability in international that supports the group overall. Our cost optimization program that we delivered 18 months ago, I guess now, that's washed through. But yes, there are some additional costs. This is a once-in-a-generation shift for GBR really changing the backdrop of the U.K. industry. And it's important that we are appropriately advised as we engage with the government and other stakeholders through this transition. So those costs, there were some last year, there will be some this year. At some point, they will drop away, and there will be a kind of a new landscape that will be there, and we'll take the benefit when we reach that point. And then you asked about capital allocation as well. Certainly, on the organic side, we will ensure that we're well funded. We have the cash flows to do this. And as Jody articulated, there will be moments potentially in the U.K., potentially in international where we'll lean further in on the marketing side. From an inorganic perspective, we do the homework. There aren't that many opportunities out there, though. And so not expecting that -- we won't necessarily see that much there, but we will keep that under review. And thereafter, returning capital to shareholders, we've really favored the buyback to date. We like the flexibility it offers. Nothing new to announce right now. I expect this program to run through to September, all other things being equal, and we'll provide more color then. Sean Kealy: Sean Kealy from Panmure Liberum. Jody and Pete, I've got just a couple today. First of all, Jody, you mentioned Italo potentially launching in Germany from 2028. I was wondering if you could just remind us of what the landscape currently looks like in Germany. I think you had that legal case in the past with Deutsche Bahn. I'd just appreciate an update on how things stand there. Secondly, I think at the back of -- or partway through the RNS, you talked about the proposed mobility package in Europe and that this may force talks to sell each other's cross-border tickets. And I appreciate it's all really nebulous at this stage. It's just a proposal from the European Commission. You've got the tripartite, lots of bodies that get to weigh in. Can you just maybe give us a bit more color on how you're expecting that to unfold, time line? And maybe even if you have any detail on what level of support that currently has with the other bodies as well? And then thirdly, just -- this is probably a small question. I think it's the first time U.K. rail fares have been frozen in some time. Are you guys -- or have you seen so far any level of sort of volume stimulation from that price freeze? I appreciate the price freeze means the price just hasn't changed, but would you normally expect a small drop-off or something like that? I'm just interested on that. Jody Ford: Sure. Thanks for all of the questions there. So starting with Italo in Germany, I think that's hopeful speculation is the way I'd frame it at the moment. Germany is a pretty interesting rail market for us. It's the same scale, if not slightly larger than the U.K. and France. As we said, Italy and France are very much the next 3 years where we're preparing for. I'd be surprised if Italo are able to actually launch trains in 2028, great if they can, and we can support that. As a reminder, in the German market, we don't have the brand awareness that we do in France or Italy or now Spain. However, we do have significant inbound traffic, which is our sort of secret sauce, if you like, of working with the operators because we aggregate that from all the other markets in Europe and around the world. And we obviously also have inbound B2B. And these are the sort of pump-priming customers that make our entry into those sorts of markets pretty interesting for the operators and ourselves to start with. And over time, should that happen in Germany, which I absolutely expect it will, at some point, we'd be able to deploy our sort of playbook on marketing and so forth. And so I think I take this as the next 3 years really about the markets identified, but it gives us real conviction that what we said will happen throughout Europe, well, and Germany is clearly the next most important market. So it's encouraging to see that speculation. Yes. Then in terms of the broader point around various proposals, whether they be in Brussels or in other national markets in France as well, the potential for some form of policy that sort of, if you like, forces or instructs that incumbent operators need to show inventory from other operators -- from the challenger brands. I think our expectation there is that these things take real time. And who knows quite how it will play out. Some of those proposals actually have pretty interesting pieces on the commission that we would get paid like a [ FRAN ] proposal, which would be very helpful if that part came through. Exactly how they will come through, no one really knows yet. The best we can point to is what's happening in Germany with DB, where they need to show [indiscernible] train. And that means that they show the train service, but they don't show and you can't transact. You actually buy the ticket but it doesn't show the pricing. That we think is actually pretty helpful in terms of bringing visibility to customers that they have choice and then they can come to Trainline to buy the ticket. If it was to go in a direction of actually allowing the purchase, where we get to on that is the complexity inherent in providing multiple other carriers and all of their tickets and all of their railcards, and that's what we do, and it's taking a long time. And is the incentive structure aligned that they would do it in a way that customers would trust them? I think it's kind of pretty unlikely we'll get to that point. But look, we keep an eye on that, and we're very focused on France and how we bring that to life. And then finally, in terms of U.K. rail fares and volume simulation, it's pretty hard to assess at this early stage what that looks like. And it wasn't particularly -- the timing of it meant there wasn't a huge amount of marketing. There's a small amount of marketing on that, but I don't think we would yet say we're seeing any kind of volume increase there. Peter Wood: Yes. The only add I'd put is that many journeys are not discretionary, and so you don't really get signal from those. And I agree with Jody. It's pretty early days to see anything on the discretionary journey. Of course, there are more other pressures on household wallets as well, and that's evolving and changing over time as well. But yes, no clear signal at this point. Alastair Reid: If I may, one extra. Feels not been enough to talk about AI. It's great to sort of hear some of your thoughts around sort of the difficulties of disintermediation and the like. Can you perhaps just dig into that a little bit more? I mean, in a world where there's just GBR sort of existing as the sort of the train operator, how hard sort of really is it for generically some form of sort of agentic AI to try and get some accreditation to be able to talk to the train operator directly and not go through yourselves or even their sort of ticket retailing app? And sort of how hard is it really to sort of replicate things like your Signalbox technology and the like? Jody Ford: So I think the way we think about it, and I outlined it to some degree, the kind of moats we've got. We've got the sort of 2 moats here, which I think actually make it quite hard. There's the platform moat, which when you think and look at that, the money that is being moved up, whether it's GBP 4-plus billion in the U.K., coupled with doing all of the carrier integration and the sort of the full stack platform, not just sort of showing the availability of tickets, but actually processing the ticket, issuing the ticket in real time so that people can use it and then providing customer service, that's a pretty complex set of things that any sort of challenger would need to do AI or not. And then from a customer point of view, I think the 18 million customers is a heck of a distribution moat to start with in terms of brand and scale and trust that we have there, where we're increasingly layering over a kind of verticalized AI in terms of doing that. But what I'd really call out, right, we've had Uber competing in this market for [ 4 ] years where they're effectively giving 10% back to Uber One customers. I think at the launch, it was 5% to any other customer and their market share has remained around 2% or below. So look, our job and the way we framed it internally is to use AI to drive our competitive advantage because we have scale, because we're not just doing it in the U.K., we're learning across all markets and to do it in a way that the customers get benefit from that. And look, we're going to be competing against GBR. And I think we would back ourselves to kind of outcompete GBR kind of ultimately government-sponsored rail app where we've got the talent and the scale, and we've got basically what will end up being a 4- or 5-year head start on their jump there. So we think AI will ultimately be something very much as part of our advantage in that market. James Lockyer: It's James Lockyer from Peel Hunt. One of the points that GBR might play on is potentially being able to offer better pricing if they're somehow able to, say, not charge a booking fee or to do some equivalent split sale. Historically, you've focused on your tech being best-in-class as well as incumbency, and that's why you hope to continue to win there. But I wonder if you ever thought about your ability to actually be cheaper -- to, like, wholesale be cheaper, for example, if someone books a hotel to then not charge them the booking fee, for example, or even, given your ability to forecast demand, even taking ticket inventory risk in advance at lower prices and then offering those to customers on the day at a bigger discount? Jody Ford: Sure. Just to speak to the high-level part of the question. we expect GBR to launch without a booking fee. I think we've proven and using the [ Vibra ] example why the vast majority of customers in the U.K. have seen real value in Trainline, helping them find the cheapest ticket for what they want to do, helping them have a UX that supports them and increasingly disruption features they are prepared to pay for. Expect us to sort of test and experiment around fee structure and what that might look like and where we're adding value, how can we kind of go there and support. So I think that will be an area of innovation going forward, but we're very confident in our premium position and what that will look like. And then in terms of the things that you kind of offer there in terms of how we might look at pricing, I think those are very interesting areas, particularly the area around kind of hotels and putting packages together. That's an area where there's lots of innovation in other industries outside of rail, and it would seem very natural for us to do that. I think the kind of buying volume ticket and taking inventory is pretty unlikely and certainly in the short, medium term for us. So I think that's how we're kind of approaching it. Pete, any adds you want to make? Peter Wood: Yes. I think Trainline Flex, like using insurance product is probably -- and it's not necessarily cheaper per se as a headline price, but that ability to give customers a more expanded choice where the rail ticket is at the heart of it, but there are other flexibility options that we could build in, that could be an interesting vector that we explore further. James Lockyer: Sorry, it might be a bit of a downer to finish on. I guess just a couple of numbers of these things. There was quite a big working capital outflow. Again, just Pete, maybe just some sense as to might that reverse and what's driving that? And then also, you touched on kind of the regulatory spend, the cost in the U.K. Again, just looking at H1, H2, admin expenses in the U.K. were, I think, GBP 8 million greater in the second half, having been pretty flat in the first half. So is that really all to do with that regulatory sort of factors at play? Or is there anything else you want to call out? Peter Wood: I'll take the second one first. There was a balance sheet cleanup, which also fell into H2 mid-single-digit million. So that's another part of the equation to consider. On working capital, yes, it's a good question to end. The year ended on a Saturday, and so the credit card creditors were building. Next year is going to end on a Sunday, so it's going to be compounded again, but it is simply down to the timing effects. Jody Ford: Great. We'll finish there. Thanks. That's all we've got the time for today, but thanks for all the questions and for attending today's presentation. To recap, we've had another strong year. We're making really good progress against our strategic priorities for growth, and we remain confident for the long-term growth opportunity. I look forward to speaking to you again soon. Thanks, everybody.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Arkema First Quarter 2026 Results and Outlook Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Thierry Le Henaff, Chairman and Chief Executive Officer. Please go ahead, sir. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Q1 '26 Results Conference Call. Joining me today are Marie-Jose Donsion, our CFO; and the Investor Relations team. As always, to support this conference call, we have posted a set of slides which are available on our website. I will comment the highlights of the quarter before letting Marie-Jose go through the financials. And at the end of the presentation will be available, as usual, to answer your questions. In the continuity of 2025, market conditions remained soft into January and February 2026 before improving in March. Regional trends were contrasted with demand continuing to be subdued in Europe and in the U.S., while Asia showed again solid momentum across several of our end markets. In addition, the quarter was once more affected by the depreciation of the U.S. dollar compared to last year, while this impact is expected to be more limited from the second quarter onwards. End of February saw the outbreak of the conflict in the Middle East, which started to impact global supply chains and quickly led to a sharp rise in certain raw materials as well as in energy and logistics costs beginning in Asia. So in this complex environment, Arkema delivered stable volumes year-on-year, a solid performance in the context. This was particularly driven by Specialty Materials whose volume increased by 1.5%, supported by a strong pickup in March. All Specialty Materials segments were up. Coating Solutions benefited notably from better dynamics in UV curing resins. Advanced Materials posted solid growth in key attractive markets for high-performance polymers. These were supported by durable goods and some limited improvement in construction. This volume performance also reflects Arkema's continued momentum in high-growth pockets with volumes up 15% in attractive end markets such as batteries, sport, 3D printing and healthcare. Batteries once again delivered strong growth, supported by the rapid expansion of energy storage systems, a key additional driver for the group, particularly within High Performance Polymers. As a result, Q1 EBITDA came in slightly above expectation, reaching EUR 283 million, up 14% versus the fourth quarter of 2025, supported by an improvement in March. EBITDA was nevertheless down year-on-year, primarily impacted by a significant negative currency effect of around EUR 20 million and the absence of rebound in the U.S. and euro so far. Besides, Advanced Materials experienced a slow start to the year, in line with the trend observed in Q4. However, momentum improved in March and Q2 should be up sequentially supported by HPP. I would also like to underline the good performance of Coating Solutions, which improved its EBITDA margin by 100 basis points, supported by a more favorable product mix. Adhesive Solutions delivered a significant sequential improvement despite being down year-on-year. On the other hand, Primary Materials increase earnings slightly year-on-year, mainly driven by legacy refrigerant in the U.S., and actually, the improving spreads in Asia came late in the quarter and so had only a limited impact while the business in Europe and the U.S. continued to be challenging, particularly in January and February. However, from today's perspective, it is fair to assume that the acrylic spread should improve in Q2 with the magnitude still to be confirmed. As you can expect, all teams are fully mobilized to effectively and swiftly manage the current economic and geopolitical challenges. In the first quarter, we have set fixed cost inflation of at constant currencies, and we are well on track to achieve this objective for the full year, supported by a number of cost-cutting initiatives. Turning to the Middle East crisis. The group is reacting swiftly to mitigate supply chain disruptions, both in terms of raw material availability and more important input cost inflation. Pricing adjustments have been initiated to our sales increase in raw materials, energy and logistics costs, while actions deployed selectively by product, market and geography. This has required close and continuous coordination with both suppliers and customers, cost increases will become visible in Q2. Arkema's well balanced geographical footprint to serve customers predominantly from the region is worth mentioning, as a good advantage in the current environment. So far, we have been able to navigate this crisis without any supply disruption. Moreover, Arkema remains focused on executing its major growth projects. So group is currently finalizing the completion of its new PVDF capacity in the U.S. scheduled to start mid-year. This will add 15% additional capacity in the region to meet growing demand for locally manufactured PVDF, particularly for energy storage systems, semiconductors or cable applications. In parallel, the group also announced a further 20% capacity expansion at its PVDF in China, set up to start in 2028. Also, the new unit of Rilsan Clear, downstream of PA11 in Singapore started up successfully at the beginning of the year and is expected to support HPP earnings momentum from Q2 onwards, driven by capacity ramp-up. I would also like to underline the strong first quarter performance of PIAM. EBITDA was up more than 30% year-on-year in local currency with a 35% EBITDA margin. As highlighted during our last call, PIAM continues to benefit from good momentum driven in particular by solutions for foldable and ultra-thin smartphones as well as its expansion into higher-end application. We expect this positive trend to continue into the second quarter with robust year-on-year sales growth. In addition, Arkema stays disciplined in its capital allocation, we delivered a solid performance with regard to working capital management. This contributed to recurring cash flow coming in better than last year. This performance also reflects lower CapEx, fully in line with our EUR 600 million full year CapEx target. I will now hand it over to Marie-Jose for a more in-depth look at the financials by segment before we discuss the outlook at the end of the presentation. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. Arkema's Q1 revenues at EUR 2.2 billion were down 8.4% year-on-year. They were impacted by a negative 5.1% currency effect, reflecting mainly the weakening of the U.S. dollar against the euro compared to Q1 last year. Volumes came out broadly stable year-on-year, supported by a strong month of March after a relatively soft start of the year. The price effect was a negative 3%, reflecting essentially the lower selling price environment compared to Q1 2025, in line with the progressive decrease in raw material costs observed in 2025. Q1 EBITDA came in at EUR 283 million. The currency effect represented a negative of around EUR 20 million. Looking at the performance by segment. Adhesive Solutions achieved an EBITDA of EUR 89 million. It reflected on top of the currency impact, the still weak demand in North America and Europe, volumes grew significantly overall or slightly less overall, supported mainly by Asia. This performance was driven mainly by adhesives for durable goods with an improvement in aerospace and heavy truck markets in North America. On the other hand, packaging remains soft and construction was better oriented, especially in Europe. In Advanced Materials, the EBITDA stood at EUR 139 million. Apart from the currency effect, the EBITDA was essentially affected by the unfavorable product and geographical mix. Market conditions in much of the quarter were similar to what we observed in Q4 last year, which means a continuing weak demand in the U.S. and in Europe while Asia continued to show a positive dynamic. Coating Solutions delivered a good performance in the context with an EBITDA stable compared to last year at EUR 51 million. Volumes were up 3% driven mainly by strong growth in Asia, in particular, in new recurring resins. The EBITDA margin improved by 100 bps at 13%, benefiting from our development in higher value-added applications. Lastly, Primary Materials. EBITDA was slightly up at EUR 33 million, especially supported by a good performance in legacy refrigerants in the U.S., while acrylic monomers stayed in the low cycle conditions in most of the quarter. Depreciation and amortization stood at EUR 165 million, leading to a recurring EBIT of EUR 118 million and a REBIT margin of 5.4%. Nonrecurring items amounted to EUR 45 million. That includes EUR 34 million of PPA depreciation and EUR 11 million of one-off charges, notably some restructuring and reorganization costs. Financial expenses stood at minus EUR 29 million. The increase versus last year reflecting mainly the cost of carry of our prefinanced green bonds issued end of 2024. Consequently, the Q1 adjusted net income amounted to EUR 65 million, which corresponds to EUR 0.86 per share. Moving on to cash flow and net debt. Q1 recurring cash flow amounted to minus EUR 95 million, which included the first quarter classical working capital seasonality. The working capital ratio on annualized sales stands at 16.3%, which is better than a year ago. Total capital expenditure amounted to EUR 75 million in the quarter, which is in line again with our guidance of annual CapEx spend of EUR 600 million for the full year 2026. Net debt and hybrid bonds at the end of March '26 amounted to EUR 3.3 billion. The net debt to last 12 months EBITDA ratio stands at 2.8x. Thank you for your attention, and I hand it over to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-Jose. So as you could see, despite the geopolitical headwinds, we could deliver positive volume growth across our Specialty Materials segment in the first quarter with a double-digit increase in our key attractive markets. As we move into the second quarter, the conflict in Middle East, which began 2 months ago, remains ongoing, as you know, with continued uncertainty regarding the direction and the duration, sorry, and the magnitude of its consequences on the global economy. At this stage, obviously, the key priority of the group is to remain agile in navigating this volatile environment and to adapt this pricing policy swiftly to offset input cost inflation. This is what we are clearly doing. We remain attentive to other potential impact of this context, notably on global demand as everyone. At the same time, this crisis could also create some upside as it could also lead temporary to tighter supply-demand balance in certain value chain. In parallel, the group continued to focus on self-help measures, maintaining tight cost and operational contrast -- control, as you could see in the first quarter, alongside the disciplined execution and the ramp-up of these growth projects. So in this context, the group confirms its target of a slight EBITDA growth at constant exchange rate for 2026. Before opening the Q&A session, maybe a quick word on Arkema journey during the past 20 years, and we have a few slides in the deck on this anniversary. As you know, we became listed on May 18, 2006, and we'll be celebrating the Group's 20th anniversary in a few days. Over this period, the company has undergone an in-depth and unique transformation from a big bag of commodity businesses, most of them were unprofitable at that time. They were European-centric for most of them, and we transformed the company into a global and profitable leader in Specialty Materials. Today, Arkema benefits also from a strong financial structure, solid performance, also high nonfinancial standard and offer its customer superior set of cutting-edge technology. While the chemical industry is currently in low cycle, which is reflected in the share price, leaving space for significant upside, going forward, Arkema has delivered strong long-term value creation over 20 years. EUR 1 invested in Arkema in May 2006 has become EUR 3.6 today, including dividends. Besides Arkema's share price increased over these 20 years is well above the evolution of the CAC count and its chemical peers, particularly in Europe. So thank you very much for your attention. And together with Marie-Jose, we are now ready to answer the questions you may have. Operator: [Operator Instructions] First question is from Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. So the first quarter has been characterized by better volumes in the more Specialty business in the -- and less so in the more upstream business, and yet your comment around tightening supply and demand chains would suggest that the reverse will now happen. So is that what we should expect that now the upstream businesses? And could you comment to how you see that playing out, both for 2Q and the rest of the year, maybe regionally as well, given we're expecting quite diverse performances between, say, Asia and the U.S.? Be very keen to hear your views on that. And the second question, related, but a follow-up is, what do you think the medium-term kind of structural or kind of more sustainable impacts will be or that you're seeing in customer behaviors from the conflict that's risen in the Middle East? Thierry Le Hénaff: Thank you, Tom, for your question. Obviously, we are in an interesting world where none of us know exactly what is going to happen, the visibility remains limited. So the good thing, and this is certainly what you could read from the Q1 performance and from our comments on the full year is that we remain solid, and we have -- because we have both balanced portfolio from a geographical standpoint and also from a product line standpoint, sometimes diversity brings stability. And this is the case for Arkema. So back to your question, I think that the dynamics, I would say, from a geographical standpoint, I mean, we stay with the same contract also Q2 and maybe the remaining part of the world where the engine will be clearly more Asia than Europe and U.S., but we'll see. From a product line standpoint, it can depend from months to months. What is clear is that, as we mentioned, acrylics, which is what we mentioned by your stream, acrylics will benefit in the Q2 at least from a better supply-demand balance. And I think -- so last year, we suffered clearly in acrylics. Q2, we see light in the tunnel, which is good, which shows that our strategy is producing a benefit and that the diversity of the portfolio is playing its part. Now as -- I mentioned a couple of months ago, I said this, and it was at the early stage of the Middle East crisis, I said that I believe that this crisis will have a positive and negative impacts. But all in all, for Arkema, it should be around neutral. We are still in this kind of philosophy, and this is why we confirmed the guidance for the full year. So you -- we mentioned the upstream. But in Coatings, for example, we see some good momentum in -- so reverse of last year in the quarter Q1, and we should be confirmed in Q2. With regard to Adhesives, the sort of overall resilience solidity, not wonderful, but overall resilience. In Advanced Materials, more contrast, I would say, because we believe that in HPP after a soft start, as I mentioned, we should start to see a sort of sequential momentum benefiting from all these key projects that we have mentioned and the investments. While on the opposite, Performance Additives should be maybe the loser of the Middle East crisis because this is a business, the product line, which is -- which has the most customers in the Middle East and is certainly more impacted by some raw material increase like sulfur, where you have time lag to pass it to customers. So I would say -- so I would say the portfolio will play is part everywhere. And -- but at the end, the good thing with what we deliver is that there is no surprise in a world of plenty of unknowns with some positive and negatives. But overall, we sort of neutral stability, but plenty of work for the team clearly. Now the impact of the medium term on -- from Middle East crisis, which is -- I imagine your question is on the global demand. I would say nobody knows exactly. If it lasts a long time, certainly, there should be impact because of the inflation and the disruptions. But so far, we don't see too much unless the volumes are correct. I would say, not worse than they were last year, so not an extraordinary level. But I would say not too much impact so far. So wait and see. But we confirm, I think taking everything into account, we believe that for Arkema, we -- this event in Middle East should be neutral with some positive element and some downside. Thomas Wrigglesworth: Just a follow-up on that. Do you think we can expect 2Q '26 EBITDA to be above that of 2Q 2025? I'm just trying to get some kind of reference point to understand the kind of how things might progress. Thierry Le Hénaff: My feeling and it is factored in the full year guidance. Last year, we were more, if you remember, H2, Q4, we were more around minus 25% compared to last year, then we are minus 14% in Q1, so you see that step by step, we catch up and with last year, year-on-year. And I would say we ought to be comparable, I would say, Q2 '26 compared to last year, which would be a significant step up and which is really our road map to deliver the full year guidance. So we would be really aligned with the full year guidance by achieving that. Operator: Next question is from Matthew Yates, Bank of America. Matthew Yates: I wanted to ask about the Advanced Materials division. And from the starting point of the margin you currently have, and the trajectory to get towards the mid-term guide, and in particular, the point on mix, so I'm not sure I fully understand why mix is a headwind at the moment. Maybe there's some specific products, but you alluded to geographic mix, and I'm struggling to reconcile that with the idea that your CapEx has been disproportionately in Asia to satisfy where the demand is coming from, yet somehow mix is negative. I wouldn't have intuitively assumed that the Asian demand was going to be margin dilutive or else that wouldn't be consistent with the mid-term targets. So can you just explain to me what's been going on with mix and how you see that evolving? And then somewhat related, you've announced an incremental investment in PVDF in China. There's been a lot of debate in recent years about the degree of competition and commoditization. I see one of your peers in Japan recently took a large write-down on some investments they're making. Why do you still believe that you can make a reasonably attractive return in that PVDF segment and it warrants putting more capital into it? Thierry Le Hénaff: Thank you, Matthew. A very interesting question, I think, completely of different nature. In fact, on -- overall, on the mid-term, we are comfortable on the fact that the mix, both geographical and product will improve. So this is not the topic of the short-term. The topic of the short-term is nearly mechanical, I would say. So as you know, the unit margin in Europe and U.S. are by nature on many of our businesses, higher in Europe and U.S., than they are in Asia. And it's true for many companies. The reason being that the cost structure itself is heavier in Europe and U.S., than it is in Asia. But in the end in terms of profitability, okay, we have quite good profitability in Asia as we have in the U.S., we are lower in Europe. Which means that for the same volume, when these volumes are more weighted, which is the case since 2 years in Asia because this is where we have the growth. In fact, for the same fixed cost, okay, in each of the region, you have less margin for a given volume in Asia than you have in Europe and U.S., okay? So this means that in terms of EBITDA, the EBITDA is, let's say, is comparable everywhere, but the unit margin is lower in Asia than they are and the EBITDA margin is comparable, which means that when you have more volume and more development in Asia, it weighs on the average mix in -- for the same fixed cost, it weighs on the EBITDA margin, it is nearly mechanical, in fact, okay? But now if you think longer term, Europe and U.S., we are confident on that. We recoup volumes, okay? And step by step, it will come back. And we confirmed. In fact, we are very happy to confirm the mid-term target for Advanced Materials, which will be well above the 20%, but it's purely -- this is what we explained with the mix. With regard to the product mix, I would say no, because beyond -- if I put aside this geographical discrepancy in terms of products, we develop the product with the highest margin. But again, even with themselves, they make more margin -- unit margin in Europe and U.S., than they are doing in Asia. Now on the PVDF investment in China, which is for Asia, it's not just for China, it's for Asia, as it's really very consistent with our strategy since several years. We have had many questions on this PVDF. We must say that PVDF since many years and still today, is an engine of growth and profitability for the company, and we want to develop it globally. So we have this investment in the U.S. We have this investment in China, and we are quite comfortable that this investment will have quite a good payback now. Korea, it's -- I don't know, we -- this is -- I would say, they are to pick their profile. But with regard to us, we are very comfortable on what we are doing, which shows that the quality of our innovation in PVDF, the positioning, the fact that we really focus on the high end of the range, is bringing in fruit. It can be in semiconductor. It could be in batteries. It can be in cables. I think we have a good and differentiated strategy in PVDF. Matthew Yates: And Thierry, if you allow me just to follow up. In terms of the Q2 commentary around this business, is it that there are some specific projects ramping. I think you mentioned foldable phones in the intro, for example, that are very high margin or is it just simply an overall improvement in volumes helps to have better fixed cost absorption? Thierry Le Hénaff: Yes. We got a few messages because we made the comments. I agree on the HPP, and in this matter. In fact, our message was -- Q1 was -- we joined -- to a certain extent, is linked to your first comment or your first question. I would say in the mix of Arkema, Advanced Materials in the Q1 from our standpoint was maybe the disappointing part. And the message was to say, okay, it's a soft start, but it will ramp up in the second quarter, at least sequentially. We have a good business prospect from the major project and this major project are for HPP. And also, it was to spot the mix in HPP between -- the mix in Advanced Materials in the Q2 between HPP and Performance Additives with HPP with, let's say, a positive growth momentum, including PIAM, which is doing pretty well, as you mentioned, but beyond PIAM, PVDF, et cetera and polyimide and specialty fluorogas. And on the other side, Performance Additives being impacted by the Middle East because they sell -- this is our business line, which is selling the most to Middle East and they have this sulfur topic. So this is more to give you some granularity inside Advanced Materials, which will be with, let's say, two contrasted business lines for the quarter after that, it can change. The good thing is that maybe to complete on that is that our major projects step-by-step are ramping up, and this will impact in the short- and long-term, HPP, as you know, and as we often mentioned. Operator: Next question is from James Hooper, Bernstein. James Hooper: First question, about the -- obviously, you referenced, Thierry, in your answers, the geographic mix, where it's more Asia led. Do you -- and less strong in Europe and North America. Do you expect that to change, given the kind of U.S. PMI trajectory or what we're seeing since the conflict started on the Gold Coast and in other places? And then secondly, can I also ask about March and obviously stronger than expected. Do you think any of this was customer pre-buying? Perhaps, obviously, Asia was very strong, and that tends to be the spot market and where you see perhaps the current -- most current capacity outages? Thierry Le Hénaff: So thank you for the question. I would say with regard to the geographic mix, yes, as you know, we believe in U.S. because we invested a lot there. It's 35% of our sales. And we believe that from a competitive standpoint, even reinforced by what is happening in Middle East, their competitiveness, especially in terms of energy superior. So we believe that there are in the U.S., many ingredients for this economy to rebound at a certain point. This is not what we see today. So it depends if your question is short-term or long-term? If it is short-term, we have to be cautious, and we still see these dynamics coming from Asia. Now it will -- I don't know, reverse is not really the [ weapon, ] because it would mean that Asia would get down, which would not be the case, but would rebalance with U.S. getting stronger. We are at a low point in many of our businesses in the U.S., we start to see a little bit of green shoots. There are minimal here and there, which maybe could get us feel that in the course of the year, we should see some improvement. But now there are so many elements in the geopolitics that we have to be careful. With regard to March, maybe there is a little bit of prebuying, maybe in the more stream of our businesses. Maybe now when you look at the volume in March, we are just for the company at par compared to -- not so much, but for the quarter, compared to last year. So if you take Jan, Feb, to March, and we have a tendency to look at the whole quarter with different dynamics, a slow start and some offset or catch up in March. Certainly a little bit of prebuying. But for example, if you look at April, I think we mentioned it in the press release or I think the April is starting -- is in the continuity of March, which is an element of answer also. This means that we see the good solid March is continuing in April. But we need that to have a Q2 in EBITDA comparable to last year. Operator: Next question is from Laurent Favre, BNP Paribas Exane. Laurent Favre: My question is on the downstream businesses. And I'm I guess, focused on net pricing. I was wondering if you could talk about sort of big buckets of Adhesives, Coatings and the rest. What are you seeing in terms of raw material inflation right now? Are we talking mid-single digits, low double digits, maybe high teens inflation? And are you using surcharges? Or are you expecting to see, I guess, pricing commensurate with this type of inflation? When you talk about short-term squeezes on downstream, is it a few quarters or just a few weeks and months? Thierry Le Hénaff: Okay. With regard to the raw material, all along the place, I would say, that is not only just for downstream businesses. It's for the whole company. You have increased on raw materials, which can run from a few percent to 100%. So it's really quite quick and quite steep. This is why our teams, unfortunately, were already trained with what has happened during COVID, are really moving very fast to pass price increase. Now it's clear, and you know that very well because your experience is quicker in a upstream that it is in downstream to pass to the customers. Our feeling is that the more downstream we go, the more we will have to use the full quarter to pass everything. So our idea is to fully offset instantly, I would say, for the end of the quarter. But since we have some businesses, as you know, more upstream that will have some upside effect in the case of acrylics in the quarter, it will fully offset the time lag we can have more downstream businesses. This is where the strength of the portfolio is diversity is playing. So overall, we should be good. Now it's clear that you have some different color starting from upstream to downstream in the quarter. But the idea is to have done the job, full job for the end of the quarter. The reason why it takes -- you have some time lag. I would say the profile of the customer can be very, very different, even their own constraints. So this is why, as you know, in the real life, it takes always a little bit of time. And also the raw material increase -- the waiver of the raw material increase are coming one-by-one. So this means that you need to come back and to say, okay, it's more, so we have to pass more, et cetera. So real life. But overall, with our -- and this is why we sort of comment on this comparable to EBITDA comparable to last year in Q2 because we believe that with our portfolio, there will be some plus and minuses. But all-in-all, we can manage. But it's a job which takes a lot of energy from our teams, like I imagine for everybody. Laurent Favre: And back in 2022, I mean you had very, very strong pricing even in downstream areas, at the expense of volumes. And I think at the time, you mentioned that there were certain volumes that you were happy to lose because they were lower quality, lower margins. Is there any of this right now? Or are you literally now fighting for every molecule as you see them as high quality and you want to retain those volumes? Thierry Le Hénaff: I would say our -- it's clear that when you put a lot of emphasis on price increase, especially in a world where you have a war. We should not forget in Middle East, is not what is going to push volume up very strongly. So let's say that we target more or less flattish volume, okay? And in this flattish volume guideline or context, we push the price, okay? So it's not exactly like in -- after COVID, where we are still to rationalize our portfolio, especially in the Adhesives, we are not -- this job has been done, okay? So it's more stable. But let's say, flattish volume and then we work on pricing. Operator: Next question is from Jaideep Pandya On Field Research. Jaideep Pandya: I have 3 questions. First one is on acrylic acid. Maybe -- when you look at this product in Europe and the U.S., for a long time, there hasn't been any capacity added, but margins have continuously sort of drifted downwards. Now in the backdrop of the war and the tightness in naphtha and propylene in Asia, how do you see the sort of mid-term outlook for acrylic acid? And do you think there is a need for capacity rationalization in either Europe or the U.S. given some of the markets like India, for instance, have become more and more self-sufficient. That's my first question. The second is around the sulfur topic. How do you see the upstream sort of methionine market from your point of view, the markup tons value chain given the shortage of sulfur. Have you been able to grab market share? Or is this an issue right now from your point of view? And the last question is around PA11. Obviously, you made a very big investment in Singapore. I mean when you look at the plant in Singapore today versus your French plant, in terms of operational performance as well as profitability, where do we stand today? Is this now more or less at par in terms of product output, but profitability is yet to join? Or how do we stand there? Thierry Le Hénaff: Okay. So with regard to acrylic acid, first of all, we're happy to see after, as you mentioned, a couple of years of challenges to see some improvement, and we appreciate that for the team is very important. And it's not in detriment of the downstream, which is good because you saw the Coating Solutions performance in Q1, which is at par with the previous year. So even in the previous year were not great. I think so this is a chain, which is which is solid right now. Now as we mentioned, the tightness, we have no crystal ball. I think we are cautious because we are just out of 2 years where acrylics are really under pressure, but we think that clearly with the conflicts and maybe hopefully beyond the conflict, I think we'll stabilize around more normalized spread, but let's do it step-by-step. The first step is to do our job in a market which has changed nobody with Middle East crisis, and we'll see how long will this crisis last. It's a big parameter and nobody knows about it. And after that, we'll see where we stand and we will certainly update to. I think the good news is that we benefit from this diversity of the portfolio with some more upstream business and some re-downstream businesses. On the sulfur, I think we -- on the methionine, we are not in the methionine, we -- I would say we supplied our customers. So this market share is more [indiscernible]. What we do ourselves is to supply them the best way possible. On the availability of the sulfur, we manage -- so this is the good news. Now the sulfur has increased very much. So our topic is to increase. And this is where we are sometime lag by contract. Not every market is the same. But I would say we find the sulfur. On Singapore, I would say, first of all, the good news is that the Singapore plant is running very well. It took years, as you know. We started at a low point, and we learned a lot. And now it's really a very, very nice plant, very optimized. So compared to Marseille, it's more modern, so it should be more profitable. But on the other side, the capacity is smaller than Marseille. So I would say, all-in-all, they are comparable to answer your question. Operator: There are no more questions registered at this time. The floor is back to the management for any closing remarks. Thierry Le Hénaff: Okay. So if there are no more questions, I thank you very much for your attention. And as usual, don't hesitate to contact the IR team to complete my answers. And have a nice day to everybody. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good day, everyone, and welcome to the Credit Acceptance Corporation First Quarter 2026 Earnings Conference Call. A webcast recording and transcript of today's earnings call will be made available on Credit Acceptance website. At this time, I would like to turn the call over to the Credit Acceptance Chief Financial Officer, Jay Martin. Jay, please go ahead. Jay Martin: Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation quarterly earnings call. As you read our news release posted on the Investor Relations section of our website at ir.creditacceptance.com and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of Federal Securities law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, to comply with the SEC's Regulation G, please refer to the Financial Results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures. At this time, I would like to introduce our Chief Executive Officer, Vinayak Hegde. Vinayak Hegde: Good day, everyone, and thank you for joining us today. The first quarter of 2026 represented meaningful progress across the business. Before I get into the broader themes of the quarter, I want to start with the headline numbers. For the first quarter, we delivered GAAP net income of $12.40 per diluted share and adjusted net income of $10.71 per diluted share. From a loan performance perspective, forecasted net cash flows from our loan portfolio declined modestly by $9.1 million or 0.1%, which was the smallest quarterly change we have seen in the past 3 years. On the origination side, we have seen a moderation in decline of consumer loan assignment volume from 9.1% to 4.3% year-over-year. Within that context, we continue to operate in an environment that remains challenging for nonprime consumers as we remain very intentional about how we deploy capital and take risk. The data suggests that our pricing adjustments and segmentation work are helping bringing greater predictability back into the portfolio. While we remain vigilant about the macro environment, we are cautiously optimistic that our portfolio is becoming better aligned with current conditions. These trends do not change our posture as we remain disciplined. However, they do reinforce that the actions we have taken over the past several quarters are beginning to show up in the data. More importantly, they support our long-standing focus on managing the business to maximize long-term economic profit and intrinsic value. A critical part of our evolution is how we operate internally. Over the past quarter, we implemented a new company-wide operating system that defines how we plan, execute and review the business. This system introduces consistent operating rhythms weekly and quarterly where leaders review performance, surface issues early and make data-driven decisions. We call this reinforcing a founder's mentality, which is simple but demanding expectation, stay obsessively focused on the customer, operate with ownership and never drift away from the front line. What's changing tangibly is not just cadence, but clarity. Teams are aligned around fewer, more explicit priorities, accountability is clearer across functions. Decisions are made faster with better visibility into trade-offs. This operating rigor allows us to run Credit Acceptance as a more cohesive system rather than a collection of functional silos. Over time, we believe this discipline will improve execution quality and allow us to scale without adding unnecessary complexity with the ultimate goal being how we best serve our customers. Against that backdrop, we have taken a hard look at our cost structure. Our approach to cost discipline is broader than any single action. We are constantly evaluating capital allocation holistically across the organization, how resources, talent and time are deployed against our highest priority objectives. In April, following a thorough review of how resources are allocated, we made a difficult decision to part ways with approximately 6% of our workforce. These decisions are never easy, and we approach them thoughtfully and with respect for the individuals impacted. Our responsibility as stewards of this business is to ensure our long-term viability and continue to change lives. And part of our responsibility is making sure our cost base reflects where we are today and where we need to be tomorrow. Head count changes were one outcome of this review, but the broader goal is to build a more focused and efficient operating model that supports sustainable value creation over time. This means simplifying how work gets done, narrowing our focus to the highest impact initiatives and directing investment towards areas that deliver the strongest long-term returns. We'll continue to look for opportunities to operate more efficiently and drive operating leverage over time while protecting investment in areas that strengthen risk management, scalability and dealer and consumer experience. As a part of our continued focus and disciplined execution, we made 2 strategic senior leadership additions in areas that are critical to strengthening our operating model and long-term performance. We appointed Steffen Schumann as Chief Business Officer to help integrate our pricing, performance and analytics efforts around a more data-driven and coordinated operating approach. Prior to joining Credit Acceptance, Steffen spent more than 2 decades at Deutsche Telekom and T-Mobile, most recently serving as a Senior Vice President at T-Mobile, where he focused on driving commercial growth, marketing and increasing customer lifetime value. His experience operating at scale and translating data into commercial outcomes strengthens our ability to make more precise disciplined decisions across the business. We also appointed Robert Bourrier as Chief Sales Officer to lead our sales organization with a sharper focus on dealer segmentation, frontline execution and reducing friction in how dealers engage with us. Robert brings more than 2 decades of experience in aviation, more recently holding senior leadership roles at Delta Air Lines and Wheels Up. He has led sales organizations serving a wide range of customers from small and midsized businesses to large enterprises, which aligns well with our diversity and scale of our dealer network. Together, these leadership additions reinforce our commitment to investing in talent that strengthens execution, improves decision quality and supports sustainable long-term value creation. On the dealer front, we are seeing encouraging signs, particularly with franchise and large independent dealers. We are making deliberate changes to how we support their business, including simplifying workflows, integrating more deeply into the systems they already use and reducing time and friction in origination and funding. At the same time, we are becoming more targeted in how we deploy pricing and advanced strategies. We are actively testing scenarios, analyzing sensitivities and applying more granular segmentation to ensure that we partner most deeply with dealers where the long-term economics are strongest. This is because our success is aligned with the success of our partners and their customers. We have the strongest returns when the consumers meet their obligations and our dealers build healthier businesses. And I believe it's important to note, our goal is not to regain volume at any cost. Technology and artificial intelligence, in particular, continues to be one of the most important levers for improving how we operate. Our focus is on practical application of AI to make our operations more seamless and more efficient. We are embedding AI into daily workflows where it meaningfully improves speed, consistency and decision quality. By automating high-value analytical work to free our teams to focus on insight, nuance and customer understanding. For example, during the first quarter, our AI-enabled call center agent handled approximately 5x more inbound calls than the prior quarter. This allows us to scale servicing capacity without a proportional increase in cost, while still enabling consumers to access information and complete payments efficiently. We are also using AI to automate and analyze dealer interaction data, combining performance data with dealer interaction dialogue to build a more intelligent CRM system. This gives our sales and support teams real-time insight into dealer needs, emerging friction points and opportunities to respond more proactively. Over time, these capabilities are designed to lower the marginal cost of high-quality decision-making across the business. We are still in early stages of this journey, and we'll continue to make disciplined investments focused on high-impact use cases that drive efficiency and create long-term value. We continue to focus intensely on improving our pricing and decision-making models through deeper use of data and more granular analysis. Over the past quarter, we took a critical look at where we are losing market share and work to diagnose the underlying drivers rather than simply reacting to outcomes. This included deeper analysis of performance vector segmentation by dealer segment, credit band, geography and vehicle characteristics. It is critical to understand where our economics are strongest and where refinement is needed. We're actively fine-tuning our advanced models and testing targeted opportunities to improve conversion while maintaining appropriate margins of safety. At the same time, we are evaluating scorecard enhancements to ensure our underwriting and pricing models remain aligned with current market conditions. This disciplined data-driven approach is designed to sharpen decision quality, improve consistency and support sustainable risk-adjusted growth over the long term. To close, I want to reiterate the purpose that drives us. Our mission is to change lives by providing access to credit that enables people to obtain reliable transportation and create opportunities for financial progress. We believe all consumers deserve respect and that dignity should never depend on a credit score. This principle is the foundation upon which we are building Credit Acceptance with the goal of compounding intrinsic value over time. This will require discipline, transparency and a willingness to make difficult decisions when needed. It also requires continuous improvement in how we operate, how we serve our dealers and consumers and how we allocate resources. Progress will not always be linear, but the operational changes we are making today across credit, cost structure, operating discipline, customer experience and technology are designed to make Credit Acceptance more durable, more agile and better positioned for the future. With that, I'll turn it over to Jay to walk through the financial results in more detail. Jay Martin: Thank you. We reported year-over-year growth in earnings for the first quarter with GAAP net income of $135.8 million or $12.40 per diluted share and adjusted net income of $117.3 million or $10.71 per diluted share. From a loan performance standpoint, forecasted net cash flows from our loan portfolio declined $9.1 million or 0.1% during the quarter versus a decline of $34.2 million or 0.3% last quarter, reflecting reduced volatility and forecast changes. As Vinayak mentioned, this was the lowest quarterly decline we've seen in the past 3 years. Loan volume declines continued to moderate this quarter with unit volume declining 4.3% this quarter versus a decline of 9.1% last quarter. Likewise, loan dollar volume declined 4% this quarter versus a decline of 11.3% in Q4. We financed nearly 96,000 contracts for our dealers and consumers, collected nearly $1.5 billion overall and paid $47 million in dealer holdback and accelerated dealer holdback. Additionally, we enrolled over 1,500 new dealers and had a record 10,977 active dealers during the quarter, reflecting continued engagement across our dealer network. Our market share in our core segment of used vehicles financed by subprime consumers for the first 2 months of the quarter, the period for which data is currently available, was 4.5%, down from 5.2% for the same period in 2025. The average unit volume per active dealer declined 6.5% year-over-year, while our average loan portfolio remained steady at $8.9 billion on an adjusted basis year-over-year. From a capital standpoint, we closed our first ABS transaction in the year earlier today, raising $450 million in capital. The all-in cost was 5.2% compared to 5.1% on our most recent securitization in Q4, with the modest increase driven by higher treasury rates. Despite a volatile macroeconomic backdrop, the transaction was supported by a broad and diversified investor base and achieved our lowest credit spread since late 2021. At this time, Vinayak and I will take your questions along with Jay Brinkley, our Senior Vice President and Treasurer; and Jeff Soutar, our Vice President and Assistant Treasurer. Operator: [Operator Instructions] Our first question comes from Moshe Orenbuch of TD Cowen. Moshe Orenbuch: The data that you show for collections shows some improvement in performance in prior vintages, but some deterioration in 2026. And in the footnote, it attributes it to canceled loans. I mean I know you've -- could you just maybe explain what that is and whether that's something that either will continue or was onetime in nature? Jay Martin: Yes. So it's something we see just about every quarter when we originate loans. We don't have enough loan performance experience yet for the loan performance impact the collection rate. But our numerator, when a loan cancels, our collection rate drops to 0 on that loan, but our denominator still has the original contract amount in that. So in the quarter, something is originated. Generally, the change you see there is driven by these cancellations. So if you go back to first quarter last year, you'd see the 25 loans were down 20 basis points in Q1, and that's driven by these cancellations. And it's nothing that's onetime. It's something that impacts all our origination years. It's just more -- you see it more in Q1 because those are the loans you originated. You don't have multiple quarters of originations in a year where loan performance is offsetting that cancellation. Moshe Orenbuch: Great. And I did notice that an increase in the percentage of originations on the purchased loans and sort of when you look at the spread on the portfolio loans versus the purchase loans, the spread was roughly flat on the portfolio loans, but down on the purchase loans. Is that like what it is taking -- that's what it takes to get that volume? Like, maybe could you just describe what's going on from your perspective in terms of those 2 pieces of the portfolio? Jay Martin: Sure. Vinayak Hegde: Okay. I'll start and then you can jump in. I think in '25, we expanded the dealer access to the purchase program to include all contracts from consumers with higher credit ratings. So the dealers have the option to use both portfolio and purchase. We kind of still price them with the same focus on maximizing economic profit. For perspective, the loan mix is purchased is 28% and it is well within the historical range of 20% to 40% over the last 6 years. On the spread, Jay can comment on that. Jay Martin: Yes. So part of that, when you're looking at the spread table in the earnings release, you're looking at what the spread is now based on the current forecast. So if you look at the table above that, if you look at purchased loans, the 25 loans have outperformed their initial forecast by 20 basis points. The 26 loans have underperformed. So that leads to a little bit of that difference in the spread, just the impact of the loan performance there, where the dealer loans in '25 have been generally consistent with our initial expectation. Operator: Our next question comes from Rob Wildhack of Autonomous Research. Robert Wildhack: I wanted to ask about the revision to forecasted collection and how that flows through to the provision in the income statement. You've got the negative $9 million this quarter, but a provision expense of $54 million for forecast changes. And I contrast that with last quarter, you revised collections down by a lot more, $34 million, but the provision for forecast changes was close. It was $57 million. So I guess the question is, why doesn't the lower forecast change this quarter, the $9 million flow through to a lower provision expense in the income statement? Jay Martin: So I'll take that. First, I'd point out the provision for forecast changes in December was actually $73 million. So some of that difference is due to the change in forecasted net cash flows being down $9 million this year (sic) [ $9 million this quarter ] versus $34 million last quarter. But when you look at -- when you think about our provision for credit losses on forecast changes, it's driven by a change in the net present value of future cash flows. So that considers both the decreases in undiscounted cash flows that we referenced there and then also the overall cash flow timing of approximately $12 billion in future net cash flows that we're considering. So in both of those periods, a large contributor of the provision for credit losses was the overall slowing of forecasted cash flows. And that's primarily related to prepayments. We're seeing a lower level of prepayments than what our forecast would expect. Historically, when the environment is competitive, we've seen more consumers prepay their loans. We're not seeing that in this current cycle. Difficult to say exactly what's driving that. We think probably a couple of things. Consumers are holding on their cars longer, could be related to the prices of new cars, could also be consumers having more negative equity, making them hard to refinance. So our forecast assume that prepayments are going to normalize at some point in the future. They haven't yet. We'll continue to evaluate our forecast and make revisions as we find opportunities to do so. Robert Wildhack: Okay. And all told, the negative $9 million is still quite a bit better. I'm curious if there's anything that you want to highlight as a main driver there? Do you think there's something specific to the consumer tax refunds or lower tax withholdings this year? Or do you think it's more natural like vintage remixing away from '22 and towards some better vintages? Vinayak Hegde: Yes. Thank you. Yes, it's both the fact vintage remix of the '22, '23 cohort shrinking and the real performance of the newer vintages in the '24 and '25 vintages, right? The '24 vintage is performing at or above the level '25 is definitely tracking ahead. And what happens is every quarter goes by, the relative mix of '22, '23 becomes lesser as compared to the '24, '25 and that confidence from that portfolio improving helps us kind of improve that on an ongoing period. Operator: [Operator Instructions] Our next question comes from Jordan Hymowitz of Philadelphia Financial. Unknown Analyst: This is Dan [ Furtado ] in for Jordan. I just tried to recall my question because Rob from Autonomous just asked it. Operator: Our next question comes from Moshe Orenbuch of TD Cowen. Moshe Orenbuch: Maybe just to understand how you're thinking about the market share. I know it's just the first 2 months of the quarter. But is there -- are there specific things that you're doing to regain that market share or things that you think are factors in it? And what would cause those to change to your benefit? Vinayak Hegde: Yes. Moshe, thanks for the question. Yes, I mean, the latest data obviously shows February stable from Q4 at 4.5%. I mean we are not trying to gain share at any cost, right? We're being very deliberate about the trade-offs. We didn't price aggressively to get to the previous thresholds. Our focus is continuing to be having good economics. And -- but what we are trying to do is to understand it by segment, by price point, by credit band, by the geography and see if we can get sharper in pricing without compromising return on investment. And it's very early but that's what we are starting to do so that we can actually understand whether it's over advance or pricing, how do we understand this at a more segmented level, what is the competition in those particular areas, be it the independent or franchise and selectively go after pockets of opportunity. So that's what we are trying to do. We don't want to get share just for the sake of getting share. Moshe Orenbuch: Got it. And maybe just a housekeeping question. I noticed the claims expense was down pretty sharply, which is a good thing. Is that the new level? Or is there something onetime in there? Jay Martin: This is related to the provision for claims. Moshe Orenbuch: Provision for claims, sorry, yes. Jay Martin: Yes. So, yes, I would say the profitability on those contracts there has been fairly consistent. You do see some volatility quarter-to-quarter. So I wouldn't read too much into just the impact this quarter. So nothing unusual there or a new trend. Operator: With no further questions in the queue, I would now like to turn the conference back over to Mr. Martin for any additional or closing remarks. Jay Martin: We would like to thank everyone for their support and for joining us on our conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you. Operator: Once again, this does conclude today's conference. We thank you for your participation. You may now disconnect.
Jody Ford: Good morning, everyone. Thank you for joining us today for our results presentation. It's great to be here. I'm Jody Ford, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer. On to the agenda for today. I'll give an introduction briefly discussing the progress we've made this year and updating you on the regulatory backdrop in the U.K. Pete will talk you through our financial performance. I'll update you on how we're progressing against our strategic priorities, and we'll finish with an overview of our AI strategy, which is becoming a core part of how we compete. After that, we'll open up to the floor for questions. Trainline is Europe's #1 rail app built on a market-leading customer experience. Our core purpose is to empower greener travel choices. And each of these 3 business units is a leader in its market segment with clear opportunities to scale. In the U.K., we are the #1 travel app. We are helping to grow the rail market and increasing the value of our 18 million customer base. In international, we are the largest rail aggregator in Europe. We will deploy our proven aggregation playbook across France, Italy and Spain, markets expected to be worth EUR 23 billion by 2030, including EUR 12 billion on aggregated high-speed routes. And in Trainline Solutions, we have the leading B2B rail platform across the U.K. and Europe, which now generates over GBP 1 billion of net ticket sales. We plan to grow further into the EUR 6 billion business travel opportunity in European rail. This year, we've made strong progress in each of our business units. In the U.K., we've delivered growth while strengthening customer engagement through new rail disruption features and digital railcards. In international, our aggregation playbook drove positive momentum in the Southeast France following Trenitalia 's expansion. And in Trainline Solutions, B2B sales grew strongly, particularly in Europe. We delivered robust net ticket sales and revenue as well as double-digit growth in profitability. And we've delivered strong EPS growth further accelerated by ongoing share buybacks. Before I hand over to Pete, let me update you on the U.K. regulatory and industry backdrop. A key focus for investors is the U.K. government's intention to launch GBR Online Retail, its consolidated app and website as well as the design of the future retail market. In November, the government published the output of its GBR consultation. This included plans to develop, for the first time, a Code of Practice owned and managed by the independent regulator, the ORR. This will codify how GBR should interact with third-party retailers. In December, the government published pre-tender documentation outlining procurement plans for the launch of GBR Online Retail. It included a stated aim to award a contract by January 2027. However, the tender process has yet to begin. We'll engage positively with both processes and maintain our assertive stance with government to deliver on its commitment to a fair, open and competitive retail market. Today, there are instances where operators self-reference their own retail channels. Through our sustained engagement, we are making progress to remove these instances. The government has confirmed our access to all temporary fares and granted our ability to advertise in stations and on trains. Furthermore, in March, they announced that, once GBR is established, passengers will be able to claim Delay Repay compensation from wherever they purchase their ticket, including through Trainline. This was a meaningful step forward. However, it will take some time for this change to come into effect, so Delay Repay remains a pain point for our customers. Similarly, we remain unable to offer customers access to train operator loyalty schemes. We continue to engage government stakeholders and the wider industry to remove examples where we are discriminated against. We're also engaging with the industry to protect and grow the U.K. rail market. We are trialing our digital pay-as-you-go technology with East Midlands Railway. Our technology is performing strongly, and we've received excellent customer feedback. The trial is due to end in the summer, and we'll look to update you thereafter. We continue to take steps to protect industry revenue by blocking fraudulent processes and refunds, and we're sharing data with operators to enhance their revenue protection while assisting their fraud prevention measures. And with that, I'll hand over to Pete to talk through our financial performance. Peter Wood: Thanks, Jody. Good morning, everyone. Before I step into the financial performance for the group, let's briefly unpack the performance of each of our business units. Starting first with U.K. Consumer. Net ticket sales grew 6% to GBP 4.1 billion. This reflected market recovery within the commuter segment in the first half as well as growth in leisure travel sales. Growth slowed in the second half, reflecting the impact of Project Oval as well as operators self-preferencing their own retail channels with features such as one-click Delay Repay. Turning next to International, where we maintained a disciplined focus on our core markets. Net ticket sales grew 3% to GBP 1.1 billion. We saw strong momentum on newly aggregated routes in Southeast France. Growth in Spain moderated, reflecting a more balanced approach to growth and profitability as well as a series of tragic rail accidents, the impact of which is ongoing. In foreign travel, growth reaccelerated to 5% in the second half as we lapped the headwind from changes to Google's search results page. As a reminder, Google made a series of changes that suppressed organic results while increasing the prominence of paid ads. This disproportionately affected foreign travel sales, which relied more heavily on web acquisition. Growth rates varied across our international markets as we prioritized marketing investments on routes with carrier competition. Starting with Spain and Southeast France, which together represent 22% of international net ticket sales, growth was up 9%. Elsewhere in France and in Italy, growth was more modest, up 2%. These markets account for around 2/3 of international net ticket sales and are expected to benefit from the expansion of carrier competition in the coming years. Germany and the rest of Europe declined 6% as we prioritized our core markets with these regions representing longer-term growth opportunities. Overall, our International business is becoming increasingly profitable. It's benefiting from higher-margin foreign travel, strong growth in ancillary revenue and disciplined marketing investments, including in Spain, as we balance growth and profitability. Two years ago, our international business broke even on a pre-transaction fee basis. And in the year ahead, we expect international to break even on a headline post-transaction fee basis. Now turning to Trainline Solutions. Net ticket sales grew 14% to GBP 1.1 billion. Growth was led by B2B distribution, which grew 36%. This reflected new and expanding travel management company partnerships. It was particularly evident in Europe where B2B sales through our global API grew 58%. Sales growth was partly offset by the loss of Trainline's white label contract with U.K. rail operator CrossCountry, and we expect the loss of our ScotRail contract this year as they seek a different partnership to better align their online and offline sales. In the long run, the rail industry anticipates that operator apps and websites will be replaced by GBR Online Retail. Bringing this together, group net ticket sales grew 7% to GBP 6.3 billion. Revenue grew 2% to GBP 453 million, given the reduction in the U.K. commission rate. Gross profit was up 6% to GBP 374 million, outpacing revenue growth. This reflected lower cost of sales, given step reductions in U.K. industry costs and group-wide efficiency savings in customer service and payment processing. We continue to drive strong cost discipline across the business. Our cost-to-income ratio reduced 4 points to 70%. This represents operating leverage, cost optimization in the prior year and ongoing cost discipline. Importantly, these efficiencies have more than offset the impact of the U.K. commission rate reduction. As a result, adjusted EBITDA grew 11% to GBP 177 million, outpacing revenue and net ticket sales growth and landing within our previously upgraded guidance range. We continue to execute our share buyback program at pace, supported by strong cash generation. Since September 2023, we have repurchased GBP 294 million of our shares, equivalent to 23% of issued share capital. Upon completion of our current GBP 150 million program, we will have returned a total of GBP 350 million to shareholders over a 3-year period. Together with strong earnings growth, this has driven a significant increase in earnings per share. EPS has more than quadrupled over the past 3 years with a compound annual growth rate of 62%. Altogether, I'm pleased with our performance, particularly the strong earnings growth and cash generation. Looking forward, we see opportunities for growth alongside some near-term headwinds. And in the year ahead, we expect net ticket sales of around $6.2 billion to $6.45 billion, revenue of around $440 million to $455 million and EBITDA of around 2.9% of net ticket sales, which would represent a 10 basis point increase, reflecting the benefit of International Consumer breaking even. Thank you, and I'll now hand back to Jody. Jody Ford: Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities. We are the U.K.'s #1 travel app. Our app is designed to meet the everyday needs of rail users. Rail is a high-frequency mode of transport, but booking can be complicated and travelers often face journey disruption. Our app provides end-to-end booking flow and travel companion features that support customers on the go. This has become central to our customer experience and our core customer touch point. In fact, the app is used for over 90% of our customer transactions in the U.K. Our U.K. customer flywheel is strengthening the competitive position of our app. It focuses on unlocking value, solving customer needs, building loyalty and increasing engagement. Let's look at some examples from the year. In terms of solving customer needs, this year, we launched AI-powered disruption features in the app, helping customers navigate the rail network. They include Travel Forecast, our AI travel assistant, and Delay Repay notifications. We supported the launch with a targeted brand campaign highlighting a better Way to Train for our customers. I'll talk more about these features later in the AI section. Trainline has cultivated strong brand affinity with customers over many years. We are the most trusted brand in U.K. rail retailing and our brand consideration significantly outperforms all other rail retailers. This has supported Trainline's continued growth in the U.K. even in the face of strong competition, and it's becoming increasingly important in an AI-driven search world. We are scaling in-app railcards as a way to drive customer engagement with enhanced upselling within the booking flow, highlighting to customers how much they could save by buying a railcard alongside their ticket. And we've improved the renewals process too. As a result, we now have 2.7 million digital railcard users, up 16%. We're gaining good traction with younger cohorts. Our share of the 16- to 30-year-old railcard segment has now increased to 45%. This is driving greater customer engagement with railcard users transacting 4x more often than non-railcard holders. We increasingly focus on growing our ancillary products and services. This year, we delivered strong double-digit growth in hotel bookings and insurance sales, having enhanced their prominence within the app. This includes visually engaging placements as well as improved benefit-led copy for our insurance products. We'll continue to broaden our ancillary products, testing adjacent services like car hire and investing behind those we see resonating with our customers. We are taking steps to enhance advertisements within the app. We are shifting from traditional ad placements to integrated, targeted and contextual advertising through the customer journey. This improves relevance for our customers and effectiveness for our partners. Now turning to international, where we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel and driving improved profitability. Starting first with Southeast France, where Trenitalia significantly expanded their services this year. As the region liberalized, we rolled out our aggregation playbook. We leveraged our highly rated mobile app to showcase all the fares from high-speed carriers. We launched sponsored search, a paid service that allows carriers to increase their prominence within our search function. And we deployed features to unlock value for customers like TopCombo, which allow customers to stitch together different carriers for return and multi-leg journeys. We've also resumed brand marketing in Southeast France. Through innovative campaigns and sponsorship deals, we've increased brand awareness to 50% across Paris, Leon and Marseille. As a result, we've grown net ticket sales by 26% in the region. Our success in Southeast France builds on the aggregation playbook that we refined in Spain over recent years. As a result of our investment, we significantly scaled net ticket sales. This has given us considerable lead versus other market aggregators. While we continue to see runway for further growth in Spain, this year, we evolved our approach to strike more of a balance between growth and profitability. We are normalizing brand investment while placing more emphasis upon customer engagement and monetization. As a result, Spain's EBITDA took a big step towards breakeven in the second half of the year prior to recent rail disruption. Spain and Southeast France represented the first wave of carrier competition in Europe. We're now preparing for the second wave, which will sweep across Italy and the rest of France. This is set to commence from late '27 with SNCF's entry into Italy, followed by several new entrants launching in France from 2028 onwards. This includes Velvet, Le Train and Ilisto who are due to launch domestic services, and Trenitalia and Virgin Trains who are due to launch services between London and Paris. The second wave of carrier competition in Europe will open a considerably larger market for Trainline over the coming years. By 2030, the French and Italian rail markets are set to be worth around EUR 20 billion, EUR 10 billion of which will be from aggregated high-speed routes. And the market opportunity for newly aggregated routes may expand further. News flow last week suggested that from 2028, Italian operator, Italo, are planning to launch high-speed services in Germany, one of the largest rail markets in Europe. Foreign travel represents a large and attractive growth opportunity. It comprises global customers from the U.S., U.K. and the rest of the world traveling in Europe by rail alongside intra-EU cross-border travel. The foreign travel market in Europe today is estimated to be around EUR 4 billion, so offers significant headroom for growth. Foreign travel provides favorable economics with a less price-elastic customer base and a greater skew towards long-distance travel. It's also a higher-margin business, generating double-digit revenue take rates, given higher attach rates for ancillary products and carriers willing to pay higher commission rates for inbound customers. As a result, foreign travel is a major contributor towards international profitability. We see signals of generative AI playing an increasing role for foreign travel, given its ability to inspire travel plans and compress research time. Trainline is the early market leader in GEO, which currently contributes around 3% of new foreign travel customers. Foreign travel is an area of competitive advantage for Trainline. We combine broad inventory coverage, including recently wiring on Poland and Ireland alongside helpful travel content to inspire customers' travel plans. And that's delivered through our market-leading user experience, offering a wide range of features tailored to international travelers such as multi-language support, flexible payment options and consistent post-sale support. So foreign travelers can plan, book and manage their journey seamlessly and with confidence. Moving on to Trainline Solutions, our fastest-growing business unit, which now generates over GBP 1 billion in net ticket sales. Business travel is our main growth opportunity here and represents over 50% of Trainline Solutions sales. This is primarily generated through our B2B distribution business and our own branded channels. B2B distribution allows travel management companies and other business travel platforms to offer rail tickets to their respective customers. We increasingly support our partners to sell tickets from multiple European carriers as well, diversifying ourselves into a truly international business. They can do all through one simple seamless connection, our global API, rather than tackle the complexity of connecting to multiple different carriers. As a result, international B2B distribution grew 58%. Trainline-branded business travel also performed well. We invested to improve the experience for users and client companies over the past few years and now serve over 35,000 business customer clients, an increase of 47% year-on-year. Let's now move on to AI, which is rapidly becoming a core capability for Trainline, powering our product, our distribution and how we operate. Before we start, it's worth spending a minute discussing the barriers to AI disintermediation. Rail retailing is inherently complex. Customers expect a simple, consistent and reliable user experience with end-to-end transaction capability from search to purchase to post-sales. And that's across multiple carriers with all fares, ticket types and railcards available. With no GDS for rail, online retailers must deeply integrate into a wide array of carrier APIs to offer full functionality. Those carrier APIs are nonpublic, so the retailer needs commercial relationships and accreditations with those carriers supported by funding obligations. This complexity creates a clear barrier to disintermediation, and that's exacerbated by the relatively low commission rates offered by carrier partners. In that context, we see AI as less of a threat, more of an opportunity. And we've been on the front foot for a number of years, building our foundational investment in data and our broad application of machine learning. Our strategy centers on bringing AI capabilities to rail around 3 core areas: AI-powered products and features, extending distribution through emerging AI channels and AI-enabled acceleration across the group. Let's discuss each area in turn. We increasingly use AI together with industry and first-party data to enhance the user experience of our app. This is reflected in our new rail distribution disruption features, which are underpinned by our scalable multi-agent AI system. To bring our AI disruption features to life, let's take the example of Callum, a Trainline customer who has booked a 9:30 a.m. LNER train from London to Edinburgh. Unfortunately, there's disruption elsewhere on the rail network. Our Travel Forecast feature notifies Callum that his journey is likely to be affected, estimating his train will arrive in Edinburgh an hour later than scheduled. This feature is powered by our proprietary algorithms trained on complex data sets. So as a Trainline customer, Callum gets more accurate real-time insights. Travel Forecast also provides a map-view interface powered by our Signalbox technology, so customers can see the location of their train in real time. Since launch, Travel Forecast has delivered updates to over 3 million users. Given the expected delay, Callum consults the AI Travel Assistant, our in-app conversational support feature. It provides real-time travel advice, giving Callum options for alternative trains he can take. It offers agentic refund processing, allowing Callum to get his money back at the click of a button. Our AI system has handled over 2 million conversations since launch, reducing workloads for our customer service team. Callum decides to stick with his original booking. As predicted, his train arrived in Edinburgh an hour late and Callum receives a Delay Repay notification. Trainline's AI system identifies the delay, calculates he's entitled to compensation of GBP 37 and provides a punchout to LNER's website to complete the claim. Since launch, we've redirected over 1 million customers to complete their claim. Moving on to emerging AI channels, which present a new way for Trainline to attract customers and drive incremental demand. We've made a strong start, and we are showing clear leadership in GEO. In fact, we're the most cited rail app in Google AI search in all core markets as well as in ChatGPT across all but one core market. This reflects our strength in SEO and the power of our brand. Building on this progress, we've recently integrated the Trainline app within ChatGPT. Users can now seamlessly search for routes and compare options, all within a conversational interface before completing their booking with Trainline. While we've made good early progress, GEO still represents relatively low levels of sales traffic, making up less than 1% of new customers within international. As mentioned earlier, though, it's playing more of a role in foreign travel. Moving on to AI-enabled acceleration, driving faster execution, greater agility and more scalable innovation across the group. Our software development teams increasingly use AI to code as well as to accelerate auxiliary tasks like updating documentation, generating tests and reviewing code. Their focus is increasingly shifting towards AI agents, moving from experimentation to scaling agent capabilities. In marketing, AI agents now generate around 20% of our in-house studio content. Creating and applying imagery and copywriting that's aligned to Trainline brand has enabled us to scale the production of performance marketing ads to 19x our previous output using traditional design methods. And in customer service, we will soon roll out voice AI in partnership with ElevenLabs to progressively automate inquiry handling. We've also introduced Zendesk, a new CRM system providing AI agent tools and language translation. Taking all of this together, AI is enhancing our products, expanding our distribution and increasing the velocity of which we execute. Before we open the floor for questions, let me summarize the key takeaways from today's presentation. This year, we have delivered a robust operating performance, double-digit growth in EBITDA and a significant increase in earnings per share. We've maintained our assertive stance with the U.K. government to deliver on their commitment to a fair, open and competitive retail market. And we've made strong progress against our strategic priorities. In U.K. Consumer, we are strengthening our app proposition while deepening engagement with our 18 million customers. In International Consumer, we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel, and driving improved profitability with the business set to breakeven this year. And in Trainline Solutions, we continue to grow business travel sales within B2B distribution, enabling partners to expand their rail offering across Europe. Finally, we're increasingly leveraging AI to power our products and services, extend our distribution and accelerate our execution. Thank you very much for listening. I'll now open the floor for questions. [Operator Instructions] Timothy Ramskill: It's Tim Ramskill from Bank of America. I'm going to try and tackle 3, if that's okay. So just firstly, in terms of the guidance for 2027 and specifically with regards to NTS, there's obviously a lot of moving parts, whether that's overall self-preferencing kind of dynamics. I guess if you think about it long term, you've pretty much always grown ahead of the market, but it's likely that in 2027, that might not be the case. So just your observations around how much of that kind of guidance you think is a reflection of known factors like overall versus kind of that slippage in market share? Secondly, in terms of international, obviously, very encouraging to see the guidance around breakeven. What do you think the key drivers of that are going to be to get from the EUR 11 million of loss to flat. How much of that is likely to be marketing expenses or other cost actions versus growth in revenues? And then thirdly, you obviously referenced the kind of the TopCombo product in international, which I guess is effectively the same as SplitSave. Just interested to know are the kind of consumer saving opportunities kind of very similar to what we'd see here in the U.K. or do they do differ? Jody Ford: Great. Thank you very much for the questions. I think we'll be teaming up through these ones. Pete, do you want to start with the guidance upfront, and then I'll take the other 2? Peter Wood: Yes, certainly. Inevitably, U.K. Consumer is a significant driver in the overall guidance. And the way I think about it is there are some nearer-term headwinds that will affect this year. And we've been talking about them for a while. but they unwind over time. So the expansion of Oval will eventually cease. There's a little bit more to go. We're halfway through or so. The rail fares have been frozen this year. Our base case is that, that won't extend beyond March 2027. So that will again provide some uplift going forward. And then finally, the self-preferencing. I think the Delay Repay announcement that we had a month ago or so is clearly a good step forward. We don't have that API available today, so we aren't able to wire it in. But the direction of intent is clear, and I do think we will resolve these issues that we've flagged. So those all unwind. And then looking beyond that, there will be a moment when we are seeing the GBR shutting down other websites and apps, and that will present an opportunity for us to acquire customers that are then in the market. And of course, with digital pay-as-you-go, we've also created a seed here that could flourish as well. So in the longer term, I do see opportunity for further growth, but these headwinds remain with us in the meantime. Jody Ford: Great. Thanks, Pete. And just to kind of add there, I mean, in terms of where the question is going, absolutely see these things over the next couple of years, they lap through, and then we're pretty well positioned going forward vis-a-vis the competition and we're sort of picking that up. We don't see particular growth from those third-party players in terms of the market. And our sort of primary competition effectively remains the 14 different top operators where a number of those, as we've discussed, have got this self-referencing, which will be phased out and then we'll be competing on a kind of level playing field with them. Coming to your second question on international profitability. Look, I think the drivers there really have been this very strong growth we have seen over the last 3 or 4 years, which is great. As we look forward there, part of that story is foreign travel, which continues to be a nice growth driver, temporarily impacted by what's going on in the kind of Middle East right now, but that's a relatively small part. But we see the kind of appetite for cross-border travel increasing, and you can see new services launching. And we see opportunity there, which helps drive profitability going forward as scale does. And then where we're going on sort of the marketing point here, I think the way to sort of frame this around Spain is we have a launch period. And as a reminder, we were starting from zero brand awareness in Spain. And that ultimately meant that we had to come out with a strong kind of above-the-line campaign supported by the usual below-the-line to get our brand awareness at the point that we had all operators launching on all routes over a pretty short period of time. And having kind of worked through that, we're now, by distance, the #1 third-party player, and we've moved to this kind of position of optimization of that [ Spain ] having got our leadership position. In France and Italy, we already have that leadership position. We already have -- we shared strong brand awareness, and we will invest going forward as it makes sense in a kind of hub-and-spoke way. In France, of course, we'll invest in Paris, but we'll also invest in the cities where the new operators are going, for example, Bordeaux when Velvet launches. But that will be much more targeted than it was in Spain where we come into the whole country at once. And so we'll kind of keep discipline around that. If really big opportunities arise, we said before, we would lean in behind those as is required. But for now, we've kind of got this transition year where we think we're in pretty good shape. And then to your question -- the final question on TopCombo versus SplitSave in the U.K. Yes, they're slightly different in that SplitSave is really arbitraging, if you like, the U.K. rail pricing system. TopCombo is really doing kind of a level above that by taking 2 different operators and putting those pricing together. But you're right, the spirit is helping the customer find value through the inherent complexity of rail. And the more carriers that launch, the more of those kind of opportunities become available and the more railcards we wire on in these markets and the more we're able to kind of support an advanced purchase and help customers understand how to navigate, the more we see value for growth in those markets. So yes, and we keep finding those new areas to invest behind. And bringing TopCombo to life has been one of the kind of compelling points for our customers. Thanks for the questions. Timothy Ramskill: Just wanted to clarify. I mean on the point around international breakeven, I recognize you want to kind of keep options open in terms of what comes next, but are you confident that once you get to breakeven, you'll stay above that level? Jody Ford: I think our position is the current -- in the current setup, we would say that's right. But if a new opportunity comes in, in France, and we see multiple carriers launch and it makes sense in that year to kind of go harder with top line marketing, then we would go and invest behind it. We're not constrained by that. But the underlying market, which I think is where the underlying business -- where the question is going, we feel good about where that's headed. Yes. Gareth Davies: Gareth Davies, Deutsche Numis. Just following on really from the guidance question again. trying to dig a little more on self-preferencing. If we were to sort of hit the bottom end of the guidance range on revenue, does that assume a meaningful kind of pickup in the impact of self-preferencing? And just trying to really get a context of how big a headwind you're facing from that and what your sort of fear is there. And then secondly, just on white label, the pre-close flagged a couple of white labels sort of rolling off. Can you just talk around any potential time line for other roll-offs or possible roll-offs? And in the international white label, what kind of opportunity, if any, are you seeing there at the moment? Jody Ford: Pete, do you want to pick up the first? Peter Wood: Yes. So as ever at a group level, there are a number of factors for the guidance range and self-preferencing is one moving part, but there are others. If I think about the foreign travel impact that we are seeing, it's unclear at the moment how the macro backdrop will evolve and what impact there might be. I think we've got first order effects, which are about travel plans and their disruption, particularly from travelers coming from East towards West. But if there are impacts on jet fuel availability and prices, then that could extend to Western or South American travelers into Europe as well. And then Spain is another moving part here. We had, after these accidents, a significant dip in demand. That has somewhat recovered and moderated, but it's still, year-on-year, negative. And so that's exactly how that unfolds and rolls forward. So it's not just the U.K. that is driving this. There are other factors as well. Jody Ford: Do you want to -- briefly, you want to speak to the white label? Peter Wood: Yes, certainly. Look, we've had these 2 white label contracts, each with their individual backdrop. One was around the group -- owning group wanting to consolidate their supply base. And then ScotRail, as I said, are looking to consolidate their online and offline and wanting a different partnership for that. Our base case on the go forward is that these will run until the point at which the government turns off these websites and apps. And at that point, of course, the contract will cease. So yes, that's how I am thinking about it. And then international point? Jody Ford: Yes. I think on international, that's not a focus for us at the moment. There aren't really the same sort of size operators that we have in the U.K., which we're uniquely positioned for. So that's a priority. However, I would say we are seeing, within Solutions business, very strong demand, as I outlined in the speech, around our broader distribution business, and that is ramping up very, very nicely with quite a lot stacked back that we can see over the next few years. This is not kind of a one-off coming through as further businesses will integrate and then we grow them once they are integrated. Edward Young: Ed Young from Morgan Stanley. Two questions. First, sorry to labor on NTS growth guidance. On international, you mentioned there the moving parts. But I wonder if you could be specific about the assumptions you've embedded in recovery in Spain and in international travel, given you mentioned that some of those lines just reopened [indiscernible], the impact has been significant. International has obviously uncertainty in terms of forecasting. So are you expecting this to recover this year fully, within the year? How are you thinking about it within the guidance construct? And then second of all, with digital pay-to-go, you were probably given the most complex trial area. How is that going? Can you give some color on it? And how should we think about the next steps following this round of trials ending in the summer? Jody Ford: Great. I'll take the second one first and give some thoughts on the first and pass to Pete. Digital pay-as-you-go trial is going -- performing very well. We've been really impressed with the technology and kind of proven to ourselves and the industry that we can stand up. And with the feedback from customers, from the media and from the kind of industry/government has been really encouraging. I think we're putting the government in a place now where they can understand what this technology can do. It's really groundbreaking and for them to begin to work through how they would want to take it forward. Look, I don't think it'd be crazy to expect the trial potentially would continue as the government think through how it might want to expand it. So we're feeling good there. We'll kind of come back, post-trial, and explain where we've got to on that. And then let me give you the high level on kind of international and recovery, and Pete can speak to any specific points on guidance. Spain, obviously, those tragic incidents, we saw a very significant jump off in the sort of weeks after that. And we're now seeing that still down, but more kind of contained. And so I would expect to see a full recovery within -- probably by the end of the year, but it's obviously kind of hard to gauge that. And then just to speak to the broader point on international travel, we obviously don't know what the inbound piece looks like. There's a number of scenarios, and I think Pete spoke to kind of within the jaws of -- to be able to handle those off guidance. But underlying, it's very encouraging. We spoke kind of a year or so ago about some of the headwinds we have within Google Search. We are seeing those headwinds have effectively stopped and to some degree, a little bit of a tailwind there. And then we spoke to what that looks like within the kind of the more broader LLM platform and we're seeing just a little bit of goodness there coming through and it speaks to our opportunity there if they do indeed grow going forward. Pete, do you want to add anything on the kind of guidance specific? Peter Wood: Only really to frame this somewhat as a transitional year. You heard Jody talk about wave 1 of aggregation has completed. There is a wave 2 on the horizon, and that will come. The trains are bought and the safety certificates are being processed, if you like. But at the moment, it's adjusting our playbook for the landscape we find pulling back a little bit, focusing a bit more on profitability. And of course, there's a balance on growth. Alastair Reid: Alastair Reid, Investec. A couple for me. Obviously, you talked about the expansion of the Project Oval. I think there's been some indications that TfL might be looking at introducing barcodes. Talk about the opportunity potentially for you to get into the Oyster zone and how you might think about the opportunity that you have, if that was to happen? And then secondly, you touched on it in a couple of areas when you touched on ancillaries and really strong growth in business clients. How do you think about the future runway for both of those areas? Jody Ford: Yes. Look, I think early days to speculate on barcodes in Oval, we kind of noticed that as well. I think we think the future is ultimately the kind of digital pay-as-you-go scheme. And if those gatelines ultimately allow barcodes, then that would realize or allow the realization of that vision. It's probably quite a long way before that will actually happen and reasonable amount of CapEx spend on TfL part. So I won't speculate now, but I do think, as we look at the future of what this could hold, that's an important part of the jigsaw to come through. So it's good to see that it's being talked about. And then I think on the ancillary products, I'll give quick thoughts and then pass to Pete. I think the high level, what we're seeing is that we have a very -- 18 million customers in the U.K. and they are interested in buying other things, and that's what we've proved to ourselves over the last couple of years. Hotels, insurance are the obvious places. And we're seeing that we're getting really good kind of endemic ads and the quality of the ad partners that we've got now is really premium top tier. And they are -- we need to -- as ever, this is a playbook that others have done over the last 10-plus years. We need to develop the placements and the targeting that allow them to realize their campaigns and allows us to push up the value we get from them. And so we're encouraged by where that goes. So that's very encouraging. I don't know, Pete, you want to speak to any specifics on businesses more broadly? Peter Wood: Yes. Alastair, the ancillary is certainly an opportunity even within, say, insurance, like fine-tuning, exploring what other products might work. We are testing out this idea of a Trainline flex product, which combines the tickets that are available with some flexibility in the insurance around it and how we package that up. So I still think there's optimization to do in these areas and further to expand. So yes, it's interesting to explore that. And then you also asked about the kind of business customer and how we serve them. Look, I think their challenges are much the same as a consumer traveler and we continue to explore how we can best solve some of those. At the moment, the API is principally around the transaction and delivering a ticket. But that doesn't mean that, over time, we can't package up other aspects of our proposition in some way or other and to find ways to serve them. And in particular, in Europe, the growth is fundamentally driven by the fragmentation of the supply and trying to draw that together. And again, as a traveler, not only to buy your ticket, there are opportunities to explore that. So yes, I think that's an interesting customer set to further explore. Lara Simpson: It's Lara Simpson from JPMorgan. I also just want to come back to the guidance and the outlook on profitability. Obviously, we're getting more upgrades, which is driven by international. But it feels like there's a small inherent downgrade in the U.K. Consumer profitability outlook. So could you just talk a bit about incremental costs that you're expecting to see from cost around GBR public affairs there? Are we likely to see a step-up in marketing in the U.K. as we move to GBR standard? So just the moving parts there, I think would be helpful. And then maybe one just on capital allocation. I know we still have some way to go on the buyback, GBP 150 million share buyback, but maybe on a 12- to 18-month view, how are you thinking about organic [indiscernible] business or any inorganic opportunity to start to think about? Otherwise, could we expect to see a reload on the share buyback from the midterm perspective? Jody Ford: Great. Thanks, Lara, for the question. Let me sort of talk more broadly about GBR and then we can -- Pete can pick up on specific guidance and capital allocation. In terms of time lines of what GBR -- how we expect that to play out, I think from the kind of point of view or the delivery of that, the procurement process hasn't started yet. So it begins to look ambitious that, that would be awarded before kind of spring '27 perhaps and then whoever wins it to actually bring the GBR app to life. It's probably early '28, probably the earliest and these things do have a habit of slipping. And then we expect there to be dual running if there's 14 different top apps that need to be consolidated, that's likely to happen through '28. We're obviously -- we've got lots of time here. Very well understood in terms of the opportunity we see into where you're going on the marketing question. At the right moment, yes, look, if we feel it's appropriate, we potentially will spend up to acquire what we think is quite a potential uplift in number of customers, which is pretty interesting to us because the old app will turn off and the new app will come on. So we'll look pretty hard at that, and we've got time for [indiscernible]. Pete, do you want to speak to any specific guidance points on capital allocation? Peter Wood: Yes. No, I think you've got the right ingredients there. We are certainly taking a step forward in profitability in international that supports the group overall. Our cost optimization program that we delivered 18 months ago, I guess now, that's washed through. But yes, there are some additional costs. This is a once-in-a-generation shift for GBR really changing the backdrop of the U.K. industry. And it's important that we are appropriately advised as we engage with the government and other stakeholders through this transition. So those costs, there were some last year, there will be some this year. At some point, they will drop away, and there will be a kind of a new landscape that will be there, and we'll take the benefit when we reach that point. And then you asked about capital allocation as well. Certainly, on the organic side, we will ensure that we're well funded. We have the cash flows to do this. And as Jody articulated, there will be moments potentially in the U.K., potentially in international where we'll lean further in on the marketing side. From an inorganic perspective, we do the homework. There aren't that many opportunities out there, though. And so not expecting that -- we won't necessarily see that much there, but we will keep that under review. And thereafter, returning capital to shareholders, we've really favored the buyback to date. We like the flexibility it offers. Nothing new to announce right now. I expect this program to run through to September, all other things being equal, and we'll provide more color then. Sean Kealy: Sean Kealy from Panmure Liberum. Jody and Pete, I've got just a couple today. First of all, Jody, you mentioned Italo potentially launching in Germany from 2028. I was wondering if you could just remind us of what the landscape currently looks like in Germany. I think you had that legal case in the past with Deutsche Bahn. I'd just appreciate an update on how things stand there. Secondly, I think at the back of -- or partway through the RNS, you talked about the proposed mobility package in Europe and that this may force talks to sell each other's cross-border tickets. And I appreciate it's all really nebulous at this stage. It's just a proposal from the European Commission. You've got the tripartite, lots of bodies that get to weigh in. Can you just maybe give us a bit more color on how you're expecting that to unfold, time line? And maybe even if you have any detail on what level of support that currently has with the other bodies as well? And then thirdly, just -- this is probably a small question. I think it's the first time U.K. rail fares have been frozen in some time. Are you guys -- or have you seen so far any level of sort of volume stimulation from that price freeze? I appreciate the price freeze means the price just hasn't changed, but would you normally expect a small drop-off or something like that? I'm just interested on that. Jody Ford: Sure. Thanks for all of the questions there. So starting with Italo in Germany, I think that's hopeful speculation is the way I'd frame it at the moment. Germany is a pretty interesting rail market for us. It's the same scale, if not slightly larger than the U.K. and France. As we said, Italy and France are very much the next 3 years where we're preparing for. I'd be surprised if Italo are able to actually launch trains in 2028, great if they can, and we can support that. As a reminder, in the German market, we don't have the brand awareness that we do in France or Italy or now Spain. However, we do have significant inbound traffic, which is our sort of secret sauce, if you like, of working with the operators because we aggregate that from all the other markets in Europe and around the world. And we obviously also have inbound B2B. And these are the sort of pump-priming customers that make our entry into those sorts of markets pretty interesting for the operators and ourselves to start with. And over time, should that happen in Germany, which I absolutely expect it will, at some point, we'd be able to deploy our sort of playbook on marketing and so forth. And so I think I take this as the next 3 years really about the markets identified, but it gives us real conviction that what we said will happen throughout Europe, well, and Germany is clearly the next most important market. So it's encouraging to see that speculation. Yes. Then in terms of the broader point around various proposals, whether they be in Brussels or in other national markets in France as well, the potential for some form of policy that sort of, if you like, forces or instructs that incumbent operators need to show inventory from other operators -- from the challenger brands. I think our expectation there is that these things take real time. And who knows quite how it will play out. Some of those proposals actually have pretty interesting pieces on the commission that we would get paid like a [ FRAN ] proposal, which would be very helpful if that part came through. Exactly how they will come through, no one really knows yet. The best we can point to is what's happening in Germany with DB, where they need to show [indiscernible] train. And that means that they show the train service, but they don't show and you can't transact. You actually buy the ticket but it doesn't show the pricing. That we think is actually pretty helpful in terms of bringing visibility to customers that they have choice and then they can come to Trainline to buy the ticket. If it was to go in a direction of actually allowing the purchase, where we get to on that is the complexity inherent in providing multiple other carriers and all of their tickets and all of their railcards, and that's what we do, and it's taking a long time. And is the incentive structure aligned that they would do it in a way that customers would trust them? I think it's kind of pretty unlikely we'll get to that point. But look, we keep an eye on that, and we're very focused on France and how we bring that to life. And then finally, in terms of U.K. rail fares and volume simulation, it's pretty hard to assess at this early stage what that looks like. And it wasn't particularly -- the timing of it meant there wasn't a huge amount of marketing. There's a small amount of marketing on that, but I don't think we would yet say we're seeing any kind of volume increase there. Peter Wood: Yes. The only add I'd put is that many journeys are not discretionary, and so you don't really get signal from those. And I agree with Jody. It's pretty early days to see anything on the discretionary journey. Of course, there are more other pressures on household wallets as well, and that's evolving and changing over time as well. But yes, no clear signal at this point. Alastair Reid: If I may, one extra. Feels not been enough to talk about AI. It's great to sort of hear some of your thoughts around sort of the difficulties of disintermediation and the like. Can you perhaps just dig into that a little bit more? I mean, in a world where there's just GBR sort of existing as the sort of the train operator, how hard sort of really is it for generically some form of sort of agentic AI to try and get some accreditation to be able to talk to the train operator directly and not go through yourselves or even their sort of ticket retailing app? And sort of how hard is it really to sort of replicate things like your Signalbox technology and the like? Jody Ford: So I think the way we think about it, and I outlined it to some degree, the kind of moats we've got. We've got the sort of 2 moats here, which I think actually make it quite hard. There's the platform moat, which when you think and look at that, the money that is being moved up, whether it's GBP 4-plus billion in the U.K., coupled with doing all of the carrier integration and the sort of the full stack platform, not just sort of showing the availability of tickets, but actually processing the ticket, issuing the ticket in real time so that people can use it and then providing customer service, that's a pretty complex set of things that any sort of challenger would need to do AI or not. And then from a customer point of view, I think the 18 million customers is a heck of a distribution moat to start with in terms of brand and scale and trust that we have there, where we're increasingly layering over a kind of verticalized AI in terms of doing that. But what I'd really call out, right, we've had Uber competing in this market for [ 4 ] years where they're effectively giving 10% back to Uber One customers. I think at the launch, it was 5% to any other customer and their market share has remained around 2% or below. So look, our job and the way we framed it internally is to use AI to drive our competitive advantage because we have scale, because we're not just doing it in the U.K., we're learning across all markets and to do it in a way that the customers get benefit from that. And look, we're going to be competing against GBR. And I think we would back ourselves to kind of outcompete GBR kind of ultimately government-sponsored rail app where we've got the talent and the scale, and we've got basically what will end up being a 4- or 5-year head start on their jump there. So we think AI will ultimately be something very much as part of our advantage in that market. James Lockyer: It's James Lockyer from Peel Hunt. One of the points that GBR might play on is potentially being able to offer better pricing if they're somehow able to, say, not charge a booking fee or to do some equivalent split sale. Historically, you've focused on your tech being best-in-class as well as incumbency, and that's why you hope to continue to win there. But I wonder if you ever thought about your ability to actually be cheaper -- to, like, wholesale be cheaper, for example, if someone books a hotel to then not charge them the booking fee, for example, or even, given your ability to forecast demand, even taking ticket inventory risk in advance at lower prices and then offering those to customers on the day at a bigger discount? Jody Ford: Sure. Just to speak to the high-level part of the question. we expect GBR to launch without a booking fee. I think we've proven and using the [ Vibra ] example why the vast majority of customers in the U.K. have seen real value in Trainline, helping them find the cheapest ticket for what they want to do, helping them have a UX that supports them and increasingly disruption features they are prepared to pay for. Expect us to sort of test and experiment around fee structure and what that might look like and where we're adding value, how can we kind of go there and support. So I think that will be an area of innovation going forward, but we're very confident in our premium position and what that will look like. And then in terms of the things that you kind of offer there in terms of how we might look at pricing, I think those are very interesting areas, particularly the area around kind of hotels and putting packages together. That's an area where there's lots of innovation in other industries outside of rail, and it would seem very natural for us to do that. I think the kind of buying volume ticket and taking inventory is pretty unlikely and certainly in the short, medium term for us. So I think that's how we're kind of approaching it. Pete, any adds you want to make? Peter Wood: Yes. I think Trainline Flex, like using insurance product is probably -- and it's not necessarily cheaper per se as a headline price, but that ability to give customers a more expanded choice where the rail ticket is at the heart of it, but there are other flexibility options that we could build in, that could be an interesting vector that we explore further. James Lockyer: Sorry, it might be a bit of a downer to finish on. I guess just a couple of numbers of these things. There was quite a big working capital outflow. Again, just Pete, maybe just some sense as to might that reverse and what's driving that? And then also, you touched on kind of the regulatory spend, the cost in the U.K. Again, just looking at H1, H2, admin expenses in the U.K. were, I think, GBP 8 million greater in the second half, having been pretty flat in the first half. So is that really all to do with that regulatory sort of factors at play? Or is there anything else you want to call out? Peter Wood: I'll take the second one first. There was a balance sheet cleanup, which also fell into H2 mid-single-digit million. So that's another part of the equation to consider. On working capital, yes, it's a good question to end. The year ended on a Saturday, and so the credit card creditors were building. Next year is going to end on a Sunday, so it's going to be compounded again, but it is simply down to the timing effects. Jody Ford: Great. We'll finish there. Thanks. That's all we've got the time for today, but thanks for all the questions and for attending today's presentation. To recap, we've had another strong year. We're making really good progress against our strategic priorities for growth, and we remain confident for the long-term growth opportunity. I look forward to speaking to you again soon. Thanks, everybody.
Operator: Greetings, and welcome to the Perimeter Solutions First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Seth Barker, Head of Investor Relations. Thank you. You may begin. Seth Barker: Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions' First Quarter 2026 Earnings Call. Speaking on today's call are Haitham Khouri, Chief Executive Officer; and Kyle Sable, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, May 6, 2026, and these statements have not been nor will they be updated subsequent to today's call. Today's call may contain forward-looking statements. These statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate, and our actual results may differ materially from those expressed or implied on today's call. Please review our SEC filings, particularly any risk factors included in our filings for a more complete discussion of factors that could impact our results, expectations or assumptions. The company would also like to advise you that during the call, we will be referring to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, LTM adjusted EBITDA, adjusted EPS and free cash flow. The reconciliation of and other information regarding non-GAAP financial measures can be found in our earnings press release and presentation, both of which will be available on our website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer. Haitham Khouri: Thank you, Seth. Good morning, everyone. We're pleased to report a strong start to 2026 with first quarter adjusted EBITDA of $41.2 million, reflecting both organic and acquired growth. Our Q1 results highlight 2 key points. First, our operational value driver strategy is translating directly to our bottom line. Second, we have built a durable and predictable earnings base. This predictability is driven by 3 things: number one, new and improved contracting structures in both our retardant and suppressants businesses; two, diversification within our Fire Safety segment due primarily to the growth in our suppressants and international retardants businesses. And three, organic and M&A-driven growth in our Specialty Products segment. As always, I will start with a summary of our strategy, then provide an operational update, after which Kyle will walk through the quarter's financial results and capital allocation in more detail. Starting with a summary of our strategy. Our goal is to fulfill our critical mission by providing our customers with high-quality products and exceptional service while delivering our investors private equity-like returns with the liquidity of a public market. Our strategy is built on 3 key operational pillars. First, we own exceptional businesses. These are niche market leaders that play critical roles in solving complex customer problems, qualities that support high returns on invested capital and durable earnings power. Second, we rigorously apply our 3 operational value drivers to the businesses we own. We drive profitable new business, achieve continual productivity improvements and provide increasing value to customers, which we share with through value-based pricing. And third, we operate our businesses in a highly decentralized manner, granting our business unit managers full operating autonomy paired with the accountability to deliver results with a tightly aligned incentive structure for our managers to think and act like owners. We believe that our operational pillars will optimize our durable long-term free cash flow. We then seek to maximize long-term per share equity value through a clear focus on the allocation of our capital as well as the management of our capital structure. Turning to our Fire Safety operations on Slide 4. Our Q1 Fire Safety results are a direct reflection of the 2 themes I highlighted in my opening, the successful implementation of our operational value drivers and the durability and predictability of our earnings. Starting with our value drivers. Fire Safety's Q1 performance was driven by profitable new business. Our international retardant business was strong based on both activity in existing markets and footprint expansion in new and early-stage markets. Our global suppressants business also delivered strong results based on both new wins and higher sales to our large installed base. In addition to the profitable new business results, we delivered year-over-year productivity across our business units in Fire Safety and our internal investment initiatives translated into value-based pricing. Turning to the predictability of our earnings base. The resilience of our model was clear this quarter. We delivered year-over-year adjusted EBITDA growth in Fire Safety despite lower North American retardant sales stemming from the tough comparisons of the Eaton and Palisades fires in Q1 2025. Moving to Slide 5, where we stay with Fire Safety, but step back from the first quarter. Last week, Perimeter inked 2 milestone Fire Safety contracts that will both grow our earnings and enhance their durability. First, suppressants. We worked hard over the past several years to align our products and services with the specific needs of the Defense Logistics Agency or the DLA. On the product side, we made significant R&D investments to develop products for the DLA's unique requirements and deployed capital to expand our Green Bay, Wisconsin facility to meet the DLA demand and redundancy needs. At the same time, we also invested heavily in our service capabilities, including standing up a customized vendor-managed inventory service for the DLA and optimizing our packaging to meet the agency specifications. And we did all this with a U.S.-based manufacturing footprint that supports the DLA's need for reliable domestic supply. These efforts have driven a steady increase in our business with the DLA, specifically on behalf of the Navy, the Coast Guard and the Army. In line with our efforts to establish mutually beneficial long-term contracting structures within our fire safety business, last week, we entered into a 5-year agreement to provide foams to the DLA with a maximum contract value of $500 million. Since we already provide suppressants to the DLA, we expect the incremental uplift from this agreement to be approximately 2/3 of the total contract value. We expect that the financial impact will begin in late 2026, ramp up through 2027 and reach a steady-state run rate in 2028 and beyond. We're making further investments to support this ramp-up, including further expansion of our Green Bay facility and a further increase to our staffing levels. These capital and operating investments directly support U.S. job creation. This contract is an excellent example of how our focus on understanding and meeting our customers' needs translates into profitable new business opportunities. Moving to our retardants. Last week, we renewed our CAL FIRE contract for a new 5-year term. Given the time elapsed since the prior renewal as well as the evolution of our offering on both the product and service sides, pricing on this contract increased relative to the previous CAL FIRE contract, bringing historically lower CAL FIRE pricing in line with our other large retardant customers. No state has more population exposed to wildfire risk than California. We are proud that CAL FIRE has once again trusted Perimeter to protect the lives, properties and environment of their state. Finally, let me comment on the national wildfire landscape. The formation of the U.S. Wildland Fire Service is an important development in the wildland firefighting space. Our existing federal contract already spans all of the federal wildfire fighting agencies that will be consolidated into this new service, and our contract will carry forward under this new organizational structure. We believe a more unified structure will improve coordination and streamline decision-making, supporting more effective wildfire response over time. Turning to the next slide, which covers our Specialty Products segment and starting with PDI. The first quarter of 2026 was the most challenging period of operational performance in the history of our Sauget, Illinois facility. The plant experienced substantial unplanned downtime. This disruption is the direct result of a sustained failure to provide the resources, personnel and operational discipline required to run the facility safely and reliably, a failure that has persisted ever since One Rock Capital acquired Flexsys. And as the controlling owner of Flexsys, One Rock is responsible for the strategic and financial decisions governing this facility, and One Rock bears the ultimate responsibility for driving performance to its lowest level on record. We are pursuing all available legal avenues to enforce our contractual rights. We have a proven track record of operating P2S5 facilities safely and reliably, and we are confident that upon assuming control of Sauget, we will restore operating discipline, safety standards and production consistency for the benefit of the facility, its workers and our customers. Our resolve in this matter is absolute. We are highlighting these operational failures publicly because our investors, our customers and the workforce at Sauget deserve transparency. We have a duty to protect this critical facility from One Rock's sustained mismanagement, and we will actively manage the near-term impacts while pressing our legal rights to their full conclusion. In contrast to Flexsys' performance, we're proud of how Perimeter's PDI team has performed. Despite the greatest operational headwind the business has ever experienced, our team grew revenue and adjusted EBITDA at PDI slightly year-over-year. This result speaks to the power of the operational value driver model and highlights our team's ability to fight through obstacles and deliver results irrespective of the external environment. Turning to MMT. Integration is proceeding smoothly, and we are making tangible progress across each of our operational value drivers. A key advantage of bringing MMT into Perimeter's forever hold structure is that it immediately unlocks significant new capital and resources for the MMT team. We are actively deploying these resources to implement our value drivers and further accelerate MMT's business. On profitable new business, this capital is directly supporting the MMT team's innovation pipeline. As a result, new product development has accelerated meaningfully with expected product launches at MMT stepping up from 2 in 2025 to 9 in 2026. On productivity, we are putting these resources to work to eliminate manufacturing bottlenecks and maximize throughput, driving permanent improvements to MMT's cost structure. And on pricing, we are applying our disciplined value-based approach. By combining our pricing frameworks with the MMT team's deep product expertise and strong customer relationships, we are ensuring that pricing fully reflects the exceptional value MMT delivers to its customers. Just as important as the operating model is the team. Cultural alignment has been excellent. MMT leadership shares our approach to value creation and our partnership is translating directly into performance. MMT is performing very well early in our ownership period. We see strong potential for upside as we back the MMT team and fully deploy our operating model. Turning finally to IMS. Similar to MMT, IMS' acquisitions to benefit from the resources we immediately make available to maximize the potential and value of these acquired product lines. Given the product lines IMS acquires are often orphaned or underinvested in prior to acquisition, the benefits of our forever hold structure can be particularly pronounced at IMS. The IMS team is focused on systematically applying our operational value drivers across the product line acquisitions completed in 2025. We are encouraged by our progress and look forward to further investing in these acquired products and to closing future product line acquisitions. In closing, our disciplined operational value driver strategy is delivering strong financial performance across both of our segments, while our commercial and contracting initiatives are driving durable and predictable long-term earnings. With that, I'll turn the call over to Kyle to walk through the financials in more details. Kyle? Kyle Sable: Thanks, Haitham. Perimeter delivered net sales of $125.1 million in the quarter, up 74% year-over-year, with adjusted EBITDA of $41.2 million, more than doubling from $18.1 million last year. Net income was $72.9 million or $0.44 per diluted share compared to $56.7 million or $0.36 per diluted share in the prior year. On an adjusted basis, the adjusted net income was $9 million, up from $4.1 million, while adjusted earnings per diluted share was $0.06, up from $0.03. Our consolidated results reflect disciplined execution of our operational value drivers, supported by contributions from recent acquisitions. Moving into the details of Fire Safety. Revenue for the quarter was $45.4 million, up 22% year-over-year, and adjusted EBITDA was $18.7 million, nearly double the $10.1 million in the prior year. This performance was driven by continued execution of our operational value drivers with strength across both our international retardant markets, notably Australia and our suppressants business, each contributing meaningfully in the quarter. Despite North American retardant volume headwinds, Fire Safety delivered strong results, demonstrating that the business can generate meaningful growth in earnings even in periods of weaker retardant demand, a dynamic that would not have been present historically. This quarter is another example of reported acres burned having low correlation with our U.S. retardant business' performance, given the low acreage but high impact of last year's Southern California fires and the inverse this year, with nearly 900,000 acres burning in Nebraska with minimal retardant used. We increasingly view acres burned as a poor indicator of our financial performance and expect that relationship to continue to weaken over time, given our effort to reduce variability and increase the contribution from our own execution. Looking forward to the rest of the year, wildfire activity to date is within a range we would consider normal for this point in the season with conditions that remain conducive to fire activity and the full range of outcomes from mild to severe remains possible. As always, we will be prepared to accommodate a more severe than normal fire season should such a season ultimately materialize. Our capacity planning also integrates recent comments from the Secretary of the Interior and the Secretary of Agriculture, indicating that the aggressive initial attack strategy employed in 2025 is expected to continue in 2026. We view this as an important development as that strategy drove more proactive and consistent use of retardant last year and helped support demand even in a lower acres environment and if sustained, should continue to reduce the downside sensitivity of our business to variability in fire activity while supporting more consistent and growing demand over time. As we look ahead, we remain focused not only on demand drivers, but also on ensuring our supply chain is well positioned. We have seen recent increases in fertilizer prices and lead times, but our contracts include mechanisms to address meaningful input cost movements. And combined with our inventory position, we believe that we are well prepared to effectively manage these changing dynamics. As we exit the quarter, our Fire Safety business is well positioned, driven by continued execution of our operational value drivers, supported by the stability of our contract structure and the diversification of our revenue streams and reinforced by the ongoing shift to more proactive wildfire response. Turning now to Specialty Products. Revenue for the quarter was $79.6 million, an increase of 128% year-over-year and adjusted EBITDA was $22.5 million, up from $8 million in the prior year period. The year-over-year increase was driven primarily by contributions from recent acquisitions. Importantly, the base business also delivered growth in the quarter despite increased operational disruption at the Flexsys-operated Sauget facility. As Haitham discussed, downtime at that facility was more severe this quarter than in prior periods, creating a headwind to both revenue and profitability. Despite those challenges, the underlying demand environment for PDI remains solid, and the team continues to work through these operational issues while delivering financial growth. Turning to MMT and building on Haitham's remarks, we are encouraged by the early performance of the business. Integration is progressing well, and we are seeing early benefits from the application of our operational value drivers. As we spend more time in the business and deepen our understanding of its customers and end markets, our conviction in the underwriting case has increased, and we currently expect MMT's full year results to exceed our initial expectations. Taken together, Specialty Products results reflect both the resilience of the base business in the face of operational headwinds and the growing contribution and momentum from recent acquisitions. I'll now turn to our long-term assumptions. Our assumptions are unchanged and with normal quarterly variation, first quarter results are consistent with those expectations. Our framework contemplates annual interest expense of approximately $75 million. And in the first quarter, cash interest expense was $24.4 million. The first quarter includes $6.25 million of cash interest expenses related to the bridge facility commitment provided to close the MMT deal, which will not recur in subsequent quarters. We expect tax deductible depreciation and amortization in the range of $60 million to $65 million annually, and first quarter taxable depreciation and amortization was $10.4 million. We expect our cash tax rate to be approximately 20% or better over time. And in the first quarter, cash taxes were a net benefit of $2 million, primarily reflecting timing dynamics. We expect capital expenditures of $30 million to $40 million per year and capital expenditures in the first quarter were $5.8 million, below run rate due to timing. As we look to the balance of the year, we are accelerating investment in areas, including suppressants capacity expansion and MMT productivity initiatives, which we expect will bring full year capital expenditures towards the higher end of our range. Finally, we expect working capital investment of approximately 10% to 15% of revenue growth and working capital performance in the quarter was consistent with that framework, reflecting seasonal dynamics and the impact of recent acquisitions. Turning to capital allocation. As previously announced, we completed the acquisition of MMT on January 22 for approximately $682 million, funded through a combination of cash on hand and new debt issuance. MMT represents an important addition to our portfolio and aligns directly with our strategy of acquiring high-quality businesses where we can apply our operational value drivers to drive meaningful value creation. We also continue to invest organically in our business through capital expenditures. These investments are focused on projects that enhance our ability to serve customers while driving productivity improvements and supporting profitable growth. As with all our capital decisions, we underwrite these investments to generate returns above our targeted thresholds, and we see a growing pipeline of opportunities across the business. Looking forward, we have ample capital to allocate even after our robust capital expenditure pipeline is fulfilled. Once CapEx needs are met, our primary focus is M&A. Our M&A framework remains consistent. We target businesses that provide a small but essential component within a broader solution to a critical customer need, operate in niche markets with strong competitive positioning and exhibit characteristics such as recurring revenue, high returns on capital and opportunities for reinvestment in add-on M&A. Importantly, we believe our value creation comes not from the acquisition itself, but from the disciplined application of our operational value drivers post close as we are already demonstrating with MMT. Our model allows us to repeatedly identify and improve businesses using the same operational value driver playbook, creating a repeatable engine for value creation. From a capital standpoint, we retain significant flexibility. Even after the MMT acquisition, we remain modestly levered and have ample liquidity with meaningful capacity to deploy additional capital into value-creating opportunities. We remain active in evaluating a robust pipeline of potential acquisitions and are focused on deploying capital into opportunities that meet our returns threshold and strategic criteria. Turning to our capital structure. We maintain a disciplined and flexible capital structure. During the quarter, we issued $550 million of 6.25% senior secured notes due 2034 to fund the MMT acquisition, complementing our existing $675 million of 5% senior secured notes due 2029. As a result, we have a long-dated fixed rate debt structure with no near-term maturities. At quarter end, we were approximately 3.2x net debt to LTM adjusted EBITDA, remaining below our target leverage level and preserving substantial financial flexibility. We also retained strong liquidity, including approximately $92 million of cash on the balance sheet and a fully undrawn $200 million revolving credit facility, providing significant flexibility to continue investing in the business while pursuing additional M&A opportunities. We ended the quarter with approximately 163.1 million basic shares outstanding. Overall, the quarter highlights the strength of our operational value driver model across both segments. Fire Safety delivered solid performance despite volume headwinds in retardant and Specialty Products demonstrated both resilience in the base business and strong contributions from recent acquisitions, particularly MMT. These results reinforce the increasing consistency and predictability of our earnings power. A growing portion of our earnings is driven by execution and capital allocation rather than external conditions, which we believe improves the quality of our earnings stream and position the business to compound earnings at attractive rates over time. We will continue to apply our operational value driver strategy across the portfolio and allocate capital towards opportunities that are well aligned to that strategy, further enhancing both growth and earnings stability over time. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Josh Spector with UBS. Gaurav Sharma: This is Gaurav Sharma filling in for Josh. Congrats on the solid quarter. Can you talk about the new suppressants contract a bit more? Is this effectively you winning share at more military bases? And then you framed this as an incremental $300 million sales opportunity, but how should we layer that in over the contract period? Haitham Khouri: Gaurav, it's Haitham. Let me take the first part of your question, and Kyle will handle the second part of your very good question. So yes, this is us taking share in the suppressant space. It's a continuation of a trend, which has been quite pronounced to us taking share in the suppressant space, both with the DLA and with commercial customers over the past 3 or so years. If you rewind 3 years, we did almost no business on the foam side with the DLA. We identified that as a commercial hole and spent a tremendous amount of time, effort and capital addressing it. As we typically do, the crux of that is listening very closely to our customers, understanding their needs very clearly and then moving heaven and earth internally to be responsive and meet their needs. And the hope is that, that ultimately translates into profitable new business. And that's exactly what you're seeing here. Again, we went from almost no business with the DLA. We listened to their needs. Our R&D team, which is an excellent R&D team in Green Bay, delivered a completely unique and bespoke formulation to meet the DLA's existing needs. We invested significant CapEx in our Green Bay facility to build capacity and redundancy required by the DLA. We spent a lot of capital, OpEx and effort building a vendor-managed inventory service from scratch, which we never had before for the DLA. As you can imagine, the logistics needs of the DLA are very complex and therefore, standing up the vendor-managed inventory to manage $500 million of product is a very complex undertaking. We have that up and running and humming. We upgraded our packaging to meet the DLA's needs, and we staffed up on the customer service side to best serve the DLA. And when you do all of that, you end up with a customer that very much wants to work with you that shifts meaningful share to you and that's ultimately not only willing, but eager to enter into this kind of long-term framework agreement that gives us the visibility into future volumes that allows us to continue to invest. So that's sort of the history there, and I'll let Kyle handle the second part of the question. Kyle Sable: Yes, Gaurav, as Haitham mentioned, we've already been doing business with the DLA, and so we're trying to frame our guidance to you as the amount of uplift. So we'll have another strong year with the DLA this year, but there will be minimal uplift relative to last year. As we look forward to 2027, we expect roughly $50 million of incremental revenue above our current run rate with the DLA in 2027. And then the balance of the contract value will come over the remaining years. Gaurav Sharma: That was super helpful. And then just a follow-up. Is this just a volume element? Or is there an annual price factor that's built in on the suppressants as well? And then on the CAL FIRE deal, the comment in the slide say price increase to align with other major buyers. So does that mean you expect a step up in year 1? And is that material? And then how would you talk about price increases beyond year 1? Haitham Khouri: Yes, Gaurav, it's Haitham again. We -- both contracts will have annual or do have annual price escalators in there throughout the 5-year term. And for CAL FIRE specifically, there is a step-up in year 1, which is this year to bring them sort of in line with our pricing structure, which they've been a little out of line with historically. Operator: [Operator Instructions] Our next question comes from Dan Kutz with Morgan Stanley. Daniel Kutz: Congrats on all the progress and updates this quarter. So just wanted to circle back on a few things that you guys have already kind of commented on in the prepared remarks and see if we could get a little incremental color. First one would be on input costs. Again, I know that you guys had commented that there's some level of contractual kind of cost protection or pass-through. But with everything going on in the world and specifically fertilizer or MAP or some of the key cost components in the Perimeter cost structure, seem like they've seen some pretty significant upward pressure. Just wondering if you could expand a little bit on what types of protections you have in place, how much that could be weighing on margins currently and whether in theoretical scenario where the Middle East conflict came to a resolution and those costs came down, whether that would be a margin tailwind or whether that's kind of already kind of protected in the cost structure and therefore, wouldn't change things too much. But yes, just wondering if you could expand a little bit on the input cost dynamics. Kyle Sable: Sure, Dan. It's Kyle. Thanks for the question. You're right. As we alluded to in the script, we have pretty strong contractual protections against these price increases. Our operational team has been running way out ahead of the changes that have been happening on, making sure we have adequate inventory as lead times have lengthened. And as we look forward, we don't see any material impact to our margins from these price increases this year. Daniel Kutz: Great. That's very clear. Then maybe on the preemptive fight strategy that some of the federal wildfire fighting agencies are alluding to. I was just wondering -- so I think, again, in your prepared remarks, you kind of flagged that this is definitely a hedge against, I guess, a below severity wildfire season. Last year was absolutely a testament to that. But just wondering, across a broader range of wildfire scenarios, below severity, normal trend above severity, is the preemptive strike strategy an incremental earnings tailwind or retardant demand tailwind across different wildfire season severity scenarios? Or is it more kind of a downside hedge? Just wondering if you could expand on that, on those comments as well. Kyle Sable: Sure, Dan. Kyle again. And thanks for the question. I think you've hit on 2 important points for the more aggressive initial attack. You're correct in that it can actually drive more retardant usage through a variety of wildfire season scenarios. We think that it will put increased emphasis on growth in the air tanker fleet. And by the way, that same memo that highlighted the initial aggressive attack also highlighted a number of other moves they're doing across the wildland firefighting landscape to support growth in the aerial tanker fleet, which is also a little bit of a tailwind for us. So we think that's a clear positive. The second element, as you started to hit here to the downside protection, I think you're exactly right. What we experienced last year and if we are again to experience a more mild acre season this year is that, that aggressive initial attack provided an increased retardant usage in that scenario, which did cap the amount of downside from a more mild season. Dan, the other thing I think I'd be remiss to not mention here as we think about the different scenarios as they play out is that we've really reduced our variability and exposure to that wildfire season. And at this point, if you look at a normalized season to a relatively mild season, that fluctuation in our EBITDA is something like mid-teens percentage. And when we look at the various tailwinds we have across our business, that really means that we should be able to grow EBITDA year-over-year even with a moderate decline in the fire season year-over-year in any given year. There may still be some more extreme scenarios where we can't always grow EBITDA, but for most of the scenarios, we're going to be growing EBITDA. Daniel Kutz: That's great to hear. And maybe if I could sneak one more in kind of along the same along the same comments there. So I think for the last quarter or 2, the 5-year contract with the U.S. Forest Service, which you guys confirmed today will extend to the new U.S. Wildland Fire Service, which includes the DOI agencies as well. I guess on the service component of that contract, you report product versus service revenue for the Fire Safety segment. And we can see that, that number was in the ballpark of $30 million a few years ago, and it's been trending closer to $100 million in the last couple of years. The question is basically, first of all, is there a suppressant component to service? Or is the lion's share of that retardant? And then how much does the new contract structure kind of lock in that service revenue at this higher revenue run rate from, I think, what you guys call the full-service air base infrastructure model. And I guess the question would be at the federal level, but then also see on the slide with the CAL FIRE contract that there's a service revenue component to that. So yes, just wondering if you could -- anything you could share on what has been a pretty substantial ramp in service revenue for the Fire Safety segment? And how much of that should be viewed as a new run rate? And I guess, any potential growth either from the service model expansion or just from kind of the normal growth trend that you guys seem to be putting out despite the wildfire season severity. Yes, anything you can share on that service revenue component? Kyle Sable: Dan, so a couple of points on here. One, the majority -- in fact, virtually all of that service revenue is, in fact, tied to retardants. There's a little bit of suppressants, but largely retardants. The second point I would make in there is that, that includes all service revenue for all of our various contracts, Forest Service, CAL FIRE and others. And then when you think about that uplift in the run rate, I think you're right, we've gone from $30 million to a little over $100 million in the run rate, and we do believe that is a new and sustainable baseline. Within that, the vast, vast majority of it is contractually fixed in any given year. And then we do expect to see another uplift, although not of the same magnitude that you just saw over the last few years going forward as we continue to convert more of the bases in the Forest Service contract from government run to Perimeter run. Daniel Kutz: Awesome. Sorry, one last real quick one. Product versus service margins, are they similar ballpark, one meaningfully different than the other? Kyle Sable: Yes, Dan, we think about those as just as a bundled suite when we think about margins. So while we separate them out for reporting purposes, we think of it all as kind of like one consolidated solution with one margin. Operator: Thank you. At this time, I would like to turn the floor back to Haitham Khouri for closing comments. Haitham Khouri: Thank you, LaTanya, for running a great call. Gaurav and Dan, thank you for the excellent work you do, and thank you to all our shareholders, as always, for all your support. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.
Mirko Hurmerinta: Good morning, everyone, and welcome to Sampo Group's Conference Call on the first quarter '26 results. My name is Mirko Hurmerinta, and I am the Interim Head of Investor Relations at Sampo. I'm joined on the call today by Group CEO, Morten Thorsrud; and Group CFO, Lars Kufall Beck. The call will include a short presentation by Morten and Lars, followed by Q&A. A recording of the call will later be available at sampo.com. With that, I hand over to you, Morten. Please go ahead. Morten Thorsrud: Thanks, Mirko, and very good morning, and welcome to the Sampo Q1 conference call on my behalf as well. Sampo had an excellent start to 2026 with continued strong operational momentum in all our segments, both in the Nordics as well as in the U.K. We delivered strong underwriting results, supported both by cost ratio improvements and favorable underlying risk ratio development. Our balance sheet remains robust in a somewhat volatile financial market, and we are increasing our full year guidance for the underwriting result as well as launching a new EUR 350 million buyback program. But starting with the top line. Our insurance revenue increased with 8%, fueled by excellent GWP growth over the last 12 months. Reported GWP for Q1 isolated is a bit softer, however, largely affected by a mix of different factors, which I will cover more in detail shortly. Whilst the underlying trends continue to be highly supportive. On the claims side, the Nordics saw a wintry start of the year, followed by an early spring and markedly more benign conditions towards the end of the quarter. This led to better claims outcome being more favorable than we had anticipated at the beginning of the year. Driven by robust operational momentum, favorable claims experience and continued positive underlying development, our underwriting results increased by 9% on a like-for-like basis. Our operating EPS strengthened by 19%. This was driven by higher underwriting results, but also supported by certain technical factors related to currency hedging. Over time, you should expect an operating EPS that is more in line with the underwriting result growth. I also would like to highlight the resilience of our balance sheet amid elevated market volatility, which Lars will elaborate on later in this call. On top of this, I would like to emphasize our reserve strength, where our prudent approach allows us to expect that we could cover the negative effects from the Danish workers' comp case within our existing reserves. Following the favorable start of the year, we have raised our financial outlook for 2026 and at the same time, enabled by our strong balance sheet, we have announced a new EUR 350 million buyback program. Let's take a closer look then at our different segments. Starting with the largest business area, Private Nordic, where we saw a continued strong top line growth of 6%, supported by positive development in all countries and product lines. Norway continued to stand out with 13% growth, largely driven by rate increases. We also saw strong development in Finland, driven by an increase in customer count and new sales growth. In Sweden, the soft new car sales continue to be a drag on our white label motor insurance. However, our If branded motor portfolio continued to develop well, and we saw 10% growth in the quarter. In the U.K., the motor insurance market saw a modest increase in prices during the quarter. However, overall, the market remained competitive but rational. We continue to find pockets of growth, which translated to 3% policy growth over the quarter and helped to offset the effect from lower average premiums. I would say that the market in the U.K. is still in a wait-and-see mode, and our focus remains on underwriting discipline and securing the portfolio quality, which has translated into our stable and strong margins during this somewhat softer part of the pricing cycle. Moving to corporate business lines, where the competition landscape is a bit more mixed. The SME portfolio, which represents the majority of Nordic Commercial, continued to see good top line growth of 4%, fell in line with Q1 last year and supported by digital sales and increase in the number of customers. On the large corporate side, on the other hand, the market environment is more price sensitive. This affected Nordic Industrial as well as the upper part of Nordic Commercial, where we did lose a few larger clients. However, both corporate segments reported strong underlying margins, and we saw another quarter of favorable large claims outcome, partly supported by the derisking actions that we've done to reduce the large property exposure. Here, we also benefited from lower reinsurance prices at the first of first reinsurance renewal. Moving to Topdanmark and the integration. After faster-than-expected synergy realization in 2025, we have now updated the phasing of the Topdanmark synergies. We have almost doubled the expected outcome for 2026 and now expect to achieve a run rate of EUR 105 million for this year and correspondingly EUR 125 million in 2027. We remain firmly committed to reaching at least the EUR 140 million target by end of 2028. Going forward after 2026, we expect synergy realization pace to be more stable as we shift from more corporate center synergies towards more operational benefits. Before letting Lars dive into the financial results and the balance sheet, let me make some few remarks on the inflationary risks related to higher oil prices caused by the disruptions in the Strait of Hormuz. Firstly, our operational exposure to the Persian Gulf region is, of course, very limited and zero exposure to Iran. In the Nordics, claims inflation continued to come down over the last 12 months, but is still a bit elevated in some countries and with notable variations between the countries. In particular, Norway continues to see higher claims inflation. We naturally carefully monitor any potential uptick in claims inflation and remain disciplined in pricing. In the short term, inflationary risks from this situation primarily affect motor insurance due to higher freight cost for spare parts. The property sector, on the other hand, is more labor-intensive and less affected short term. Our scale and diversified profile with long-term agreements with suppliers, repair shops, and other partners help us control costs and to take early actions on the pricing side whenever needed. In the U.K., the inflation risk is somewhat higher, both as a result of our business mix as well as a result of larger exposure to total losses and bodily injury losses. Consequently, our pricing in the U.K. already factors in an expected uptick in inflation. So with that, over to Lars. Lars Beck: Thank you so much, Morten. And talking about our investment returns. As you know, the first quarter was very volatile in the capital markets, and it was actually somewhat unfortunate that uncertainty peaked right at quarter end. Of course, our investment portfolio is not immune to market volatility. And in particular, the flattening of the yield curve, where the short end increased more than the longer end impacted our results negatively. However, if you take a closer look at the drivers behind the investment returns, you will see that our negative investment income was primarily driven by our legacy assets, NOBA and Nexi. Excluding these, our investment return was broadly flat in a quarter of significant uncertainty and volatility. Meanwhile, our portfolio continued to provide a stable interest and dividend income. And thanks to our relatively short duration on the fixed income side, we are now able to benefit from the increase in interest rates by reinvesting at higher rates. Turning to our balance sheet. I'm very, very pleased that amid all of this volatility, our solvency remained robust, underscoring the strength and resilience of our balance sheet with low sensitivity to various market shocks. Excluding NOBA, which had a net positive effect on solvency, market movements had only 4 percentage points negative effect on our solvency for the quarter, more than offset by the continued strong operational performance. In late March, we received the approval from the Swedish FSA to extend the partial internal model to cover our Danish operations that formerly were under Topdanmark. This had around a 6 percentage points positive effect on solvency in Q1. And yes, including our U.K. operations is the next phase from an internal model point of view, but that will be a longer project as it means extending the model into a new market. It does require more data, use case experience, et cetera, et cetera. Our strong solvency and balance sheet, of course, allows us to continue delivering attractive capital returns. As you can see, there's two accrual bars in the chart. The first one is the regular distribution accrual. And starting from Q1 this year, we are deducting a full 90% of our quarterly operating results as distribution accrual following the update of our distribution policy. This reflects the commitment to return around 90% of our operating results through regular dividend and buybacks to shareholders in a typical year. The second bar is the new buyback program, EUR 350 million that we announced today. Of this, approximately EUR 250 million is based on the 2025 operating result and EUR 100 million on the proceeds from the NOBA sale we did in February. With the latter, we have now delivered half of the up to EUR 500 million communicated at the last CMD, in terms of distribution from legacy assets. And we are, of course, remain committed to deliver the other half, but timing, of course, depends on the NOBA sell-down process. Then finally, before I hand back to Morten, some words on the Danish Supreme Court ruling on workers' compensation last week. I'm sure that you're all well aware of the ruling by now, so I will not recap the background of the case. Firstly, this is, of course, an adverse outcome, not only for the Danish insurance industry, but also for the state and municipalities in Denmark, which are self-insured. Sampo, in line with the industry, expects the state of Denmark to take responsibility for the retrospective financial consequences. Regarding the potential impact on Sampo, disciplined risk management is in our DNA, and this applies also, of course, to our reserving practices. For many years, a significant part of our reserves for Danish workers' comp has been allocated to what we call our ENID reserve, which stands for Events Not In Data, to cover for exactly this type of risk and exposure. We have established a number of scenarios for the impact of the ruling and continue to analyze it. Our current best estimate based on our conservative assumptions is that the potential impact on Sampo is expected to be covered within our existing reserves. And hence, we do not need to book an additional provision for this, meaning the effect on net profit and solvency is naturally expected to be limited. And our financial outlook, which was raised today, remains unaffected from the ruling as well. So with that, I hand back to you, Morten. Morten Thorsrud: Thank you, Lars. As mentioned, after an excellent start of the year, we have raised our financial outlook for 2026. We now expect 6% to 8% insurance revenue growth with an updated range from EUR 9.6 billion to EUR 9.8 billion and a 3% to 9% underwriting result growth with an updated range of EUR 1,525 million to EUR 1,625 million. The increase in underwriting result outlook is mainly attributable to better-than-expected weather and large claims outcome in the first quarter. To sum up, our performance in the first quarter provided a solid foundation for attractive value creation for 2026, which is also the last year of our current strategic period. Therefore, we have now circled 17th of November in the calendar for our investor update. And I look forward to updating investors and analysts on our financial and operational ambitions for the next strategic period. Mirko Hurmerinta: Thank you, Morten and Lars. Operator, we are now ready for questions. Operator: [Operator Instructions] The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia, your line is now unmuted. Please go ahead. Mirko Hurmerinta: Next question and get back to Vash in a moment. Operator: The next question comes from Youdish Chicooree from Autonomous Research. Youdish Chicooree: My first question is on the top line development in the Nordic segments. Obviously, in Private, the growth is still solid, even if lower than last year. But in Commercial, there has been quite a big step down, and you mentioned the loss of a few large clients. I was wondering if you could comment on the competitive environment who are the competitors and what is the outlook for the segment? That's my first question. Secondly, on the U.K. market, you described the pricing environment as rational in Q1. But to my mind, rational pricing would have been price increases that match inflation at least, so 5% or more. So can you elaborate exactly what or why would you say the market is rational currently? And again, if you could just tell us a bit about what are your expectations for the coming quarters? Morten Thorsrud: Yes. Good. I'll try to answer these two questions. First, on top line in the Nordics. Yes, we continue to have a really excellent performance in the Private segment, 6% growth, 7% if you exclude the headwind that we still have from the white label motor insurance in Sweden. On the SME side, also good development, 4%, roughly in line with what we saw last year, where we had 5%. And then we did see some loss of larger customers in the upper Commercial and Industrial. This is, as I would say, sort of just normal volatility. I mean, sometimes you win a few large customers, sometimes you lose a few large customers. On the large corporate side, some of these losses are more on a gross level than net. So we actually have a much better net written premium development than gross written premium development in the Industrial segment. And then one should also bear in mind when looking at reported gross written premium that this reflects in a way, renewal patterns. And a very large part of the Industrial book is being renewed in the first quarter, very large part of the Commercial book, in particular, upper Commercial book is renewed in the first quarter. Which means that you kind of technically a little bit of a drag in the beginning of the year, whilst the areas where we see strong growth, Private SME is more renewing throughout the year. So there are also some effects like this, that makes Q1 a little bit soft on the outset. To the U.K. market, yes, it's rational, and that includes also slight price increases. I think as I said in my introduction, it's probably too early to say that it has changed totally, but we definitely see slight price increases. And Hastings is also now gradually including more pricing for inflation and is able to get that through in the market. So, a slight positive development, I would say, on that front. Operator: The next question comes from Hans Rettedal Christiansen from Danske Bank Markets. Hans Rettedal Christiansen: Just firstly on the sort of better or the very good results this quarter on weather, could you just explain, is it sort of frequencies that are more favorable? Or is it the claims mix that has been kind of better than budget for the quarter? And then secondly, on your premium growth in the Private Nordic segment. I guess it's still at a very high level, but trying to understand the step down on perhaps private property and also on motor from the previous quarter and from 2025 and sort of how we should think about that developing here going forward? And just relating to that question, you had a very interesting chart on Page 11, I think, in the presentation where you're showing the average motor repair costs across the countries. So I was just wondering if you could kind of touch upon that one against the sort of pricing as well on the Private Nordic segment. Morten Thorsrud: Yes. I'll see if I manage to answer these ones as well. When it comes to weather, I guess it was a little bit surprising, I mean, given how harsh the winter was and definitely felt in January and February. It was a very cold winter in the Nordics. But it was also very stable winter. And typically, it's more when you have large variations in weather that you see an uptick in claims frequency. So what we've seen is that the frequencies are more benign than what we expect in a normal winter. And then also the winter came almost overnight, and it also disappeared almost overnight. So March was a very benign month from a weather perspective. Then, of course, on top of this, also a positive large claim outcome that is, of course, also driving a favorable underwriting result development. On the Private Nordic growth, yes, we continue to see good growth momentum. And as I said, 6%, 7%, excluding the white label insurance in Sweden. And that part, of course, is what's driving down also the growth in motor overall a little bit. And then I think looking at growth on property and motor on a quarterly basis, it can always be a little bit of volatility. Then, of course, price increases in motor has clearly been more elevated than price increases in property, partially because you have repair cost of repairing new cars being higher than for, sort of, the somewhat older cars. So there's more inflation elements, I would say, into the motor market than in the property market. And then repair cost and inflation per country, the country that really sticks out there, I guess, is Norway, where inflation has been clearly elevated over the last few years even. Of course, underlying inflation in Norway is higher than the other Nordic countries. Wage increases in Norway is higher than in the other Nordic countries. But then also the share of new electric vehicles are higher in Norway than in other countries. And again, this technology development in cars makes it more expensive for us to repair cars and again, is increasing the underlying inflation in a way in the motor market. So that's perhaps some comments on repair cost or sort of rather inflation in the different Nordic markets. Hans Rettedal Christiansen: And just as a follow-up, could you perhaps say what the Y-axis on that chart is, to get an understanding of what the sort of inflation is that you're expecting for 2026? Morten Thorsrud: That's just inflation in percentages, and we kind of are careful sort of not disclosing the exact percentages. I think it's something that we look upon as information we would like to keep for ourselves and not share with our competitors in particular. It's sort of estimate of inflation in the different countries. Operator: The next question comes from Vinit Malhotra from Mediobanca. Vinit Malhotra: So my 2 or maybe 2.5 questions, let's say, is firstly, on the weather, the encouraging comments you made about frequency and how the weather was not so bad eventually. I'm just wondering if given -- I mean, sometimes weather also affects frequency, as you mentioned, should the underlying loss ratio not have been a bit stronger then because -- or was there something else, when we noted the 20 basis points year-on-year improvement in the underlying loss ratio in Nordics. I'm just curious if there was something else that you think is worth flagging? My second question is on the Topdanmark synergies when you mentioned, please correct me if I'm wrong, but I think you -- I haven't heard at least in the EUR 140 million. This faster run rate, should investors get more excited about the ultimate level of the synergies as well and what could drive that? And lastly, my quick follow-up on just the question just now on Slide 11. The 40 basis points, that's a very interesting number. Could you just say what is the assumptions about the actual conflict? Or is it 6 months? I don't know, I don't want to put a number. What's the duration you're expecting for the conflict that will lead to 40 basis points? Is it based on the data from Ukraine last time? Or just a little bit more on that 40 basis points and the underlying thoughts would be magic. Morten Thorsrud: Yes. When it comes to weather and the 20 basis points underlying improvement, we do our best in really assessing the weather effects, large claims effects and factor that in when we calculate the underlying improvement in the risk ratio. You might remember in Q1 last year, we even said that weather was clearly more favorable than a normal winter and therefore, sort of adjusted for that. So the weather development is already, in a way, taken care of when we have the estimate of 20 basis points. So that's our kind of best estimate of the real underlying improvement in the risk ratio. Topdanmark synergies, yes, we are realizing the synergies quite a bit faster than anticipated. But bear in mind, this is run rate synergies. So they are sort of not yet sort of materializing fully in the P&L, but this is sort of the run rate synergies that we have achieved so far. And when we set a target, and in this case of EUR 140 million, of course, we want to reach at least that target. We have not done any new bottom-up estimate of the synergies. So we still have the EUR 140 million as a target and of course, are really firm on delivering at least that. On the inflation assumption related to the current situation in the Persian Gulf, this is, of course, extremely difficult to estimate. And it is a moving target. It kind of almost changes on a daily basis. What is important for us to communicate is that we are able, of course, to price for this. We are always looking ahead when pricing for inflation. And it's also quite likely that this will creep in quite gradually into our business since we do have long contracts with suppliers, body shops, and so forth. And also in particular in the Nordic region, salary processes is a yearly process. So we have a lot of visibility, of course, on the salary part of inflation also for the next year. And again, 40 basis points is the best estimate so far. We are, of course, pricing ahead of this in our motor pricing and it's mainly coming from increased cost of spare parts. So we've done sort of modeling of what spare parts on what brands are being transported on a long distance and would be sort of more impacted and so forth. But again, of course, the situation is very uncertain, and this is sort of estimates which change more or less on a daily basis. Operator: The next question comes from Ulrik Zürcher from Nordea. Ulrik Zürcher: I have two. I don't know if you said it, but the SME growth or commercial growth without this loss of big clients, roughly what would that be? And then secondly, I'm just wondering with this updated Topdanmark synergies and in the Middle East and it might add some revenue, I don't know. But how does all of this affect your 40 bps improvement sort of target in the Nordic cost ratio? Will that be more front-end loaded or just continue roughly at that level for some years? Morten Thorsrud: Yes. SME growth, 4% in the quarter. So that's the answer to that. And the Topdanmark synergies, Lars, how will that impact us? Lars Beck: I think what we are committed to is the 40 bps improvement year-on-year throughout the years, the few years to come in our period as we have committed to. As I said, we now do see a flattening of the speed or acceleration as the IT part is still ahead of us. So we stay committed to the 40 bps improvement in our Nordic cost ratio that we've stated. Operator: The next question comes from Nadia Claressa from JPMorgan. Nadia Claressa: I have two. So first is just on the impact from the Danish ruling, clearly a positive on the current view. But I think you mentioned that you've established a number of scenarios and that you will continue to analyze this. So what key variables really drive the difference between, I guess, the low and high end of the range? I think I'm just trying to understand how sensitive the current best estimate could be to changes in assumptions and under what circumstances could we perhaps see a revision on this front? That's my first question. And my second was on the share buyback and timing going forward. Given that the Danish ruling impact appears to be contained and assuming you'll be able to sell off more of NOBA sometime this year, is a buyback top-up later in 2026 something you would consider? Or should we take this off the table and assume that you will stick to the once every 12-month time line? Morten Thorsrud: I'll leave these 2 questions to Lars, who is not only the CFO, but also the Danish workers' comp expert. Lars Beck: Thanks, Morten, and thanks a lot for the question, Nadia. As you rightfully say, we do not disclose our best estimates for the impact as we believe it is covered within our existing reserves. I think secondly, let me just make this very clear. It's no surprise to us that we are exposed to this kind of risks when underwriting Danish workers' comp. And that is, as I said earlier, exactly why we, over a number of years, have been building up and allocating quite a significant part of our Danish workers' comp liabilities to an ENID reserve, i.e., Events Not In Data. If you do want to compare us with competitors out there, we have been analyzing the case in great detail and established, as you said, a number of scenarios. And the comparable expected net of tax impact from those scenarios ranges somewhere between EUR 80 million and EUR 160 million with our best estimate falling well into that range. As you said, there are many, many variables in this. I mean I think the simplest one may be taking market share. Even in non-life insurance, a lot has happened in the market over the last 30 years. So just taking last year's market share does not reflect the exposure correctly, we believe. However, when you look into that, analyzing the market share data, that's actually complicated because official market data statistics only go back to 2008, and this covers back to 1996. But as you know, we are a data-driven underwriter. And in our data pool, we actually have very good data and proxies for not only our own portfolio, but also market data going back to well before 1996 actually. Another key variable just to mention it, is the pickup rate of those that are now eligible to have their case reopened. Here, we don't have much, I would say, empirical data to go by, but one data point we do have is the so-called Section 17a ruling from the Supreme Court that came out early 2025, i.e., more than a year ago. And based upon that, we do see that the pickup rate for those eligible to having their case reopened following that ruling after more than a year now is only about 5%. And I would say some of the market impact estimates you see out there and also the higher end of our internal scenario building, actually assumes a 20% pickup rate from the recent ruling. And as you have seen probably also both public or public info on ranges for the market impact that are out there ranges from billions of kroner to the estimate that was actually put forward in the Supreme Court by the plaintiff of DKK 235 million. So just to give you a view of where the ranges are. Finally, let me just say that we still believe that the state of Denmark should intervene and should take the cost for this recent ruling, not because of the size or potential size of the bill, but because the AES or the Labor Market Insurance is a public authority who by law is responsible for claim settlement in the relevant cases here. A public authority, which we now know have not been acting in accordance with the law for the last 40 years. And the consequence of that should not end up with the risk carriers. Being that the private insurance sector as ourselves nor the self-insured municipalities and similar. So I hope that answers the question on the workers' comp. When it comes to buyback, I mean, the new buyback that we just came is in line with our distribution policy. And as I said, we are committed to deliver up to EUR 500 million of buyback or release from our legacy assets. Normally, as we also communicated earlier, we believe Q1 is actually a good opportunity to discuss capital structure and buyback following the annual results for last year. And I said with that, we have announced that we will have an investor update in November, and that is where we would then return to this. But as I said earlier, I just want to reiterate, we are still committed to delivering up to -- returning up to EUR 500 million from the disposal of legacy assets. But the timing, of course, depends on actual sell-down of NOBA. Nadia Claressa: Just a quick follow-up on the potential for a top-up in the share buyback, if I may. I mean, clearly, it depends on the timing of further NOBA sell-downs. But could we also expect some of the benefit from the PIM expansion to be returned as well? Lars Beck: I think I would approach it a little bit from a different angle here. I think not saying anything about the impact -- positive impact from the PIM approval this time around, is a result of us looking at the world around us we are in, we are going through, I believe it's fair to say and have been going through very stormy waters throughout the Q1 in the financial markets and in the world surrounding us. And hence, at this point in time, we believe it is better to be a little bit safe rather than risk of being sorry later. So I think having a little bit of conservatism and not maxing out on our buyback potential, that has been our approach for the Q1 closing. Depending on what happens, of course, in the world surrounding us, we might change that view or our view on that later in the year, but that remains to be seen. Operator: The next question comes from Carl Lofthagen from Berenberg. Carl Lofthagen: Two, please. The first is on the Middle East impact. Are you seeing any early frequency benefits in your motor book from people perhaps choosing to drive less as a result of higher fuel prices? And then the second is just on pricing in the U.K. I'm just trying to understand the changes throughout the quarter, whether as we kind of reach the tail end, whether you saw kind of accelerated pickup in pricing compared to the start of the year? Morten Thorsrud: Yes. Very simple answer to the first one, no. We don't see any changes in driving pattern so far. One could, however, expect if inflation increases a lot, then you could expect that potentially could be a situation. But so far, we haven't seen any changes in driving pattern despite high fuel prices. Pricing in the U.K. throughout the quarter, I think already on the full year conference call, mentioned that prices went slightly down at the very beginning of the year following a favorable reinsurance renewal for probably most insurers. And part of that was brought forward to the customers then. And after that, we've seen a gradual uptick in the pricing in the U.K. Operator: The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia: Hopefully, you can hear me this time around. I have two questions and one quick follow-up. The first one is just following up on the Danish workers' comp. Here, I just wanted to clarify something. So you mentioned that you've been reserving for this issue for many years. But as I understand it, in the context of the case that this only became an issue last year post the January 2025 ruling. So just trying to understand what did I miss over there? And how is it that you've been sort of reserving for this for many years? That's the first one. The second one is just on your guidance for your underwriting profit for the year versus the synergies that you've accelerated for the year. So you have around EUR 50 million benefit from synergies that you expect in 2026, but then your underwriting guidance only moves up by roughly EUR 25 million. And as you stated, that's driven by weather and large losses. So can you just help us understand the bridge between both these numbers? Because I would have expected in that case, your increase in underwriting profit or guidance to be much higher than what you have done today. And then the last one, just on the U.K. Are you able to share with us as to what is happening between renewal pricing and new business pricing? Because I'm just trying to understand here what is keeping the prices low or basically what could be one of the reasons why pricing does not increase at a faster rate? Lars Beck: I'll take the first one, Vash, in terms of workers' comp. I'm sorry if it was misunderstood. What I did say was that this case was not -- has not been known to us for many years. But what I did say is that the exposure to these kind of risks and court rulings, et cetera, is no surprise to us. And that is why over a number of years, we have been building up and allocating, as I said, a significant part of our Danish workers' comp liabilities to this ENID reserve, so for Events Not In Data. So no, we have not known about this case for many years, but we have known and we are very aware of the risks that you take on when you underwrite workers' comp, and that is why we also have the prudent reserving principles in our balance sheet. Vash Gosalia: Makes sense and then on the other two, please. Morten Thorsrud: On the underwriting profit, first of all, synergies, of course, are already included in the 40 basis points expectation for the coming few years. We have now realized them somewhat faster than expected. But what we're reporting is a run rate synergy. So it's not yet sort of fully materializing in the P&L. And at the same time, it allows us also to do some of the investments in terms of digitalization of the Danish business a little bit faster. So we stick to our 40 basis points cost ratio improvement for the Nordic business for the coming few years and again, largely supported by exactly these synergies. When it comes to renewal price versus new business price in the U.K., of course, with GIPP reform, this is more or less one-to-one. We need to price new business just in the same way as we price renewal business. I'm not really surprised about the development in the market. If you look at the large motor insurers, you see that they are sort of typically reporting a fair profit for 2025. Then, of course, pricing was clearly higher at the first half of the year, sort of where we saw kind of really the reduction, then being more flat towards the second half of last year, and now it's starting to creep up a little bit. So I kind of remain optimistic about the U.K. market. And I think, of course, over time, we will need to price for inflation, and we do that and the competitors will need to price for inflation. And again, as I already mentioned, we are even adding on slightly more price increases now given the inflation outlook that we have in the U.K. market and see that we managed to get that through in the pricing. Operator: The next question comes from Youdish Chicooree from Autonomous Research. Youdish Chicooree: The first one is a technical question on the workers' comp charge that you're not taking actually. I just wanted to understand like this Event Not In Data buffers that you hold. As you use those up when the claims come in, in the coming years, does that mean that ultimately, you have to replenish them. So basically, it absorbs the initial cost, but ultimately, you will have to actually reserve more in the future? So that's the first question, which is a technical one. The second one is just on the Nordic segment underlying risk ratio. I mean pricing in the Nordic region peaked in May last year and your repricing actions are largely complete. Should we expect a more flattish trajectory going forward as opposed to the 20, 30 basis points improvements we've been accustomed to in recent years? Lars Beck: Thanks for the question. Youdish, if I take the workers' comp part first. Yes, as I said, the current ENID reserve we have is something that has been built up over many, many years. So it's clearly not something that you just all of a sudden wake up a quarter and say, "Let's put this in our balance sheet." So it has come over many, many years. And hence, any drawdown on this that would be taken out from the recent ruling, we would, of course, have to build up the ENID reserve again. But again, that will be done over time. It would not be something that will be done from quarter-to-quarter or even year-to-year, it is something that has been built up over more than 10 years. And as I said, replenishing it would also happen over a longer time horizon as we do not fortunately see these kind of rulings every year. So I hope that answers the question. Morten Thorsrud: Yes. And to the Nordic underlying risk ratio improvement, we are at a combined ratio level now that is highly attractive in the Nordic region and typically in all countries, all segments. So I think it's fair to expect that the improvement in the underlying risk ratio will be somewhat smaller at least going forward. I still think there is some potential for improvements in pockets of the business. But again, we have a very attractive combined ratio. And of course, there is a limit for how many years and how far down you can push a risk ratio. So a bit more moderate improvement going forward, I think, is fair to expect. Operator: The next question comes from Simon Brun from ABG Sundal Collier. Simon Skaland Brun: Just a couple of questions. Starting with Denmark and the premium growth in Denmark seems to be a nice uptick and somewhat of a trend shift in the premium growth. And I appreciate that there's always some element of volatility here, but does it also reflect some sort of revenue synergies from the Topdanmark merger? I just wonder if you could comment briefly on whether you see sort of strength and relevance in new or existing markets that now translate into accelerating premium growth Or am I reading too much into it? That's my first question. Morten Thorsrud: Yes. I think an integration process is, of course, never an easy process. And as you see sort of from the synergy estimates, we've done quite a lot of changes to the Danish organization starting to change the business model. Of course, that is always creating a bit of worries sort of internally and also can create some turbulence sort of towards the customers externally. We did see a small drop in retention rate in the private business throughout 2025 in Denmark, which was exactly as expected, again, when merging two companies, then closing down Topdanmark as a legal entity, when we notify 750,000 customers about the change of insurance provider and so forth, that will have an effect. So that was as expected. And then we've seen that this is now gradually improving and even starting to see a slight uptick in retention rates. And at the same time, we've been rebuilding a little bit the distribution capacity, both in Private and SME in Denmark during this process. So I'm at least very optimistic about the outlook for Denmark. I think the most difficult part of the integration is now behind us and that the customers now also will start to see really benefits of being part of a larger group with even better processes, better services, more digital tools in particular. So yes. Simon Skaland Brun: Second question, continuing in Denmark, I guess, and on the workers' comp. Maybe not looking so much into sort of the -- maybe looking more to the future, looking for the -- just curious to hear your thoughts on the sort of the sustainability of you staying in that segment, obviously, you have a pretty big market share. Is this segment still attractive to you? What needs to be done on the pricing to sort of cover the -- what seems to be clearly a wider scope of future claims. How long will it take to adjust prices? Where do you see them going? And could this be sort of a short-term boost to the premium growth as you reprice this quite meaningfully, I assume? Lars Beck: To start out, yes, we still believe workers' comp in Denmark is a highly attractive segment. We are the market leader, not only in terms of volume, but I would claim also in terms of knowledge when it comes to underwriting, when it comes to claim handling and when it comes to our actuarial skills. So yes, definitely an attractive segment to us. I think it's clear that, as always, we price for risk. So it's natural -- if risk changes, then it's natural to expect prices to change accordingly. I think it's important to note that actually, there's a fairly high degree of flexibility in here in the Danish workers' comp wordings in the sense that changes in law and ruling like this, you can actually adjust prices in the middle of a policy term or policy period. However, we are not doing anything yet. We are, of course, analyzing and then we are waiting to see what will happen, both in terms of what the state of Denmark would ultimately do before we make any final decisions. But of course, we are prepared. We will change or we will price according to risk. And yes, we believe Danish workers' comp is an attractive segment and market. Operator: The next question comes from Emil Immonen from DNB Carnegie. Emil Immonen: Just maybe one more on the workers' comp and the decision in general. How does that impact your outlook on the insurance market overall, does it change it in any way? And what kind of decisions these courts take? Or is it kind of expected that this is normal business to you? Morten Thorsrud: Let's say this is normal business. We do have some lines of businesses, some products that are exposed to changes like this, workers' comp, some of the bodily injury claims you have on motor. There are risks, new rulings, changes in, say, pension age, base of calculating loss of income. And this is sort of normal business risk to us. And this is exactly also why we are reserving for this type of risk, which is what Lars explained with these Events Not In Data. If you have a reserve model that just look at data, it will be backward looking. And of course, our reserving needs to be forward-looking. And that's why we try to factor in these things in our reserving and in our pricing. So this is normal business for us, and that's also why we are able to cover the effect of this case within our existing reserves. Operator: So I hand the conference back to the speakers for any closing comments. Mirko Hurmerinta: All right. Thank you very much. That concludes the call for today. Thank you for listening in.
Operator: Hello, and welcome, everyone, to the 1Q 2026 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2026 guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on this call, please note that for the media this is a listen-only call. I will now hand over to your host, Ricardo Bottas, CFO, to begin. Please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our first quarter 2026 conference call, and thank you all for joining us today. My name is Ricardo, and I'm CFO of the LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andres Del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present the highlights and results for the first quarter of 2026. I'll hand it over to Roberto to share his opening remarks. Roberto Alvo Milosawlewitsch: Good morning, everyone, and thank you, Ricardo. Let me begin. LATAM began delivering a very strong set of results, which reflect the consistency of the execution and the structural strengths of the model built over the past years. During the first quarter, LATAM Group grew capacity by 10.4% and transported close to 23 million passengers, while maintaining a solid load factor of 85.3%, demonstrating once again its ability to grow efficiently and capture demand across the network. The strong operational performance translated into record financial results. Revenue reached $4.1 billion, adjusted EBITDA was $1.3 billion, and the adjusted operating margin was close to 20%. The highest quarterly figure in the company's history, resulting in a net income of $576 million, reflecting both revenue strength and disciplined cost execution. These results were supported by continued progress in revenue quality, driven also by solid execution, well-tailored product differentiation, strong customer preference and a continuous increase in the contribution of premium revenues. This reflects a trend that has been building consistency over the recent quarters as LATAM's business model is delivering on the expected results. Even though the conflict in the Middle East pushed up jet fuel prices sharply starting in March, given the timing of fuel consumption, price lagging mechanisms and partial hedges, this increase did not materially impact the first quarter financial results. LATAM expects, however, these higher fuel prices to be reflected in the second quarter of this year. As fuel prices increased, LATAM Group began implementing fare adjustments in most of its network as well as executing targeted capacity reductions. To date, the demand environment remains strong and stable, and these commercial actions are partially mitigating the higher fuel expenses. Looking forward, we face the upcoming months with a combination of optimism and caution. Optimism because over the last years, LATAM has built a very resilient model. Its passengers and cargo business integration, together with the presence of LATAM's Group has in most market it operates, the strength of the loyalty program, the design and delivery of the passenger experience, both on board and throughout the journey, the focus on premium traffic and less elastic segments of demand, its competitive cost, the strength of its balance sheet and liquidity and most importantly, the quality and commitment of its people are all features that are unique to LATAM in the region and provide a true advantage and a potential source of future opportunity. Caution on the other side, because the environment remains extremely uncertain and variables that significantly affect the business are outside of LATAM's control. However, LATAM's track record in navigating complex environments is well proven at this time, and the group really trusts its abilities. In this volatile context, LATAM has taken a prudent approach to its guidance as will be discussed in more detail later in the presentation. Extraordinarily, given the circumstances, the company has decided to replace its full year 2026 guidance with a more focused set of metrics. With that said, I'll hand it over to Ricardo, who will talk -- walk us through the performance of the first quarter together with a look into LATAM's group relative and absolute strengths. Thank you. Ricardo Dourado: Thank you, Roberto. So Roberto, with his opening remarks, just covered Slide 3, so we can jump to the Slide 4. LATAM started the year with a strong financial performance, successfully translating a healthy demand environment into tangible financial results. Total revenues reached $4.1 billion, representing a 21.7% increase compared to the same period last year, mainly driven by the passenger business, which grew 24.4%, supported by strong customer preference for the LATAM Group product during the higher summer season in the Southern Hemisphere. At the same time, cargo revenues increased 3.4%, highlighting once again the importance of LATAM's group business diversification, which in the current context continued to be a key lever for the group. As a result of this top line performance, LATAM achieved an adjusted operating margin of 19.8%, expanding 3 percentage points year-over-year, marking the highest quarterly operating margin in the company history. This reflects not only the strength of LATAM's brand, but also the disciplined execution of the strategy across the network. On the cost side, total adjusted expenses increased 17.3% alongside operational activity and capacity growth. Importantly, fuel cost pressures during the quarter did not have an immediate or material impact on the results, given the delay of approximately 20 to 30 days in price adjustments supported by regional supply structures. In fact, given LATAM's hedging position in this dynamic, there was a reduction of 3.3% in fuel pricing during the quarter on a year-over-year basis. That said, there was an estimated impact close to $40 million during the period, which is expected to become more visible in the following quarter as elevated fuel prices are progressively incorporated. At the unit cost level, passenger CASK ex fuel came in at $0.045. This is an increase versus the same period of 2025, mainly explained by the depreciation of the local currency, particularly the Brazilian real. Together with this, unit revenues increased at a stronger pace, rising 12.7%, reflecting a solid performance across all markets. All of this translated into a net income of almost $600 million for the quarter, an increase over 62% year-over-year and a net margin of almost 14%, enabling the consistent delivery of exceptional results from the top line down to the bottom line. Please join me on the next slide to take a deeper dive into revenue performance across different affiliates and business units. Now on the Slide 5. The first quarter was characterized by a strong demand environment across the region. In this context, LATAM Group was able to very effectively capture this demand and translate into revenue performance, supported by its value proposition and network. During the quarter, the group began navigating a context of increasing fuel prices and as a result, implemented target revenue management actions, though these are partly reflected in the first quarter given the percentage of tickets already sold for March at that time. In the quarter, the group increased capacity by 10.4% and transported 22.9 million passengers, a 9.1% increase compared to the same period of 2025, mainly driven by the International segment and LATAM Airlines Brazil domestic market. This was accompanied by a consolidated load factor of 85.3%, a 2 percentage point increase. At the market level, LATAM Airlines Brazil domestic market showed strong dynamics with demand growing above capacity, leading to higher load factors and a solid passenger RASK performance, increasing 17% in U.S. dollars and 8% in local currency, supported by a more favorable exchange rate than last year. In the domestic Spanish-speaking affiliate markets, capacity remained stable, while improved traffic translated into a meaningful increase in load factors and a very strong unit revenue performance with passenger RASK increasing close to 25% in dollars and nearly 19% in local currency. In the International segment, capacity and traffic grew at a similar pace, maintaining very healthy load factors close to 87%, while Passenger RASK increased 6.3%, supported by a strong performance across both regional and long-haul operations. Overall, these results reflect LATAM Group disciplined execution and capacity deployment in revenue management, which supported by a favorable demand backdrop, allowed the group to deliver strong unit revenues, all underpinned by a differentiated value proposition, both in terms of product and its ability to connect the region like no other player. Let's move to the Slide 6, talking about the LATAM Group value proposition, in particular continued development of its premium offering and the results this is delivering in the next slide, Slide 6. Product differentiation, customer preference and the growing relevance of premium revenues were key drivers of LATAM's performance during the quarter, underscoring the strength of the group's value proposition. These factors are all reflected in LATAM's recently awarded 4-star in the Skytrax World Airline Star Rating, making LATAM the only airline in Latin America history to reach this level. The premium segment continues to gain importance with LATAM's revenue mix and therefore, enhance the revenue quality. During the quarter, premium revenues increased 28% year-over-year and actually premium revenues are increasing at a rate 14% higher than non-premium passenger revenues. With this premium passenger revenues share reached 27% of passenger revenues, a significant increase compared to the pre-pandemic levels, which becomes particularly relevant in the current context of heightened volatility and macroeconomic pressures as premium travelers tend to exhibit lower price elasticity and more stable demand patterns. Complementing this, LATAM Pass remains a key enabler of loyalty and customer engagement with 55 million members, including 2.6 million Elite members, making it the largest airline loyalty program in the region. Beyond its scale, it also serves as a relevant revenue channel with close to 60% of LATAM's passenger revenues generated by LATAM Pass members, reinforcing the strength of the ecosystem and the group's ability to deepen customer relationships. And as LATAM continues to elevate the customer journey, the group has announced a series of initiatives aimed at further enhancing its premium offering going forward. These include the rollout of the Wi-Fi connectivity in the wide-body fleet, which has already begun with the first long-haul flight operated in last March and will continue expanding in the coming years. The expansion of lounge infrastructure in the strategic hubs such as Sao Paulo and Miami and the introduction of the new premium comfort cabin expected from 2027. Building on these developments, one of the most recent highlights is the incorporation of the Airbus A321XLR expected from 2027 onwards, which will feature the premium business cabin with full flat seats, suite doors, direct aisle access and onboard connectivity, reinforcing the group premium value proposition and ensuring consistency across the LATAM Group product experience. The continued development of LATAM's premium offering, together with its loyalty program and network strength allowed the group to capture more resilient and higher value demand, further supporting the sustainability of the financial performance even in the face of a complex macroeconomic scenario. Please join me on the next slide, Slide 7. LATAM's strong performance was effectively translating into solid cash generation during the quarter. At the start of the year, the company generated $858 million in adjusted operating cash flow, reflecting the operational strength already discussed. After accounting for CapEx net of financing of $291 million as well as financial expenses and other items, LATAM generated close to $480 million in cash. During this period, paid amount to $90 million related with the interim dividends distributed in December '25, which given operational payments timing, were partially executed in January, the $89 million you see in the column. As a result, LATAM closed the quarter with a net cash generation of $391 million. This cash performance remained consistent with what we've seen in the previous quarters, where strong operating results are effectively converted into liquidity, which is the current context becomes a key source of strength, allowing LATAM to maintain a position of confidence in its financial standing while navigating in an environment with higher uncertainty. Let's move to the next slide, Slide 8. In the current context of elevated fuel prices and ongoing macro volatility, having a strong and lean balance sheet drivers competitiveness, and this continues to be a key differentiator for LATAM. The group closed the quarter with liquidity of $4.1 billion and an adjusted net leverage of 1.3x, supported by consistent cash flow generation, which remains at the core of the financial strategy. Additionally, in a scenario of prolonged and heightened volatility, the group maintained significant financial optionality through its asset base with more than $1.5 billion in unencumbered assets, providing further flexibility to navigate the cycle and act on opportunities. Match with this, LATAM has proactively managed its maturity profile, resulting in no relevant short- and midterm maturities and a well-structured debt schedule. Importantly, all debt is now under market conditions with no remaining legacy from Chapter 11 process, further streamlining the balance sheet. This provides both visibility and financial flexibility going forward, which is also reflected in the group's credit profile with all major ratings agencies now assigning ratings in the BB+ category -- sorry, BB category with a positive outlook following Moody's outlook upgrade in March and Fitch's reaffirmation of its rating and outlook in April. Now on Slide 9. And given the recent increase in volatility, particularly in fuel prices and the more limited visibility in the current environment, the company has decided to replace its previous full year 2026 guidance with a more focused set of metrics. While the previous 2026 guidance assumed an average jet fuel of $90 per barrel in a context that remains highly -- the dynamic LATAM's new guidance is based on a very specific set of assumptions. Regarding fuel prices, the expected price for each of the remaining quarters on the year is provided in a stable demand environment, consistent with what we observed so far is assuming and both are incorporated into new guidance. The assumptions for the next quarter is going to be $170 for the Q2 and Q3 and $150 for Q4. Regarding passenger unit cost ex fuel, this has been updated to a higher range of $0.045 and $0.047 compared to the previous guidance, which is explained by the appreciation of local currency and in particular, the Brazilian real, now expected to be BRL 5.15 per U.S. dollar compared to the previous assumptions of BRL 5.5. On the adjusted EBITDA side, LATAM expected a range between $3.8 billion and $4.2 billion, which incorporates the estimated impact of higher fuel prices, supported by the levers already discussed, including the strength of the network, the ability to capture premium demand through LATAM's differentiated value proposition and its fuel price management strategy. LATAM's balance sheet strength is also reflected in the updated net leverage metric, which is expected to be somewhat higher than previously guided, but still at very healthy levels and well below the company's financial policy target limit, estimating the net leverage below or equal to 1.8x. Regarding liquidity, the new guidance is lower than the previous presented, mainly explained by the impact of higher fuel prices. Nevertheless, liquidity is expected to remain at or above $4.5 billion, once again demonstrating the company's strength in terms of financial flexibility and balance sheet resilience. In the near term and given the current level of visibility, LATAM expected additional fuel expenses of more than $700 million for the second quarter of 2026, assuming the jet fuel price, as I have mentioned before, of $170 per barrel. Despite the significant fuel impact, LATAM expected to deliver a mid- to low single-digit adjusted operating margin in the second quarter. Overall, while the environment remains dynamic, LATAM is navigating this context with a disciplined and measured approach, leveraging the strength of its business model. Let me conclude with a few key takeaways and messages on the last slide, Slide 10. The first quarter results reflect a very strong performance for LATAM achieved in the context of a healthy and resilient demand environment, particularly during the high season, which provides a solid starting point for the rest of the year. All of this finds LATAM in the strongest financial position in its history, allowing the group to face the current macroeconomic environment from a position of financial strength even as fuel price pressures begin to materialize in the coming quarters. In this context, LATAM benefits from both relative and structural advantages. At the core of this is a differentiated increasing premium offering, combined with a strong network, which allows the group to access a demand base that is structurally less elastic and therefore, enabling the group to pass through costs more effectively. At the same time, LATAM operates today with a lean and strengthened balance sheet with high liquidity, low leverage, no short and midterm maturities with assets and significant flexibility and optionality to navigate in a more volatile environment. LATAM approaches the coming months with discipline and confidence, supported by its experience in navigating volatility and the robustness of its business model while maintaining a prudent stance in light of a still challenging and dynamic macroeconomic environment. Thank you, and let's open the line for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan. Guilherme Mendes: The first one is on the guidance. Whatever you can share in terms of top line assumptions, thinking of -- you mentioned capacity adjustments, yield increases. So if you can provide a reference of how much even if a ballpark you are anticipating for the year? And the second point is on -- think about the price increases, if you can share how each of the different segments, think about leisure, corporate or different regions are performing following this increase on prices. Roberto Alvo Milosawlewitsch: This is Roberto. So first question, we're not providing top line and capacity guidance because we see those figures are slightly more volatile than EBITDA. At the end of the day, I think that the industry will adjust capacity to try to balance results going further. So that's why we are focusing on a set of metrics that we believe give a good picture of the resilience of the model without trying to forecast variables that are going to be difficult to forecast. Having said that, I think it's fair to expect that if high level fuel prices continue, we will see bigger capacity adjustments throughout the industry and particularly in the region. And I think that you can fairly estimate a potential revenue profile with that assumption having the other measures that we provided. In terms of the segments, so first and foremost, solid demand and stable demand environment throughout the network. We haven't seen particular places where the macro environment has affected demand. We see a strong and stable corporate segment in almost every country. International and domestic Brazil probably stand out as slightly stronger than the rest. But on average, everything looks very healthy. We have seen, of course, a little bit of a slowdown in the more elastic segments of demand. The good thing is that today, this is comprising less and less of the number of passengers of LATAM, and they're easily compensated with different point of sale -- points of sale origins that we have in the network. I think that large networks in this particular environment are, in general, much more -- what is the word in English, sustainable than smaller networks. But as the [ long AP ] in the beginning of the quarter, when fare increases, you could see an impact on [ long AP. ] As the quarter has progressed, you see the filling up of the aircraft nicely, even though from those initial lower levels. And this is, in my mind, a function of the diversification of the points of origin and the O&Ds that the LATAM network can provide. So in general, the picture looks stable. The forward bookings for the remainder of the quarter have not been affected by anything that we've seen outside of the industry. So in that context, we remain positive. Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Congrats on the record results. So maybe just a follow-up on your last response. You just mentioned potential slowdown in the more demand elastic segments. Can you dig in deeper there? And with premium revenue now at 27% of total, what is your long-term target? Roberto Alvo Milosawlewitsch: So yes, I mean, I think it's absolutely normal to see a slowdown in more elastic segments. On the other hand, I think that airlines that tailor to more elastic segments in general are decreasing capacity faster than airlines that don't have that exposure. So that balances out in a way, this slowdown in demand. And at the end of the day, I think benefits companies that LATAM that can fill their planes with higher quality passengers in the other moments of the curve and in the other segments. So it's a total manageable situation given what we have. And I think that what we're seeing here is very clear. Airlines that are more exposed to more elastic segments, airlines that have weaker balance sheet are going to probably be more exposed to the current situation. LATAM's absolute and relative advantages clearly stand out in this particular scenario. Second question was the long-term premium revenues target. So we don't provide a public target of long-term premium revenues. I think that the expectation we have is to continue to grow premium revenues faster than total revenues. Ricardo pointed out to that stat for the first quarter. We haven't seen at this point in time, any slowdown in this trend, and it's been already over several quarters that we have seen that outpacing of premium travelers vis-a-vis the rest. And I think that the delivery of our product, the way we're managing the network, the quality of the experience today, the FFP, all these features point out that we can continue seeing that different balance vis-a-vis the past going forward. Shannon Doherty: Great. And how much on the higher fuel costs are you capturing during the June quarter? Do you expect to fully capture higher fuel by the end of this year, like we've heard from some of the U.S. airlines? Roberto Alvo Milosawlewitsch: Again, we don't provide that specific information, but I think that with the mid- to low single-digit operating margin figure together with the fuel spend that we are telling you guys that we're going to have in the second quarter, you can estimate relatively well the impact of fuel and pass-through that we are seeing for the quarter. Operator: Our next question comes from Andre Ferreira from Bradesco. Andre Ferreira: So one quick question here. So if you could comment on the forward booking curve. I guess in a previous question, you commented on specifically for the second quarter. But in general, how are you seeing it? Is it shorter? And if so, do you believe it's more due to like a permanent price sensitivity? Or is it more due to passengers kind of wishing or waiting for fares to go down closer to the trip? Roberto Alvo Milosawlewitsch: Yes. Andre, again, I mean, significant amount of the passengers we fly are domestic passengers, which have relatively low APEs. So the visibility we have on the booking curve doesn't go too much further away than a couple of months, maybe international a little bit more. So in the visibility we have, which is the rest of the second quarter and probably the first peak on the high season in the July winter holidays for us in this part of the world, it looks healthy in general. July is an important month just as January are because it's holiday time in the Southern Hemisphere. And the first indications we have on bookings for July look healthy as well. But beyond that, it's still very early to get a sense on how the planes will feel. We'll see that in the upcoming weeks. Andre Ferreira: Perfect. And if I can just squeeze in another one. If you could comment on -- can you hear me? Roberto Alvo Milosawlewitsch: Yes. Yes, we can. Andre Ferreira: So if you -- if you could just comment on the competitive landscape across the region. So I guess in Brazil, we have Azul leaving Chapter 11, but with lower growth as per the plan GOL out for a while now. So just how are the rest of the competition in Brazil behaving and on the other markets as well? Roberto Alvo Milosawlewitsch: Thanks, Andre. So we normally don't comment on competition. I guess the two things that I can tell you, one is airlines publish their capacity, and therefore, you can see capacity changes week after week as this crisis has progressed. I think that what we are seeing in general is a trend in downward capacity on most of the airlines in the region, including LATAM, by the way, in the second quarter vis-a-vis what was published before February 27. I think that airlines or more than I think what we see because this is actually public information, what we see is ULCCs decreasing capacity faster than players that have a better revenue quality average, if I can call it like that. I personally think that with an environment like the one we are using for the guidance, capacity may -- decreases may accelerate to balance out the longer-term impact of demand. LATAM takes -- the way we have looked at this particular guidance, we call it guidance, but this is -- nobody knows where this is going to go. We'd rather put ourselves in a scenario that looks a little bit more conservative than the forward curves and prepare for that. Then we will see how we execute as the information goes through and the changes in the environment. But we're taking this crisis seriously in the sense that it can -- there's a chance that it can last longer. And in that case, the whole organization needs to be prepared. If it gets better and we have, I guess, positive news flows during the night yesterday, then we will adjust accordingly. But for the time being, I guess that's the assessment I can -- I can give you on how we see the dynamics of the market here. Operator: [Operator Instructions] Our next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: So just following up on the impact into the second quarter talking about fuel prices. We're trying to understand here what is LATAM actually seeing in terms of fuel price increases just because we have seen some of the regions, particularly Brazil on which Petrobras is very relevant, kind of is smoothing out the international price trend for fuel prices into jet fuel. So just trying to understand whether the $700 million plus that you're estimating for impact into the second quarter is already incorporating the fact that Petrobras and policies for price pass-through here for jet fuel in Brazil were kind of smooth out as the crisis took place in late February. And also, if you could comment how is the company at this point? I understand there's a lot of uncertainty and their visibility is limited. But just trying to assess how you're weighting market share versus profitability when assessing the price increases that you need to implement to offset the higher cost that you're facing with fuel. Ricardo Dourado: Okay. Gabriel, it's Ricardo, and thank you for your question. Actually, regarding the Petrobras issue, I'm not talking about a specific provider in Brazil. It's relevant in Brazil, for sure. But it's not a question of price policy. It's just a mechanism in terms of the way that they capture the international price in terms of lagging. So we mentioned a range on the average of all providers to have between 20 and 30 days lagging in terms of the way that the average price from our suppliers are getting the impact from international prices, I mean, in terms of price commodities, right? So it's just the way that when we see these assumptions for the second quarter of $170, for instance, we are capturing everything on it. And like we have mentioned also, the most relevant impact from March, for instance, it's captured in the Q2 assumptions for price. Roberto Alvo Milosawlewitsch: But to be clear, we're not assuming nor forecasting any changes to the price that are not market changes to the price. So no subsidies or anything like that in any of the markets where we operate. Regarding the second question, thanks for the question on market share. Let me be extremely clear here. In LatAm, market share is not a goal. Market share is the result of what we do. So for us, we don't manage the business in terms of the market share we can achieve. We manage the business looking at the flows, understanding where we can win, executing upon where we see strength. And then the outcome of that equation is market share. And LatAm has improved almost in every market where it operates its market shares over the last 2 or 3 years. But this is not a function of seeking them. It's a function of the results of our strategy. So -- so I don't focus -- we don't focus in profitability vis-a-vis market share. We focus in long-term development of the network, delivering on the strength that we have built in the model. And then we will see what the market share outcome of that equation is. Having said that, we are a rational player in terms of how we want to develop the business going forward. We find ourselves in a place where we can grow profitably. You see this very clearly throughout 2025 and in the first quarter of 2026. And I think that the way we conduct ourselves and the business is pretty clear at this point in time. So no market share goals for LATAM. Operator: Our next question comes from Jens Spiess from Morgan Stanley. Jens Spiess: Yes. Just two questions from me. One, to clarify your jet fuel price assumption, just to make sure that that's market prices not considering any hedges, right? And if those market prices materialize, what would be like the effective hedged price that you would be realizing considering that you now have also incorporated additional hedging instruments for your hedging -- within your hedging policy? And my second question is on the XLRs that you will be adding to your fleet in 2027. Where do you plan to deploy those mainly? Will it be intra-South America or also like to the U.S. and other markets, just to get a bit more clarity on that. Ricardo Dourado: Thank you, Jens. And regarding the hedging policy and the assumptions we use for the guidance, yes, the reference in terms of the price of the commodity, it's not including any reference in terms of the impact that could come from the hedge. But yes, the guidance that we are providing or the guidance is capturing the contracts that we have disclosed that we have in our -- under the hedge policy that we are seeing. And we also made some reference in terms of the way that we see the collars and also the recent call options that are partially in the money right now. So as a reference and not giving any additional information regarding the conditions from these instruments, the guidance is capturing the contracts that we have until the end of April, okay? Roberto Alvo Milosawlewitsch: And on the XLR, so we are receiving in total 13 XLRs starting in 2027. There are several applications of the XLR in our network. Lima, Brasilia, Fortaleza are three good examples. We were initially going to deploy the XLRs in Lima, given the fact that there's a connection fee now imposed in Peru, which we believe it's a terrible and pretty bad public policy. We are evaluating where those XLRs will go. But as a general probably guide here, we bought these planes to fly long segments, particularly to the U.S. if it were from Lima or Brasilia, it would be probably Europe and the rest of South America if they were to be placed in Fortaleza. But we'll keep you posted on the deployment of them. We still are over a year away from the first delivery, so no decision made in terms of where they're going to finally go. Operator: [Operator Instructions] Our next question comes from Ewald Stark from BICE Inversiones. Ewald Stark Bittencourt: I have a question on jet fuel. Your jet fuel guidance for the coming quarters looks somewhat high relative to the evolution of the jet fuel futures curve. So I was wondering if you can provide any details on how the strategy was used to reach those expectations. Roberto Alvo Milosawlewitsch: Thanks for the question. I mean, forecasting future prices of fuel today, not even the pros, I mean we have seen just the second half of the forward curve moving something like $15 on average in the last 15 or 20 days. So the way I think that you need to read the assumption here is in two ways. One is we are wanting to be slightly more conservative in terms of this because we'd rather prepare for a worse scenario. In the case it gets better, fine by us, it will be great. It will be an upside to what we're seeing. But on the other side, I think that rather than just simply thinking that we're assuming something special with the market, we have absolutely no clue just as anybody does. I think that you need to read a set of metrics that we gave you as the proof of the resilience of the LATAM model. So you have the EBITDA, you have the liquidity, you have the leverage and you have the price assumption on fuel, make up your idea on how LATAM today is being built to withstand a moment like the one we're living. Operator: We currently have no further questions. So I'll hand back over to Ricardo for closing remarks. Ricardo Dourado: Thank you all for joining us today. And if you have any further questions, please let us know and reach out the Investor Relations team. Thank you, and have a good day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Cumberland Pharmaceuticals First Quarter 2026 Financial Report and Company Update. This call is being recorded at the company's request and will be archived on its website for 1 year from today's date. I would now like to turn it over to Emily Kent from the Dalton Agency, who handles Cumberland's Communications. Emily, please proceed. Emily Kent: Hello, everyone, and thank you for joining us today. This afternoon, Cumberland issued a press release announcing its first quarter financial results. The release also provided an overall company update, including key developments during the quarter. The release, which includes the related financial tables, can be found on the company's website at www.cumberlandpharma.com. During today's call, management will share an overview of those financial results and a company update, including recent developments and a discussion of Cumberland's brands, pipeline and partners. Participating in today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; Todd Anthony, Vice President, Organizational Development; and John Hamm, Chief Financial Officer. Please keep in mind that their discussions may include some forward-looking statements as defined in the Private Securities Reform Act. Those statements reflect the company's current views and expectations concerning future events and may involve risks as well as uncertainties. There are many factors that could affect Cumberland's future results, including natural disasters, economic downturns, international conflicts, trade restrictions, public health epidemics and others that are beyond the company's control. Those issues are described under the caption Risk Factors in Cumberland's annual report on Form 10-K and any subsequent updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results may differ materially from expectations. So information shared on this call should be considered current as of today only. Also, please remember that the company isn't responsible for any -- for updating any forward-looking statements, whether as a result of new information or due to future developments. During today's call, there will be references to several of Cumberland's marketed brands. Full prescribing and safety information for each brand is included on the individual product website, and you can find links to those sites on the corporate site at www.cumberlandpharma.com. The company will also be providing some non-GAAP financial measures with respect to its performance. An explanation and reconciliation to GAAP measures can be found in the financial tables of the earnings release that I noted was issued earlier this afternoon. If you have any questions, please hold them until the end of the call, at which point we will be happy to answer them. Management is also prepared to hold a follow-up conversation with shareholders after the call if you prefer. With that introduction, I'll turn the call over to Cumberland's Chief Executive Officer, A.J. Kazimi. A. Kazimi: Well, thank you, Emily, and good afternoon, everyone. We appreciate you joining us today. As Emily mentioned, we'll provide a review of our financial results for the first quarter of 2026. We'll discuss key developments during the period, but we'll also share recent updates. Recall that Cumberland enjoyed an outstanding year in 2025 with double-digit growth in sales, significant cash flow from operations, the addition of a new brand to our portfolio, new international product approvals and breakthrough clinical study results. I believe those were certainly terrific findings, and I'd like to congratulate our team that is responsible for delivering that performance. We're pleased to report continued momentum in 2026 as we're off to an excellent start with FDA approval for expanded Caldolor labeling, initiation of our sales promotional efforts in support of Talicia, the first shipment of Vibativ to China and FDA clearance of the manufacturing facility, which will enable the relaunch of Vaprisol. We've also entered into a transformational agreement that positions Cumberland for the next phase of our company's evolution and growth. Today, I'm delighted to discuss that agreement, which we've entered into with Apotex, the largest Canadian-based pharmaceutical company, to integrate our branded U.S. commercial businesses. Under the terms of the agreement, Apotex will acquire our portfolio of marketed products for cash consideration of $100 million, subject to our shareholders' approval. Cumberland will also receive $9 million in payments for inventory, fees for transitional support services and a milestone payment tied to future product sales. This transaction represents a significant event for Cumberland as it unlocks substantial near-term value for our shareholders. Moreover, our hope and our expectation is that even more patients will benefit from the array of our marketed products given Apotex' larger market presence. It's important to note that with the tax basis associated with the assets involved, combined with the tax loss carryforwards, we are estimating the income taxes resulting from the transaction will be modest. As a result, the net consideration will significantly strengthen our balance sheet. Following the close of the transaction, we intend to focus on advancing our robust pipeline of product candidates to address unmet medical needs, which, if successful, can greatly benefit patients and shareholders alike. That strategic shift will position Cumberland as an innovation-driven organization, developing new medicines for the future. Overall, we believe this transaction is very beneficial on several fronts. It unlocks the near-term value of our branded products. It considerably strengthens our balance sheet. It sharpens our strategic focus on developing new products that represent large market opportunities and it enhances our ability to create and deliver additional value for our shareholders. It also creates a branded business platform with more critical mass that Apotex can build upon to broaden the distribution of our brands and deliver them to more patients. In short, we're confident in the direction of the company and in our ability to execute on this new strategy. So with that, I'll now turn the call over to Todd Anthony, Vice President, Organizational Development. Todd? Todd Anthony: Well, thank you, A.J. In February, we hosted our spring National Sales meeting in Nashville and in attendance were the 50 individuals across the country who interact with our medical community in support of our FDA-approved products through our 3 national sales divisions, our hospital sales division, which calls on key institutional accounts across the country, our field sales division that covers select office-based physicians and our Cumberland Oncology division, which calls on cancer patients. I'd now like to share our first quarter brand updates. Let's start with Caldolor, our intravenous ibuprofen product. In April, we announced approval from the FDA for an expanded indication for Caldolor. The indication now includes the management of postoperative pain. This approval enhances the clinical utility of Caldolor and supports its role in non-opioid and opioid-sparing pain management strategies. With this update, Caldolor is indicated for use in adult and pediatric patients ages 3 months and older for the treatment of pain and fever. This expanded labeling further broadens Caldolor's use across perioperative and acute care settings. Additionally, we resubmitted our application to CMS for Caldolor's inclusion under the NOPAIN Act in the first quarter. This program is designed to support the use of non-opioid pain management therapies. Now let's turn to Sancuso, our transdermal patch FDA approved for the management of chemotherapy-induced nausea and vomiting. During the first quarter, we announced the launch of the new Sancuso website, which is designed to provide health care professionals and patients with enhanced access to educational resources, clinical information and expert insights related to the prevention of chemotherapy-induced nausea and vomiting. Next, I'd like to share an update for Talicia, an FDA-approved leading treatment for Helicobacter pylori infection. In February, we announced the launch of our national sales promotion for Talicia under our co-commercialization agreement with Talicia Holdings, Inc., which we jointly own. As a reminder, under that agreement, we assumed responsibility for the distribution and sales promotion of the brand in the United States. As part of the launch, we leveraged our existing field sales division with supporting marketing initiatives designed to increase awareness among gastroenterologists and other prescribers. Finally, recall, we have been awaiting FDA clearance of the site where we have successfully transferred the manufacturing of Vaprisol. Today, I am pleased to announce that the FDA has just reinstated their approval status for that facility, which will enable us to submit for manufacture of Vaprisol there. With approval for our submission, we will then arrange for commercial supplies to support the relaunch of the brand, which is expected this year. That completes my updates for today. I'll turn it over now to our Chief Financial Officer, John Hamm, to review our financial results. John? John Hamm: Thanks, Todd. During the first quarter, our portfolio of FDA-approved brands delivered combined revenue of $9.1 million, which represented a 5% increase after removing the onetime $3 million milestone payment last year associated with the approval of Vibativ in China. Net revenue by product for the first quarter of 2026 included $1 million for Kristalose, $2.9 million for Sancuso, $2.1 million for Vibativ, $1 million for Caldolor and $1.9 million for Talicia. Turning to our expenditures. Total operating expenses for the first quarter were $12.3 million, resulting in a net loss of approximately $3.3 million for the first quarter. When noncash expenses are added back, the resulting adjusted loss for the first quarter was $1.9 million or $0.13 a share. We're pleased to see that our most recent acquisitions resulting in additions of Vibativ, Sancuso and Talicia to our portfolio have provided a significant positive impact on our financial performance. Note that the shipments for individual brands fluctuate from quarter-to-quarter based on customer buying patterns, which include the timing of international orders. There is also some seasonality to our business with orders being strongest in the fourth quarter and traditionally lightest in the first quarter. Therefore, we believe our sales performance is best evaluated on an annual basis. Meanwhile, we did continue to achieve our goal of generating positive cash flow from operations, which totaled $387,000 during the first quarter. As a reminder, we participated in the formation of a new company named Talicia Holdings, Inc., which holds the worldwide rights to the Talicia brand and its related product assets. Cumberland invested $4 million in exchange for a 30% ownership position in the new company. We are accounting for this holding using the equity method. Turning to our balance sheet. As of March 31, 2026, we had $71 million in total assets, including $11 million in cash and cash equivalents. Liabilities totaled $49.7 million, including $5 million on our credit facility. Total shareholders' equity was $21.6 million at the end of the first quarter. As A.J. mentioned, we have signed an agreement to enter into a strategic transaction. In exchange for the assets associated with our portfolio of commercial products, we expect to receive $100 million cash at closing. We will also receive $9 million in payments for our commercial product inventory and a milestone payment. Cumberland will support the transition of the products for a monthly fee associated with the transition services agreement. I'd like to note that Cumberland continues to hold over $53 million in tax net operating loss carryforwards, primarily resulting from the prior exercise of stock options. The assets involved in our pending strategic transaction have a tax basis of $30 million. We, therefore, believe that the income taxes resulting from the transaction will be modest. Finally, given the announced strategic transaction, we are no longer targeting a goal of double-digit revenue growth for the year. However, our expenses will be significantly decreased after closing as Apotex will assume responsibility for the sales, marketing, medical, manufacturing and FDA fees associated with the brands. I would also point out at this time that we do not see any significant change to our current clinical spending levels for 2026 as we continue to advance our line of product candidates, which are in the advanced stages of development. And that completes our financial report for the first quarter of 2026. Back to you, A.J. A. Kazimi: Thank you, John. Following the close of the strategic transaction, Cumberland will be an innovation-driven development-focused company. We'll continue to progress our valuable pipeline of new product candidates designed to improve patient care and their quality of life. Our ifetroban new chemical entity, which is a potent and selective thromboxane receptor antagonist, is being evaluated in several advanced clinical programs for patients with a series of unmet medical needs. It's now been dosed in nearly 1,400 subjects and has been found to be safe and well tolerated in those individuals, resulting in an outstanding safety database. We previously announced positive top line results from our completed Phase II study in patients with Duchenne muscular dystrophy, a rare fatal genetic neuromuscular disease that results in deterioration of the skeletal, lung, and heart muscles. During the first quarter, the FDA granted Fast Track designation for our ifetroban candidate in these DMD patients. This designation is intended to accelerate the development and review of therapies addressing serious conditions with unmet medical needs. Importantly, it allows for more frequent FDA interaction, rolling data submissions and earlier guidance throughout the approval process. The program also previously received both orphan drug and rare pediatric disease designations from the FDA. An end of Phase II meeting was held with the FDA last fall, and we had a follow-up meeting during the first quarter of 2026 to discuss both the DMD study results and to determine the regulatory pathway and requirements for approval. We're finalizing our plans for this important program now. And once completed, we'll announce additional results and expected time lines. Meanwhile, we've also been evaluating our ifetroban product candidate in a clinical program in patients with systemic sclerosis or scleroderma. Enrollment in that study has been completed, and we look forward to announcing top line findings, which will be forthcoming. In addition, we have a Phase II clinical study, the Fighting Fibrosis trial in patients with idiopathic pulmonary fibrosis, the most common form of progressive fibrosing interstitial lung disease. Patient enrollment in that study is well underway in centers across the United States. An interim safety analysis was conducted evaluating the first cohort of patients who completed their 12 weeks of treatment. The independent committee concluded there were no new safety signals and therefore, no changes in the study conduct were needed. Based on those findings, enrollment in the study has continued, and we next expect to announce interim efficacy results later this year. Additional pilot patient studies of ifetroban are also underway through several investigator-initiated trials. So in summary, our clinical programs are focused on select patient populations, helping to address unmet medical needs in markets that are very large from a commercial perspective for a company our size. And as we look ahead, we'll work to close our strategic transaction, support the transition of our commercial operations and sharpen our focus on advancing our exciting pipeline of new product candidates. And lastly, I'd just like to extend my sincere thanks and appreciation to all of those at Cumberland for their unwavering dedication towards the patients we aim to serve every day. We're confident in the direction of the company, our future prospects and in our ability to execute on our strategy. Thank you again for your continued support and interest in Cumberland. And with that, we can open the call for any questions. Operator, please proceed. Operator: [Operator Instructions] Our first question comes from [ Alyssa Nye ] from [ IQ Solutions ]. A. Kazimi: Operator, are there other questions? Operator: Our next question is [ Brandon Bishop ]. A. Kazimi: Operator, there appears to be difficulties with the questions. There is also an echo. Well, since we're having difficulty hearing the questions, it's very unfortunate. But I suppose what we can do is if you would like a follow-up conversation, please reach out to the company, and we're happy to schedule a call with you and to answer your questions. Meanwhile, I just want to thank everybody for joining us on today's call, and we look forward to providing another update in the coming months. Operator? Operator: We have someone coming to fix the situation right now if we want to hold for just one second. Emily Kent: No, that's okay. We will hold any questions. You can reach out to the company, make sure that we can get those questions answered. Operator: I apologize. I have jumped into the queue. If you'd like, I can go over the Q&A instructions again, and I will open the line for anyone that's got into the queue. Emily Kent: That's okay. We will take our questions privately, if you don't mind. Operator: Okay. Absolutely. I apologize for the inconvenience. Thank you. And this does conclude today's conference. You may now disconnect.
Operator: Greetings. Welcome to the Crexendo First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jeff Korn, CEO and Chairman of the Board. You may begin. Jeffrey Korn: Thank you, John, and good afternoon, everyone. Welcome to the Crexendo Q1 2026 Conference Call. I am, as John said, Jeff Korn, Chairman of the Board and CEO. On the call with me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; and Jon Brinton, our CRO. In a moment, I'm going to ask John to read the safe harbor statement. After that, I will give some brief comments on our performance and strategy. Ron will then provide more details on the numbers before handing the call over to Doug to provide a business and sales update. After that, I will open the call up for questions. Jon, would you please read the safe harbor? Jon Brinton: Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. All statements made in this conference call other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, words like believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for fiscal year ended December 31, 2025, and the Forms 10-Q as filed. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. I'd now like to turn the call back to Jeff. Jeff? Jeffrey Korn: Thanks. This really was a very special quarter for us, and I can't tell you how proud I am of the entire team and the efforts they made. And I think the results show how everybody is working together, working in unison and continuing to make this what I believe is the best UCaaS company in the industry. When I took over as CEO just over 3 years ago, the team and I made a series of clear and deliberate commitments to our shareholders. We committed to stopping the cash burn, returning the business to positive cash flow. We committed to restoring and sustaining GAAP profitability. We continue to -- we committed to investing in the platform in sales and marketing and in strengthening our security infrastructure. We committed to driving constant growth, and we committed to pursuing disciplined accretive acquisitions. I am very pleased and proud to say that we have delivered on all of those commitments. More importantly, what you are seeing now is those efforts coming together. The foundation we built is translating into a business that is growing, scaling and becoming more efficient with increasing strategic flexibility. The first quarter is a clear example of that. I and the team are incredibly pleased with our first quarter results, which continue to demonstrate not only strong execution, but the increasing strength, scalability and durability of our operating model. Revenue for the quarter was $20.7 million, up 29% year-over-year, reflecting both solid organic performance and the contributions from the Estech Systems ESI acquisition. We delivered GAAP net income of $0.6 million and non-GAAP income of $3.3 million. Importantly, this marks another quarter of GAAP profitability, extending our strength to 11 consecutive quarters. And it's especially impressive this quarter while we absorbed all the acquisition-related expenses and the incremental amortization of intangible assets associated with the ESI transaction. The intangible expenses are fully reflected in our GAAP results. However, they are nonoperational in nature, and our non-GAAP performance more accurately reflects the underlying earning power of the business. What that performance shows is a company that is scaling efficiently, expanding profitably and demonstrating clear operating leverage as we grow. The ESI acquisition is exceeding our expectations and is already contributing meaningfully across the income statement. Integration is advancing ahead of plan across sales, operations, engineering, and we are only beginning to capture early synergies. More importantly, this transaction reinforces a key point. We have disciplined, repeatable M&A framework that is both strategic and financially driven. We are focused on assets that are highly complementary, operationally, actionably and accretive within a short period of time. ESI fits squarely within that framework and strengthens our ability to execute similar opportunities going forward. Operationally, execution continues to improve across the organization. On the retail side, with VIP, we continue to make inroads on enterprise sales, demonstrating continued progress in our capabilities and our ability to compete for and win larger, more complex opportunities. From a product standpoint, we are investing where it matters and seeing results. We've already demonstrated to our licensees and will soon be releasing a new user interface and administrative initiative that has been exceptionally well received by our community during early previews, reinforcing the competitiveness of our platform. We also launched CAIRO, our AI-driven solution, which we believe positions us well as AI continues to become an increasingly vital component of our communication stack. We are actively reviewing and testing other AI solutions, and we will continue to roll out AI applications, which will overlay onto our platform, increase our productivity and more importantly, increase our customers' productivity and therefore, increase our sales per customer. At the same time, our marketplace is gaining traction and beginning to validate the broader ecosystem strategy. While still early from a revenue standpoint, it is strategically important as it expands our reach, deepens customer engagement and creates incremental monetization layers that should scale over time. From a profitability standpoint, we are executing with discipline and intent and increasing recurring revenue. We are continuing to invest in the platform, AI, security and go-to-market capabilities, but we are doing so in a way that is driving increased efficiency across the business. As a result, we are seeing early indications of margin expansion and improving EBITDA conversion, even while integrating acquisitions and continuing to invest for growth. The trend is expected to become more evident over time. Looking ahead, we remain confident in our ability to deliver sustained double-digit organic growth. While macro conditions may continue to impact timing on larger enterprise decisions, underlying demand remains strong and our pipeline supports continued momentum. In parallel, we are actively evaluating additional acquisition opportunities. The environment continues to present attractive opportunities, particularly among companies already operating on our platform or those that can be integrated efficiently into our ecosystem. Our approach remains disciplined, but we believe we are well positioned to selectively deploy capital in a way that enhances both growth and profitability. We are clearly on a trajectory toward $100 million in annual revenue. More importantly, we are doing so with a business that is becoming more efficient, more scalable and more profitable as it grows. Additionally, as you may have seen or will shortly see, we just secured $5 million in term debt along with a line of credit, both of which we believe are on highly attractive terms. This will enable us to have a seat at the table to discuss additional acquisitions and will assist in our expectation of growing the company strategically and profitably. Let me make clear, we didn't borrow the money because we need it. We borrowed the money to secure future acquisitions. We are, as I said, not raising capital out of necessity. We are doing it from a position of strength. Our objective is to ensure that we remain aggressively positioned to pursue accretive acquisitions as opportunities arise. Based on our experience, having capital readily available and meaningfully available improves both access and negotiating leverage, allowing us to act decisively when others cannot. We do not anticipate deploying this capital in the immediate quarter or 2. We firmly believe in the principle that you secure capital when it is available on favorable terms, not when it is required. This approach preserves optionality and ensures we maintain a leadership position when evaluating strategic opportunities. We're building not just for today, but shaping a future where we intend to be the premier cloud communication company in our sector, and this is one more step in that direction. We continue to build the platform and company for the future. We are excited to design a business that will make our customers and shareholders proud, and we will continue to attract new customers and shareholders. We are also closely monitoring developing regulatory dynamics that could create a meaningful opportunity for the company. The Federal Trade Commission has advanced a proposal that, if adopted, will require certain customer service and contact center operations to be located completely within the United States. At this stage, the proposal remains in the early phase. There is approximately a 1-year period for public comment and evaluation, and it is not assured this proposal will ultimately be implemented or adopted in the current form. However, if enacted, it could have significant positive implications for the customer experience and customer-centric markets. We continue to improve our offerings in this arena, and our objective is to ensure that we are prepared and positioned to respond quickly and effectively to take advantage of what we believe could be a significant incremental sales opportunities if these changes are required. In summary, this was a very, very strong quarter and reflects the company executing at a high level, integrating acquisitions successfully, expanding its platform capabilities and positioning itself to drive both growth and margin expansion over time. I remain highly confident in our strategy, our execution, our team and our ability to continue delivering meaningful long-term shareholder value. The best is yet to come, and the team and I work every day to make the best telecom platform support engineering software provider and platform in the industry. I started with discussing commitments we made. Let me now add to that. I want you all to understand we will work tirelessly every day to grow the company profitably, both organically and inorganically, while continuing to build the best software telecom in the industry and provide the best service in the industry. As I said before, the best is yet to come. This is a very, very exciting time for us. And with that, I will turn the call over to Ron, who will provide more details on the finances. Ron Vincent: Thank you, Jeff. Good afternoon, everyone. As Jeff mentioned in his comments, we had another very strong quarter with consolidated revenue growth of 29%. Organic growth for that quarter was 15.9% over the prior year quarter. So excluding $2.1 million in revenue contributed from the ESI acquisition that we completed on March 1 of this year. On March 1, we -- of this year, we closed the acquisition of Estech Systems or as we refer to ESI. The consolidated results of operations of ESI for 1 month are included in our operating results for the 3 months ended March 31, 2026. Since our last call, ESI completed their historical audit for the year ended December 31, 2025, and we filed pro forma financial disclosures as required with the SEC on Form 8-K/A on May 4 of this month. I encourage you to review the Form 8-K filing if you would like to see what the operating results of the combined company would have looked like on a pro forma basis if we had closed the transaction on January 1, 2025. Now let's talk about details for the quarter. For the quarter, we had service revenue that increased 29% to $10.6 million, and our gross margin was 63% for the quarter. Software Solutions revenue increased 12% to $7.7 million, and our gross margin was 68% for the quarter. During the quarter, we booked 5 new logos and had 9 upgrade orders from existing customers. Product revenue increased 141% to $2.4 million, and our gross margin was 31% for the quarter. During the quarter, our service revenue gross margin improved by 300 basis points and our software solutions revenue gross margin improved by 500 basis points compared to the fourth quarter of last year. Product revenue gross margins decreased by 1,100 basis points compared to the fourth quarter. Although product revenue increased significantly during the quarter, the additional network equipment product sales were with very low margins. Operating expenses increased approximately $3.2 million excluding the ESI operations. The increases are attributed to $1 million directly related to the increase in product revenue, $800,000 in acquisition-related expenses related to the ESI acquisition and $500,000 related to the OCI expenses for our hosting arrangement. In the first quarter of the prior year, we had no operating expenses related to OCI. So it's a big increase. Our operating margin for the quarter came in at 2%. That's a decrease in operating margin from the prior period. But without the acquisition-related expenses of $800,000, our operating margins will return to 6% or 7% as they have been in the historical years. Earnings for the first quarter, we reported net income of $0.6 million for the quarter, that's $0.02 per basic and diluted common share. On a non-GAAP basis, we reported non-GAAP net income of $3.3 million. That's $0.10 per basic and diluted common share. We reported EBITDA for the quarter of $1.6 million and adjusted EBITDA of $3.2 million. Our cash and cash equivalents at the end of the quarter was $7.2 million compared to $31.4 million at the end of December 31, 2025. As we've been discussing the acquisition, we paid for a large majority of that acquisition in cash on hand that we generated from operations. So investing activities for the quarter utilized $26.2 million in cash. Operating activities for the quarter provided $2 million in cash and financing activities provided about $100,000 in cash. As Doug -- as Jeff mentioned, we completed our debt financing credit facility with Wells Fargo Bank for a $5 million term loan and a $5 million revolving credit facility. Additional information, our remaining performance obligations at the end of the first quarter was $135.6 million as compared to $89.1 million at December 31, 2025. The addition of ESI's remaining performance obligations contributed $49.6 million of the increase. With that, I'll turn it over to Doug Gaylor, our President and COO, for additional comments on sales and operations. Doug Gaylor: Thanks, Ron. I'm extremely pleased with our strong results to start the year. Strong demand for both our retail telecom services solutions, combined with our wholesale software solutions propelled us to our 11th consecutive GAAP profitable quarter and our 30th consecutive quarter of non-GAAP net income. The 29% increase in revenue for the quarter was a combination of strong organic growth in both segments of the business, combined with 1 month of revenue from our ESI acquisition. Our Telecom Services segment saw an 18% organic growth year-over-year, combined with 12% organic growth from our Software Solutions segment. When you layer in the 1 month of revenue from our ESI acquisition, our Telecom Services segment increased 41% year-over-year. The stronger demand for all of our offerings continues, and we are seeing strong traction with our new AI applications, including our recently released Crexendo AI receptionist orchestrator that we refer to as CAIRO. Our GAAP profitability continues to be positively affected by controlling costs while making necessary investments and driving synergies within the business. We were able to post GAAP profits of $578,000 despite having over $800,000 of acquisition-related costs as well as over $400,000 of intangible amortization costs associated with the ESI acquisition. Our strong GAAP income, combined with strong cash flow -- free cash flow allows us to continually reinvest in our people and our products and to continue delivering the best solutions and the best customer satisfaction in the industry. We continue to see strong organic growth from our Software Solutions segment of the business that saw 12% organic growth in the quarter and benefited from 5 new logos -- new logo orders, along with 9 upgrade orders from our existing licensees. This is a dramatic improvement from Q1 of 2025, which had no new logos for the quarter. Two of the 5 new logos in Q1 are migrating from Metaswitch, and we continue to see opportunities created by uncertainties created by the competition. The new logos that we are winning love our proven platform. They love our open along with our solid suite of AI applications and solutions, combined with our unique pricing and support model, and that makes our software solution platform the best in the industry. Our Telecom Services Retail segment grew at 18% organically for the quarter and was positively impacted by some very large impactful wins that were sold and delivered during the quarter. I'm extremely pleased that we are seeing double-digit organic growth in such a strong fashion from this segment of the business. The heavy retail demand for our offerings was led by a 51% year-over-year increase in sales bookings from master agent technology service distributors, combined with strong traction on our new AI receptionist and a nice increase in SMB retail orders. Our remaining performance obligation, also referred to as our backlog continues to grow and is now at $135.5 million, an increase of 56% from just the end of last year, December 31. A large portion of that increase in the remaining performance obligation is attributable to the acquisition of ESI. The majority of ESI's retail customers are on long-term agreements, typically 5-year terms, thus giving us a very sticky customer base from this acquisition. The remaining performance obligation for the rest of 2026 is currently at $46 million. And as a reminder, our remaining performance obligation number is the sum of the remaining contract values for our telecom services and our software solutions customers that will be recognized on a sliding scale over the next 60 months, and it's a very strong indicator of our future revenue stream. Consolidated gross margin for Q1 was 61%, which was up slightly from Q4 of last year. Our gross margin for the quarter was impacted by higher cost for the quarter for our Oracle Cloud Infrastructure, or OCI hosting as we completed migrations from our legacy hosting to OCI on the Software Solutions segment of the business. The migrations for the quarter significantly increased our OCI utilization and spend while we were still incurring legacy hosting costs as well. With our migration now complete and our legacy hosted environment fully decommissioned, we will see cost savings going forward with improved margins. For the quarter, the Software Solutions margins were 68%, down 10% year-over-year due to the OCI cost that I just mentioned, but up 5% from Q4, which included our UGM conference expenses. Our Telecom Services segment gross margin was 57% for the quarter, which was up from 56% in Q1 of 2025. And our Telecom Services gross margins were positively affected in Q1 by the revenue contribution from ESI, and we would anticipate the margins for this sector to improve with a full quarter's contribution from ESI. We are confident that we should continue to see gross margin improvements in both segments of the business in the future. As Jeff mentioned, the ESI acquisition is exceeding our expectations, and we're seeing historically strong sales bookings from the ESI team in our first 2 months together. ESI has a strong and loyal reseller base, along with a talented direct sales team, and we are very pleased with the first 2 months sales performance from each sector. As I previously stated, we believe that artificial intelligence will be the biggest game changer in the communications sector since the move to the cloud began over 20 years ago. Crexendo is leading the AI charge with many new releases that allow small and midsized businesses to be more efficient and more productive. Our AI solutions are targeted at making small and midsized businesses more successful and more profitable by giving them affordable efficiency tools to help them run their business. In January of this year, we released CAIRO, Crexendo's AI receptionist orchestrator, and Cairo allows new and existing customers to leverage the power of an AI receptionist to answer all incoming calls, answer frequently asked questions, schedule, reschedule or cancel appointments, access customer records and talk to a live person when needed. The initial sales success of the product has been strong over the first 2 months, and we're excited to see the momentum continue. For the typical SMB customer, this technology will allow their business to be more effective and productive for a minimal cost. Crexendo's average retail revenue per account is roughly $350 per month per account. And by adding the CAIRO solution, that customer's monthly could increase by over 25% Crexendo's ecosystem vendor partner program or as we refer to our EVP program that was introduced last year, continues to gain great traction and now has 48 official partners in the program. These partners provide products, software and application solutions to our platform that allow Crexendo and our partners to benefit from selling solutions that end users will make their businesses more efficient, productive and profitable. Of the 48 EVP partners that we have, 11 of them are focused on AI solutions and applications. The EVP program is currently generating new and increasing revenue streams, and we're extremely encouraged by the growth potential. Crexendo has had a great start for 2026, and I fully expect that trend to continue as we continue to meet and exceed our targeted goals. We had previously set a goal of getting to $100 million revenue run rate by the end of 2026. And with our strong organic growth, combined with our exciting acquisition of ESI, we are well on our way to meeting that goal. We have continually highlighted how a strong M&A strategy could positively impact our company, and we continue to prove that with the ESI acquisition, becoming our third meaningful acquisition and game-changing acquisition in the last 5 years. I'm thrilled about the future direction and opportunity for Crexendo. Our strong double-digit organic growth, combined with our ESI acquisition and our GAAP profitability and our strong positive cash flow, combined with our growing remaining performance obligation have laid a great foundation for our future success. We're positioned perfectly with the combination of great products, strong demand and great solutions with a disruptive pricing model. And combine that with the best and most talented workforce in the industry, we're a force to be reckoned with. We're excited about the additional opportunities to drive growth and innovation that our new AI offerings will infuse into our business and are very optimistic that applications like our AI receptionist will drive even more demand and higher revenues. As the fastest-growing platform solution in the country, now supporting well over 7 million end users, we are laser-focused on growing our business, enhancing our solutions, improving our efficiencies and continuing to return strong results. With that, I'll turn it back over to Jeff for any further comments. Jeffrey Korn: Thank you, Doug. Actually, I don't have any further comments at this time. So John, let's open the call to questions. Operator: [Operator Instructions] First question comes from Mike Latimore with Northland Capital Markets. Mike Latimore: Fabulous quarter there. Jeffrey Korn: And before you start, Mike, I want to make clear to everybody listening, the static you heard on the line was not from us. It was from our operator, and we're going to be talking to them about getting a Crexendo system after the call is over. Sorry to interrupt you, but go ahead, Mike. Mike Latimore: Yes. So again, fabulous quarter. I guess one number that jumps out is the 18% organic telecom service growth. I guess, can you elaborate a little bit on kind of what you're seeing there? It sounds like there were some big deals. How big were those? Just a little bit more color on that would be great. Jeffrey Korn: We're not going to detail exactly how large the deals are because we think that's anticompetitive. But as you know, Mike, as well as anybody, enterprise deals take a long time, and we've been working on this one for over a year. And we have several other in the hoppers that we've been working on for some time. It's hard to tell you when they're going to come through because enterprise deals tend to work at their own schedule. But we're very, very excited about this deal. We believe we're going to get others, and we think this is going to continue to see growth in the telecom -- retail telecom sector. And I'll let Doug add something if he wishes to. Doug Gaylor: Yes, Mike, and I think that, combined with the nice increase that we saw from the technology service distributors of 51% really just added to a great quarter. So we just executed extremely well on all aspects of the business on the retail side this quarter. Mike Latimore: Okay. Great. And then the service gross margin looks really good. I think it's the best in 3 -- maybe over 3 years. I know ESI helped there some. I guess where -- but that was only 1 month of ESI. Like what should we think about -- what would be a good range for service gross margin kind of as we get into a full quarter of ESI? Ron Vincent: Yes. So Mike, Ron here. So I think we're going to see continued improvement. I would expect in the next quarter that we could see improvement of 1% or 2% in the next quarter. Mike Latimore: Got it. Okay. Great. And then on CAIRO, it sounds like a lot of opportunity there. I guess -- with the initial work you've done, is the interest from companies that have receptionists and they want to kind of lower the cost? Or is it they don't have any real professional kind of receptionist, they want to add a capability and automate it through technology? Or do they want to replace legacy IVRs or something? Like what are you seeing in terms of where is the interest for CAIRO? What's the use case? Jeffrey Korn: It's kind of both. We see some people who don't have a receptionist who sees this as a way to not have the expense. And we see some of the larger customers who have a receptionist or have multiple receptionists and they can then use this, keep the receptionist for questions that CAIRO may not want to answer or don't answer as well and at the same time, defer these people to other parts of the business. So it's all across the board. And Jon, who sells them more than the rest of us combined. Jon Brinton: Yes, Jeff's comments are correct. So one of the key areas is staff augmentation. So many companies today that the person in that role is not necessarily full time. They've got 3 other jobs. So does it deflect calls so that they can focus on other things and only take the escalated calls. In others, we're seeing like health care applications where -- there in office environments where you are putting them in front of somebody that would normally take those calls in order to help with the call diversion. And the great thing about Cairo is, obviously, we're having our retail success, but quite a few of our licensees are now enrolled to offer it as well. So we're excited to see what they bring to the use cases that are out there. Operator: The next question comes from George Sutton with Craig-Hallum. George Sutton: Nice to see the 5 new logos, particularly after last year and consistent with Q4. Can you just give us a sense of the pipeline that you see for the next few quarters coming from the opportunities you have there? Jeffrey Korn: I'll let Jon answer that. We're not going to give very specific numbers as obviously, there's a lot of competition out there. But we have a strong pipeline, but I can let Jon give a little more detail. Jon Brinton: Yes. George, we do have a strong pipeline. We've commented in the past that some of the deal sizes have been slightly smaller initially because of some of what we think are the macro geopolitical things. But the number of opportunities that are in the pipeline is very strong, both here and in EMEA, and we're just looking to continue to harvest those. As you know, sometimes the larger ones take a little longer, and we're just working them through. But that continues to be very positive, and we don't foresee having a quarter like we did in Q1 and Q2 of last year. It's actually -- there's a lot of strength, a lot of strength now from multiple competitors in a more pronounced way than we've had before. So we're looking forward to getting these people into our community and having them participate in what we're doing globally. George Sutton: You mentioned 11 partners that are working with you on AI opportunities. Can you give us a sense of how broad the AI product opportunity set might be? And when might we see additional products? Doug Gaylor: Yes. Those 11 partners out of the EBP program are all working on different aspects of AI, including our CAIRO solution. Our CAIRO solution was developed by one of our partners there. We obviously sell that as a Crexendo labeled product, but it was developed for us as one of our AI EVP partners. So those AI applications range anywhere from the CAIRO application to call sentiment analysis and call recording summation AI solutions. We've got AI solutions that use Agentic AI for call center, contact center applications. So the list is endless from the amount of opportunities that these guys can continue to develop. We're really trying to focus on what's going to be the most impactful for us and for our customers out there. Again, when you talk about the SMB market, these customers are chomping at the bit for applications that will help improve their efficiency and productivity. And that's what a lot of these AI solutions bring to the table. If you think about just AI call summation and AI capabilities when it comes to call recording, call recording has been around for 25 years. But when you report a conversation and you've got 100 call recordings at the end of the day, it's playing whack-a-mole to try and find what you're looking for. Now with AI summation, we can actually go in there and tell the system, hey, only send me the recording for somebody mentioned this word or use profanity or got upset at my customer service representative. And now you skinny that down to getting exactly what you're looking for. So those AI applications are only going to continue to improve and get better, and that's going to bring more sales to us. Jeffrey Korn: George, I think Jon can add a little color to that. Jon Brinton: Yes. So Doug gave you a great outline there. Just a couple of other things besides the conversational analytics and some of the areas just George, to let you see how deep this goes. If you're familiar with our industry, some of these applications actually help our licensees operate their platform more efficiently with even things down to applications that help with the 10DLC registration, which has kind of become the bane of existence of when you add a customer and move them to our services when they're going to use texting or SMS marketing in our industry. So I think the great thing is the partners that we're working with tend to understand our business well and they're finding their own use cases to help end customers and our licensees. Operator: The next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: Jeff, you talked about the double-digit organic growth expectation for 2026. I was wondering, does that include the acquired the ESI business as well? Jeffrey Korn: No. By organic, I meant excluding ESI. I am guiding toward double-digit organic growth of the business outside of ESI. Eric Martinuzzi: Okay. Then I guess it's more modeling question. The $2.1 million that was recorded in the quarter, so the month of March, just kind of -- is that a good run rate to run with there? Maybe it's a question for Ron. Jeffrey Korn: I would say that's as good a run rate at this point as ever. We're all on the same boat. We have to see if it will sustain that high, it may be lower, it may be higher. But it's hard it's hard for us with 1 month of experience to give you a strong idea of what we expect on a monthly basis. Ron, do you have any further thoughts on that? Ron Vincent: Eric, I'd point you to those pro formas that we just filed yesterday. So those have been filed with the SEC. So those are available for you to look at '25 and what that was. And then you can use that for loan growth trajectory into '26, and we can talk about it further when you get to your model. Eric Martinuzzi: Got you. Okay. And then kind of a housekeeping item here. There were some puts and takes with the acquisition with the equity issuance and then there was the debt, the term loan. Just curious kind of as of month end April 30, what's our cash debt and shares outstanding? Ron Vincent: So we obviously just closed on the debt financing that funded yesterday. So we haven't drawn on that debt other than. Jeffrey Korn: Nor do we have any short-term intention to draw on. Ron Vincent: And the cash, obviously, the cash increased from operating activities in the first quarter. I don't have that the cash balance at the end of April, but we're not declining a decreasing cash balance. Eric Martinuzzi: I was assuming the term loan -- you had drawn the term loans. That's not the case. Ron Vincent: No. Jeffrey Korn: It's a term loan that we can draw on when we choose to. Ron Vincent: We have a credit facility. So we have a $5 million term loan and a $5 million line of credit. Eric Martinuzzi: Congrats on the quarter and the continued double-digit outlook. Operator: The next question comes from Scott Buck with Titan Partners. Scott Buck: Jeff, you mentioned in the prepared remarks that the ESI is delivering above expectations. I was wondering if you could give us a little bit more color on what you're seeing there. Are we talking top line? Are we talking profitability? Or are we just talking about the way the integration is going? Jeffrey Korn: We're actually talking all of the above. The sales were higher than, to be honest, I expected, which is why answering the previous question was a little difficult because it's hard to model where the whole year will be. The profitability was great, especially if you take out the intangible costs, which they're not responsible for. And more importantly, the spirit of the team there, they have all rolled up their sleeves. They are coming to us and going, what can we help with? They are now -- we are combining purchasing. We've just substantial amount of phones for the combined organization is substantial savings. We are moving other things over to savings. We are going to be moving -- they have hosted data centers. We're going to be moving those to ESI. There's savings. We have a whole list -- excuse me to OCI. We have a whole list of things that we intend to be doing as the year goes on to reduce costs, improve efficiency, but the manner in which the ESI team has worked to join with us to ask what they could do to help us, not with us even having to ask is amazing. The sales teams are working closely together. Marketing teams are working closely together. Engineering teams are working closely together. I have a great relationship with their President. Doug is working with their SVP of Operations on a close basis. Ron is in contact every day and managing the accounting systems. It has just moved faster and more efficiently than I anticipated, and I am very pleasantly surprised. Scott Buck: Great. That's great to hear. And then my second one, I want to ask about CAIRO. Maybe you could remind us how you guys price the product. Is that flat fee on a monthly basis? Or is that based on usage? Jon Brinton: Yes. So it's different with the retail and our licensees, but I'll just give you an outline. CAIRO, we have packages that have a bundled number of minutes. And then in excess of that bundle, customers pay for overage on it. With our licensee, it's slightly different, but it's more tied to an overall minute cost after a monthly minimum. So -- but it is to help customers understand it, there is a small, medium, large, and then we can expand the large pricing methodology that then we bill for additional minutes used in excess of the bundle. Scott Buck: Great. And I know it's early, but how often are you seeing folks move to -- move over their limits as they get more comfortable with the product? Jon Brinton: Yes. The customer acceptance and partner acceptance has been excellent. So... Doug Gaylor: I knew he was talking about usage. How often we... Jon Brinton: I'm sorry, I missed that word. Actually, we are seeing quite a few customers exceed the usage bundle in the minimums for their package. Apologies for misunderstanding the question. Operator: [Operator Instructions] The next question comes from Matthew Maus with B. Riley Securities. Matthew Maus: This is Matthew. Great quarter. I guess just following up on that CAIRO question. I'm pretty sure previously, you guys mentioned a range of ARPU uplift between like 25% to 40%. And then this call, you mentioned 25%. And you also just mentioned how customers are kind of using it more than expected. I guess like what would get you closer towards that 40% uplift end of the range? Doug Gaylor: Yes. I'm not sure we mentioned the percentage uptake. Again, we've only been selling the product for 2 months now, so we really don't have a percentage of sales where we're actually attaching CAIRO to that we reported. So I'm not sure where you got that 25% to 40%. But the 25% to 40% increase in price would be the average revenue contribution per account. So if you think about our average account paying us $350 per month, the $350 per month payment when they add CAIRO could go upwards of 25% to 40% increase in their monthly payment to us. So that $350 a month account that's just using Pure UCaaS, they decide to add CAIRO to their solution. Now all of a sudden, they're paying us $500 a month, and then they pay usage on top of that if they exceed their usage targets. That's a pretty nice significant increase on a revenue per account basis. So we see that as a great, great pull-through item for our existing revenue per account numbers. And then again, we'll have -- as we get another quarter or 2 into it, we'll have better metrics to report... [Audio Gap]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma First Quarter 2026 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir. George Grofik: Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter results. You can find the press release with our earnings results and slides of this call on the Investors page of our website at royaltypharma.com. On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Chris Hite, Chairman, Partnering and Investments; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss the growing opportunity for R&D co-funding. Marshall will then provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. And with that, I'd like to turn the call over to Pablo. Pablo Legorreta: Thank you, George, and welcome to everyone on the call. I am happy to report a strong start to 2026 as we execute towards our goal to be the premier capital allocator in life sciences, with consistent compounding growth. Slide 5 summarizes our strong business momentum in the first quarter. Starting with the financials, we delivered 10% growth in portfolio receipts, our top line and 13% growth in royalty receipts, which are our recurring cash flows. The sustained double-digit momentum was driven by strength of our diversified portfolio. We also maintained strong returns in our business with returns on invested capital of around 14% and returns on invested equity of around 20%. By combining strong growth and attractive returns, we're confident that we have a clear path to drive shareholder value creation. Turning to capital allocation. We had a busy quarter with $1.25 billion of announced transactions on 3 attractive therapies, while capital deployed was in excess of $0.5 billion. We also repurchased 1 million shares for $50 million in the quarter and increased our dividend by 7%. Moving to our portfolio. We're thrilled to see a number of positive clinical and regulatory updates, including the extraordinary Phase III results for Revolution Medicines' daraxonrasib in pancreatic cancer and FDA approval of Denali's Avlayah in Hunter syndrome. We also expanded our portfolio through R&D co-funding agreements with Teva, which we discussed on our previous earnings call and recently with J&J for their autoimmune therapy 4804. Chris will highlight the growing market opportunity for R&D co-funding with global biopharma. Lastly, we were pleased to acquire a royalty on Jazz and BeOne's Ziihera, an approved cancer therapy with blockbuster potential. Looking ahead, we're increasing our 2026 full year guidance based on the strong business momentum I just highlighted. Slide 6 is one that I keep coming back to each quarter as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. This speaks to the quality of our investment selection and our unique business model. In the first quarter, we also took major steps to strengthen our global platform and capabilities in partnering the Asia Pacific region and artificial intelligence. We have brought in exceptional new leaders to our team with Greg Butz, Ken Sun and Lucas Glass. Their expertise will support our long-term growth ambitions and help to strengthen our competitive moats as the undisputed leader in the biopharma royalty market. Chris Hite, who has served as our Vice Chairman throughout our journey as a public company, has moved into a new role as Chairman, Partnering & Investments. In this role, he will continue to expand our global relationship network and play a central role in transactions. Chris has been an incredible partner, and I'm delighted that he will continue to provide strong leadership and leverage his relationships in this role. With that, I will hand it over to Chris. Christopher Hite: Thanks, Pablo. I'm genuinely excited about the new capabilities we're building and the opportunity to forge even stronger, more meaningful relationships across the biopharma ecosystem. For my section today, I want to focus on the major opportunity we see for R&D co-funding with global biopharma. Beginning on Slide 9, we see R&D co-funding as a win-win solution for global biopharma and for Royalty Pharma. This market has enormous potential with over $1 trillion of cumulative projected R&D spend by global biopharma in the next 5 years. Co-funding arrangements allow biopharma to share risk at scale to enhance program return on investment to expand R&D capacity and to diversify pipelines. From Royalty Pharma's perspective, we see multiple potential benefits. These include unlocking a new market opportunity, gaining access to high-priority clinical programs, leveraging our partners' global development and commercialization expertise and the ability to conduct deep diligence to drive high conviction in our investments. Slide 10 illustrates the strong momentum for this funding modality. The demand by biopharma was impacted by accounting uncertainty last decade. But over the last several years, more clarity around contra R&D accounting treatment has resulted in a surge for co-funding deals. As an example, in the first quarter alone, we signed deals with J&J and Teva totaling $1 billion in announced value. On the right-hand side of this slide, you can see that the number of global biopharma companies that have utilized this funding modality has doubled since 2020, which underscores the growing acceptance of this form of funding. Slide 11 shows our capital deployment mix by funding modality and has -- and how this has changed over time and where we see it heading in the future. At the start of the 2000s, we were a business focused almost exclusively on acquiring existing royalties. Today, existing royalties remain a stable and important component of our capital deployment but we have evolved into a more diversified with a growing emphasis on providing capital through innovative funding structures, most notably synthetic royalties with emerging biopharma companies, which has been a key growth driver. While R&D co-funding with large biopharma companies has historically represented a smaller share of our activity, we see a clear opportunity to scale this significantly in response to increasing demand. Importantly, this shift creates meaningful upside potential. In addition, potential business from acquiring existing royalties that have originated in China, where we are actively building a platform represents another avenue for future growth that could drive the existing royalty market significantly. Slide 12 highlights a number of the R&D co-funding agreements that we have entered into since 2022. Together, these 5 highlighted deals at the time of announcement had the potential to provide up to $1.8 billion in capital to our partners, including up to $1 billion alone in the Teva and J&J transactions that we announced in the first quarter this year, as I previously noted. As you can see, these deals check the core elements of our investment framework. Specifically, each transaction involves a biopharma with deep clinical expertise and global commercial infrastructure and provides Royalty Pharma with royalty rights to a potentially transformative therapy covering a diverse range of indications. On Slide 13, I want to close by highlighting why we are so confident that Royalty Pharma is well positioned to scale R&D co-funding. Remember that we have been partnering with biopharma for approximately 30 years as we pioneered the royalty market. When we think about the depth of our relationships, our brand reputation, our responsiveness and our flexibility in structuring, Royalty Pharma is the clear leader. In addition, we take a long-term view with royalties and milestones paid over many years, and we have a cost of capital similar to pharma, so we can offer competitive pricing and win more deals. For these reasons, we expect to be able to capitalize strongly on this tremendous growth opportunity in the coming years. With that, let me hand it over to Marshall. Marshall Urist: Thanks, Chris. I want to focus today on several exciting updates to our portfolio. First, our recent royalty deal for Ziihera in approved cancer therapy; second, the incredible Phase III data that was recently disclosed by our partner, Revolution Medicines for daraxonrasib in pancreatic cancer; and third, a look forward to important upcoming events across our broad development stage portfolio. Beginning on Slide 15, we entered into a strategic funding agreement in March with Zymeworks, where we provided $250 million upfront in return for 30% of their royalty on Jazz and BeOne's Ziihera, which translates to a low to mid-single-digit royalty for Royalty Pharma. For those less familiar, Ziihera is a HER2-targeted bispecific antibody, which is FDA approved for a rare tumor, metastatic biliary tract cancer. From a patient and commercial perspective, the real excitement here is that Ziihera was recently submitted for approval in gastric cancer, which represents a particularly high unmet need with a 5-year survival rate of less than 10%. The pivotal study in this indication demonstrated an impressive 5- to 7-month or nearly 40% overall survival advantage over currently available therapies. In our view, this positions Ziihera to become the standard of care in this very tough-to-treat indication, supporting blockbuster potential. Consensus models include peak sales of Ziihera of greater than $2 billion. Based on this outlook, we expect the transaction to deliver attractive returns with an unlevered IRR in the low double digits. Moving to daraxonrasib on Slide 16. Revolution Medicines recently reported unprecedented results from the RASolute Phase III trial in second-line pancreatic cancer. On our last earnings call, I said that daraxonrasib has the potential to revolutionize this devastating disease, and these Phase III results certainly support this. The key headline is that daraxonrasib nearly doubled overall survival from just under 7 months with chemotherapy to over 13 months. These are truly remarkable outcomes for patients in the disease that has seen no true innovation for decades. The next step for Revolution Medicines is to submit for approval by global regulatory agencies, including the FDA under the Commissioner's National Priority Voucher that has the potential to speed the time to approval. In terms of the implications for Royalty Pharma, as a reminder, we agreed in 2025 to provide up to $2 billion in long-term funding to Revolution Medicines to help the company aggressively pursue clinical development and commercialization of daraxonrasib. With the positive data, Royalty Pharma has now invested a total of $500 million for a synthetic royalty that begins at 4.55% on sales up to $2 billion and then tiers down from there. Based on consensus peak annual sales of greater than $10 billion, we expect peak potential annual royalties to be in the range of approximately $180 million based on the currently funded amount and up to $340 million if they draw the additional $750 million of synthetic royalty funding. We are excited to see what the future holds for this incredible medicine backed by a phenomenal team. Next, I'll turn to our development stage pipeline and upcoming events. we're exceptionally well positioned for our next wave of value creation with a deep and innovative pipeline. Slide 17 shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory approvals already in 2026. Just yesterday, we were thrilled to see the positive top line results for Myqorzo in its pivotal trial in non-obstructive hypertrophic cardiomyopathy. Other highlights include positive clinical trial results for Zenas' obexelimab in IgG4-related disease, positive Phase II results for Biogen's litifilimab in cutaneous lupus, FDA approval of Denali's Avlayah in Hunter syndrome and the filing of Nuvalent's neladalkib in ALK-positive non-small cell lung cancer. As you can see, there are plenty more events anticipated this year, and we expect these to lead to several new royalty-generating launches in 2026 and 2027. To highlight positive news on one of our pipeline products, last week, Teva announced the acquisition of Emalex for up to $900 million with regulatory submission planned for Emalex' ecopipam for Tourette's in the second half of the year. As a reminder, Royalty Pharma is entitled to royalties of 6% on ecopipam sales up to $400 million and 10% on sales of $400 million or greater. And we are excited to see ecopipam in the hands of Teva, a marketer with deep commercial expertise in neuroscience. Expanding on this theme, Slide 18 shows that there is much more to come from our development stage pipeline with multiple major pivotal readouts expected over 2026 and 2027. Over the remainder of 2026, we'll see the results of the outcomes trial for Novartis' pelacarsen. We continue to believe that the Lp(a) class can be the next major class of drugs in cardiovascular disease, and we're perfectly positioned with the 2 lead pipeline products in pelacarsen and Amgen's olpasiran. We'll also see Phase III data for litifilimab in systemic lupus. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis and from J&J's seltorexant in major depressive disorder. We also expect Phase III results from daraxonrasib in non-small cell lung cancer and litifilimab in cutaneous lupus. Each of these potentially transformative therapies would add significant royalties to our top line. So to close, we see tremendous potential for our pipeline to unlock substantial value in the near term. With that, I'd like to hand it over to Terry. Terrance Coyne: Thanks, Marshall. Let's move to Slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 13% in the first quarter, reflecting the strength of our diversified portfolio. Portfolio receipts, our top line grew 10% in the quarter, which was strong performance considering a sizable year-over-year decline in milestones and other contractual receipts. As we move down the column, operating and professional costs were 3.9% of portfolio receipts in the first quarter. This is a clear reflection of the benefit of the cash savings we are delivering from the internalization transaction, which we completed last May. Net interest paid was $167 million in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $722 million for the quarter. Our net margin of around 78%, again demonstrates the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $528 million mainly reflected upfront payments for the Ziihera and Avlayah transactions and a milestone payment related to Trelegy. Lastly, our weighted average share count declined by approximately 4% in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 21 provides more detail on the evolution of our top line in the first quarter. Royalty receipts, which we consider our recurring cash inflows grew by 13%. Key drivers were the strong performances of Tremfya, Voranigo and Evrysdi. In the case of Evrysdi, on top of the underlying growth, we benefited from the additional royalties we acquired in December. I should also note that we were able to absorb a 3% headwind to royalty receipts due to the loss of exclusivity of Promacta and still delivered double-digit growth. Moving to portfolio receipts. These grew by 10%, reflecting the lower onetime milestones and other contractual receipts. Slide 22 updates our portfolio return metrics for the quarter. Return on invested capital was 14.1% for the last 12 months ending in the first quarter of 2026 and return on invested equity, which shows the impact of conservative leverage on our equity returns was 19.7% for the last 12 months ending in the first quarter. As I've previously stated, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of March 2026, we had cash and equivalents of $586 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion and weighted average -- the weighted average duration is around 12 years. Importantly, Fitch recently upgraded our credit rating to BBB from BBB-. Our leverage now stands at 2.9x total debt to adjusted EBITDA or 2.7x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $4 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We deployed $528 million of capital on attractive royalty deals in the quarter. At the same time, we returned approximately $186 million to our shareholders, including share repurchases of $50 million and our growing dividend. On Slide 24, we are raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.325 billion to $3.45 billion, up from $3.275 billion to $3.425 billion previously. This assumes growth in royalty receipts of around 4% to 8%, which reflects the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar Tysabri in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. For modeling purposes, we would remind you that several of our largest royalties, such as the CF franchise, Trelegy, Evrysdi and others are upward tiering royalties, which means they reset to a lower rate in the first quarter. As our royalty receipts lag reported sales by the marketers by 1 quarter, this has the effect of decreasing royalties sequentially in the second quarter. Given these dynamics, we are providing guidance for the second quarter portfolio receipts, which we expect to be between -- sorry, which we expect to be between $740 million and $760 million. Turning to expenses. Payments for operating and professional costs are still expected to be in the range of approximately 5.5% to 6.5% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. Interest paid is still expected to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in the third quarter with de minimis amounts payable in Q2 and Q4. This guidance does not take into account interest received on our cash balance, which was $6 million in the first quarter. To close, we have had a great start to the year. We have again raised our guidance, and we expect to deliver another full year of strong financial performance in 2026. Now before I hand it over to Pablo, I want to provide a brief update on the timing of the arbitration with Vertex. Based on the arbitration panel's final schedule, we now expect the dispute to be resolved by around the middle of 2027. With that, I would like to hand the call back to Pablo. Pablo Legorreta: Thanks, Terry. To conclude, I am delighted with our strong start to 2026. We have again delivered strong growth and returns. We've continued to diversify our portfolio of attractive biopharma royalties, and we have strengthened our leadership team and capabilities. I want to close on Slide 26 with a reminder of why we believe we're well positioned to drive strong value creation. First, we're the clear leader in the rapidly expanding biopharma royalty market with strong fundamental tailwinds, reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies, and we expect to remain the undisputed leader. I am confident that the expansion of our global platform and capabilities that I talked about today will further strengthen our position at the forefront of our industry. Third, we expect to deliver strong low volatility top and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20% plus range. With that, we will be happy to take your questions. George Grofik: We will now open up the call to your questions. Operator, please take the first question. Operator: [Operator Instructions] The first question comes from Christopher Schott with JPMorgan. Hardik Parikh: This is Hardik Parikh in for Chris Schott. I think you set, like, a portfolio receipt target for 2030 of approaching $5 billion. I was just wondering now with these recent updates you've had in your development pipeline, can you talk about how much of that 2030 target is derisked? And how much do you think it comes from investments that are already commercial? Pablo Legorreta: Terry, that's a question for you, if you can please take it. Terrance Coyne: Yes. So Hardik, we feel like we're really on track to meet or exceed that target. The portfolio is doing really well. We've had a lot of positive developments. We've executed some great deals. So we haven't gotten into specifics on that at this point but feel like we're very much on track, feel very confident in meeting or exceeding that long-term guidance. Operator: And the next question is going to come from Mike Nedelcovych with TD Cowen. Michael Nedelcovych: I have 3, if you allow me. My first is on the arbitration update you just provided. Can you provide any insight into the reason for the pushout? Then my second question is on Myqorzo. How much of an advantage do you think approval in the non-obstructive HCM setting could be relative to Camzyos? And did you assume success of the ACACIA trial in your internal valuation? And then my third question is on frexalimab. The multiple sclerosis category is evolving somewhat rapidly, especially with the prospect of oral BTK inhibitors gaining approval. Has anything changed relative to your initial assumptions around frexalimab's competitive positioning, assuming it succeeds in the clinic? Pablo Legorreta: Thanks for the question, Mike. And I guess, Terry, you can take the question on arbitration and then Marshall will take the question on Myqorzo and frexalimab. Terrance Coyne: Sure. So on the timing of the arbitration, it's just simply based on the availability of the arbitration panel. Marshall Urist: So on your other 2 questions. So first, thanks for the question on Myqorzo. There were, I think, multiple parts to it, but just to give you our thoughts, we were really excited to see the data yesterday. And I think it's clear evidence that by the strength of the team in a well-designed trial and a really good medicine in aficamten. So multiple parts to your question. I think the first one was, did we assume that in our base thesis when we made the investment. The answer to that is no. The base investment was really premised on the obstructive, or the currently approved indication and its potential there. And I think the early evidence that we saw from the early launch with Cytokinetics yesterday is evidence of that, that the team is doing a great job launching into that market, and we're really excited to see where that goes. The adding non-obstructive to the label can only be helpful, right? It gives a broader label. It provides another patient population for doctors to use the medicine in. And overall, we will certainly be helpful in the launch and certainly upside to our original estimates when we made that partnership with Cytokinetics. Your third question was on frexalimab and on the multiple sclerosis market in general. No real change. I think if you go back in our view, despite some of the changes that are going on with oral medicines there. What we said at the time of that investment was what really excited us and what we saw as an unmet need and what continues to be an unmet need in that market is novel mechanisms that aren't solely focused on B cells. And so I think that opportunity in the market very clearly still exists, and we're really excited about frexalimab and seeing those data next year. Operator: And the next question comes from Geoff Meacham with Citi. Geoffrey Meacham: I just had a couple. The first one, maybe for Terry. You guys had a higher level of capital deployment this quarter or last quarter looking forward. Are you at the upper end of the range leverage-wise? Or is there a capacity constraint or just status quo? And then the second one, I guess, maybe for Marshall. In deals like RevMed or Servier where the royalties could really ramp pretty quickly based on the strong launch. Are there considerations on some of these types of products where you could add additional royalty investments depending on the pace of the launch? I think that -- I don't know if that's been under consideration before, but that seems like you'd want to add capital to drugs that are launching pretty quickly. Pablo Legorreta: Terry and Marshall, do you want to go ahead? Terrance Coyne: Yes. So Geoff, so on your leverage question, we're actually have quite low leverage right now, 2.9x total debt to adjusted EBITDA. And so we have a lot of financial flexibility. If deal flow increases, we feel like we absolutely will be prepared to invest if the right opportunities come along. I think we laid out in our slides that we have $4 billion of financial capacity, and that grows every quarter, as you can imagine. So we feel like we're -- the balance sheet has never been stronger. We're in a really great position there. Marshall Urist: And Geoff, on your other 2 questions. So on launching products and opportunities to deploy additional capital. So nothing specific with respect to the ramp. But I would say that the Voranigo launch, as you pointed out, has gone incredibly well, and we're so excited to have that as part of the portfolio. As a reminder, there is a sharing component to that one. So we do share a portion of the royalty above $1 billion with -- back to Agios. And then second, RevMed, we are -- as we talked about in the prepared remarks, we are really excited about those data, agree with you that the unmet need is so great that this could be a really rapid launch. As a reminder, the RevMed deal, we've done $500 million of the $1.25 billion of synthetic royalty. There are additional opportunities that will come at FDA approval, which we expect to see this year and then with a certain sales milestone and then there's a label expansion later on. So there are other opportunities. However, the future tranches are all at the option of Revolution Medicines. So -- and it was one of the really, I think, attractive and exciting parts of our partnership with them that it gave our partner lots of flexibility in terms of access to capital going forward. So there certainly is that potential, and we will see what happens in the months and years to come. Operator: And our next question is going to come from Jason Gerberry with Bank of America. Jason Gerberry: First is the policy question. I'm just curious how you guys are thinking about forecasting underwriting value for OUS launches around MFN risk, just given that we haven't really seen how pharma companies' launch behaviors and pricing strategies are mirroring in those select OUS markets. So in the absence of that concrete information, I'm just kind of curious how you guys navigate that risk. And then on the R&D co-funding deals flagged in the slides, the 2 recent deals, can you help us understand do the IRR expectations meaningfully differ at all for the co-funding structure versus, say, a traditional royalty acquisition? And if those 2 deals have like royalty payment capping mechanism embedded in them? Pablo Legorreta: Sure, Jason. Marshall, I think both questions are for you, the one on ex U.S. launches and also on co-funding. Marshall Urist: Sure, Jason. Thanks for those 2 questions. So on your first policy question on MFN, it's certainly something that we, I think, like the rest of the industry is thinking through. Agree with you. There isn't a lot of precedent. So we've taken the approach that we always have, which is to think through a lot of different scenarios and make sure that given the wide range of possibilities in the future that we're still comfortable with the investment. So I think certainly something that we are taking into account and making sure that we structure and protect us and all of our shareholders appropriately when we think about all the ways this could play out in the future. It is still very new. So I think we're in the same boat with everyone else trying to think this through. Your second question on R&D co-funding. So the first part of your question was on IRR expectations. I think as Chris outlined, our -- the answer to your question is no. We have said that our return expectations for products that are not approved are kind of greater than the low double digits. And so we certainly see returns in the IRR co-funding is very consistent with what we've communicated publicly in terms of return expectations. And so that's one of the reasons that we're really excited about that opportunity. In terms of capping, you asked about some of the structural features. We haven't disclosed all of the structural features for these. So it's a little hard to comment generally. But I think our philosophy when we put these together is we're investing in a Phase III program, and we certainly want to have every opportunity to explore and benefit from the full potential of these products, both in the near term as the indications that are certainly being pursued right now play out. But then in the long term, as there's potential for label expansion, geographic expansion and general market expansion of what we invest in. So our philosophy and our discipline in terms of how we structure these and how we make sure that we're getting appropriate risk-adjusted returns for us and for our shareholders are very much consistent with how we've been operating. Operator: And the next question will come from Ash Verma with UBS. Di Zhao: This is Di, asking question on behalf of Ash. Congrats on the quarter. I have 2 questions. The first one, can you update us on your view on thoughts about like potential royalty stream from Myqorzo? So I guess with the positive result now on non-obstructive, do you believe there's a halo effect on their ongoing launch in the obstructive side? And then my second question is, what are your thoughts on the consolidation among the smaller royalty players like Ligand and then XOMA Royalty recently. Does this scale up in any way increase the competition for you in the smaller royalty transaction space? Pablo Legorreta: Sure. So maybe I'll take briefly your question on competition, and then I'll turn it back to Marshall to talk about the Myqorzo launch. And in terms of competition, we did -- I mean, we follow it all the time, and it's not news to us. And in fact, that consolidation might even reduce competition when you have Ligand acquired XOMA. There will be less competition, 1 entity consolidating 2 companies. But the reality is that if you just think of those 2 players in the market, we have very significant advantages versus companies that are in the royalty space. Obviously, we've talked to many of these advantages in the past. Scale is one. But also another issue that companies that are interested in acquiring royalties have is that they're taxpayers. And as you know, we have a very efficient tax structure. And then other things like access to capital, in our case, it's significantly lower cost of capital and access to a lot more capital than the smaller players. So it's no real big change in competition. And at the end, as we said in the past many times, we think competition is a good thing. We welcome it because it just expands the market. It makes a lot of the potential partners that we do business with have many alternatives, and it just gives them comfort to know that it's a very dynamic market. So I'll turn it back to Marshall now for the question on Myqorzo. Marshall Urist: Yes. So on Myqorzo, certainly, yes, we believe that the positive data yesterday provide an advantage to aficamten in the marketplace. Having a broader label, having experience in a broader selection of patients can really only help the medicine as Cytokinetics launches it. So we're excited about the way Cytokinetics is going to execute in the current indication of obstructive disease and then certainly, the broader label and the nonobstructive data is only a tailwind to that. Operator: And the next question will come from Nick Jennings with Goldman Sachs. Nick Jennings: It's Nick on for Asad and the Goldman team. We have 2 questions. First, Chris, congratulations on the new focus with global biopharma R&D co-funding. Our question is on the implications of this as a growing part of the portfolio. Should we expect the complexion of the overall portfolio to shift over time as more of these partnerships are done with global biopharma companies? And then second, how is the China market progressing? Any update on what types of assets you're looking at there? And when do you think we'll see the first deal? Pablo Legorreta: Sure. Chris, why don't you take both questions? Christopher Hite: Okay. Great. Thanks for the question. In terms of the first one around the R&D co-funding, we have been investing in development stage products since 2012. And for us, it's really just expanding the opportunity when we're now seeing more opportunity to co-fund R&D at the large pharma stage. If you look at our capital at work slide, and it's -- I think it's in the appendix, you can see that roughly 85% of our capital at work is in approved products today and 10% is in -- roughly 10% is in development stage. And roughly 3% of those in development stage has already had positive pivotal results. So that's exciting for us. I mean it's a huge opportunity. These companies need a lot of money to fund their R&D. So we certainly are excited about the opportunity, and that certainly could lead to a greater percentage of capital work but we're going to be very disciplined in how we approach that. In terms of China, I'd just remind you, BeOne, obviously, we did the transaction with them last year that -- for Imdelltra, which is roughly $900 million. Obviously, that caught the attention of a lot of companies in China that look at BeOne as a great company originally coming out of China. We hired Ken Sun. He starts actually next week. He was the former Head of Asia at Morgan Stanley. We're super excited to have him on board. He will hit the ground running. We've obviously been to China a lot, the existing teams here at Royalty Pharma. So we are monitoring all of the out-licensing that's ongoing from China to Western multinationals. We have tracking those very aggressively. And I think the B1 transaction evidences to those companies in China, what a great opportunity is to potentially monetize those royalties they've created over the last 5 years or so. So we're super excited about China. Ken coming on board will really catalyze that effort. Operator: And our next question is going to come from Terence Flynn with Morgan Stanley. Terence Flynn: I guess 2 for me. Maybe first for Marshall, you could just provide your perspective on the J&J DUET data and what this ultimately might mean for the Tremfya tail given the co-formulation approach there. And then on the use of AI, I think many investors view the company as a beneficiary here. Are you able to provide any kind of case studies of how you're implementing AI across your enterprise and in terms of your processes and what that means in terms of number of deals or efficiencies that you can comment on? Pablo Legorreta: Sure. I'll take the first question or the second question on AI, and then I'll let Marshall take the other one. But data is extremely, extremely important for our business and for this whole ecosystem. Everything is based on data, as you know. And Royalty Pharma has been making significant investments in data for many years, decades. And we had in our Investor Day, a slide that actually provided a perspective on what we really mean by investing in data. We have about 200 million people's claims data for 200 million Americans. And we have relationships with great data providers that are feeding us this data continuously. We have electronic medical records for 44 million Americans and about 9 years of longitudinal data. And the way we use this is for our own internal purposes to make better investments, understand better what's going on with the products and how we forecast them. But one of the very exciting things for Royalty Pharma is to actually use data with our partners and share insights that we gain as we do our analysis and as we follow the ecosystem. And we think that is a differentiating aspect that is important to us because we don't see ourselves like others as purely capital providers but we see ourselves as partners with the companies that we're partnering with, where we can provide -- we add value by sharing data and insights with them, and they appreciate that. And in some cases, that has led to better terms on transactions. And we do have case studies, actually, I'll refer you to our Investor Day deck, a couple of them, where we have through claims data and other source of information have been able to identify asymmetry of information where we see drugs that we believe could have much stronger launches or peak sales than what others see based on data. One of those is, for example, Voranigo, where we realized when we made that investment that in that form of cancer, there were about 1,500 patients being diagnosed each year. But on the sidelines, about 15,000 patients that were not recurring to treatment because the options were not attractive, drugs that were toxic safety issues and not that effective. And obviously, when Voranigo came to market, it gave patients the opportunity to be treated with a drug that was very safe and very efficacious. And it brought into the market this warehousing of patients that existed. And that -- as a result of that, we were able to forecast a much stronger launch for Voranigo than I think anybody was seeing and then higher peak sales. And that's a case study. But one of the -- I'll finish just by saying that we're very fortunate recently to have hired Lucas Glass as Head of AI for Royalty Pharma. And he's going to be responsible for developing and implementing AI capabilities across our business including automating all of our diligence processes and strengthening how we evaluate and invest in royalties and also support our partners. Lucas comes from IQVIA, where he was the Head of AI for this huge company that serves our ecosystem. As you know, it's the biggest CRO with quintiles and also IMS Health, that part of the business was one of the biggest data providers in life sciences. So we're very excited about where we can take the business now with Lucas and the team that we're building in addition to the team that we already had. And I'll turn it now to Marshall for the other question. Marshall Urist: Terence, thanks for the question on the J&J deal. So maybe just a general comment. I think this is a great example of exactly what Chris was talking about, right, that we get the opportunity to participate at scale in a first-in-class biologic combination blockbuster market that's backed by the world-class, one of the premier marketers in that space. And those are exactly the kind of opportunities that we're so excited about the biopharma creating -- the biopharma partnerships creating for us. Specifically on the data, obviously, that was something during diligence that we spent a good amount of time with. And I think our view is we're excited about the biologics combination opportunity broadly. 4804 is the first of those. And I think you see the potential in what was a very refractory patient population who had been heavily pretreated, which when we look to continue Pablo's comments, when we look into our claims data is a really rapidly growing part of this market is patients who have been treated through multiple lines. And I think we see that growing. And certainly, by the time 4804 makes it to market, will -- is a really substantial opportunity that we're excited about. And we think there will be other -- certainly other biologic combinations to come that will look at other patient populations and other combinations. And so excited to see how that continues to expand the market and we're excited to be partners with J&J there. The last part of your question on the tail. I think for our base Tremfya royalty, just a reminder there that our royalty there is based on a separate set of IP that we acquired from MorphoSys. And so we've communicated that, that IP will expire in the early 2030s, 2031, 2032 time frame. So given the likely time lines for 4804, probably won't have a significant benefit to the Tremfya royalty but I think we've created a whole new royalty on this product, and we'll continue to be able to participate in it through 4804. So thanks for the question. Operator: And the next question will come from Umer Raffat with Evercore. Umer Raffat: I feel like there's been a good amount of discussion today on a lot of the effort Chris has been leading on R&D funding side. And I guess a question I have, maybe first for you, Pablo, how are you thinking about the split going forward for your capital deployment between R&D co-funding versus the traditional royalty investments? And to what extent is that driven by your heavier emphasis on doing larger checks? And then maybe a quick follow-up to that also. My understanding or at least the feedback I've heard from some of the big pharmas on their late-stage pipeline programs is that when they go into these R&D co-funding conversations, they're really talking high single-digit IRRs, type of thing. Could you maybe speak to your experience working on the J&J-4804? I don't want to comp the Teva vitiligo in there because it's much earlier stage. So I think the 4804 is a good example of the type of IRR you guys got, and maybe you can expand on that. Pablo Legorreta: Umer, so thanks for the question on allocation of capital. And in reality, the way we approach things is with a significant amount of flexibility because our business has the capacity to invest a huge amount of money. And I think, again, during our Investor Day, we actually had a slide -- interesting slide that showed that from now until 2030, we have the capability of investing something like $30 billion, of which $12 billion or so are going to be -- is what we've guided to, the $2 billion to $2.5 billion per year. And then when you add to that, the share repurchases and dividends, it takes us to a higher level but there is an additional sort of $10 billion of capacity that the business has that we might -- if the opportunities are there, just increase the investments every year. And it gives us, as I said, a capability of deploying more like $20 billion over the next 5 years in royalty acquisitions. But I think at the end of the day, as we've said in the past, the critical thing for us is the product. And that's really what drives our excitement for investments if we find really attractive differentiated products that we think are going to do really well in the long term. And whether we end up making the investment because it's a royalty that sort of already exists, there's a license and a royalty holder, and we just acquired that royalty like in the case of Imdelltra with B1 or whether we create the royalty by funding a clinical trial. For us, it doesn't matter really where it comes from. Now I would point out just to finish that when we put together our guidance and our business plan, there were several things that were really not included in a major way in our sort of $10 billion to $12 billion capital deployment guidance. And those things are China. It was not in our minds, and we didn't see that as an important driver of capital deployment and growth. And that is definitely now a real market and one that we're very excited about. And then the second one is deals with big pharma. Again, we were super conservative and didn't really include in our forecast, our business plan guidance, much of any capital deployment with big pharma but that is definitely becoming a big opportunity for us and one that we're very, very excited. And I think as more deals like this get done, and you talked about the J&J one and also Teva and there's others. We did a deal with Merck several years ago. It actually is really starting to open that market. And we have noticed very significant excitement from many big pharmas that are now really looking at funding their trials with structures that we've developed R&D funding structures. And also what's helped there is the fact that we've been for years working with the accounting firms to make sure that we have the right accounting treatment for those transactions that they can be accounted for as contra R&D. But we have been proactive. There was a bad decision made years ago with one company going to the SEC and with an accounting firm that actually set back the field. But because it's important to us, we decided to hire an expert on accounting. And with him, we have completely turned the tide. And now it is something that is -- when you look at the accounting, it's accounted for correctly. So I'll stop there. But the reality is that we're super excited about the opportunities -- the universe opportunities, which is clearly expanding. Operator: Thank you. And there are no further questions in the queue. I will now turn the call back over to Pablo for closing remarks. Pablo Legorreta: Thank you, operator, and thanks to everyone on the call. And I'll just remind you that if there's any further questions or discussions you want to have, you should reach out to George Grofik and Dana, our IR team, and then we can get involved if it's appropriate. Thank you, everyone. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Elanco Animal Health Q1 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the call over to Tiffany Kanaga, Vice President of Investor Relations and ESG. Please go ahead. Tiffany Kanaga: Good morning. Thank you for joining us for Elanco Animal Health's First Quarter 2026 Earnings Call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Bob VanHimbergen, our Chief Financial Officer; and Beth Haney from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statements. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. References to organic performance excludes certain royalty and milestone rights that were sold to a third party in May 2025. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeff. Jeffrey Simmons: Thanks, Tiffany. Good morning, everyone. Elanco's first quarter represents growing strength, momentum and value. The company's solid first quarter results and raised full year guidance demonstrate continued progress on our priorities of growth, innovation and cash. As highlighted on Slide 4, we delivered 10% organic constant currency revenue growth in the quarter, outperforming the high end of guidance for revenue, adjusted EBITDA and adjusted EPS. This high-quality performance was driven by both price and volume, with growth across all major geographies and all species. Thank you to the entire Elanco team for the execution for high levels of engagement and unified approach that have created a sustained, consistent delivery across the company. Elanco is in a position of strength with a base business that grew in Q1 and a basket of significant innovation, all within a durable animal health industry. Our momentum in each of our 4 businesses is evident in market share gains across our global portfolio. We drove share gains across all of our U.S. pet health major categories: parasiticides, osteoarthritis pain, dermatology and vaccines. Elanco's leading share growth in the largest categories, Para and derm, with accelerating gains for Zenrelia and Credelio Quattro. Internationally, both Zenrelia rely and AdTab continued their growth trajectories and captured market share. We also bolster our leadership in U.S. farm animal and achieved strong growth in international farm animal, particularly in poultry and ruminants. Our diverse basket of significant innovation is a key driver for this global momentum. After delivering $287 million of first quarter revenue from our innovation products, we are raising our full year innovation target to $1.2 billion. Our big 6 products are performing extremely well, and they are providing portfolio benefits that supported our base business growth in Q1. Robust top line and adjusted EBITDA growth combined to enable continued deleveraging in the quarter. We are improving our net leverage target for year-end to 3.0 to 3.2x from the previous guidance of 3.1x to 3.3x. With our solid start to the year and accelerating trends into March and April, we are well positioned to raise our top and bottom line outlook. For the full year, we now expect organic constant currency growth of 5% to 7%. Adjusted EBITDA of $975 million to $1.005 billion, representing 10% at the midpoint, and adjusted EPS of $1.03 to $1.09, representing 13% growth at the midpoint. This guidance continues our prudent, balanced approach in a dynamic macro environment. Our confidence comes from the consistent outperformance of our diverse basket of innovation, a growing base business in Q1 and the mega trends supporting durable growth in today's global animal health industry. Looking more closely at the first quarter revenue performance on Slide 5, we break down the 10% underlying organic constant currency revenue growth. U.S. Pet Health achieved 6% growth despite winter storms impacting January and February in the vet clinic. We saw a sharp recovery in March to 8% growth with April even better. Both months were ahead of expectations and demonstrate our underlying strength. Zenrelia posted its best quarter yet, leading our Q1 growth in the clinic and far exceeding our plans. Also robust Credelio Quattro demand with accelerating market share gains more than offset the anticipated headwind from last year's typical launch dynamics of initial stocking. Both brands exited the quarter with strong momentum in March and extending into April. We are well positioned for active derm and parasiticides seasons with tik bites sending Americans to the emergency room at the highest rate in nearly a decade, according to April CDC data. We expect one of the most robust parasiticide seasons in a long time. In our U.S. retail OTC business, Q1 saw high single-digit consumption growth in a low growth market, reflecting strong trends for our products and Costco and Dollar General as new customers. These 2 new retailers were meaningful additions to our business as flagged at the December Investor Day and should also contribute to growth in upcoming quarters after initial stocking. Both Seresto and the Advantage family saw double-digit dispensing growth at our top retailers. Additionally, Zenrelia and Quattro are growing nicely at retail. We continue to expand our retail market leadership and competitive advantage with what we believe is the broadest access to pet owners in the industry. Overall, our U.S. pet health business is demonstrating solid fundamentals with our basket of innovation driving industry-leading growth. We are confident in an expected acceleration for the business to high single-digit to low double-digit growth in the back half of the year as our new products continue to gain share. Moving to international pet health. We delivered 9% organic constant currency revenue growth, driven by Zenrelia, Adtab and Credelio. Zenrelia is rapidly capturing share in the $800 million international derm market with accelerating gains in key markets. U.S. Farm Animal was up 15% with good growth across all species and product categories. Our results demonstrate the power of innovation and a diverse portfolio and a favorable macroeconomic backdrop. Finally, international Farm Animal was up 13% in organic constant currency, also achieving growth across all species. The quarter benefited from customer-driven accelerated shipments primarily to the Middle East contributing 1 percentage point of growth for the total company. Turning now to Slide 6. We delivered $287 million of innovation revenue in the first quarter. With a strong sales trajectory of the Big 6 driven by our no regress launch approach, we are again raising our innovation guidance for 2026 by $50 million to $1.2 billion. The Big 6 are well positioned to drive sustainable growth over the coming years as we continue to expect this group to double in revenue from 2025 to 2028 on top of a stable base. Let's further discuss the progress of our major innovation products on Slide 7, starting with Zenrelia, the single largest brand driving Elanco's 10% growth. Zenrelia reached blockbuster status on a trailing 4-quarter basis with a growth trajectory well exceeding our expectations even since the late February earnings call. We are in a stronger position with momentum accelerating in the U.S. and in our international business and growing recognition of the strong efficacy profile. We see potential for Zenrelia to be a blockbuster in both the U.S. and international as we grow the $2.1 billion global dermatology market and continue to take share. As we enter the derm season, we see Zenrelia as the leading derm market share taker with demonstrated strong efficacy in the JAK1 category. March was Zenrelia's largest month yet with U.S. vet clinic sell-in 30% larger than any other month to date. We're now at over 16,000 U.S. vet clinics or over 50% of the total, and the reorder rate is over 80%. We've added 4,300 new purchasers since the September label improvement and veterinarians are moving it to first-line treatment as they gain experience and see how this special product just works. We expect continued momentum entering the allergy season with those cases representing about 1/3 of the patient population. On the U.S. label, we continue to have constructive dialogue with the FDA regarding our previously submitted data. The FDA has requested additional data and a new study is already underway. Given Zenrelia's success to date that is well beyond our plans, we now have greater expectations for the potential of this product with additional label improvement in the U.S. representing only further possible upside. Our guidance has always conservatively assumed no incremental change to the U.S. label. Building on this success outside the U.S., Zenrelia has posted an excellent quarter across key geographies. A great potential leading indicator example is the first market for Zenrelia, Brazil. Zenrelia has reached over 50% JAK market share in Brazil, becoming the market leader after just 1 year and achieving this coming through the Southern Hemisphere derm season. In Japan, it's over 35%. Traction continues to rapidly build also in Europe with JAK market share in the high teens to over 30% in key European markets, again outperforming the competitive entrant. Our EU head-to-head study has resonated well with veterinarians, and we're the only player providing this competitive data. With the recent launches, Zenrelia is now in 45 countries and our international labels are all without restrictions. Zenrelia's efficacy is a clear differentiator and game changer, addressing the top reason dogs go to the vet and satisfying an unmet need for pet owners. Over 2 million dogs have now been treated with Zenrelia, and we're just getting started. We are increasing manufacturing capacity and move production now to 24/7 to keep up with a sharply rising global demand and going into what we expect to be a robust derm season. Moving to our second derm product, Befrena. Our phased launch approach is on track with product already shipped to early experience influencers and in use. We expect to officially launch Befrena this quarter and have orders in hand as vets are eager for this new solution. Remember that a phase launch is very typical for a monoclonal antibody or MAB products as we scale our bioreactors with anticipated manufacturing ramp-up. We're excited for Befrena as a potential blockbuster with positive differentiation on convenience, value and efficacy. It's recommended at a dosing interval of 6 to 8 weeks post treatment versus 4 to 8 weeks for the current market competitor. When we shared a close proxy of the label to over 350 veterinarians, 83% responded they're likely to use Befrena, especially in seasonal cases. And importantly, Befrena is complementary to our broader portfolio, creating a more comprehensive offering to veterinarians. Last week, we hosted over 300 veterinarians at our headquarters as part of the North American Veterinary Dermatology Forum. Anecdotal feedback from early experienced KOLs was positive on the efficacy of Befrena. Next, on Credelio Quattro. We are very pleased by our accelerating pace of dollar share gains in broad spectrum dispensing sales from U.S. clinics. Quattro's market share is up 3 points since Q4 and exceeding our expectations. Most importantly, in the clinics that carry Quattro, which is now over 40% of the U.S. clinic base today, our share increased 13 points in Q1, reaching 53%. Simply put, the clinics carrying Quattro are using it more than half of the time for any broad spectrum application. These accelerating gains 1 year after launch demonstrates strong demand and growing interest from veterinarians and pet owners who increasingly agree that Quattro is best medicine with its 4 dimensions of differentiation. The product's success also reflects our strategic DTC investments, enhanced sales team and distribution partnerships, which combine to fuel a growth trajectory more like a first-to-market product. We will continue to fund our data-driven high ROI investments in the brand. Like Zenrelia, sales for Quattro accelerated during the quarter. March has been the product's largest month ever, creating strong momentum into the parasiticide season. We've added over 2,500 new clinics year-to-date through April and counting. And yet there remains ample room for Quattro to continue to grow and take share in the $1.5 billion U.S. broad-spectrum parasiticide market. An important leading indicator is Kinetics Puppy Index, where Quattro ranks highest versus other broad-spectrum andectose and grew versus Q4. Outside the U.S., Quattro has made its debut in the $750 million international market, which is growing double digits. In April, the product launched in Australia and gained approval in Canada. The EU, the U.K. and Japan are next as we look to rapidly globalize sales. We expect the global Credelio family to eventually become the largest product family in Elanco's history. Finally, our OTC parasiticide Adtab has continued its robust growth trajectory with sales once again up more than 50%. Adtab is the fastest-growing brand in the $600 million OTC acto category in Europe, further strengthening its market leadership in Q1. Moving to Farm Animal. 55% of U.S. Catalon feed are now using Experior. Overall, we expect Experior to continue to grow and drive meaningful portfolio benefits including geo expansion as another long-term growth driver with recent expansion into Mexico. But we expect a moderating trajectory for this blockbuster with more challenging comparisons ahead. Lastly, on Bovaer, we continue to see demand from CPG companies supporting relatively consistent count numbers. We're investing in long-term initiatives to enhance the product value and demonstrate user flexibility. More near term, we expect growth at a measured pace as we build on Bovaer's value proposition. Moving to Slide 8. we provide recent highlights across the 3 parts of our consistent IPP strategy: innovation, portfolio and productivity. Our innovation engine continues to make great progress with further globalization of our Big 6 innovations resulting in recent approvals for Zenrelia in LatAm countries in Eastern Europe, Credelio Quattro in Canada and Australia and new submissions, including Befrena Dossier in Canada. The next wave of innovation portfolio further expanded and progressed in line with our plans, and we are clearly tracking towards 5 to 6 blockbuster potential approvals expected through 2031. Finally, Ellen and her team have further strengthened the innovation pipeline with new additions coming from our internal discovery teams while advancing key clinical programs, enabling us to clearly see our vision of a consistent flow of high-impact product innovations. Today, the Big 6 are driving broad-based growth across our portfolio and share gains across all quadrants. These launches are powering growth in U.S. corporate accounts, up 12% in Q1 versus the same quarter last year. They've enabled growth for our base business in the quarter, and we are seeing gains from pricing up 2% in Q1 and on track for full year acceleration from 2025. We implemented our largest price increase in 5 years to U.S. fat clinics, reflecting our latest innovation and the value of our portfolio of customers. Finally, we continue to pay down debt and strengthen our balance sheet. At 3.5x net leverage in Q1, we have a clear path to the under 3x landmark in 2027. Our December strategic restructuring has further streamlined our organization with expansion of R&D in our Indianapolis headquarters, and as Bob will detail momentarily, our company-wide productivity initiative, Elanco Ascend, is on track to drive meaningful efficiencies and margin enhancement starting in 2026. With that, I'll pass it to Bob to provide more on our first quarter results and financial guidance. Robert VanHimbergen: Thank you, Jeff, and good morning, everyone. Today, I will focus my comments on our first quarter adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on Slide 10. We delivered $1.371 billion of revenue, representing an increase of 15% on a reported basis. Organic constant currency growth was 10% compared to the first quarter of 2025, with 2% from price and 8% from volume. Slide 11 provides revenue by the 4 quadrants of our business. Total Pet Health revenue increased 7% in constant currency. In the U.S., we achieved 6% growth with broad-based strength across all channels. Key drivers were Zenrelia, Credelio Quattro and our over-the-counter retail parasiticides business. Outside the U.S., our Pet Health business grew 9% in constant currency, driven by sales momentum of our innovation portfolio, including Zenrelia, Adtab and Credelio family products. Globally, our Farm Annual business achieved 13% growth in organic constant currency growing across all species. The U.S. Farm Anima business delivered 15% growth with contributions across all product categories, driven by cattle and poultry. While we are extremely pleased with the outsized performance in the quarter, we do expect growth to normalize to levels consistent with our long-term algorithm. Outside the U.S., our Farm Animal business contributed 13% in organic constant currency growth with poultry and ruminants the major contributors. We estimate that the favorable timing of customer purchases in the Middle East this year contributed 1 percentage point of growth for the total company. Continuing down the income statement on Slide 12. Adjusted gross margin was 57%, a decrease of 40 basis points. As a reminder, we anticipated a year-over-year decline in the quarter due to pressures from inflation and the flow-through of inventory costs. Gross margin performance was also impacted by product mix, with strong Farm Animal growth, partly offset by benefits from both price and volume. Looking ahead, we continue to expect meaningful gross margin expansion in the second half of the year as we move past inventory cost headwinds and and with mix benefits from expected acceleration in our U.S. Pet Health business. Operating expenses increased 6% year-over-year in constant currency, driven by planned investments supporting our product launches, continued R&D investments and compensation expense. Interest expense for the quarter totaled $43 million, in line with our expectations. On Slide 13, you'll see an adjusted EBITDA year-over-year comparison for the quarter. Adjusted EBITDA was $334 million, an increase of $58 million or 21%. Adjusted EPS was $0.40, an 8% increase year-over-year. As a reminder, adjusted EPS was impacted by lapping favorable onetime tax benefits in the prior year. On Slide 14, we provide an update on our cash and debt balances. We ended the quarter with net debt of $3.3 billion and a net leverage ratio of 3.5x. Debt paydown remains our primary use of free cash flow with a long-term target ratio of 2 to 2.5x. We expect to reach below 3x next year, giving us greater capital allocation flexibility. In the meantime, we continue to evaluate disciplined bolt-on M&A. I'd like to recognize the closing of our AHV International acquisition on April 30, and welcome our new colleagues. AHV expands our share of voice and dairy, and we are excited about this platform for farm animal innovation. Now let's move to our financial guidance, starting on Slide 16. Our first quarter overperformance allows us to raise our full year expectations and continue to invest in our innovation products. We now expect to deliver organic constant currency revenue growth of 5% to 7% versus our previous outlook of 4% to 6%. We are increasing our expected reported revenue range to be between $5.01 billion and $5.085 billion. This includes an expected $60 million year-over-year tailwind from the favorable impact of foreign exchange rates, majority of which was captured in our first quarter results. Slide 17 provides year-over-year bridges for 2026 adjusted EBITDA and adjusted EPS, and Slide 24 in the appendix provides additional assumptions to help support your modeling efforts. We are raising adjusted EBITDA guidance by $20 million. The increase reflects our $34 million outperformance in Q1, partly offset by approximately $9 million of incremental investment in our innovative launches and previously mentioned timing of international farm animal sales. For adjusted EPS, we are raising our guidance by $0.03, bringing the new range to $1.03 to $1.09. We have also updated our cash and balance sheet expectations for 2026 and now anticipate end of year net leverage of 3x to 3.2x. We continue to take a balanced and prudent approach to our guidance, considering a number of potential scenarios. On Slide 18, we list drivers that could influence our results within the guided ranges. We remain disciplined in monitoring external headwinds, specifically, heightened competitive pressures, including generics, and consumer level economic shifts. These could move results toward the lower end of our expectations. We also continue to invest incremental dollars to support the launch of our innovation products, driving our market share gains and sustainable growth. Alternatively, the continued acceleration in our innovation pipeline, underlying strength from a growing base business and our ability to leverage our diverse portfolio could drive results towards the high end of our expectations. A favorable macro environment and rapid progress in Elanco Ascend could provide important tailwinds. In conclusion, we see a stronger set of opportunities and momentum in the business, outweighing potential headwinds, resulting in the balanced guidance raise. Now let me take a moment to offer an update on Elanco Ascend. We are seeing significant engagement across the organization as we execute initiatives to optimize our cost structure and drive operational efficiencies. We continue to expect the projected Ascends savings detailed during our December Investor Day. As a reminder, 75% of our benefit from Ascend will be in gross margin, but the near-term benefits are more in G&A, driven by our previously announced restructuring. With more than 5,000 projects logged to date from large-scale transformations to smaller localized improvements, Ascend is becoming deeply embedded in our operational discipline. Additionally, Elanco Ascend is integrating automation and AI across our entire value chain to accelerate our innovation pipeline, enhance manufacturing quality and drive sales through deeper data-driven customer insights. Our comprehensive AI agenda also includes leveraging AI-driven automation to transform legacy processes as part of Ascend. For example, we recently implemented an automated sales order tool that modernizes the order-to-cash process. This initiative enhances fulfillment accuracy and accelerates order cycles leading to improved cash flow visibility and lower operational costs. When you combine our focus on operational excellence and productivity with the continued scaling of our margin-accretive innovation portfolio, we see a clear path for sustainable margin expansion over the long term. Now moving to our second quarter guidance presented on Slide 19. On a reported basis, we expect $1.3 billion to $1.325 billion in revenue, representing organic constant currency revenue growth of 4% to 6%. Growth is impacted by lapping Q2 2025 pretariff buying primarily in China, by accelerated shipments to the Middle East in Q1 of this year and by Farm Animal normalization against more challenging comparisons. The year-over-year increase in operating expenses, primarily related to launch investments, is expected to be approximately 8% in constant currency. As a result, we anticipate adjusted EBITDA of $240 million to $260 million, and adjusted EPS of $0.25 to $0.28. Finally, on Slide 20, we outline our expectations for a meaningful acceleration in our U.S. Pet Health business in the second half of the year. As Jeff highlighted, we saw a sharp recovery in March to 8% growth and even better April, demonstrating our underlying strength. We are confident in our expectations for high single-digit to low double-digit growth in the back half of the year, reflecting continued momentum for Zenrelia and Credelio Quattro and contributions from our Befrena launch. Additionally, our comprehensive portfolio is driving significant corporate account growth. I'd also highlight, our assumptions are not contingent on improvement in vet visit volumes. For the full year, we expect the U.S. Pet Health business to achieve at least high single-digit revenue growth, once again meeting the industry. Now I'll hand it back to Jeff for closing comments. Jeffrey Simmons: Thanks, Bob. As we accelerate into 2026, our innovation, portfolio and productivity strategy is working. Elanco is a different company today, well positioned to lead growth in animal health through consistent execution of our strategic priorities: growth, innovation and cash. The base business grew this quarter, while the launch of our Big 6 innovation portfolio builds momentum. Elanco will stay disciplined and focused while anchored on the belief that we are about delivering that promising. We are now advancing our next wave pipeline, targeting 5 to 6 new blockbusters by 2031 and unlocking more than $2 billion in unproblized peak sales potential. Through Elanco Ascend, we expect to drive meaningful margin expansion and operational efficiency beginning this year, aiming to deliver more than $1 billion in free cash flow through 2028 and reduce net leverage below 3x by 2027, all of this on top of sustainable megatrends in pets and protein that make animal health a durable, resilient industry and one of the most compelling long-term growth sectors. Elanco is confident in the animal health industry in both 2026 and into the longer-term future. These tailwinds are expected to extend animal health's mid-single-digit growth, adding an estimated $20 billion in industry value over the next decade. Last quarter, I highlighted the robust protein trends for our Farm Animal segment. Specific to pets, I would point to my recent shared table podcast episode with Jay Mazelsky from IDEXX and J. Price from Mission Pet Health. The pet opportunity is significant. Diagnostics are completed on just 20% of pets today. We see only the surface of the true disease spectrum that exists. And as we expand what we detect, AI accelerates what we can learn and a generation of middle-aged pandemic pets enter their highest care years, the pie is growing. The leaders who focus on delivering value to the pet, the owner and the veterinarian to meet this increasing expectation of care will be the ones who grow with it and beyond. I especially want to thank the Elanco team for their commitment to serving customers and continuing to push boundaries to exceed their expectations. Today, strong results and raised outlook for 2026 were made possible through our team's dedication building on more than 70 years of transforming animal health to create long-term value for customers, communities and our shareholders. With that, I'll turn it over to Tiffany to moderate the Q&A. Tiffany Kanaga: Thanks, Jeff. We'd like to take questions from as many callers as possible, so we ask that you limit yourself to 1 question and 1 follow-up. Operator, please provide the instructions for the Q&A session, and then we'll take the first caller. Operator: [Operator Instructions] Our first question comes from John Block with Stifel. Jonathan Block: I'll start the U.S. Pet Health result in the quarter was up 6%. I'm guessing it was probably a bit lower if we normalize for advantage sales, call it into the new doors. So Jeff, can you talk about what held back the U.S. Pet Health in the earlier part of the quarter, and more importantly, the main drivers to the accelerating assumption? I know there's some good color on Page 20, which I think is very helpful. But any additional feedback would be great. I think that is a focal point for investors here in the near term. Jeffrey Simmons: Yes. Thank you, John. Look, we had, I think, like the whole industry, January and February, that was cooler, but we saw a really nice rebound and all the lead indicators on our new products were extremely strong. So an 8% jump back in March, even stronger in April. And as we look at the forecast with Bobby and his team for the rest of the year, and as highlighted on that slide, we see Zenrelia, what a quarter for Zenrelia. I mean it was #1 brand for our company and growth driver, and we'll talk more about that, but Zenrelia was a major contributor as well as Quattro. And then we've got the Befrena launch, we've got a step-up in price, and all of this, we believe, on the existing kind of industry backdrop. You mentioned on retail. Retail had an extremely strong quarter. And the strategy is working. If you look at retail, it was Adtab internationally, but in the U.S., it's bringing an advantaged collar, adding distribution points with a value store in Dollar General all the way to a box store. And today, we've got -- we're taking share. We're adding double-digit growth to these major key retailers. So the omnichannel is working. We see a nice step up the rest of the year. That's why we wanted to be clear and it comes with a lot of confidence with a March and in April trajectory change. Jonathan Block: That's great color. And then the second question, it seems like you're talking more openly about these corporate accounts, and it seems like that also has a role in the acceleration. So I'm just curious, are these commitments from corporates, call it, for a first time? Are they competitive wins? And also, when we think about these corporate deals, is it broad-based? In other words, are we talking CQ, Zenrelia, Befrena upon launch. Maybe you can provide some details there. Jeffrey Simmons: Yes. Thank you. Yes, corporate accounts, we were very under-indexed [indiscernible]. We shared in the last quarter how the number of corporate accounts were growing that weren't growing last year. We saw a 12% step-up, so double the growth rate in corporate accounts. It all comes back, John, you know this, to a winning portfolio. When you start to see the uptake, when you got over half the clinics in the U.S. using Zenrelia, you see 40% with Quattro and you look at best medicine with Quattro demand for Zenrelia, if you're a corporate account, you don't have this and you've got clients coming and asking, there is more of a pull than a push that's happening with corporate accounts. I think Bobby and his team, Chris Bertelle and Matt, Hudson Piller and the team has done a very nice job of making sure though it is value-based. We are not going places where price would be impacted negatively with corporate accounts. So we're taking very value-based approach to these corporate accounts and it's working. Operator: Our next question comes from Michael Ryskin with Bank of America. Michael Ryskin: Great. I'll ask 1 big 1 on Zenrelia and then maybe a quick follow-up. So on the one hand, you're doing, I think, much, much better than any of us had anticipated given the label restrictions. You touched on blockbuster trailing 12 months. We're kind of backing the something like $40 million for the quarter, so continues to ramp very, very nicely despite the label. On the other hand, the FDA label update, I think, is less than what people were expecting. So I just wonder if you could talk about why you're having such success despite the label restrictions? And if you could give an update on -- you called out the additional trials, the data generation, just any thoughts on timing when we could get either more updates or see that label change? And then I have a quick follow-up. Jeffrey Simmons: Yes. Yes, Michael. I think I start with the derm market, continuing to grow double digit, truly an amazing quarter. We got a special product here in Zenrelia. We've got future year demands coming into this this year. So we see the potential of this product much greater than we saw it even last quarter. We've got just greater expectations and we're seeing it globally, and you know this and we've talked about this, it's all back to efficacy. And the product just simply works. Relative to the label, I would say no. I think it's a little bit of a line relative to our strategy. We had constructive dialogue, as I mentioned, with the FDA regarding the data. They've requested a little bit more research. I stepped back on this multipronged approach we took, which is, hey, first, we submitted the PCR data. We got a positive improvement in the label. They requested the published booster data. That's what we submitted, and we knew this was a potential expectation. They requested this additional data, and we've already started the trials along the way. We've got good concurrence on the study, and we'll be submitting it by the end of the year, Michael. But given Zenrelia's success that's well beyond our plans, we now have greater expectations for the potential of this product, with additional label improvement in the U.S. really representing just further possible upside. So our guidance has always been, as I said, conservatively assumed with no incremental change to the label. With all of this, I come back to the most important thing. We're taking share. We're in over 50% of the clinics in the U.S. Our expectations are growing. We have moved to 24/7 manufacturing because we see the future forecast for this product growing, especially as we head into derm season. And again, we got now 2 million dogs, 2 years of use, great PV data, 44 countries internationally now with all labels without restrictions. So we're in a really good place. Robert VanHimbergen: And Michael, and Jeff highlighted it, right? But just as a reminder, our 2026 guidance and our Investor Day guidance we gave back in December, assumes that the label is as is. It did not assume a label change here in 2026. And so where we are today, right, with the current status and time line, that provides potential upside to growth potentially starting in 2027 with the clean label. Michael Ryskin: Okay. Okay. And if I could squeeze in a quick follow-up on price. I think you saw a 2% price in the quarter. But you also, in your prepared remarks, talked about implementing a significant price increase as you mentioned in the past. Could you just talk about prices, how big that was price assumptions for the rest of the year? Any specific on that would be helpful. Robert VanHimbergen: Sure, sure. Yes. Thanks for the question. So price in the quarter is right aligned and right with our expectations for the quarter and for the year. So price in the quarter, as I highlighted, was 2% across the board. That's both on the pet side and the farm side. I'd remind you that pricing can be influenced by customer and product mix for any quarter. But we do expect 2026 pricing to accelerate from where it was in 2025. And that, quite honestly, just reflects the enhanced value that our best and innovation is bringing and the comprehensive portfolio we're bringing to customers. And I'd remind you that in U.S. Pet Health side, we did bring the highest pricing to vet clinics this year. It's been the highest in 5 years as we continue to price to value. And listen, I think you'll see price accelerate as we see continued ramps in Zenrelia and Quattro throughout throughout 2026. Jeffrey Simmons: I think Bob and I and Bobby and other, I think an observation we made, Michael, is prices in the industry are holding up strong. Even in U.S. pet very nicely, even in corporates. I think what the change has been is there's just an increased need to spend to hold and capture share. So -- and I think that's a positive. As everyone is selling value, and we don't see price impact, we see spend maybe impact, and we got good measures on seeing the return on our spend, and that's why we're leaning in on it. Operator: Our next question comes from Umer Raffat with Evercore. Umer Raffat: I thought I would focus a bit today on the noninnovation side for a second. And specifically, what I'm seeing is, while there's all this focus on some of the new launches, your cattle business might have hit an all-time high, if I'm not mistaken. And poultry is also at near the best numbers you've ever put up. So could you speak to the broader dynamic in farm business? I realize herd count is part of it, but I don't think that's all of it. And I'm just trying to understand what the underlying drivers are on both sides, but also how sustainable they are as herd counts come back, et cetera, over time? Jeffrey Simmons: Yes, very insightful question, Umer, and I agree with you. I don't think people realize that last year in 2025, our industry grew 7% and Farm Animal grew 10%, Pet Health is 5%. Farm Animal has got durable undertones. I saw -- we spoke at the SEMAFO conference out with some of the major, major CEOs the last 4 months, and there is a protein revolution going on, and it's playing through in the numbers. You see Tyson's results yesterday with the chicken business. What you've got here is you've got -- we're expecting a 5% growth in the U.S. on the protein side. We've seen meat sales up 100% the last 5 years, and it's coming back to this shift back to protein. Now as you look at the different species, yes, there's a shortage in the beef market, but you're seeing the benefit carry over to international beef and poultry. And actually, producers are making a lot of money, packers are not so -- and we serve producers. So that dynamic in beef is positive. Probably the quiet species nobody is talking about is dairy, and dairy could be second to poultry and benefiting from this protein revolution. The guys just got more SKUs when you look at the shakes and the yogurts and the things that are going on. So I think there's a big investment in dairy. That's where HV acquisition plays nicely. And then yes, poultry, 3% growth the last 3 consecutive years, and we don't see that slowing at all. So I think the carryover of protein, there's been a little bit of an over-indexing on the cattle herd size and that may be a little longer. I actually think that benefits us and benefits producers as the rebuild comes a little stronger, the prices will hold up. So Farm Animal business, we look like we're in a very strong position. We're in a leadership position the medicated feed ads, vaccines and across all the other additives, and we're adding to that portfolio with the HV acquisition. Operator: Our next question comes from Brandon Vazquez with William Blair. Brandon Vazquez: Congrats on a nice quarter here. There's not too much to pick on on a nice quarter, but I did want to go back to the question that John was asking just about the U.S. Pet Health number, and I can appreciate there was a little bit of noise, maybe in end markets, things like that. But I'm kind of curious, is there anything else we should be thinking about on a year-over-year basis as you think of that number, trying to think of the ramp, why would a business that if you think about Quattro was a pretty low base in Q1 '25? Why would the monthly be changing so much? I think that's part of what a lot of us are trying to understand as we think about the ramp through the rest of the year. Robert VanHimbergen: Yes, so maybe I'll give you some color, Brandon. Thanks for the question. So a reminder, last year in we did have the initial launch of Credelio Quattro, and so we did have a tough compare. But even in light of that, we still outgrew Quattro versus last year. So that's kind of 1 point of interest. But we did highlight it, Jeff touched a bit about it, and it's certainly on a slide I presented, but maybe just to give you a little bit more color on the second half, which gives us a high degree of confidence in the second half of the year. I mean we continue to see strong momentum in Quattro and Zenrelia. And you think about the clinics and the data we gave about new purchasers, that's going to continue to ramp throughout the year as we see order rates holding strong. And we are investing more in DTC behind these brands. Befrena continues to be on pace with our launch expectations and there's a high degree of of excitement from that, particularly on our entire derm portfolio. Bobby did have a group of vein last week, and the buzz was about both Zenrelia and Befrena. And then corporate accounts, you talked a bit about this on the call. But listen, those contracts will continue to ramp throughout the year. And so again, we're confident in the second half of '26 here with the U.S. pet side. And again, our guidance does not assume an improvement in vet visits for the year here. Brandon Vazquez: Okay. And then as a follow-up here on the guidance, there was a comment about generics in the investor deck. And just in general, competition, you guys have talked about this that it's the competitive space. How do you guys think about competition when you're putting together guidance? I think you're in a unique position now where you're -- you have a lot of innovative products out there. So this is something to think about on a go-forward basis. How do you bake that in? Are these transient headwinds? Are they price? Are they volume? Any details you can give on what's baked into the guidance from competition in generics would be helpful. Jeffrey Simmons: Yes. We assess it market by market, Brandon, and do this in our quarterly forecasting. We've got good read, good data from a competitive standpoint and a good competitive intel group. And I believe, as Bob has highlighted, we've taken a balanced approach. So no change. We're in our third year of growth and delivery, and that same philosophy is carried forward as we look at the rest of the year for U.S. Pet Health or look at the rest of the year for any one of our businesses, generics included in competition. So feel very good about our assumptions as we look at the rest of this year. Operator: Our next question comes from Daniel Clark with Leerink. Daniel Christopher Clark: Just wanted to ask about how we should think about the progression of clinic penetration for both Zenrelia and Quattro and the share within those clinics as we go through the rest of 2026, especially just given the ramp you had for U.S. Pet? Jeffrey Simmons: Yes, maybe because we haven't talked much about Quattro, I'd just point to a couple of statistics we highlighted. It's off to a really great start. And the momentum we have with this product, we do see everything relative to best medicine here. Bobby highlighted 4 key metrics that were critical at the Investor Day, more clinics, increased share within these clinics, puppy starts and growing market. I would keep anchoring back to these, Daniel, as we look going forward. We picked up 2,500 new purchasers year-to-date through April. We've got -- I think, the biggest metric that I would point to is we're in 40% of the U.S. clinics with Quattro. That will continue to grow, but most importantly, as we picked up 13 points of share, now we're at 53% of share within those clinics. So we are truly moving to first-line treatment, and we're the #1 growth company and market share growth. So I think that's the statistic to watch as it's really demonstrating best medicine. And now this is the third quarter in a row that we're winning the puppy index and Q1 was greater than Q4 And the market grew 27% last year. So I think when you put all that together, maybe a weather challenge in January, February, we see a lot of resiliency, tick bites being up, we see potentially one of the biggest parasiticide season. And then on derm, it's just continuing not only to get more clinics, but we're seeing a major shift now to first-line treatment and watch the international markets especially within Zenrelia given the market shares that we've seen. Those would be the key areas to watch. And again, it's all back to market share and market growth. We're getting market share growth and market growth while a base business in Q1 grew. Daniel Christopher Clark: Got it. Super helpful. Actually I wanted to ask on the international dynamics for Zenrelia. What are you seeing in terms of competitive or promotional intensity from other manufacturers that have [indiscernible] on the market? Any change there? And then can you just size the market growth you're seeing in derm ex U.S.? Jeffrey Simmons: Yes, it's an $800 million market internationally, and that's growing double digit, growing even faster than the U.S. Again, remember, 70% of puppy starts are actually outside the U.S. So a lot of positive trends. And then, yes, we again, see that with the head-to-head study playing out in field and a lot of KOL support you're seeing these market shares, I mean taking over market leadership after 1 year in Brazil coming through a Southern Hemisphere derm season, I think, is a great proof point of how strong this product is. And even with a new competitive market entrant, the head-to-head study is showing, and we're winning share even there with high teens to 30% European markets. So -- and we'll continue to globalize. But again, we're in 44 international countries. Now it's all about more share and moving to first-line treatment. Operator: Our next question comes from Christopher Schott with JPMorgan. Christopher Schott: Congrats on the progress. Just first one for me is the no regrets launch approach has clearly paid off. And I guess my question is if this outperformance continues, how should we think about Elanco thinking about reinvestment of potential upside back into the business? I mean should we think about this still as you got to keep putting money back in for promotions? Or do we reach a point where we think about more of the top line upside maybe falling to the bottom line? And then my second question was just on the type of pets moving on to Zenrelia given the share gains you've been seeing. Can you just elaborate a little bit more of what you're seeing there in terms of new starts versus those who maybe failed Apoquel in terms of just the type of animals going on the drug? Robert VanHimbergen: Chris, I'll take the first one here. Thanks for the question. Yes. So as I sit here today, like I'm really pleased with take Q1, for instance. I mean this is the exact profile that I'd love to have where we exceed our expectations and we continue to reinvest in these innovative products. And so we're using data to determine how much we invest, and we see high ROI on these investments, and we'll continue to use that data to keep the pressure on and keep the pedal to the metal, if you will, on growing these top line numbers with these brands. And so we're going to keep doing that. But Elanco Ascend is so important to this process because what it allows us to do is continue to beat expectations, drive value to the bottom line while also reinvesting in the business. And I would say that investment is really in 2 spots. It's not only in the near-term DTC, if you will, for the brands, but it's also continued to fund more in R&D for that next wave and that next next wave. Jeffrey Simmons: I'd pick up, Chris. We just hosted last week there was a major vet conference here in Indianapolis and dermatology experts had over 300 of them here at the headquarters. And I would say the buzz is the Zenrelia efficacy, the movement to first-line treatment. And really, as you know, we started out with acute and seasonal cases and the shift going more to chronic, which is 2/3 actually of patients are acute and seasonal. But the volume, of course, is in the chronic side. So I would just say that we're starting to see that shift and, of course, the global momentum of the product. I think I got to highlight also Befrena. I mean here we come with -- this quarter, we're launching. We've got the product in the hands of all the major influencers and KOLs. A lot of buzz at the conference about that product being differentiated to with a 6- to 8-week claim. And I think it's going to do really well, Even as new innovations come, with the 2/3 of derm patients being acute and seasonal, that plays really nicely with Befrena. And really, Elanco now becomes a very competitive derm player with 2 differentiated assets with a lot of momentum in a marketplace that wants new products, in a derm market that's growing double digits. So the news here in this quarter has to be pointed to Zenrelia and the momentum and the increased momentum and then here comes Befrena and our derm competitiveness and Quattro will help derm as well. Operator: Our next question comes from Steven Dechert with KeyBanc. Steven Dechert: Just wanted to touch on your expectations for visit volumes. It sounded like in March saw a big improvement and then in April, that continued. I guess just how are you thinking about the rest of the year with what might be a more constrained consumer budget? I understand you're not baking any of this into your guidance, but just wondering to get your outlook. Jeffrey Simmons: Yes. Thank you. We believe that vet visits are something we keep our eyes on. non-wellness visits went up. I know people have pointed to that. We really look at -- we think they're over-indexed for Elanco. They will not play a factor and be a determinant of our success in 2016, and we don't see this even as a short term or a long-term factor. I think the ones we point to are expectations of care are driving a willingness to spend. So you got to have innovation and portfolios, and we do. Convenience matters and we are the leader in omnichannel. We can reach more pets where they want to shop at the price points they want to shop at and you got to be globalized. And I think that's under-indexed as well. all of that run by a really good team and a great ground game. And 1 thing I would call out is our relationship with distribution is giving us a share of voice advantage. So all of these things matter so much more and the trends that we think are more important than vet visits, and there will be some we monitor, but we don't see it being a determinant of our success. Steven Dechert: Great. I just want to ask one more on Befrena. Just any key milestones we should be looking for over the next few quarters? And then just any more color you can provide on the feedback that you've received to date? Jeffrey Simmons: Yes. I'll remind everybody, it's a ramp launch that will come into H2, which is common with monoclonal antibodies will be into the marketplace. We're in it now with KOLs and the key influencers. We'll start to move into the marketplace here this quarter, and then it will ramp in a staged way into the second half and be a contributor to the U.S. Pet Health growth. We've also got a submission into Canada as well. And then it will be a major player of growth as we go into 2027. Operator: Our next question comes from Navann Ty with BNP Paribas. Navann Ty Dietschi: One on Befrena, if you can maybe expand on your strategy, especially as competitor is launching a long-acting likely in early 2027. So interested to hear if you take a similar approach that you did with Zenrelia? And in Farm Animal, you touched base on herd regrowth. Can you discuss your outlook for MFAs in particular? Jeffrey Simmons: Yes, great question. Again, I would step back and say we've got our second derm product coming with a lot of momentum with Zenrelia, differentiation on efficacy, convenience and value across the board with Befrena coming in. I would point to we start with a big market that we already have with 2/3 of derm patients being acute and seasonal. And so that's less than 3 months of use window. So that plays very nicely. We're a very big market for Befrena. And yes, we've got in our pipeline, next-generation derm, including long-acting as well. So we're well suited to grow our leadership in derm, the rest of the decade globally. And then on the MFA question, durable trends. MFAs continue to grow nicely. We point to our portfolio of Experior, Rumensin even our [indiscernible] and poultry, we are the MFA market leader, and we continue to hold and grow share there across the globe. Operator: And our last question comes from Daniel Grosslight with Citi. Daniel Grosslight: Congrats on the quarter here. I did want to ask about capital deployment priorities now that it seems like you're going to hit that leverage target earlier than anticipated. I'm curious how you're thinking about M&A. You obviously had a nice tuck-in this quarter. But going forward, does this open up the aperture for larger M&A deals? And if so, what are some areas you'd be looking at there? And also, I guess a similar question on share repurchases. When would you feel comfortable turning on share repurchases as your leverage comes under that 3x target? Robert VanHimbergen: Right, Daniel, thanks for the question. Yes. So as I think about capital allocation, really no change to the strategy that we've laid out here for a while here. So organically investing in the business and paying down debt is still going to be our #1 priority. We will continue to look at M&A, but I would tell you, these are going to be small tuck-under opportunities. It's not going to derail us from our deleveraging time line of getting into that now 3 to 3.2x at the end of this year and getting below 3 in 2027. And what we said as we get below 3 in 2027, that certainly gives us some flexibility with capital deployment and shareholder return. And so we haven't been explicit on what that looks like yet. We'll continue to obviously work with our Board of Directors on what that strategy is. And we'll certainly be transparent with the Street as we have more clarity around that. Jeffrey Simmons: Maybe just to -- sorry go ahead. Daniel Grosslight: Yes, I was actually going to I was going to ask another question on just the ramp-up given the new deals with Costco in Dollar General on the retail side. How should we think about the revenue and the margin impact of these new partnerships as they ramp in '26 and then kind of scale in '27 and beyond? Robert VanHimbergen: Yes, maybe I'll give just color on what I would call normal buying patterns of these sort of customers and particularly with the Advantage brand is where we saw strength here and launches with Costco and Dollar General. But these are more seasonal buys here, and what you'll see is really a first half of the year purchasing dynamic with reorder rates kind of throughout the first half. And then because it's a seasonal, you'll actually see inventory deplete here over these customers here in the second half. But we'd expect reorders again in 2027. So think of this as a seasonal first half opportunity for us as we move forward. Jeffrey Simmons: Just maybe close -- thank you for your time, everybody, this morning and continued interest in Elanco. The best quarter that we probably had as an independent company since being an IPO, high-quality growth. The base business that grew in Q1. The basket of significant innovation is building momentum, all on the backdrop of what I believe is a very durable animal health industry. And our momentum, I hope is evident in the market share gains that we highlighted today across our portfolio. The IPP strategy is working. The level of engagement in Elanco is very high. We're a different company today well positioned to really be a leader in the animal health business. We'll keep our focus on growth, innovation and cash. And we appreciate all of the interest in Elanco. We'll remain focused. I promise you on delivering value for you, customers and greater society as well. Thank you for your time today. We look forward to engaging with you all through the quarter. Have a great day. Operator: Thank you. This concludes the program. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Northwest Natural Holding Company's Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Nikki Sparley, Director of Investor Relations. Nikki, please go ahead. Nikki Sparley: Thank you. Good morning, and welcome to our first quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our Investor Relations website at irnorthwestnaturalholdings.com, and following this call, a recording will also be available on our website. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10-Q and 10-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany today's call, which are available on the Investor Relations page of our website. Please note, our guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or assumed outcomes, or significant changes in local, state, or federal laws, legislation, or regulations. We expect to file our 10-Q later today. With us today are Justin Palfreyman, President and Chief Executive Officer, and Raymond J. Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the first quarter 2026, a regulatory update, and a look forward. Raymond J. Kaszuba will walk through our financial results and guidance. After Justin and Raymond J. Kaszuba’s prepared remarks, we will host a question and answer session. With that, I will turn the call over to Justin. Justin Palfreyman: Thanks, Nikki. Good morning, and welcome, everyone. Overall, the first quarter results were strong and in line with our expectations, reflecting another quarter of solid execution, putting us on solid footing for the year. As a result, we reaffirmed our 2026 and long-term guidance. Our gas utility systems performed very well over the heating season. Our team delivered strong operational performance across all our utilities and we produced healthy customer growth. Importantly, the quarter underscored the strength of the Northwest Natural Holding Company platform and the stability of having three distinct regulated utility businesses, making our results more predictable. We are well positioned to drive durable long-term growth while maintaining our core commitment to providing safe, reliable, and affordable service to our customers. Our focus remains on disciplined execution, steady earnings growth, and attractive overall shareholder returns. Related to that, we made meaningful progress on our regulatory initiatives this year. Let me highlight a few of our recent filings. In March, Northwest Natural filed a multi-party settlement with the Washington Utilities and Transportation Commission resolving all the revenue requirement aspects of our multiyear general rate case. While it remains subject to commission approval, the outcome is constructive for both customers and shareholders. The settlement provides for annual revenue requirement increases over three years, including $20.1 million in the first year beginning 08/01/2026, $7.7 million in the second year, and $8.7 million in the third year. The settlement includes a capital structure of 50% equity and 50% long-term debt and a return on equity of 9.5%. In Oregon, we remain constructively engaged with staff and parties on multiyear rate case rulemaking. As we have seen in other jurisdictions, we believe multiyear rate cases could provide greater clarity and predictability for both customers and utilities. While we await the outcome of the multiyear framework in Oregon, which could extend into 2027, we filed an alternative rate mechanism to help recover certain safety, IT, and large public works investments. The proposal contemplates a modest 1.5% rate increase beginning 10/31/2026. We have had productive conversations with staff and continue working closely with parties to reach agreement on the docket. Until the multiyear rulemaking process concludes, we have the ability to recover our investments through additional mechanisms or general rate cases. In addition, we have made progress on regulatory initiatives in our other key businesses. On May 4, 2026, C Energy filed a general rate case with the Texas Railroad Commission. The filing consolidates C Energy and the recently acquired Pines Gas entities, simplifying both our regulatory structure and operations in Texas. We are requesting a $12 million revenue requirement increase over current rates. This increase is based on a 10.75% return on equity, a cost of capital of 8.73%, and a capital structure of 60% equity and 40% long-term debt, which is consistent with other Texas gas utilities. This request includes an increase in average rate base of $176.9 million since the last rate case, for a total rate base of $343.1 million. In addition to the existing beneficial mechanisms from Texas House Bill 4384 and weather normalization, we are requesting the factors necessary to file for the Gas Reliability Infrastructure Program, or GRIP. This mechanism would further align capital investment with timely cost recovery. Even after the increase, C Energy’s rates are projected to be competitive with peers in the state. Turning to our water and wastewater business, as it scales, we are beginning to see a more consistent regulatory cadence. In 2025, we completed seven rate cases. We currently have four open rate cases in Oregon, Texas, and Arizona. Foothills, our largest water and wastewater utility, has made substantial investments over the several years. That trend continues in 2026 as we invest in water storage and treatment to support growth in the region. In Q1, we received approval for our second certificate of convenience and necessity expansion, adding to our service territory in Arizona. We are excited to serve these growing communities and are committed to making the necessary investments to provide safe, reliable water and wastewater. We filed a rate case for Foothills last month that includes a request to use formula rates in the future. Formula rates are designed to support annual recovery of O&M and investments without going through a general rate case process. Blue Topaz, our Texas water utility, recently filed its first rate case in approximately 20 years. The filing consolidates several of our Texas entities, recovers capital investments made since our ownership of these assets, and incorporates fair market value rate base adjustments. As our first quarter actions demonstrate, we are taking a more coordinated approach to our regulatory strategy across the enterprise. Multiyear rate cases in Washington and Oregon, as well as the mechanisms we plan to use at C Energy and Northwest Natural Water, are all designed to reduce regulatory lag and produce a more balanced and linear consolidated earnings profile. These mechanisms also maintain affordability and predictability for customers. Moving to a quick review of our key business segments, starting with C Energy, our Texas gas utility delivered another strong quarter and performed well during the heating season. Results were driven by healthy 16% organic customer growth, and our backlog exceeded 250 thousand future meters at quarter-end, highlighting the long-term growth potential of this business. Looking ahead, we are continuing to see solid growth in the Texas housing market and expect 15% to 20% annual customer growth through 2030, with C Energy contributing approximately 10% to 15% of consolidated EPS in 2026. Moving to Northwest Natural Water, this business posted healthy overall customer growth of 4.1% in the quarter and organic customer growth of 2.2%. As a reminder, the seasonality of water complements our gas business, with the highest demand in the third quarter and lower demand in the first quarter. Even though results were consistent year over year, we continued to make progress on customer growth and regulatory execution. We also remain active in greenfield opportunities for water and wastewater in Texas. We now have signed agreements with developers that represent a backlog of over 10 thousand connections. Approximately 25% of these are in communities that have started development. This platform is driven primarily by organic customer growth, and we expect it to achieve 2% to 3% growth through 2030. Water is expected to contribute approximately 10% to 15% of consolidated EPS in 2026. Finally, turning to Northwest Natural Gas, our largest segment, this business continues to play a critical role in ensuring affordable and reliable energy for customers in Oregon and Washington. I am pleased to report that our system performed well this winter, reliably serving our customers during the heating season. We remain incredibly excited about our MX3 storage project that we announced last quarter. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion that will add 4 to 5 Bcf of capacity and is fully contracted with 25-year agreements. Since our last call, the project has continued to progress as we expected. Our timeline still contemplates receiving notice to proceed by 2027, with an in-service date in 2029. E3, a highly regarded energy consulting firm, recently updated a study reinforcing earlier conclusions that natural gas remains essential to system reliability in the Pacific Northwest, particularly as the region continues to add significant electric load. The latest study now points to an approximately 14-gigawatt shortfall in generation capacity by 2035. That is why our storage capabilities are so important. They are uniquely positioned, expandable even beyond MX3, and offer a cost-effective solution to our region's growing energy constraints. MX3 is not contemplated in our current 4% to 6% long-term EPS growth guidance. However, we do expect the project to have a sustained positive impact on earnings growth and plan to include the project in our guidance when we achieve notice to proceed, which would raise our long-term EPS outlook to 5% to 7%. Overall, we remain confident in our strategy, our execution, and the growth platform that we have built. The businesses are performing well, we are making progress on our regulatory initiatives, and the outlook across our company is strong. We are progressing through 2026 with solid momentum and remain focused on disciplined utility growth and long-term shareholder value. With that, I will turn it over to Raymond J. Kaszuba to walk through the financials. Raymond J. Kaszuba: Thank you, Justin, and good morning, everyone. Our first quarter performance was strong and in line with our expectations. Adjusted earnings per share was $2.33 compared to $2.28 in the prior-year period. To simplify our financial reporting and clarify the underlying drivers of the business, we have updated our segments to better reflect our current business mix. Northwest Natural Gas Company is now reported as a single segment, consolidating the gas utility and storage operations. This change does not affect our C Energy or Water segment reporting. Adjusted net income was up $5.7 million and EPS increased $0.05 in the quarter, driven by new rates, particularly at Northwest Natural Gas, and customer growth. This was partially offset by investments in our systems, leading to higher depreciation expense and financing needs. Northwest Natural Gas reported an increase in net income of $2.7 million reflecting new rates in Oregon, with EPS down $0.02 due to equity financing. C Energy's EPS was up $0.08, driven by a full quarter of operations from C Energy and Pines Gas, and strong organic customer growth of 16%. Northwest Natural Water's EPS was essentially flat for the quarter, primarily reflecting higher O&M and depreciation expenses. This was largely offset by higher operating revenues driven by continued customer growth and acquisitions. Please keep in mind that the first quarter is Water's lowest demand quarter. We are investing in the underlying business and, as Justin mentioned, we are executing on our regulatory strategy to recover these investments and earn a return in a timely manner. Overall, we are pleased with first quarter results, are on track for the year, and reaffirmed our full-year 2026 earnings guidance of $2.95 to $3.15 per share. C Energy and Water combined are still expected to contribute approximately 25% of consolidated EPS this year. Our long-term EPS growth target of 4% to 6% remains intact, and as Justin noted, our expected long-term EPS growth rate is projected to increase to 5% to 7% with the inclusion of MX3 once we receive notice to proceed. We still expect capital expenditures of $500 million to $550 million in 2026. Our funding plan remains disciplined and balanced, supported by strong operating cash flow, approximately $150 million of net long-term debt, and $40 million to $50 million of equity issued through our ATM. We currently have approximately $590 million of available liquidity. Over the five-year planning horizon, capital expenditures will be funded largely through operating cash flows, along with a balanced mix of long-term debt and equity. Through 2030, we expect to meet our equity needs through our ATM program. Finally, on shareholder returns, as our dividend payout ratio comes in line with our 55% to 65% target, we continue to expect to increase our dividend over time, consistent with earnings growth and cash flow generation. In summary, 2026 is off to a solid start, and we have strong momentum heading into the balance of 2026 and beyond. With that, we will open the call to questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Ellinghaus from Seaport Research Partners. Christopher, please go ahead. Christopher Ellinghaus: Hey, good morning, everybody. Justin, I think you quoted 16% organic growth at C Energy. I assume that means there was some acquisition in the quarter because the meters were up considerably more than that. Is there? I am sort of detecting some weakness in the economy that is maybe even accelerating a little bit across some industries, and you kind of see it maybe in your meter number for the quarter. Can you just talk about what you are seeing for economic conditions in Oregon? Justin Palfreyman: Thanks for the question, Christopher. On the C Energy growth, there are no acquisitions reflected in that because it is comparing Q1 of last year to Q1 of this year, so the 16% reflects organic growth at C Energy. Raymond J. Kaszuba: Economic conditions in Oregon have been challenged a bit for a few years now, and we have seen a slowdown over that time frame, both in housing starts and other macro indicators in the region. However, the customer growth that we are seeing is largely in line with what we expected for the year, and a lot of the growth opportunities we are seeing in Oregon relate to our gas storage facility expansion opportunities, as well as investing in the safety and reliability of our system here. Christopher Ellinghaus: Thanks for the segment update. That is helpful. So your guidance for utility net income growth, I presume part of that is a result of the cover of the Fair Act, which is pretty restrictive. Your rate base growth is considerably more than that 1% to 3%, and customer growth is on the lower side. It suggests that you end up with a bit of a bubble at the end of the period in terms of a catch-up, presuming you do not get some kind of great multiyear rate plan that keeps you on track. What are your thoughts about potentially ending up with an end-of-five-year period excess catch-up to make, which is counterintuitive to what the Fair Act was all about? Raymond J. Kaszuba: Christopher, I think you are picking up on what could be driving that delta from the rate base growth to the net income growth. Part of it is our current view of what the rate case cadence is between now and 2030, and you could be growing rate base but not fully reflecting that growth in earnings until rates are reset. That is going to depend on where things end up with the Fair Act and where we eventually land with our rate case cadence in Oregon. Of course, there is always some regulatory lag that comes into play as well. Between those two dynamics, that is driving the difference, and it is timing in terms of the specific five-year guidance range through 2030. So I think you are picking up on that correctly. Christopher Ellinghaus: The rate base increase that you quoted for C Energy—if I am not mistaken, the rate base number in the last rate case, and I might be confusing what the request was versus what was approved, but I thought the last rate case was something like $152 million. Do you know what that discrepancy is versus the $176 million you quoted? Raymond J. Kaszuba: Christopher, we will have to get back to you on that question after the call. I do not know off the top of my head. Christopher Ellinghaus: Alright. I will stop there. I appreciate it. Thanks for the color. Raymond J. Kaszuba: Thanks, Christopher. Operator: Your next question comes from the line of Alexis Kania from BTIG. Alexis, please go ahead. Alexis Kania: Hi, good morning. I have two quick questions. First, Justin, could you dive a little more into the evolution of the multiyear rate structure in Oregon? When do you think you might have more clarity on that, just as a precursor to finalizing the rate case plan in that jurisdiction? Second, given the growth in C Energy, do you have a sense of any potential opportunities for additional tuck-ins there? Do you feel like you need any, and what does the environment look like? Justin Palfreyman: Great, thanks for the questions, Alexis. On the Oregon multiyear plan, we have been engaged fairly actively throughout the process. From a timing perspective, we anticipate it could slip into next year before we have clarity around what the multiyear planning framework is. This is new to Oregon, and they are taking a lot of information in from other states that have successfully implemented this, whether that is Washington or California or others, and there are many parties involved and engaged. Our expectation at this point is that we will have some resolution on that next year. In the meantime, we have filed for this alternative rate mechanism in 2026, and we are in the middle of that process, which is moving along as expected. We also have, under the Fair Act, the ability to file for a general rate case in the interim period before the multiyear plans are established. In general, it is all moving along as expected, and we look forward to driving that to resolution. On your second question in Texas, there are other acquisition opportunities on both the gas and the water side. You have seen us make a number of acquisitions in water there and, with C Energy, we completed a bolt-on with Pines Gas. We continue to look at that, but the organic growth opportunity is so strong that we are very focused on it—investing in our systems. If you look at the C Energy rate case as well as the Blue Topaz rate case, our water utility in Texas, there is a fair amount of growth embedded, as well as mechanisms we believe are going to reduce regulatory lag going forward. For the C Energy filing, we are filing for the factors that will allow us to file for GRIP in the future, which is a helpful mechanism for reducing lag. Operator: Your next question comes from the line of Selman Akyol from Stifel. Selman, please go ahead. Selman Akyol: Just following up on your last comment about putting the pieces in place for filing for GRIP, can you talk about the time frame for that? And staying with C Energy, you previously talked about seeing opportunities for water as you grow in conjunction with C Energy. Are you actually executing on that—installing both water and gas as you go into these new communities? Justin Palfreyman: The time frame for the rate case itself is approximately six months, so we expect to have the rate case resolved and new rates in effect by later this year, sometime in Q4. Then the way the GRIP process works, in this rate case we get the factors defined in terms of ROE, capital structure, etc. We can then, in future years, file for rate adjustments under the GRIP mechanism for up to five years before we would be required to come in for a new general rate case. You have seen many other gas utilities in Texas execute on that successfully. In C Energy’s previous rate case, a few years ago before our ownership, they did a black box settlement that did not allow them to have those factors needed to file for GRIP, so we are taking a slightly different path to minimize regulatory lag going forward for that business. On the water opportunity, that is a great question. One of the reasons I highlighted the 10 thousand connections we now have in backlog for water in Texas in my remarks is that, about six months ago, we combined our business development teams in Texas to leverage the C Energy platform, which has strong relationships with developers and homebuilders. For the first time, we are starting to see communities where we could install both gas, water, and potentially wastewater systems. Specifically on the water side, our utility down there is relatively small but has the potential to grow significantly because of how we are approaching this. Of the 10 thousand in backlog, about 25% are already beginning development or construction on the water and wastewater portions of the projects. It is exciting to see that momentum in a short period of time, and we are highly confident that is the right strategy to pursue. With the overall amount of growth we see in Texas—on the residential side and also on the commercial and industrial side—we are excited about the opportunity. Selman Akyol: And just the last one for me—thinking about water—are you continuing to see a lot of acquisition opportunities in 2026? Justin Palfreyman: We continue to look for acquisitions, but we have seen the market slow down a bit, and there is data out there that reflects that. Where we are with our water strategy is a good position because we do not need acquisitions to grow. The organic customer growth of 2% to 3% excludes any potential future acquisitions, and we are not relying on that for growth. We now have opportunities to invest in the platform we have built, and there is a long runway of investments. We are optimizing the platform both operationally and from a regulatory standpoint to minimize the gap between earned and allowed ROEs across our platform, which is why you are seeing multiple rate cases filed each year in water. In addition, we are very focused on organic growth. I mentioned the greenfield in Texas, and in my prepared remarks, I mentioned the CCN expansion in Arizona. We have other opportunities like that to expand our existing footprint without going out and paying a premium for acquisitions. Operator: We have reached the end of the Q&A session. I will now turn the call to Justin Palfreyman for closing remarks. Justin, go ahead. Justin Palfreyman: Thank you, and thanks, everyone, for joining this morning. We appreciate the questions and your interest in Northwest Natural Holding Company. Just to recap, 2026 is off to a promising start, and we are continuing to execute on our growth strategy. We look forward to seeing many of you at AGA later this month. As always, do not hesitate to reach out to Nikki with any further questions. Thank you, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to Assurant's First Quarter 2026 Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to Sean Moshier, Vice President of Investor Relations. You may begin. Sean Moshier: Thank you, operator, and good morning, everyone. We look forward to discussing our first quarter results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Keith Meier, our Chief Financial Officer. Yesterday, after the market closed, we issued an earnings release announcing our results for the first quarter 2026. The release and corresponding financial supplement are available on assurant.com. Also on our website is a slide presentation for our webcast participants. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in the earnings release, presentation and financial supplement on our website as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in analyzing the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the earnings release, presentation and financial supplement on our website. We'll start today's call with remarks before moving into Q&A. I will now turn the call over to Keith Demmings. Keith Demmings: Good morning, and thank you for joining us. Following a remarkable 2025, where we delivered our third consecutive year of double-digit earnings and EPS growth, we're pleased to share that 2026 is off to a strong start. The first quarter represents the strongest performance in Assurant's history, driven by record earnings in Global Lifestyle. We delivered 6% growth in adjusted EBITDA and 9% growth in adjusted EPS, both excluding reportable catastrophes. When excluding impacts from Global Housing's prior year reserve development, these metrics grew 8% and 12%, respectively. Once again, our diversified portfolio and disciplined execution supported strong performance in a dynamic operating environment. Our results this quarter reflect the momentum we've built across the enterprise, supported by the durability of our earnings. We leveraged the strength and flexibility of our capital position to accelerate share repurchases during the quarter given our compelling valuation. At the center of our performance is our talented workforce, leading with insight, challenging convention and delivering with discipline. Their commitment continues to help us and our clients win together, as we redefine protection and related services and create value across the markets we serve. The first quarter represents an exceptional start to the year, reinforcing our path to achieving our tenth consecutive year of profitable growth. Turning to Global Lifestyle. We delivered an exceptional first quarter with double-digit earnings growth in both Connected Living and Global Automotive. In Connected Living, earnings increased 18%, driven by expansion with existing clients and continued optimization of recently added programs. As our earnings benefit from the momentum we've built, we continue to execute on our compelling pipeline of new opportunities with 4 new mobile announcements this quarter. First, our long-term agreement with T-Mobile supports our leadership and innovation in this space. Following the success of our reverse logistics partnership, we deepened our relationship following T-Mobile's acquisition of U.S. Cellular, successfully migrating another large in-force mobile subscriber base and contributing to an increase in our total devices protected that now stands at nearly 69 million devices globally. Like our prior device protection migration with Sprint, this reflects our proven ability to quickly transition large, complex device protection portfolios with minimal disruption and low subscriber churn, a critical proof point for potential new clients. Taken together, these milestones reinforce the strength of our relationship with a leading U.S. carrier and highlight the strategic value of our integrated mobile protection, repair and logistics platform. Second, we're extending our leadership in reverse logistics through a new opportunity with another large U.S. carrier. This engagement expands our existing services to support all device return and disposition channels. Return devices will be repaired for circular usage, creating incremental value across their network. Devices will be processed through our highly automated Nashville device care center demonstrating how our investments in scaled infrastructure and operational excellence are enabling us to deepen relationships with key mobile partners and unlock new growth opportunities. Third, we recently expanded our partnership with Xfinity Mobile through a new rate plan that includes lifetime device protection for phones, tablets and watches, and includes a benefit that allows customers to receive a phone upgrade anytime. These benefits are embedded in Xfinity's Mobile Plus plant at a single bundled cost to customers. This milestone builds on our 10-year partnership with Xfinity and underscores our shared focus on long-term customer value. And finally, following last year's introduction of Verizon's Total Wireless Protect, we expanded the offering to now include a more comprehensive loss and theft product. In addition, we recently launched Straight Talk Protect. This collaboration represents our third prepaid brand with Verizon, and further strengthens our footprint with this major carrier. Our success over the last 2 years in mobile has built extraordinary momentum. Our embedded scalable model demonstrates mobile's multiple growth paths, deep client entanglement and our innovation-led operating model. Turning to Global Automotive. Following an inflection year in 2025, earnings increased 23% in the quarter, benefiting from higher investment income and continued loss improvement. Our performance this quarter positions the business for continued growth in 2026 as we remain focused on solidifying and expanding existing partnerships and winning new business across the globe. To support future growth, we're advancing capabilities utilizing AI across the business. Throughout 2026, we'll be introducing new products and capabilities fueled by AI, focused on enhancing dealership training, streamlining claims processing and improving customer experience while leveraging our scale to drive share gains with existing partners and win in the marketplace. Turning to Global Housing. Following 2025's performance, where we surpassed $1 billion in adjusted EBITDA, excluding [ cats ], our first quarter results position us for solid underlying earnings growth in 2026, excluding prior year development. Underlying performance in the quarter was driven by double-digit top line growth in homeowners. For the year, we continue to expect a combined ratio in the low to mid-80s. This excludes prior year development and reflects our full year cat assumption of $185 million. We differentiate housing's performance through strong returns, client retention and renewal execution. During the first quarter, we completed 2 long-term renewals with large lender place partners representing over 5 million loans. As we look at the remainder of 2026, we see clear opportunities to further build upon our market-leading position as we execute on our robust new business pipeline. In renters, we continue to see strength in our property management company channel, supporting ongoing growth in policies and reinforcing the effectiveness of our strategy. This channel continues to grow premiums double digits as today, we serve 6 of the top 10 PMCs. Our partners are realizing significant benefits from our platform. Throughout 2026, we remain focused on scaling our latest version of Cover360, which is driving double-digit penetration in premium lift across our PMC client base. Assurant continues to differentiate our performance while reinforcing our attractive valuation and compelling investment profile. Our differentiated portfolio of lifestyle and housing businesses continues to deliver diversified earnings and cash flow, supporting strong returns, robust cash flow and attractive growth with lower volatility. Since 2020, we've grown adjusted EBITDA at an 11% compounded annual growth rate, while growing adjusted EPS at a 17% CAGR, both excluding catastrophes. This was supported by strong returns, generating an average ROE of approximately 14% and a return on tangible equity over 30%. Our outperformance against the broader S&P 1500 P&C group demonstrates our multiyear track record of differentiated results. Over the last 5 years, we've outperformed the group median for adjusted EBITDA and EPS, including cats and in line or better when excluding cats. Finally, I'll provide an update on Assurant Home Warranty. While we're still very early, the launch of our new long-term relationship with Compass International Holdings spanning 6 U.S. real estate brands continues to progress well. As we ramp, we're working closely with Compass to drive agent education, marketing, product penetration and a positive customer experience. We believe our Home Warranty Solutions are resonating in the market, reinforcing our confidence in both our strategy and our ability to scale over time. For Assurant overall, first quarter was a strong start to the year, supported by the durability of our earnings model, the strength of our partnerships and our disciplined execution across the enterprise. We are proud of the long-term performance we've continued to drive, delivering consistently, investing for growth and creating value for shareholders. I'll now turn the call over to Keith Meier to speak to the underlying growth levers of our business, including our updated 2026 outlook. With that, Keith, over to you. Keith Meier: Thanks, Keith, and good morning, everyone. 2026 is off to an excellent start. We're excited about our performance and our increased outlook for the full year. We're operating from a position of strength, reflecting our powerful B2B2C distribution strategy in both lifestyle and housing. We continue to embed innovation across everything we do, deploying technology enhancements including AI and automation to drive simpler, faster and more consistent outcomes for our clients and customers. Our results this quarter are the product of disciplined execution and our commitment to operational excellence as we deliver differentiated customer experiences and attractive returns for shareholders. Before reviewing our updated 2026 outlook, let me start by highlighting our strong first quarter results, beginning with Global Lifestyle. First quarter adjusted EBITDA increased 20% or $39 million compared to last year. Results included a $13 million real estate joint venture gain, of which $10 million was in Global Automotive. Within Connected Living, EBITDA growth was 18%, or $22 million, led by continued expansion with existing clients and optimization of recently added programs. Strong growth within our mobile device protection programs was supported by the addition of over 4 million subscribers across our U.S. and international partnerships, including T-Mobile's conversion of U.S. Cellular to Assurant. In Global trade in and reverse logistics, we processed nearly 7.5 million devices, an increase of approximately $2 million, driven by our reverse logistics programs and underlying organic growth. In Global Automotive, adjusted EBITDA increased 23% or $17 million, including $10 million from the real estate gain. Excluding that gain, earnings in Global Auto increased 9% or $7 million. This growth was driven by continued improvement in loss experience following prior rate actions, enhancements to claims processes and product designs within our vehicle service contract offerings and improved performance in our guaranteed asset protection or GAP product. For Global Lifestyle overall, net earned premiums, fees and other income grew 11%, primarily driven by Connected Living growth from mobile trade-in and global protection programs as well as the recent launch of our partnership with Best Buy. Moving to Global Housing. First quarter adjusted EBITDA was $237 million, including $24 million of reportable catastrophes. Excluding cats, adjusted EBITDA was $261 million. Absent the impacts of lower favorable prior period reserve development, underlying results were level year-over-year. First quarter results included a more normalized non-cat loss ratio of approximately 38%, excluding prior year development, aligned with our expectations. This compared to a loss ratio in the first quarter of 2025 that was lower than typical. Strong growth from higher in-force policies and average premiums in lender place allowed us to offset a more normalized loss ratio. Additionally, we saw growth from specialty products and higher investment income. Turning to our cat reinsurance program. We are very pleased with the outcome of our 2026 program placement, which was finalized on April 1. Through our continued partnership with roughly 40 highly rated reinsurers, we secured strong coverage once again with more favorable terms than the prior year. Our [ program ] retention of $160 million is consistent with our retention from our 2025 program, representing a 1 and 5-year probable maximum loss or PML. Our main U.S. program provides nearly $1.6 billion of loss coverage in excess of our retention, protecting Assurant and its policyholders against severe events for up to a 1 and 265 year PML. Our protection in Florida is even more robust with $1.8 billion of loss coverage in excess of our retention. In terms of costs, our 2026 catastrophe reinsurance premiums are estimated to be approximately $180 million, compared to approximately $200 million in 2025. The reduction reflects favorable market pricing, the strength of our portfolio and lower Florida exposures. Lastly, in Corporate and Other. First quarter adjusted EBITDA loss was $32 million, which includes investments made in our Home Warranty business. Turning to capital. Our liquidity position at quarter end was $836 million, providing flexibility to continue to invest in growth, return capital to shareholders and support future opportunities that enable Assurant to drive innovation for our clients and customers. This quarter, we returned $169 million to our shareholders, including $125 million of share repurchases and $44 million in dividends. Our strong capital position allowed us the flexibility to accelerate our repurchase plans during the first quarter. On May 1, we repurchased an additional $30 million. Over the remainder of the year, we'll continue to evaluate capital deployment opportunities using a disciplined and balanced approach. Let's move on to our outlook for 2026. We now expect full year adjusted EBITDA and earnings per share to grow low single digits, both excluding cat, overcoming $94 million of lower favorable prior year reserve development. This includes $113 million in 2025 and $19 million in the first quarter of 2026. Excluding the impact of prior year development, we expect high single-digit underlying growth in both adjusted EBITDA and earnings per share, excluding cats. Global Lifestyle is expected to lead the growth for Assurant. We're increasing our outlook for Lifestyle and now expect growth of approximately 10%, reflecting our strong first quarter results. Connected Living results for the year will benefit from continued optimization of new programs, expansion with existing clients and contributions from recently announced new programs and capabilities, demonstrating the returns we've achieved through previous investments. Global Auto is expected to grow from higher investment income, continued loss improvement and growth of global partnerships. Turning to Global Housing. Our outlook has improved, and we now expect earnings to decline only modestly excluding cats. Absent prior year development, we continue to expect solid underlying growth for the full year. Consistent with our past approach, our 2026 outlook does not contemplate potential prior year reserve development for the remainder of the year. In lender-placed, we expect growth to be driven by higher tracked loans and in-force policy growth from expected new client wins and the continued hardening of the voluntary homeowners market. From a placement rate perspective, we anticipate some quarterly fluctuations from client loan movements during the year. From a capital perspective, our strong cash generation creates flexibility, enabling us to reinvest for growth, including M&A and return excess capital to shareholders. For 2026, we now expect share repurchases of $300 million to $350 million, which is at the high end of our initial range from the beginning of the year and is subject to M&A and other market conditions. Our first quarter results demonstrate the strength and consistency of Assurant's differentiated business model. We look forward to executing on our increased financial objectives while delivering results for our clients and shareholders throughout the year. With that, operator, please open the call for questions. Operator: [Operator Instructions] Mark Hughes: The Connected Living results are quite strong in the quarter. Can you talk about the kind of your longer-term view on that business up 18% earnings. You got a good slide on a lot of the new business wins and renewals. Are you thinking that, that is a faster growth business? Or are we just kind of hitting it at a good peak here where you're executing on the pipeline, but it may not be sustained at this level? Keith Demmings: Yes. I mean it's certainly a fantastic start to the year overall. And if you look back the last 3 years or so, we've grown our EBITDA and EPS overall double digits and a fantastic way to start the year this year with significant performance, our best year -- our best quarter story in history and then Lifestyle, obviously delivering outstanding results. I think when I look at it, I'd probably highlight 3 big drivers. First is, you've seen the scaling of our device protection subscriber counts. Over the last year, it's up at 4.3 million subs year-over-year. And that's a lot of hard work, a lot of innovation with partners. We've done incredible things with our cable partners. We've launched new clients like Total Wireless, which is contributing significantly. We've launched programs internationally with clients like Telstra. And then obviously, with U.S. Cellular and our relationship with T-Mobile, that's driving a lot of momentum across the board for our protection business. That's certainly the biggest driver of our overall outperformance in Connected Living. But I'd also say we're maturing some of the non-mobile programs that we've announced to the market as well. Our relationship with Best Buy being one example, our relationship with Chase. These are 2 really important clients for us, and they're growing and contributing nicely. And then finally, you saw a lot of growth in devices service, not just from our trade-in programs maturing and driving organic growth, but also the investments we've made in reverse logistics. So it does feel like we're in a great position. I feel great about how we look for the future. Mark Hughes: I want to ask -- I don't know if you think of it this way, but the market share that you have got, if you kind of put the main Verizon AT&T programs to the side. I'm sure that's within your target area. But if you look at the size of the market, aside from those 2 big pieces of business, how much share do you think you have? How much more opportunity is there for further growth? Keith Demmings: Yes, I still think there's a lot of white space in this market, particularly as we think about the globe. We're in obviously more than 20 countries around the world. Programs continue to mature. I think the product set continues to evolve. We've got a really deep value chain that we deliver across a wide range of services. So I think there's a tremendous amount of upside. And we're innovating, we're winning with new entrants and we're scaling in a way that's meaningful. So I do feel really good about that. And then maybe, Keith, you want to add? Keith Meier: And I think when you think about Connected Living overall on top of that, we have opportunities in the extended service contract side, and you saw that with Best Buy. And we also have our financial services business performing well with the addition of Chase and other marquee clients. So I think when you look at Connected Living, in terms of what the opportunities are in the future, I think there's a lot of white space and opportunities ahead. Operator: Our next question comes from Tommy McJoynt with Keefe, Bruyette & Woods. Thomas Mcjoynt-Griffith: Staying on the same topic here, you've had some really good success with those 2 largest carriers in the U.S. being Verizon and AT&T. Can you start off just rehashing reminding us all of the services that you're now providing for each of those carriers? Keith Demmings: Yes. Happy to do it certainly at a high level. And you're right. I mean we've been making progress really across the board in the U.S. with every major operator. And if you think back to the acquisition that we made of [ Hila ] back in 2020, a big part of that was they did a lot of great work with partners that we weren't necessarily doing as much with. So with Verizon, certainly, the growth that we've seen on the prepaid side, we support their visible brand, their total brand and now Straight Talk Wireless, and it's a fantastic relationship. We're innovating and launching new products and we're super excited there. We provide a range of supply chain-related services as well. And then with AT&T, we do a lot of work around the supply chain, historically, a big trade-in partner for us. And to your point, long-term opportunity, it's all about building deep relationships, solving problems, building trust over time and then looking to find creative ways to innovate. Thomas Mcjoynt-Griffith: And your remarks there sort of noting the fact that these large carriers often have different prepaid brands, something that I had admittedly overlooked. [ This is a ] similar dynamic exists on the postpaid side such that there could be an opportunity to win select postpaid segments for the big carriers? Or are those more of an all or nothing nationally campaign? Keith Demmings: Yes. I think -- I mean you could think of it. There are certainly opportunities if you separate consumer from enterprise, so you could have postpaid customers that are consumer branded versus enterprise branded small business, et cetera. But generally speaking, most of the postpaid is under a single brand, and it's managed by a single provider. Not to say you couldn't have a variation to that over time, but that's typically how it works. Operator: Our next question comes from Jeff Schmitt with William Blair. Jeffrey Schmitt: Could you talk about your growth strategy for the new Home Warranty business just in terms of building that out beyond the Compass partnership and how you plan on doing that? And are you building out the contractor network as well there? Keith Demmings: Yes. I mean, we absolutely are. I think first thing I'd say is we're super happy with the partnership we have with Compass. Obviously, we're still very early in terms of the ramp and the rollout, but there's complete alignment about the importance of delivering for customers, keeping the agents at the center of everything that we do. And then leveraging technology to integrate the offer naturally into the real estate process. So I feel really good. Volumes are ramping, the agents continue to get educated about our solution. And I would say our message and our vision of what we're trying to do is definitely resonating in the market. In terms of other opportunity, yes, I mean, right now, we're certainly having many conversations with potential long-term partners, whether that's with current affinity clients that we do business with today, or whether it's looking at additional opportunities to serve the real estate sector. I feel good, there's multiple ways for us to drive growth. And I think our solution is unique, and our story is resonating. So I'm super happy about where we're headed. But maybe, Meier, do you want to add? Keith Meier: Yes. And Jeff, you mentioned the contractor network. When you think about that, we have clients like Best Buy and Lowe's where we do a tremendous amount of appliance and all the related services in the home. And then we have other programs as well that round out several of the other home warranty services. So we have actually a very robust network that I think positions us in even stronger and better ways than some of the traditional players and we're able to leverage that. Keith Demmings: And remember, we've been working on this rollout for well over a year to bring this to market in terms of the product, the service network and the full solution set. So this is not something we started 3 months ago, even though that's what it feels like in terms of the announcement in the market. Jeffrey Schmitt: Right. Right. Okay. And then how much revenue is the new Best Buy legacy book adding in Global Lifestyle. And are those products, do they typically have multiyear contracts? How should we think about that ramp? Is it over 1 year, over a couple of years? Keith Meier: Yes, Jeff. And you should think about it as definitely the -- there's a mix of shorter-term and longer-term contracts, so they can range from a couple of years to 5 years, that kind of range. So those earn over time. And we also did the assumption in the fourth quarter as well. So that will help some of those earnings coming through faster than they would have otherwise. But overall, you should see that evolving over the coming several years. Operator: Our next question comes from Charlie Lederer with BMO Capital Markets. Charles Lederer: On the new announcements in mobile, is there any sort of upfront spending you'd call out that we should think about as offsetting the strong growth in EBITDA in Lifestyle that you're experiencing? And more broadly, can you help dimension the impact, the ramp we should expect on those programs? Keith Demmings: Sure. Certainly, U.S. Cellular was a move of an in-force block. So that starts to contribute immediately. There's a little bit of investment upfront to bring that to life, but that's behind us at this point. So I would suggest that's immediately accretive as we think about the run rate going forward. The other three examples, I would say they'll be accretive to EBITDA in aggregate, certainly this year. So there's not a big investment spend that would call out. I think they'll contribute positively this year. And then they'll ramp more naturally over time, but it's certainly not a drag as we think about '26. Charles Lederer: And then maybe just on auto, you're clearly starting to get better results. Do you feel like you're out of the woods on loss costs there? Written premiums were down a little bit in the quarter, and I'd imagine you're still fairly early days as far as being on risk on some of the policies that were underwritten in that inflationary '22 time frame. Can you give us a sense, I guess, on claims frequency of those vintages too? Keith Meier: Yes. I would say last year, we talked about being a bit of an inflection year for us. And we've seen that roll into this year. Auto had a good quarter. We had favorable loss experience continuing, and that also is aided by our prior rate increases, the enhancements we've been making to the claims processes, the product designs that we've been working on with our clients. And I think overall, it really speaks to the success that our auto team has been having and working with our clients to arrive at mutually beneficial outcomes. So overall, I think that we feel good about where that business is today. Charles Lederer: And just lastly, did you guys update your cat outlook? I don't know if I missed that for the full year. Keith Meier: Yes. So our cat assumption for this year is $185 million, up modestly from $175 million last year. That's mainly due to the growth of the business. And I would say in terms of our cat reinsurance, we were very pleased with the coverage that we secured this year. Our program costs are expected to be about $180 million. This year, down about $20 million from the $200 million from last year. And I think that really reflects the favorable market pricing that was out there, the strength of our performance of our portfolio. And then also we have a little bit lower Florida exposure. So overall, we've been pleased with how that's come together and that kicks in or kicked in on April 1. And from a comparative rate standpoint from last year, we were down north of 20%. And so overall, the outcome, I think, was very positive, and we kind of stayed in that 1 in 5-year PML for the retention and at the top of the tower, about 1 in 265 years, so pretty consistent from last year. Charles Lederer: Maybe just a quick follow-up on that. I mean should we think about the seasonality of your cat load being a little different just given the geographic shifts that you're speaking to? Keith Meier: Yes. I think it's -- as it has been historically, I think the latter half of the year with the hurricane season is typically the -- where it would be weighted more so to that and obviously, mostly in the third quarter-ish kind of time frame. Operator: Our next question comes from Brian Meredith with UBS. Brian Meredith: So a couple of them. First, just on the Global Housing, placement rates keep picking up here. And I'm assuming that's still a function of the tight homeowners market. I wonder if you could give us a little color on it. It seems like the homeowners market is starting to lease loosen up in some states even outside of Florida. Do you expect that placement rate to kind of peak out here and maybe trend downwards here as the market kind of opens up a little bit here? Keith Demmings: Yes. I mean we've talked about -- as we think about the year, we expect to add additional loans to the portfolio. We do think policy counts go up over the balance of the year. We'll see some fluctuation in placement rate. It hasn't really showed up yet in terms of the shifting away from the hard voluntary market. We're still seeing pretty strong growth in California and Texas. It's probably half the growth sequentially. The other half is other states and Florida is relatively stable. So I do feel like we haven't seen evidence of a major shift yet in terms of that trend line, but it's something we're certainly watching very closely. But we feel good about how we're positioned as we think about the full year within that business and the pipeline of opportunities that we've got that our teams are working on actively. Brian Meredith: Got you. And then my second question is you talked a fair amount about how AI is going to enhance, call it, customer experience and streamlining some processing functions, et cetera. I'm wondering from a productivity perspective, how you're kind of approaching it and is there any kind of KPIs or something we look at from a maybe margin enhancement or something that could potentially happen here over the next couple of years from what you're doing with AI? And that there's a lot of opportunity in your business for productivity improvements. Keith Demmings: Yes. Maybe I'll start and Keith can certainly add in, and we'll think about over time, if there are metrics that can make sense. I'd say there's no doubt we think we can improve the customer experience. So set aside efficiency for a second. There are so many ways to remove friction to serve customers better, which is great for business, great for our clients. That also comes with efficiency gains as well. I think there's phenomenal opportunities to upscale our talent, to protect our talent and leverage them in new and different ways. I think we're leaning into more personalized services as we think about matching various product designs for what customer needs look like. We're doing a lot of work around robotics and automation in our facilities. So there's a tremendous amount of leverage. I think this is going to be a game changer for our company over time. And I think we're incredibly focused on high-value use cases that we can bring to scale. And I think focus is key, and I think we're on a really good track to deliver that. But what would you add, Keith? Keith Meier: Yes. I think, Brian, as you mentioned, what kind of metrics to look at, I'll give you a good example of that. If you look at housing, our general expenses are in the last year are up 2%, and our revenues, our net earned premiums fees and other income is up double digit, 11%. And so you're seeing us through our technology, getting that expense leverage. And I think those are the -- those are continuing to be areas where our technology is certainly helping us from an efficiency and expense perspective, but it's actually also helping us differentiate against the competition and really be able to deliver the great customer experiences. So I think we win on both fronts, and that's why we're really passionate about the technology and having global platforms that allow us to make these things happen. Operator: [Operator Instructions] Our last question comes from Mark Hughes with Truist Securities. Mark Hughes: I had to switch screens there. So the fee income in Lifestyle was quite strong. You talked about good momentum in the reverse logistics program growth. I assume that's a contributor to that. I think the number of devices in service was up quite strongly. Was that helped by any particular programs in the first quarter, recognizing there's some seasonality there, but there seem to be a lot of strength. I know there's timing on some of these programs that can influence that business? How should we think about the coming quarters there in that dimension? Keith Meier: Yes. I think you were -- you were thinking about it right, Mark, in terms of it being driven by our trade in reverse logistics side of the business. Devices-service have been growing significantly, and that's where that fee income has been growing as well. And then you also highlighted there is some seasonality into that. So we had a very strong quarter as it relates to the trade-in side. And then we're looking forward to continuing the progress we have with our clients in providing these reverse logistics and other trade in services as we go forward. So we feel good overall about the momentum. Mark Hughes: Yes. Does that say nothing particularly unusual about the first quarter, no special programs. There's some variability there, but was there anything unusually robust about Q1? Keith Meier: Yes. I would say it's more of the seasonality. And then also, I think it was also contributions across multiple programs, Mark. And obviously, some of the newer programs gearing up as well. But I think it was well balanced with some seasonality. Keith Demmings: All right. I think that was the last question. So again, thanks for joining. We look forward to talking to everyone after the second quarter, and I know we'll see many of you at our mobile event in Nashville next week. So we look forward to that. And thanks again. Have a great day. Operator: Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, and thank you for joining us. I am Erica, your conference call operator. Welcome to Titan America's First Quarter 2026 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the call over to Michael Bennett, Vice President of Investor Relations. Michael Bennett: Thank you, operator, and good morning to everyone on the line. Thank you for joining us for Titan America's First Quarter 2026 Conference Call. I am joined by Bill Zarkalis, President and Chief Executive Officer of Titan America; and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that, yesterday afternoon, we released Titan America's first quarter 2026 results, which are available on our website at ir.titanamerica.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations website. During the call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measure and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as expect, believe, intend, anticipate and may, among others, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from those forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainties described in our SEC filings. I would now like to turn the call over to Bill. Please go ahead. Vassilios Zarkalis: Thank you, Michael, and good morning, everyone. Thank you for joining us today for Titan America's First Quarter 2026 Financial Results Call. Yesterday, we announced our financial results for the first quarter. I would like to begin on Slide 4 by highlighting a few key messages. The first quarter is usually the weakest quarter of the year. It was a quarter that started slowly, affected by continued softness in the residential market and harsh winter weather in our Mid-Atlantic region. In March, the conflict in Iran exacerbated the geopolitical uncertainty, triggered inflationary pressures with increasing fuel and energy costs. Against this backdrop, Titan America once again delivered a solid first quarter performance with year-over-year improvement in our results, showcasing once again the resilience of our vertically integrated business model, the benefits from our ongoing strategic initiatives and the agility of our teams to execute in a challenging environment of mixed end market demand trends and increased uncertainty. First quarter revenue increased by 1.5%, while adjusted EBITDA was 3.4% higher than the same quarter of last year. In the first quarter, our Florida segment delivered robust performance, underpinned by strong participation in infrastructure and private nonresidential construction. We saw meaningful volume growth in aggregates, concrete block and fly ash that was partially offset by softer demand for cement and ready-mix concrete in the residential sector. Prices in Florida were modestly higher sequentially when compared to the fourth quarter of last year. The Mid-Atlantic region delivered strong year-over-year improvement in the first quarter, trimmed down by the impact of adverse winter weather on demand in the region. We are encouraged by the strong performance, which was partly driven by the start of substantial projects in the region, including data centers and public infrastructure. In addition, the quarter included benefits from both year-over-year and sequential growth in cement and ready-mix concrete pricing as well as operating efficiencies that drove adjusted EBITDA margins higher. On May 1, we completed the acquisition of the Keystone Cement Company. This investment represents an important milestone in our growth strategy, and we are very pleased to welcome the Keystone team to the Titan America family. Despite the challenges following our first quarter results and taking into consideration our current visibility for the year, we are reaffirming our full year 2026 outlook. We'll discuss our guidance at the end of the presentation. Let's move now to Slide 5. As communicated, as of May 1, we have concluded the acquisition of the Keystone Cement Company. We have now expanded our geographic reach in the markets of Pennsylvania, Ohio, Delaware and Maryland. In combination with our existing assets, we have strengthened our vertically integrated footprint in this region and are better positioned to capitalize on the strong secular trends. As a reminder, Keystone is a modern cement facility with approximately 990,000 short tons of current clinker capacity and serves a greater than 6 billion short ton addressable market. In 2025, Keystone generated revenue of approximately $97 million with an EBITDA margin of approximately 10%. We believe that we can deliver game-changing synergies for the acquired Keystone assets that will substantially grow both its top line and its margins. We expect to grow the output of the assets by significantly improving reliability with our proprietary real-time optimizers and predictive maintenance capabilities. We will drive strong benefits from raw material cost optimization, more efficient energy consumption and increased use of alternative fuels. In parallel, we expect to target the infrastructure segment in the region by capitalizing on the high-quality aggregates of Keystone. Our integration team is already on site, working together with experienced and knowledgeable Keystone colleagues. We look forward to updating you on our progress in the future. Let's move now to Slide 6 to discuss a recent exciting development for Titan America. In April, we announced the grand opening of the Titan America Innovation Hub in Miami. This collaborative center is designed to accelerate the development and scale-up of advanced materials, digital technologies and construction solutions, bringing together the most creative minds in construction, design, academics and sustainability. Through the innovation hub, we continue to innovate and expand product offerings focused on meeting the evolving needs of our customers for sustainable, high-performance products, services and solutions. There are major transformational themes in our industry such as resilient urbanization, digitalization and the need for smart materials, novel construction technologies and circularity. These trends create new value pools of high growth and high margins. As part of our strategy, we invest in innovation in order to tap these high-growth, high-value pools. Consider, for example, data centers. As someone said, the cloud is built of concrete, and we serve Virginia's data center alley, the largest concentration of data centers in the world. We do this with our proprietary AI-engineered concrete mixes, incorporating and enabling new levels of performance and sustainability. We capitalize on industrial reshoring by providing smart materials to enable fast-track construction for the next generation of manufacturing and logistics infrastructure. We incorporate circularity in our offerings, including expanded use of valuable supplementary cementitious materials like fly ash beneficiated with our proprietary electrostatic technology. We also offer ultra-durable marine-grade concrete and supply innovative blue-grade solutions inspired by nature such as patented 3D-printed concrete for the next generation of seawalls and reefs. Our hub is already operational, and you are welcome to visit and learn more about our innovative products and solutions. You can find more about the hub also on our website. I will now turn it over to Larry, who will provide a more detailed breakdown of our first quarter financial results and business segment performance. Larry? Lawrence Wilt: Thank you, Bill, and good morning, everyone. Moving to Slide 7. Let me share an overview of our first quarter 2026 financial highlights. The first quarter saw a mixed operating environment. Winter weather disruptions in the Mid-Atlantic region weighed on volumes during the quarter, while the macroeconomic backdrop introduced incremental uncertainty as the quarter progressed. Against that backdrop, we were pleased to deliver solid financial performance with year-over-year improvement in revenue, adjusted EBITDA and operating cash flow. For the quarter, we delivered revenue of $398 million, an increase of 1.5% compared to $392 million in the first quarter of 2025. Adjusted EBITDA for the quarter was $83 million compared to $80 million in the prior year quarter, an increase of 3.4%. Our first quarter adjusted EBITDA margin was 20.7%, an improvement of 40 basis points compared to 20.3% in the first quarter of 2025, reflecting the benefits of our vertically integrated model, pricing discipline and ongoing cost management efforts. Net income for the quarter was $33 million, consistent with the prior year quarter with earnings per share reflecting the impact of incremental shares outstanding from our 2025 initial public offering. Operating cash flow for the quarter was $62 million compared to $35 million in the prior year quarter, having benefited from lower levels of working capital and lower income tax payments. Free cash flow was $30 million in Q1 2026, reflecting the improvements in operating cash flow and steady year-over-year CapEx investments. And finally, our leverage ratio further improved to 0.58x at the end of Q1 2026. Turning to Slide 8. Let me walk you through our sales volume performance by product line. Total cement volumes, including external sales and internal consumption, were broadly stable, down less than 1% year-over-year with winter weather-related impacts in the Mid-Atlantic region and persistent softness in the residential sector generally offset by continued demand strength from infrastructure and private nonresidential construction. Total aggregates volumes grew 1.8% in the quarter, benefiting from the expanded production capacity in Florida, the strength of which was partially offset by lower volumes from our Mid-Atlantic sand sources. Total fly ash volumes were up 12.3% compared to the prior year quarter on higher utility generation and increased commercial push, while ready-mix concrete volumes decreased 2.1% year-over-year with delays in project starts in Florida only partially offset by sustained volumes from data center construction in the Mid-Atlantic. Concrete block volumes increased 9.7% compared to Q1 2025, driven higher by improved contribution from remodeling and renovation channels as well as shell contractor demand in select regional markets. Turning to Slide 9. External pricing improved sequentially from Q4 2025 across all product lines. On a year-over-year basis, cement pricing was flat, while aggregates and fly ash pricing, which were impacted by product and regional mix declined by 0.6% and 2.4%, respectively. Ready-mix concrete prices improved year-over-year, benefiting from a larger proportion of value-added product sales. On a year-over-year basis, concrete block pricing declined 2.1%, reflecting customer and end market mix as well as the softness experienced in residential demand during 2025. Turning to Slide 10. Let me focus your attention on our Q1 business segment performance. In Florida, we delivered strong results in a challenging market. Florida's external revenue was $253 million in the first quarter, essentially flat compared to the first quarter of 2025 as revenue growth from aggregates, concrete block and cement were offset by a lower contribution from ready-mix concrete. Adjusted EBITDA for the Florida segment was $73 million, an increase of 2.5% compared to $71 million in the prior year quarter. Adjusted EBITDA margin expanded to 28.6% in Q1 2026, up from 27.9% in the first quarter of 2025 as cost discipline offset headwinds from higher energy costs and tariffs. In the Mid-Atlantic, we delivered meaningful year-over-year improvement during the quarter, consistent with the constructive 2026 outlook we communicated during our fourth quarter call. Despite winter weather that got disruptions and suppressed volumes in the Mid-Atlantic region in January and February, our team executed well and delivered strong financial results and improved pricing in ready-mix concrete and cement were amplified by operating efficiencies, which more than offset the impact of tariffs and higher import costs. Mid-Atlantic external revenue was $145 million in the first quarter, an increase of 4.2% compared to $139 million in the first quarter of 2025. The revenue improvement was primarily driven by strong ready-mix concrete participation in regional commercial construction projects, including data centers. Adjusted EBITDA for the segment was $13 million compared to $11 million in the prior year quarter, an increase of 16% and segment adjusted EBITDA margin improved to 8.7% from 7.8% in the prior year quarter. As a reminder, the first quarter in the Mid-Atlantic segment included the impact of our Roanoke Cement plant's annual major maintenance campaign in both 2026 and 2025. Now turning to our balance sheet and cash flows on Slides 11 and 12. As of March 31, 2026, we had $228 million of cash and cash equivalents and total debt of $455 million. Our net debt position was $227 million, representing a leverage ratio of 0.58x trailing 12 months adjusted EBITDA, a further improvement from 0.64x at the end of 2025. Our strong leverage profile provides significant balance sheet capacity to pursue strategic growth opportunities such as the recent Keystone acquisition, while maintaining our commitment to returning capital to shareholders. With respect to Keystone, the acquisition was funded with a combination of cash on hand and a new term loan issued in April 2026 with a maturity date of February 2031. Slide 13 shows our capital expenditure profile for the first quarter of 2026. Net capital expenditures in the first quarter were approximately $32 million and remain focused on our previously communicated strategic objectives. These include increasing our domestic cement and aggregates capacity, improving the efficiency of our logistics networks and further enhancing our strong positions in select downstream channels to market. On Slide 14, I will remind you of our capital allocation strategy. As mentioned in our previous calls, we are focused on 3 key priorities: investing in the business, including organic growth opportunities, pursuing strategic M&A and providing returns to shareholders, all while maintaining a healthy net leverage profile. During our fourth quarter conference call, I discussed our organic growth priorities for 2026. These remain unchanged. Now that we've closed the Keystone acquisition, we expect to make further investments to deliver operational, commercial and logistics synergies as we incorporate the Keystone assets into our Mid-Atlantic network. With respect to shareholder returns, I would also like to announce that yesterday, our Board of Directors approved an issue premium distribution of $0.04 per share payable on July 7, 2026, to shareholders of record on June 18, 2026. With that, I'll turn it back to Bill for his closing remarks. Vassilios Zarkalis: Thank you, Larry. In conclusion, the first quarter demonstrated the resilience and quality of Titan America's business model in a stubbornly challenging operating environment. Despite winter weather headwinds, macroeconomic uncertainty and continued softness in the residential sector, we grew revenue and adjusted EBITDA, expanded margins and generated substantially stronger operating and free cash flow compared to the prior year period. Our teams executed well and the underlying fundamentals of our key markets remain constructive. Turning now to our 2026 outlook on Slide 15. As we mentioned during our fourth quarter financial results call, the recent surge in oil and energy prices due to the conflict in Iran has introduced additional risks in an already complex and uncertain economic backdrop. We expect softness in the residential sector to continue through the remainder of the year with a much anticipated inflection point potentially delayed to 2027. Despite the challenges, following our first quarter results and taking into consideration our current visibility for the year, we are reaffirming our full year 2026 outlook. On a like-for-like basis, we continue to anticipate low single-digit revenue growth compared to last year, with modest expansion in our adjusted EBITDA margins. This outlook reflects our confidence in the underlying demand trends in our markets, especially as we move into the seasonally stronger middle part of the year as well as our ability to execute and deliver benefits from our previous and ongoing strategic initiatives. It is worth noting that this guidance does not include the contribution from Keystone as we focus on integrating the acquisition and building out its full commercial potential. Before we open the call for questions, I want to express my sincere gratitude to all of our Titan America team members, and extend a warm welcome to our new colleagues from the Keystone Cement Company, whom we are proud to have now as part of the Titan America family. With that, I'll turn the call over to the operator for the Q&A session. Operator? Operator: [Operator Instructions] We'll take our first question from Philip Ng with Jefferies. Philip Ng: Congrats on a really strong quarter in a choppy environment. So great execution from the team. Larry -- I guess, Bill, to kind of kick things off, the Keystone acquisition, quite exciting. 10% EBITDA margins would certainly be much lower than I would have thought. Best-in-class cement assets, I think, are probably closer to 30% EBITDA margins. And I suspect your business is probably not too far from that. So what needs to happen to kind of get that? I mean, one, is there anything structural with the asset or the market? Or this is just we need to deploy the Titan America playbook in terms of capital deployment and bringing that business in-house? So just kind of give us some color in terms of what that profit profile could look like and if there's anything structural with the business. Vassilios Zarkalis: Absolutely. I think that element represents also the reason why we say that we're going to implement game-changing synergies in this asset, bringing the profitability up to norm for how we perform overall with our own assets. As we have explained, this is a value-accretive opportunity for Titan America. It's expanding and strengthening our geographic reach and our leadership position in the East Coast, adding important geographies like Pennsylvania, Ohio, Delaware, Maryland. We will expand and extend our integrated model. Also very important is to think that it's an acquisition of important aggregates assets, both for production of clinker, but also of infrastructure-grade aggregates. So it is a very important lever. And last, in relation to your question, we see game-changing synergies, as we said, in relation to optimizing and improving the margins, of course, by reducing the cost, improving overall logistics, energy consumption and bringing all the digitalization and elements of operational excellence that Titan America has been delivering for years. So a great opportunity for us, starting from that point that you mentioned. Philip Ng: Bill, like how quickly can you get this to a good margin profile? And is the assumption based on what you said, you can get this asset to something that we're accustomed to for the legacy Titan Cement assets from a profitability standpoint? Vassilios Zarkalis: Thanks, Philip. Good question. Let me just say that we have our integration team working already from the phase that we were doing the due diligence. And as soon as we start -- we signed the SPA, and we were ready to move in and start cooperating with our new colleagues at Keystone from day 1, and our teams are implementing already the synergies. In relation to specifics, if you allow me, we'd like really to be there for a couple of months. So we anticipate that in our upcoming second quarter analyst call, we're going to give you details in relation to synergies that we intend to implement and provide the necessary details that you need also for your models. Philip Ng: Okay. That's helpful. Question for Larry. Impressive, you reiterate the guidance, particularly margin expansion in a pretty inflationary backdrop. Can you remind us what are some of the inflation that you could see that could be impactful? I believe you've got pass-throughs for freight, which is helpful. And then certainly, on the pricing side, any update that you have out there in terms of the cement price increases, the ready-mix price increases and aggregates price increase that's out there for April? Do you need those price increases to stick to kind of offset inflation and drive the margin expansion you're calling for? Lawrence Wilt: Look, I think we operate in a year where we have some mixed environments, Phil. So if you look at what we put into our own internal thinking on this, there'll be some ZIP code area differences on these kind of things. So we do see opportunities on both price and volume, depending on where we are. And beginning in April, in those markets where the markets were stronger beginning in April, we've begun to pass through some of those prices that we're talking about. You mentioned pass-throughs on the cost side when you talk about pricing, for example, sort of the cost element of that on the energy side. Those, as you recall, are not as significant for us as you might imagine. They're 8% of our total cost of sales. And with that, we have fuel flexibility when we talk about energy costs at our cement plants. I think we've described that a couple of times in terms of the multiple fuels that we are able to burn there and the increased use of alternative fuels through those same facilities. We have implemented some capital projects. I think I described that in the last call as well coming out of Q1 out of the outage in Roanoke. We have a different and more flexible burner system there. And then Florida, where we've got an alternative fuels project that will enable us to bring further alternative fuels and bring down the cost in a further period, so beginning in Q2, Q3, for example. So we're optimistic on that front. Now the pass-through, as you described, you're right. We have -- for the diesel fuel that we consume within our business, about 2/3 of that is used in the delivery of ready-mix concrete, about 1/3 is used within the facilities themselves. One obviously has a direct opportunity for pass-through in the fuel surcharge. The other is reliant on price improvement to cover that to the extent that it continues. Every day brings different news. You saw today's news. Things may not be as grim as we had feared they may be in terms of longevity. So we'll take it day by day, but that's what's in our guidance. Operator: And we'll take our next question from Anna Schumacher with BNP Paribas. Anna Schumacher: I have 2. So firstly, on aggregates, how significant are your aggregates ambitions? And what makes Titan the partner of choice in this industry? And secondly, on -- again on cement, has there been any change in the cement import situation this year? Are they still disruptive in either of your markets? And if you can share your pricing expectations for '26, that would be great. Lawrence Wilt: Yes. I think on the aggregates question, you'll see obviously in our public documents, we are a well-positioned aggregates producer in some of our markets. We have ambitions to be bigger in some of our markets as well. But when you look at Florida, we are a good participant down there with good cost structure in our facility in the Pennsuco location, for example, I think Corkscrew is the one on the West Coast for us. So we see good opportunity for there. On the other calls, Anna, we may have described -- maybe perhaps you didn't have a chance to listen in. But on some of the other calls, we described some of the additional opportunities we have, taking advantage of newer mining technologies to bring some product up, liberated from what was remnant mining in effect from periods gone by. So that's a good opportunity ahead for us. We're investing to be able to do that. I think with respect to cement imports, -- and sorry, just as a follow-up comment here on Keystone as well, we have good opportunities in Keystone, as Bill was describing before, going into that new market, but our teams are just getting oriented around that location this week. Now when we go back to the cement imports you described, I think if your question was around patterns of cement imports, I think one of the challenges that we are going to face is some of the ocean freight, perhaps some of the war impact has had some delays on some of the loading of ships at some of the location points and some of that disruption perhaps coming in and the volatility perhaps in ocean freight is something that we have on our radar screen. So we are looking at that. But generally, the import strategy is no different than it was in the past. We have a flexible import model where we combine this local production that we have combined with the imports to give us the channels to market to our internal and external customers. That's the plan. Operator: And we'll take our next question from Wesley Brooks with HSBC. Wesley Brooks: So yes, a couple of questions from me. I guess first one, just coming back to Keystone. Just looking at that revenue number, what's it, $97 million in revenue on almost 1 million tons of clinker. It just seems like a very low realized price. So I wondered if -- is this because they just sell the clinker? I'm interested to understand that. I mean you're making about $160 a ton in your Mid-Atlantic region. So can you help us understand what's going on there? And is that a big part of the opportunity that, that is not doing something well there? Vassilios Zarkalis: The key issue here, Wesley, is not -- the clinker capacity is one thing. The important element is the reliability at which these assets are being run, and also certain limitations that reduce capacity utilization. And that's a great opportunity for us to improve capacity utilization and therefore, have a bigger output and more reliable output, which will allow us to increase top line. And of course, on the other side, as we mentioned, address unit cost and improve margins. So the roughly 1 million tons in capacity of clinker that we mentioned doesn't mean that actually this plant operates at this rate. Wesley Brooks: Yes, that makes sense. Okay. And then I guess, yes, my next question, following up again on the energy cost. As you say, you have alternative options for fuel, but the broader market, I think, has a higher exposure to energy costs in cement production. So I'm wondering, is this something that you think could be an impetus for further pricing actions that maybe are more sustainable? I mean, if we think of what happened during the pandemic, we had a lot of cost inflation. You guys -- I mean, that was really a positive for the market and for margins for cement players for longer term. Is this something that could be similar? Or do you think the market is broadly looking at more short-term, as you say, kind of surcharges and things like that? Vassilios Zarkalis: As we mentioned, our margin expansion and our results [ incorporate ] both our strong execution in the marketplace, capitalizing on positive trends in infrastructure and private commercial like data centers, logistic infrastructure, manufacturing, reshoring, power assets, hospitals, water systems, elements like this. But also a good part was our operational excellence and our ability to manage cost, including energy and fuels. Now to your broad question, whether this is an opportunity, clearly, the industry is faced with tremendous inflationary pressure, which clearly necessitate a price increase in the market in order to face these pressures, independent of what we do internally in order to manage it. So you're right, this environment, this backdrop against which we operate necessitates price increases. That's why Larry mentioned that we -- coming into the high season now, as of April, we implement price increases that were delayed in the first quarter, especially in the areas where we see growth momentum. And in the other areas, of course, trying to capitalize on the supply and demand situation. Operator: And we'll take our next question from Brian Brophy with Stifel. Brian Brophy: Just thoughts or intentions you guys have on potentially building out downstream assets around Keystone? Any color there? Lawrence Wilt: Okay. I think what we've said, Brian, is that we have existing assets in the area. So if you look at our broader business in the Mid-Atlantic, we have the fly ash businesses where some of the same customers are called upon by our current fly ash business, as is Keystone, serving on the cement side. We have now this ability to integrate and provide this bookended sourcing points that we described for the Mid-Atlantic and Florida -- the rest of the Mid-Atlantic and Florida with the Essex import terminal providing backstop reliability for Keystone as well, right? So this is a nice additional synergy that we get there. I think the thing that we said in the document is we have, nearby to this plant, just as close it is to Roanoke, our Northern Virginia ready-mix business, which is a big part of our ready-mix portfolio in the Mid-Atlantic. And that integrates nicely by itself with the acquisition that we have. Now I think we said we'll integrate where we think it makes sense, and this is something that will be considered. Vassilios Zarkalis: And it's a good question, Brian. I mean, like Larry mentioned, of course, we're going to capitalize and serve most likely from Keystone because it's better logistics and therefore, a better opportunity to serve our customers in North Virginia and Washington D.C. from that side. So there's going to be an immediate integrated model served from Keystone. We have strong positions with downstream customers in New York and New Jersey. And our Keystone business unit -- our Keystone colleagues have built strong relationships in Pennsylvania and Ohio. We have also positions there with our fly ash. So our first priority will be to capitalize on our upstream integration, with now cement, aggregates and fly ash, a different type of offering as compared to Keystone alone and capitalize on this virtual integration as we have with long-term relationships from our Keystone colleagues with downstream customers. So our first step will be to enhance our relationship with these customers to offer them more products and more solutions and create, as a first step, this virtual integration. Brian Brophy: Yes. That's really helpful. And then just as kind of a follow-up. Do you guys have any sense yet for how much CapEx is needed to execute on the synergies discussed for Keystone? Or do you just have a general sense for the capital intensity of executing on some of these? Vassilios Zarkalis: We have a good understanding that we developed through the due diligence and also the phase between the SPA and finally closing, detailed plans. As I mentioned, we will come with more details in our second quarter call so that you have more granularity. We want to take advantage of this in the next month to go deeper in our plans and provide more details. So -- but I can say that -- as a general comment that we don't expect high capital intensity in relation to our investments. We have the ways and the combination between the existing assets that we have and the assets from Keystone to synergize. So we don't expect high capital investments in order to deliver the synergies. Operator: At this time, we have no further questions. I'd like to turn it back over to Bill Zarkalis for any closing remarks. Vassilios Zarkalis: Thank you, Erica, and thank you all for your time today. We appreciate your interest in Titan America and look forward to updating you on our progress on our second quarter call. Thank you for joining, and have a great day ahead. All the best. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.