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Operator: Good afternoon. Thank you for standing by. Welcome to Allison Transmission Holdings, Inc.'s first quarter 2026 earnings conference call. My name is Shamali, and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After prepared remarks, Allison Transmission Holdings, Inc. executives will conduct a question-and-answer session. Conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operator assistance during the conference, I would now like to turn the conference call over to Jacalyn C. Bolles, Executive Director of Treasury and Investor Relations. Please go ahead, Jacalyn. Jacalyn C. Bolles: Thank you, Shamali. Good afternoon, and thank you for joining us for our first quarter 2026 earnings conference call. With me this afternoon are David S. Graziosi, our Chair, President and Chief Executive Officer; Scott A. Mell, our Chief Financial Officer and Treasurer; G. Frederick Bohley, Allison Transmission Holdings, Inc.’s Chief Operating Officer and Allison Transmission business unit leader; and Craig Price, Allison Off Highway business unit leader. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through May 18. As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our Annual Report on Form 10-K for the year ended 12/31/2025. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the appendix to the presentation and in our first quarter 2026 earnings press release. Today's call is set to end at 5:45 p.m. Eastern Time. In order to maximize participation opportunities on the call, please take just one question from each analyst. Please turn to slide four of the presentation for the call agenda. During today's call, David S. Graziosi will provide a business update and briefly review the company's performance. Scott A. Mell will then discuss Allison Transmission Holdings, Inc.’s segment reporting structure, and further review our first quarter 2026 financial performance and our full-year guidance update prior to commencing the Q&A. Now, I will turn the call over to David. Thank you, and good afternoon. David S. Graziosi: Please turn to slide five of the presentation for our first quarter business update. First, I want to recognize and thank our global employee base for all the work done so far this year. Our teams have been working diligently on integration and value capture within both Allison business units. Our execution has tracked closely with our planning, and the integration process is proceeding in a disciplined and structured manner. Having said that, it has not been without a tremendous amount of effort by the Allison teams to arrive at where we are today. As our teams more closely coordinate efforts, we are beginning to see the initial phases of synergy realization take shape across several key areas and expect to begin to see financial benefits later in 2026. It has been encouraging to see the groundwork laid prior to the transaction translate into real momentum and reaffirmed guidance in achieving our target of $120 million of annual run-rate synergies. We remain confident in our acquisition thesis: accelerating sales growth through the strategic combination of the two business units, strengthening our localized production footprint, and generating sustainable cost reductions that enhance long-term shareholder value. Allison Transmission Holdings, Inc.’s reach is now greatly expanded with our global operations allowing for more localized production and opportunities for cost reduction. By leveraging increased purchasing scale and utilizing in best-cost countries, we expect to drive value creation and margin improvement across our business. I want to give another welcome to our new colleagues around the world and thank you for all that you do. It has been a productive first quarter and exciting times for Allison Transmission Holdings, Inc. as we enter this new chapter. Moving now to a brief update on first quarter sales performance and end market outlooks for both of our business units. Please turn to slide six. Starting with our legacy Allison Transmission business, first quarter net sales were $733 million, a year-over-year decline of 4% when compared against a robust 2025. In the North America On-Highway end market, we continue to view the truck market with cautious optimism. Although order trends have shown strength and imply a slight ramp throughout the year, we believe there is still uncertainty surrounding geopolitical impacts including tariffs and final rulings on emissions regulations that are hindering end users' new vehicle purchasing decisions. Continuing with the Allison Transmission business unit, the Defense end market had an extremely strong first quarter with revenue up 64% year-over-year. We continue to see strength from international customers primarily in tracked programs, with both legacy and new products, including our 3040 MX cross-drive transmission. We hold a favorable outlook for the Defense end market as national security becomes even more relevant to nations around the world leading to increased budgets and new programs being funded. Please turn to slide seven. The Allison Off Highway business unit generated $673 million of sales in the first quarter with continued growth in the mining end market driven by elevated commodity prices, including gold, copper, and rare earth minerals. The construction and material handling end market also performed in the first quarter as global construction markets are seeing steadier investments and positive developments, particularly in Europe. In the agriculture end market, while commodity prices remain a driving factor there are early positive indicators in certain subsegments and regions—for example, the low horsepower market in India—but overall, a fairly muted environment even prior to the start of conflict in the Middle East. On that topic, the conflict in the Middle East currently has undetermined impact and implications, both favorable and unfavorable, across multiple end markets across Allison business units. While the duration of the conflict remains uncertain, we have not seen any material disruption to our business at this time. We recognize the potential for indirect impacts across our supply chains, energy markets, and broader macroeconomic conditions, and our teams are actively monitoring and maintaining close coordination. In summary, integration is progressing as expected, and value capture is materializing. End markets, although impacted by uncertainty in some aspects, are steady if not showing signs of recovery. To everyone across our organization, thank you for the extraordinary commitment, resilience, and teamwork you have shown. Your efforts have laid a strong foundation for Allison Transmission Holdings, Inc.’s future. To our investors, we are confidently positioned to unlock meaningful synergies, accelerate growth, and create lasting value. Now I will pass the call over to Scott for a review of Allison Transmission Holdings, Inc.’s segment reporting structure, first quarter 2026 financial performance, and full-year guidance update. Scott? Scott A. Mell: Thank you, David. And thanks to those of you joining us on the call. Please turn to slide eight of the presentation. Before we begin with segment and consolidated results, I want to quickly go over some housekeeping items and outline our new reporting structure. First quarter results now include segment reporting for Allison Transmission, Allison Off Highway, and Allison Central Group. The Allison Transmission business unit is the company's legacy business excluding certain costs now accounted for within the Allison Central Group, while the Allison Off Highway business unit reflects the business acquired from Dana at the beginning of the year. Allison Central Group is a centralized cost center, which includes certain functional costs that support the company's global operations. Now, on the left-hand side of slide eight, we provide sales, operating profit, and adjusted EBITDA by segment. Segment operating income flows over to the consolidated table on the right, with further detail down to net income and the non-GAAP financial measures of adjusted diluted EPS and consolidated adjusted EBITDA. Please note that first quarter gross profit in the Allison Off Highway segment was negatively impacted by approximately $76 million of one-time acquisition-related purchase price accounting items. On a consolidated basis, first quarter net income decreased year-over-year to $112 million driven by the addition of costs from the Allison Off Highway business unit, including approximately $76 million of expenses related to the stepped-up basis in inventory and incremental depreciation expense related to the stepped-up basis in fixed assets, and an additional $22 million of intangible asset amortization expense. The year-over-year decrease in net income was also driven by higher interest expense, net, along with approximately $17 million of one-time acquisition-related integration expenses. Moving down to per share earnings, first quarter diluted EPS was $1.33. When excluding the effect of noncash, nonrecurring, infrequent, or unusual items, including the costs associated with the acquisition of the Allison Off Highway business unit, adjusted net income and adjusted diluted EPS were $216 million and $2.57 per share, respectively. As a reminder, reconciliations for non-GAAP financial measures can be found in the appendix of the first quarter earnings presentation and earnings press release. There will also be more detail provided in our 10-Q to be published later this week. Please turn to slide nine of the presentation. First quarter adjusted diluted EPS of $2.57 increased 6% year-over-year, and we expect the acquisition of the Allison Off Highway business unit to be accretive to earnings on a full-year basis. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year-over-year, with adjusted EBITDA margin at 26%, reflecting disciplined execution across our business units despite the less than ideal operating environment. As we have discussed previously, we believe that improving end market conditions in both business units will have a favorable impact on margins. Our value capture and synergy realization will also provide an uplift to our margins, with our target for adjusted EBITDA margin in the 27% to 29% range. Cash generation continues to be a key attribute of Allison Transmission Holdings, Inc., with the ability to generate substantial cash flow while successfully integrating the Allison Off Highway business unit and navigating uncertain end market environments, including geopolitical policies and conflicts. Now I will briefly highlight our capital allocation priorities. We continue to invest for long-term and sustainable growth across our business units with new products and initiatives targeting identified growth opportunities. We are also focused on debt reduction to achieve our near-term leverage targets while simultaneously returning capital to shareholders through share repurchases and our quarterly dividend. At the bottom of the slide, you can see how we allocated capital in the first quarter. During the quarter, we repaid $150 million of the $300 million of outstanding borrowings under our revolving credit facility, which were used as part of the funding for the Allison Off Highway acquisition. During the quarter, we also increased our quarterly dividend for the seventh consecutive year. Currently at $0.29 per share, our quarterly dividend has nearly doubled over the last seven years. And finally, we maintained our commitment to share repurchases, with $20 million of our common stock bought back in the first quarter. We ended the first quarter with approximately $1.2 billion of share repurchase authorization remaining. Even with the recent appreciation in our share price, we continue to view our stock as undervalued relative to the underlying strength of our business units and long-term earnings potential and believe share repurchases remain an attractive use of capital at this time. On the right side of slide nine, you can see Allison Transmission Holdings, Inc.’s liquidity and leverage metrics at the end of the first quarter. We ended the first quarter with $311 million of cash on hand and approximately $845 million of available revolving credit facility commitments. Our net debt is just under $4 billion, resulting in a pro forma net leverage ratio below three times when giving consideration to a full year of earnings from the Allison Off Highway acquisition. In the near term, we plan to reduce our net leverage to a target of two times through a recovery in our end markets along with margin improvement through value capture and synergy realization. We will reduce our leverage ratio through both increased earnings and a concerted effort towards debt reduction. Before moving on to the 2026 guidance update, building on David’s comments, I want to summarize our financial performance for the quarter. In summary, our businesses are performing well. Macroeconomic clarity across our end markets would be well received and likely drive increased volumes with favorable drop-throughs to margin performance and per-share earnings. Importantly, we continue to generate substantial cash flow and invest for long-term growth while also reducing debt and returning capital to shareholders. Please turn now to slide 10 for a review of our full-year 2026 guidance. Given first quarter results, and taking into consideration current macroeconomic and geopolitical uncertainty, we are reaffirming our full-year 2026 guidance provided to the market on February 23. For 2026 revenue, we expect consolidated net sales in the range of $5.575 billion to $5.925 billion. This includes net sales for the Allison Transmission business unit in the range of $3.025 billion to $3.175 billion and net sales for the Allison Off Highway business unit in the range of $2.55 billion to $2.75 billion. For earnings, we expect consolidated net income in the range of $600 million to $750 million, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off Highway business unit. Our net income guidance for 2026 includes more than $100 million of one-time pretax expenses associated with the separation, integration, and restructuring of the Allison Off Highway business unit. Despite these one-time costs, we expect the Allison Off Highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of $1.365 billion to $1.515 billion. At the midpoint, this implies a 25% adjusted EBITDA margin. For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $970 million to $1.1 billion, consolidated capital expenditures in the range of $295 million to $315 million including one-time separation and integration capital of approximately $45 million, and consolidated adjusted free cash flow in the range of $655 million to $[inaudible] million. Please note that our consolidated net cash provided by operating activities guidance includes approximately $55 million of one-time cash outlays associated with our acquisition of the Off Highway business unit. This concludes our prepared remarks. Shamali, please open the call for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, we ask everyone in the queue to please limit themselves to only one question to allow others a chance to ask. Our first question comes from the line of Robert Cameron Wertheimer with Melius Research. Please proceed with your question. Robert Cameron Wertheimer: Yes. Hi. Thank you, good evening. There has been a lot that has changed in the world since you announced the deal and even since you closed. I wonder if you could kind of talk about what versus your deal model has changed most, the positive and most of the negative, if you would. David S. Graziosi: Hey, Rob. Thank you for the question. To your point, I think we made this comment on the last call when we were asked about tariffs and so we just got on the call; we have not checked the news a minute or two to see what happened. That continues, right? The rate of change and volatility in the overall market—every day is truly an adventure. Having said that, we are very pleased with the acquisition, frankly. We would assess it currently as exceeding expectations in terms of the additional capabilities. Frankly, I think the attributes that are required to really excel in this type of market with the level of volatility that we are seeing—the operational footprint flexibility that we now have, the additional talent in multiple regions to really address and try to mitigate. At the same time, as you know, with trade developments being what they are and some of the regional realignment that is going on, a broader footprint is really much more to our benefit than we had anticipated when we originally put the deal thesis together. Having said all that, the team is very engaged in dealing with those developments, but also, as I mentioned in the prepared remarks, working on value capture as well. One thing that has become clear as we are dealing with various issues is other opportunities as well that are arising out of that. But again, if we go back to pre-acquisition, the ability to deal with from an Allison perspective would have been a bit more challenged, frankly, just given the rather limited footprint we had at that stage. So I would say in summary, very pleased with what we have seen and what we continue to work on, but also our ability to deal with the volatility in the broader markets. Robert Cameron Wertheimer: So more internal capability and flexibility that is more beneficial in this changed world. And then on end markets, you inherited some troughy-ish end markets. Any change overall in where you see those either standing or going? Thank you. David S. Graziosi: It is good in terms of an update there and, between the prepared remarks and what we had listed out in the press release as well as the IR package, I would say overall, our view in terms of end market conditions has not really changed. I think to use your word, troughy, that still really is our view. If nothing else, it is pointing out as, hopefully, we all get some clarity in terms of these geopolitical developments what the future holds. But it is very clear equipment in our end markets continues to be utilized, and that will always lead to demand. It is just a question of when exactly that will happen, but we feel very good about overall the point that we entered the markets. Operator: Thank you. Our next question comes from the line of Timothy W. Thein with Raymond James. Please proceed with your question. Timothy W. Thein: Thank you. Good afternoon. The question is on the target for adjusted EBITDA margins of 27% to 29%. David, just curious what, in terms of your internal model, when you see that as a potential realization? And to the extent has that moved up or down as you closed the acquisition—essentially, the timeline to hit that—has it changed, and how are you thinking in terms of realization of that target? Thank you. David S. Graziosi: Tim, I appreciate the question. I would say overall, very comfortable with the target range that you mentioned. From a timing perspective, given a few of the near-term issues that have arisen that I just mentioned, there is no longer-term impact in terms of our timing. As we said at the time of the acquisition announcement and close, we still feel that is very attainable within a few years. One thing I would certainly repeat is the work that the team has been doing on value capture and synergies—with some of these market condition changes—has really pointed out a number of other areas that the team is diving into as well. So again, we feel very good about the range and the timing being realized over the next handful of years. Jacalyn C. Bolles: Thank you, David. Operator: Thank you. Our next question comes from the line of Ian Alton Zaffino with Oppenheimer & Company. Please proceed with your question. Ian Alton Zaffino: Hi. Thank you very much. I just wanted to ask on the medium-duty side. When do we think that starts bottoming out and improving in a larger way? And then when we think about just the business in general, what could potentially offset that as far as vocational? Any other color you could give us there? Thanks. G. Frederick Bohley: Sure, Ian. This is Fred. Relative to medium duty, the first quarter was still extremely soft. I will say we are starting to see some signs that would give you some optimism there, relative to the lease-rental guys—some of them leaning into the market a little bit. I think the unknown for 2026 is really where we end up on medium-duty engines, which I think we need some direction from the EPA and how that is going to impact the cost of engines going into 2027. As we have the year modeled, we have had and continue to have the second half stepping up somewhat from the first half. Relative to Class 8 straight truck, versus our initial expectations, it was a little stronger in Q1 and continues to remain steady in demand. Ian Alton Zaffino: Okay. Thanks. And then just as a follow-up on use of capital or use of cash flow. I know you talked about buybacks and deleveraging. How are you kind of prioritizing one versus the other? Because I know the stock is cheap, but at the same time, you want to delever. And then are we kind of done on the M&A side for the foreseeable future, just given you are in the midst of integrating a very large one? Any color there? Thanks. Scott A. Mell: Yes, it is Scott. On the capital allocation, as I mentioned on the call, fortunately, we have not had to make overly challenging decisions on the allocation of capital. We feel very comfortable with the cash-generating abilities of both business units and the overall company. We have talked about this year targeting getting down to a two-times net leverage multiple here in the very near future, next couple of years. We paid $150 million off in the first quarter. I think you should anticipate seeing that rate somewhat continue as we go throughout the course of the year. And obviously, we are still in the market repurchasing shares. At share prices where they are today, it is not as dilutive to shares outstanding, but still demonstrative of our ability to continue to buy back shares. So that is not going to change. I think what you saw in the first quarter is a good precursor to what we expect to see over the course of the rest of the year. David S. Graziosi: And, Ian, on your second question in terms of future inorganic opportunities or otherwise, we continue to be active assessing different opportunities. So our capital allocation model that Scott went through—overall leverage targets, etcetera—and the ability of the business, the new business so to speak, to generate cash, we are continuing to be active looking at different opportunities. That being said, as you know and from your comments, the team is very engaged working on a sizable acquisition with our new team members. In the meantime, we are also assessing, as part of the combined business, other opportunities that could present themselves from an inorganic perspective. In summary, we remain engaged in that process and will certainly provide an update should one be necessary. Operator: Thank you. Our next question comes from the line of Jerry Revich with Wells Fargo Securities. Please proceed with your question. Jerry Revich: Yes. Hi. Good afternoon, everyone. I am wondering if you could just talk about your expectations for sequential performance in the business. I think normally, for both the Allison and the Dana Off Highway business, we have production ramping up sequentially 2Q versus 1Q and margins up sequentially. Is that how we should be thinking about this year? And then separately, can you just comment on your expectations of synergy capture as we go through the year? Do you expect any cost benefits 2Q versus 1Q? G. Frederick Bohley: From a sequential standpoint, Jerry, this is Fred. We do expect things on the Transmission side to step up sequentially, and as we have it modeled, we have Q2 up off of Q1, and then Q4, based on the number of days, stepping down a little. I think the drivers there will really be whether there is a meaningful prebuy in Q4. And, Craig, maybe you want to talk a little bit about what you are seeing sequentially? Craig Price: Yes, sure. From the Off Highway side, there is a step up in Q2. A greater portion of our business is in the European segment where in Q3 we get into the European holiday mode, so Q3 and Q4 can tend to go down for us. That is the picture from the Off Highway side. Scott A. Mell: And on the synergy capture, as David and I mentioned, we are starting to get much clearer line of sight relative to the specific opportunities—size, timing—everything that you need to start to see that impact through the financials. What I will tell you is our expectations on the amount of opportunity and the timing of the opportunity has not changed whatsoever, and as we go throughout the course of the year, I think you should expect to hear from us relative to providing more detail on impact and updates on when we think we will get the full run-rate of those impacts. Jerry Revich: Super. Thank you. And Fred, can I just ask a clarification? You mentioned we will see what the EPA wants to do. What is the range of outcomes? Is there a scenario under which EPA ’27 is delayed, or considering the timing of engine rollout, is there a potential for higher prebuy in medium duty? What is the range of outcomes that you alluded to that you think is reasonable? G. Frederick Bohley: We are not expecting a delay. I think most are expecting some sort of modification to the warranty. My specific comment was really relative to medium duty and the ability of everybody to meet the requirements of 2027—and if not, what could be some associated fees for being noncompliant—and then how that might impact a prebuy or not in 2026. Operator: Thank you. Our next question comes from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi. Thank you so much. The $673 million of Off Highway revenue this quarter—could you tell us how that compares to last year? And related to that, could you comment on price realization by segment—On-Highway and Off Highway, please? G. Frederick Bohley: I will take the price one first and then let Craig roll through what he is seeing in generalities on a year-over-year basis. From a price standpoint, within Allison Transmission in the quarter we generated about 325 basis points of price. We expect to be in that range for the full year. And as we talked about on the last earnings call, we anticipate price for Allison Off Highway to be neutral year-over-year. Craig Price: And from the Off Highway end market year-over-year comparison, I would say that we were up probably just over 10% year-over-year. It was a combination of currency factors, given the footprint and sales in Europe—we went from a euro conversion of about $1.07–$1.08 to roughly $1.17—and we also saw significant strong demand across a number of our segments. As David alluded to in his prepared remarks, we saw the construction market that was positive for us in Europe but was slightly negative in North America. Agriculture was a positive trend as well for us. The different subsegments of high horsepower business in Europe were strong. Also, the low horsepower business out of India came in strong. And the mining segment was up significantly as well, driven by the higher commodity prices seen at this time. Tami Zakaria: Understood. Thank you. Operator: Thank you. Our next question comes from the line of Angel Castillo Malpica with Morgan Stanley. Please proceed with your question. Angel Castillo Malpica: Hi. Good evening. Thanks for taking my question. I was hoping to go back to the end market discussion. I think, David, you mentioned that end market views have not really changed. It sounds like at least in North America On-Highway there are some pockets that maybe are coming in a little better than expected. I fully understand there is still a lot of uncertainty in the second half, but as you think about the unchanged full-year guide, could you go through the other Transmission end markets? Any others where you are seeing particular pockets of maybe better performance? I know Defense looked like it was a pretty good quarter here. Any others that maybe are offsetting that and where you are seeing a little bit more weakness? In particular, any commentary you have in terms of order books or customer commentary would be helpful. G. Frederick Bohley: Hey, Angel. This is Fred. I think we have already covered North America On-Highway, the largest end market. You mentioned Defense—it was an amazing quarter, with revenue up 64%, and we anticipate the balance of the year looking a lot like Q1. I would say relative to the quarter, things were a little softer outside North America On-Highway than what we had initially modeled. We do expect the service parts business to be stepping up sequentially into Q2. We are seeing, as Craig mentioned, strength from a mining standpoint in his business unit. We think we have some upside in our Global Off-Highway relative to mining as well as hydraulic fracking. Angel Castillo Malpica: Got it. That is helpful. And maybe just some housekeeping questions as we try to model the pro forma business. The $12 million of corporate, I think that was in the first quarter—is that a good run rate for how we should think about that part of the business, the Central Group, on an EBITDA basis? And then will you be giving the end markets that you gave for Off Highway historicals for 2025? Scott A. Mell: I will answer the second question first. No, we do not intend to provide that level of detail for the business since we did not own it. Relative to the Central Group function EBITDA number of $12 million, when you carve out the nonrecurring and the noncash stock comp, I think that is a reasonable number to apply on an annualized basis. Angel Castillo Malpica: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Luke Junk with Baird. Please proceed with your question. Luke Junk: Thanks for taking the question. Maybe just continuing on that Defense thread, Fred, wondering how you think about the interplay between Defense and North America On-Highway if the latter comes back later this year. Historically, there has been a level of interrelationship there from the supply chain standpoint to some extent in the past, but maybe looking forward, that relationship is not as strong or as relevant in the current geopolitical environment. Can you just talk about that interplay a little? Thank you. G. Frederick Bohley: I would say at this point, with a lot of the growth in Defense being driven by non-U.S. government, outside North America volume—and we talked about the successes we are having with Hanwha in Korea with the K9 howitzer, our 3040 MX and our 4040 MX, new products for us—with Borsuk out of Poland, the Kaplan out of Turkey, BAE Hägglunds—there is a really good backdrop for Defense. We have invested in these products even pre-pandemic. They are coming to market. We are extremely excited about them and expect to have a great year in Defense. So I would not, based on the fact that it is primarily driven by outside North America, see much connectivity back into the North America On-Highway end market. Luke Junk: Maybe just related to that, is any of this flowing through the Outside North America On-Highway segment? I know you can tend to pick up some commercial terms that are better there. Are we seeing any of that in that part of the business? G. Frederick Bohley: We do flow the wheeled portion of the Defense through the Outside North America On-Highway, primarily because we are selling a lot of times to the same OEMs. We are seeing strength primarily in Europe relative to wheeled volume. We are also seeing some strength in Europe from a vocational standpoint as well. Luke Junk: Very helpful. I will leave it there. Thank you. Operator: Thank you. Our next question comes from the line of Kyle David Menges with Citigroup. Please proceed with your question. Kyle David Menges: Great. Thank you for taking the question. I just wanted to go back to some of the pricing comments and how to think about price versus cost for the two business units for the year. The 350 or so basis points for the Allison Transmission piece of the business—at that level, are we price/cost positive for the year? Are we confident in that? And then it sounds like for the Off Highway business, if price is flat, I am assuming cost inflation is greater, so then the price/cost would be negative in that business for the year? Scott A. Mell: On the Allison Transmission business, yes, we do anticipate our year-over-year price to cover inflationary cost factors, with obviously the delta in the first quarter being the volume and mix impact there. On the Off Highway side, while they obviously have less pricing leverage, they certainly have shown the ability to take costs down on a year-over-year basis relative to either operations or purchasing. Craig, you can expand a bit. Craig Price: Sure. I would classify it as pretty neutral. To Scott’s points, there are some minor price givebacks, but we are able to offset those within our operational structure. Kyle David Menges: Helpful. Thank you. Operator: Thank you. Our next question comes from the line of Analyst with Bank of America. Please proceed with your question. Analyst: Hi. Good afternoon. Just looking at the first quarter, adjusted EPS was up about 6% year-over-year and adjusted free cash flow is down about 34%. I understand reaffirmed guidance calls for both to grow on a year-over-year basis for 2026, but can you give us some color on the seasonality of working capital for the new business and what Allison Transmission Holdings, Inc.’s free cash flow profile looks like now through the year? Scott A. Mell: Yes. A couple of questions in there. I think the cash flow profile is going to be very similar to what you experienced prior to the acquisition, with it being said that the first quarter for the Off Highway business unit is a substantially meaningful user of cash during the quarter, just given some of the seasonality and the fact that it is a European-centric organization. But as you think about your modeling on a go-forward basis, you should expect to see the quarterly trends that you have seen in the past in terms of Q1 being a use of cash, Q2 turning the other way, Q3 turning back, and then Q4 generating cash as we get to the end of the year. Analyst: Thank you. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to David S. Graziosi for closing remarks. David S. Graziosi: Thank you, Shamali. Thank you for your continued interest in Allison Transmission Holdings, Inc. and for participating on today's call. Enjoy your evening. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good afternoon. I would like to welcome everybody to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. This call is being recorded today, 05/04/2026. I would like to turn the session over to Stewart Joseph Grisante, Head of Investor Relations for Repay Holdings Corporation. Stewart, you may begin. Stewart Joseph Grisante: Thank you. Good afternoon, and welcome to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. With us today are John Andrew Morris, Co-Founder and Chief Executive Officer, and Robert Hauser, Chief Financial Officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them except as required by law. In an effort to provide additional information to investors, today's discussion will also reference certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. In connection with our 2026 annual meeting of stockholders, we intend to file a definitive proxy statement and related materials with the SEC. Our directors, and certain of our executive officers and employees, will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise. As you may know, Veridae Partners submitted a request for the Board to waive the timeliness requirement of our bylaws for stockholders to provide notice of intent to submit director nominations for candidates to stand for election to the Board at the annual meeting. The Board determined to deny the request, and on Friday, May 1, we filed our preliminary proxy statement with the SEC. Veridae failed to comply with the requirements set forth in our bylaws and is not entitled to make lawful director nominations at this year's annual meeting. Additionally, the Board previously confirmed receipt of an unsolicited nonbinding proposal from Forger Capital to acquire the outstanding shares of the company. Earlier today, we sent a letter to Forger Capital and issued a press release providing that the Board has unanimously rejected the nonbinding proposal because it significantly undervalues the company and is therefore not in shareholders' best interest. At this time, we will be making no further comments or taking any questions on Veridae, Forger Capital, or any matters related to the [inaudible]. With that, I will now turn the call over to John. John Andrew Morris: Thanks, Stewart. Good afternoon, everyone, and thank you for joining us today. Repay Holdings Corporation had a solid start to the year after exiting 2025 with continued momentum. Since reporting full-year 2025 earnings in March, we announced a strategically significant acquisition to create a scaled bill payment provider with the technology and market position to lead the digital journey across the payment ecosystem. I will talk more about the Kubra acquisition in a little bit, but let us first go over the highlights of our Q1 results and progress we have made. During Q1, Repay Holdings Corporation remained focused on our core growth and operational execution. We achieved 4% revenue growth, approximately 43% adjusted EBITDA margins, and continued to generate positive free cash flow. We exited the quarter with over 297 software partners across our consumer and business payment verticals. In Consumer Payments, Q1 revenue increased approximately 4% year over year as we implemented new enterprise clients who are adopting more payment channels and modalities. We have seen strong interest in our digital wallet capabilities and began our phased rollout of Repay Voice AI to select enterprise clients. Throughout last year, Repay Holdings Corporation has been investing in our sales and customer support teams while also enhancing many of our software integrations to help further penetrate existing partnerships and create overall better user experiences. The teams are working through the onboarding, implementation, and ramping of clients in our sales pipeline, which we are confident will drive accelerating growth as we move through the year. During the quarter, we continued to automate workflows and deployed AI capabilities to improve processes such as performance and risk monitoring for our ever-growing volumes on our gateway. We have also been optimizing network routing, leading to tangible payment efficiencies. In addition, we completed a strategic partner investment leading to an immediate EBITDA uplift from existing volumes during the quarter. And finally, we have strengthened our Consumer Payments leadership. We are excited for Matt Morrow to join Repay Holdings Corporation in the coming weeks as a new executive leader of Consumer Payments. Matt brings over a decade of payments and business services experience managing growth through disciplined strategic planning. His extensive experience and history with embedded payment partners will oversee the Consumer Payments growth, sales, and operational initiatives going forward. Now moving over to our Business Payments segment. Business Payments had another quarter of strong performance with Q1 revenue increasing approximately 18% year over year. The business added two new software partners in the quarter, leading to many new clients across our verticals. Our sales pipeline continues to build in our automotive, property management, government, and education verticals. New client wins include regional multi-location auto groups, and multiple government and school districts within certain regions. In addition, the political media vertical started to see an uptick in processing ahead of the back-half-weighted political media cycle heading into the 2026 midterm elections. We ended Q1 with over 665 thousand vendors in our supplier network, an increase of over 70% year over year. Vendor enablement is a great example of where we are deploying automation to improve vendor matching for clients. During the quarter, we were able to automatically match more than 15 thousand new vendors, which will allow us to improve our digital monetization for both new and existing volumes over time. The last topic I would like to discuss is our recently announced acquisition of Kubra. In evaluating capital allocation alternatives, including share repurchases and M&A, we believe the Kubra acquisition offers the most compelling long-term value creation opportunity given its scale, nondiscretionary, recurring revenue profile, and synergy potential. We have received feedback from certain shareholders on Kubra and wanted to address those points directly. Before doing so, I should reiterate our Board's continued support of the acquisition and management's belief in the long-term benefits. The acquisition is supported by fully committed financing. As such, the teams are moving forward expeditiously, and we expect to close the transaction during Q2 2026. We have also been asked about our plans for integrating the companies. Our teams have been actively planning for the integration to hit the ground running on day one to provide the identified value creation opportunities in the near term. This incorporates integrating technology, employees, and most importantly, client relationships and the support for a seamless transition. I look forward to engaging with Kubra's clients in the coming months once the deal is closed. Given the acquisition is yet to close, there are limits to the level of detail we can provide at this time; however, we will provide additional detail following closing. The Board and management remain confident in the strategic and financial rationale of the Kubra acquisition. As with any integration of this scale, execution will be critical, and we are focused on disciplined integration planning to mitigate operational and client transition risk. Together, we offer a comprehensive end-to-end digital platform. This means spanning across bill presentment, communication services, and payment processing with our own clearing and settlement engine. The acquisition will result in a compelling strategic combination in the market, leading to management and the Board's confidence in creating long-term value for all stakeholders. The Board remains focused on the fiduciary duty to maximize long-term shareholder value and regularly evaluates strategic alternatives, such as the Kubra acquisition. We believe the Kubra acquisition provides that significant scale. Based on 2025 Kubra results, we will approximately double our revenue, interact with over 40% of US and Canadian households every month, and process over $130 billion in annual payment volume as we serve nondiscretionary categories with recurring billing cycles. Importantly, the transaction is expected to enhance our free cash flow profile over time and provide identifiable cost and revenue synergy opportunities. We are targeting a return to below 3x net leverage within approximately eighteen months of closing, supported by the combined company's cash flow generation, synergy realization, disciplined capital allocation, and, as appropriate, ongoing evaluation of opportunities to further enhance balance sheet flexibility. We expect to generate strong free cash flow over this period and look forward to providing additional updates following closing on our progress throughout 2026. With that, I will turn the call over to Rob to go over Repay Holdings Corporation's Q1 financials. Rob? Robert Hauser: Thank you, John, and good afternoon, everyone. In the first quarter, Repay Holdings Corporation delivered results that were in line with our internal expectations across key metrics. Revenue was $80.8 million, representing 4% growth year over year. Consumer Payments revenue increased 4% year over year. Business Payments reported revenue increased 18% year over year, and normalized revenue increased approximately 16%, which excludes the positive political media contributions during the quarter. We expect this positive momentum and sustained contributions from existing clients as well as incremental contributions from new clients will increase growth momentum as we move throughout 2026. We also started to see early contributions from the political media spending cycle that occurs every two years, which we typically see a majority of in Q3 and Q4 around the November elections. Q1 adjusted EBITDA was $34.4 million, representing approximately 43% adjusted EBITDA margins. During the quarter, we began to benefit from cost improvement initiatives such as optimizing volume routing, and the immediate accretion from a strategic distribution partner investment we made during the quarter. As we updated in our flash Q1 performance last week, we raised our adjusted EBITDA outlook, which represents an improvement in our margin expectations, to approximately 42% for full-year 2026. This improvement includes the volume mix impacts that we have recently seen and the ongoing growth investments towards our sales, customer support, and technology. First quarter adjusted net income was $19.4 million, or $0.22 per share. Free cash flow was $5.4 million during the quarter, resulting in 16% free cash flow conversion. During Q1, we made approximately $15 million in tax receivable agreement payments related to the 2024 tax reporting year. In addition, we paid approximately $22.5 million for a strategic distribution partner purchase. We immediately benefited from this investment as the volumes were already on Repay Holdings Corporation's platform. The investment resulted in immediate EBITDA uplift during Q1 and for full-year 2026. In January, we used approximately $37 million in cash and drew $110 million on our revolving credit facility to refinance our maturing 2026 convertible notes. Total debt outstanding at quarter end was comprised of $288 million of convertible notes due in 2029 with a 2.875% coupon and the $110 million draw on our revolver facility. As of March 31, we had approximately $44 million in cash on the balance sheet and net leverage of approximately 2.7x. With a strong and resilient Q1 behind us, we are confident in achieving our 2026 outlook for double-digit revenue growth. As previously mentioned, we recently increased our full-year adjusted EBITDA outlook to represent 42% margins for 2026. For the full year 2026, Repay Holdings Corporation expects revenue to be between $340 million and $346 million, representing 10% to 12% reported revenue growth, and, when excluding political media, approximately 7% to 9% normalized revenue growth. Adjusted EBITDA is now expected to be between $141 million and $146 million, and we are confident in achieving our free cash flow conversion target of 45%. Please keep in mind that net interest expense is included in our free cash flow, which includes the interest payments associated with our 2029 convertible notes and the recent $110 million draw on our revolving credit facility. We are also expecting to benefit from a strong midterm election cycle, with the majority of political media contributions occurring in Q3 and Q4, to positively impact revenue by $8 million to $10 million, representing approximately three percentage points of reported growth year over year. Our current 2026 outlook does not incorporate contributions or expenditures related to the recently announced Kubra acquisition. We remain confident closing during 2026 upon receiving regulatory approvals. As I outlined on our previous earnings call, Repay Holdings Corporation's capital allocation priorities are focused on creating long-term value while maintaining strong cash generation for future opportunities. In light of the Kubra acquisition, our overall capital allocation framework remains unchanged, and we are working toward closing the transaction and then deleveraging. In 2026, we have and will continue to deploy capital towards key strategic priorities of organic growth and M&A catalysts to achieve long-term growth. Our first priority is to remain focused on organic growth opportunities. We continue to make targeted investments to strengthen our position and accelerate our growth opportunities. We have announced strategic M&A and partnerships. The Kubra acquisition is expected to generate compelling value creation opportunities, including the identified cost synergies by streamlining operations, integrating tech platforms, and better aligning Repay Holdings Corporation's overall corporate structure. Following the closing of the Kubra acquisition, we will continue our commitment to prudently manage balance sheet flexibility and leverage. With the strong free cash flow accretion of the combined companies, we are targeting a return to below 3x net leverage supported by strong free cash flow generation, synergy realization, and disciplined capital allocation within eighteen months of closing. We believe maintaining a prudent level of CapEx for product and technology initiatives to deliver the best experience for our clients and their consumers is mission-critical. As we move through 2026, we are focused on accelerating our growth and achieving our 2026 outlook and are committed to implementing our capital allocation strategy. I will now turn the call over to the operator to take your questions. Operator? Operator: Thank you. We will now open the call for questions. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Hey, guys. Good afternoon. Nice to see the revenue outlook guidance and the accelerating growth here. I know you do not provide quarterly guidance, but as we look at the year and the ramp on the top line, excluding political media, how should we think about how the quarters progress on the top line? And then I will have a quick follow-up. Robert Hauser: Hey, Joe. Thanks for the question. We had a strong first quarter, coming in at 4% growth. Excluding political media, we expect the full-year ramp to be at the 7% to 9% growth as we guided. As I talked about last quarter, we had some new client wins that pushed into the second half of this year. In Q1 of this year, we are also lapping some small attrition that happened in the back half of last year. So we are at 4% growth this quarter, and we expect a ramp as we get into Q2 and really into Q3, as some of those new client wins come on. We feel really confident about that. When you include the reported numbers, the 10% to 12% double-digit growth for the year, we have a strong political media cycle in this midterm election season that really ramps in Q3 and Q4, and that is what really gets us to the reported double-digit growth for the year. Joseph Anthony Vafi: Thanks for that, Rob. And then could you remind us on the dynamic in Consumer? I know you are expanding offerings with some customers, and there is a dynamic that leads to maybe a short-term headwind and then a longer-term tailwind. And then, is there a macro assumption built into the outlook here for 2026? John Andrew Morris: Hello, Joe. Specifically, we continue to see a stable consumer based on the trends we see currently, and that same outlook is considered in our full-year outlook. Operator: Our next question is from Peter Heckmann with D.A. Davidson. Please proceed. Peter Heckmann: Hey, good afternoon. Thanks for taking the question. Just in terms of the Kubra deal and evaluating it versus, let us say, buybacks or other smaller deals, what are one or two of the most compelling aspects of Kubra? What does it bring to Repay Holdings Corporation? And then, in terms of thinking about the combined company, what attributes would you see two years out that really make you feel like either your growth rate, margin profile, or both will really drive additional shareholder value? John Andrew Morris: Yes, we are very excited about it. It gives us a comprehensive end-to-end digital platform, taking the best of both of us, which really allows us to expand across our bill presentment capabilities, our communication services, and our overall payment processing with our own clearing and settlement engine. We take the strengths of both as we deliver new solutions together on behalf of our clients, and we think that is a great long-term value creation opportunity. I would also point you to slide eight in our earnings supplement. We think we become one of the leading providers in these resilient verticals. It expands our TAM, really increases our scale, and there are some compelling synergies that we have talked about in this transaction. On a post-combined basis, as we look out into the next eighteen to twenty-four months, it gives us what we consider to be very attractive financial strength as well. Robert Hauser: I would just add that the free cash flow generation of the combined company is what really excites us as well—pretty decent free cash flow conversion as we go into the out years. As John mentioned, we are committed to hitting those synergies, and we are really confident in those synergies out of the gate. We have plans in place and are very confident on day one of close to start executing on those. John Andrew Morris: Let me touch on a couple of other points I mentioned earlier. It approximately doubles our revenue. We will be able to interact with over 40% of all US and Canadian households every month and process over $130 billion in annual payment volume. These are very nondiscretionary categories with highly recurring billing cycles. Think about this as becoming a very large consumer bill pay processor on a combined basis. We think it is recession resistant as well. Peter Heckmann: That is helpful. And then on the small, relatively small deal in the first quarter, does that contribute any revenue, or does it eliminate, like, a rev share or residual so it really just has an impact on the EBITDA line? John Andrew Morris: No additional revenue contribution there. It is a fully integrated strategic partner, so no additional revenue, but it is a fantastic opportunity for us as a highly strategic distribution partner. Robert Hauser: And on the EBITDA side, it contributed a little less than $1 million in Q1, and it was part of our full-year re-guide for EBITDA—about a $4.5 million increase. And remember, it is not a full year because we brought it in toward the end of the quarter. We hit our quarter guide, and we still feel strong about the guide we gave in the fourth quarter. Really, the uptick was due to this strategic distribution partner. Operator: Our next question is from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys. John, in the Consumer side—auto and personal loans—how would you describe the headwinds you are facing there versus tailwinds? If you could handicap those two businesses for us, that would be helpful. John Andrew Morris: Good afternoon, Mike. It has been fairly consistent for the last few quarters, and we are not seeing any major differences. We still see resiliency. One example would be that we had a strong February and March on the Consumer side from a tax refund season perspective. We see positive trends in our volumes. Currently that is what we are seeing, which we think are very stable trends across our verticals. Mike Grondahl: Got it. And over the course of 2026, any important larger customer renewals to call out? John Andrew Morris: Specifically for core Repay Holdings Corporation, nothing that I would call out beyond what is normal for us. As most of you are aware, in the payment processing world, many contracts have some type of automatic evergreen. Nothing unusual there. Mike Grondahl: Got it. And then lastly, you noted your digital wallet capabilities in the press release. Could you highlight those again? John Andrew Morris: Sure. From a digital wallet perspective, think about your card statement or bill being automatically dropped into your native wallet—your Apple or Google wallet on your phone. We are delivering that solution and are currently rolling some of it out with clients. We will be able to take consumer invoices or consumer bill presentments and present that directly into their native Apple device. We see significant interest from our clients, including billers. We also talked earlier about using AI to help with our product development. Specifically, we have used that to create what we consider to be IVR reimagined into Repay Voice AI, an interactive AI solution on behalf of our billers. When someone calls in and wants to make a phone payment, we are able to use AI to help them drive that. We are in the early stages of testing and rolling some of those things out with our clients but see significant interest in our product development. Operator: Our next question is from Timothy Chiodo with UBS. Please proceed. Timothy Chiodo: Great. Thank you. A topic that we brought up on a prior call—we hit on this a little bit—but I see a comment in slide four. It seems as though it has risen to a greater level of materiality. You have a comment that says gross profit margins experience near-term impact from changes to enhanced data programs at the card networks. I was hoping you could expand upon that comment. John Andrew Morris: Hi, Tim. Yes. We have seen what we expected regarding the impact coming through from Level 2 and Level 3 on the CEDP in the Business Payments side, predominantly on the AR side. We have seen that impact come through as expected, and that is embedded in our annual outlook as well. We do see opportunities from our growth in our B2B space on total payment volume to continue to drive monetization in addition to that. Robert Hauser: I will just reaffirm that we had always forecasted that impact, and our original guide had baked the L2/L3 impact into our numbers. You are seeing that impact fall through as we expected. Operator: As a reminder, press star one on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Thank you. Just one quick follow-up. You mentioned a few new customer ramps that you have good visibility to. Are there any other organic go-get requirements to get to your guidance this year—other than maybe small, normal-course items—or is the visibility pretty good on these new client wins? Robert Hauser: Thanks for the question. For 2026, we feel really good about those bookings—they are already booked—and it is really about executing on deploying those clients and ramping them in the second half, which we have a lot of confidence around. A lot of the work that our sales team is doing now is starting to focus toward 2027. Our confidence level on those bookings is high; it is just a matter of deploying in the second half. Operator: We have a follow-up question from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys, just one more. As I was looking through your new May 2026 deck, page 22 lists a handful of acquisitions that you have done. John, what was the best acquisition you did and why? And which one was maybe the toughest and why? John Andrew Morris: Specifically on acquisitions, acquiring TriSource—which is our back-end clearing and settlement—has fundamentally advanced our understanding of payments and the whole technology stack and infrastructure. Our ability to use that to maximize our overall margins, throughput, and overall client experiences has to rank at the top, though not as a single item. Our B2B acquisitions have been very positive for us as well. On the challenging side, sometimes the smallest ones can be a bit more challenging because of the ability to move certain technology pieces around despite the ROI. Ultimately, the challenge can be in combining things together. We have not done an acquisition in the last three years, so we are very confident in what we have done and how we have merged our tech stack together and enhanced our overall product offerings. We think we are in a really good spot from an overall product competitive perspective. We have really monetized many things across both sides of the business. If you add what we are doing with AI and how we are leaning hard into AI on a lot of different things—investments in integrations and implementations—we have not fully turned our flywheel there as we want to. We will continue to use that to enhance the experience, improve front-office and back-office processes, and speed up implementations. We think there are fantastic opportunities ahead. Combined with what we have learned over the past several acquisitions, this gives us a great deal of confidence in the Kubra transaction. We know execution is critical, but we think we are set up well to execute. Operator: There are no further questions at this time. I would like to turn the floor back over to John for closing remarks. John Andrew Morris: Thank you, everyone, for joining us today. Repay Holdings Corporation had a strong start to the year, and we remain focused on executing against our priorities, including closing the Kubra transaction. We are also focused on accelerating toward double-digit reported growth with strong profitability and our 2026 outlook. We believe the Kubra acquisition will put us in a better position to scale and benefit from the opportunities ahead. Thank you so much for joining us. Operator: This concludes today's conference. You may disconnect at this time, and thank you for your participation.
Deborah Belevan: Good evening everyone and welcome to Duolingo, Inc.'s first quarter 2026 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our cofounder and CEO, and Gilian Munson, our CFO. They will begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode. Before we begin, please note we will make some forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on our assumptions we believe to be reasonable as of today. We undertake no obligations to update them. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. I will now turn it over to Luis. Thanks, Debbie. Luis von Ahn: And thank you all for joining. Q1 was about execution. We said we were going to prioritize teaching better and changes in growing users, and that is exactly what we did. DAUs grew 21% year-over-year, right in line with what we expected as we make this strategic shift. I want to spend a few minutes on what we shipped this quarter related to language learning, because teaching better is the foundation of everything we are building toward. Speaking practice has historically been the hardest thing to do well on a mobile app. This quarter, we made it a bigger part of the experience for free users and paid subscribers. We introduced spoken tokens, which let learners speak their answers to almost any exercise. We started rolling out speaking adventures, which put learners in real-world conversational scenarios. And we launched flashcards, which help learners build fast recall by saying words aloud. And for our paid subscribers, video call keeps getting better. Over the past year, we have more than doubled the average number of words spoken per user in that feature. We also reached a major milestone on content. We now offer courses up to professional proficiency, which is B2 on the CEFR scale, across our nine most learned languages. And we got there fast. In Q1 alone, we published 20.5 thousand course units. To put that in context, that is more than 10 times what we were shipping per quarter just two years ago. AI has fundamentally changed what is possible for us, and I believe we are just scratching the surface. The product is better than it has ever been, and I could not be more excited about what is ahead. I will now turn it over to Gilian. Gilian Munson: Thank you, Luis. Q1 was a solid quarter. We achieved double-digit growth in both bookings and revenue, expanded gross margin, and delivered adjusted EBITDA of $83 million, which is about 29% of our revenue. As you consider 2026, it is worth reiterating how we are thinking about the year. We are investing deliberately to set us up to be a larger, more durable, long-term business. This means that for this year, we are managing the business towards the targets that we shared on the fourth quarter call. Specifically, 10% to 12% bookings growth, 15% to 18% revenue growth, and an adjusted EBITDA margin of about 25%. To help with your modeling, we have provided point estimates for full-year 2026, consistent with those ranges: bookings growth of roughly 10.5%, revenue growth of roughly 16.1%, and an adjusted EBITDA margin of 25.7%. A few things we want to make sure are on your radar as you build out your models. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior-year quarter included the initial rollout of Energy, a price increase on our most popular subscription plan, and exceptional advertising performance. We expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. We do expect bookings growth to accelerate through the second half with about three points of acceleration in Q3 and a further rise in Q4. For gross margin, we expect it to be approximately 71% in Q2, after which it will trend down to roughly 69% by the end of the year as AI-powered feature use in our products expands. Adjusted EBITDA margin in Q2 should be roughly 24%. We expect Q3 adjusted EBITDA margin to be flat to slightly down from Q2 before approaching 27% in Q4. The overall message is that 2026 is a key strategic investment year for us, and it is playing out as we expected so far, as demonstrated by the point estimates for our financials that we have shared. We enter Q2 with over $1 billion in cash, no debt, and expect to generate over $350 million in free cash flow this year. We plan to continue executing on our buyback authorization under which repurchases to date are 514 thousand shares, or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo, Inc., and I am very excited about what we are building. I will now turn it back to the operator, and we can take your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please use the raise hand bar, which can be found at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept and wait a moment. Once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question. Your Zoom application may disappear momentarily. This is expected, and your window will reappear. We are allowing analysts one relevant follow-up to their main question. We will now pause a moment to allow the team to gather and assemble the queue. Alright. We are waiting one moment for Wyatt Swanson with DA Davidson to accept. Wyatt, please turn on your video and audio and ask your question. Wyatt J. Swanson: Thanks for the question. Appreciate it. Could you talk to some of the different drivers of DAU growth this quarter and maybe entering Q2? Whether it is performance marketing, word-of-mouth maybe starting to return, or something else? And could you also talk to what regions you are seeing any particular strength or weakness? Luis von Ahn: Thanks for the question. DAU growth is very important to us; this is the most important thing we are trying to do this year. We are growing in every single region, as we have been for several years, but some regions are growing faster than others. Asia in particular is the fastest-growing region. In terms of growth drivers, they remain pretty similar. Word-of-mouth has historically been the main growth driver for us. Most of our users come to Duolingo, Inc. through word-of-mouth. We have some amount of marketing, some amount of performance marketing that we are doing. We have increased that budget a little bit, but it is not massive compared to other apps our size. Historically, another place where DAU increases is just improvements in retention. That is the work of making the product stickier. That has gone really well. We have been making a lot of changes to the product, some small, some larger, that make retention higher. The way you would see that is an increase in our DAU-to-MAU ratio, which keeps increasing pretty much every quarter, and it increased again this quarter. Wyatt J. Swanson: Perfect. Thanks. And then one quick follow-up. Can you provide some color on how you expect DAU growth to look in Q2 and whether 20% is still the right way to think about DAU growth through 2026? Luis von Ahn: Everything we said in the last call remains. We expect that it is going to stay at around 20% throughout the year. There will be slight ups and downs depending on comps, but it is around 20% for the rest of the year. Nothing has changed from the last time we spoke. Operator: Your next question will come from Ross Sandler with Barclays. We are waiting for a moment for him to accept. Ross, please turn on your audio and video and ask your question. Ross Adam Sandler: Luis, you had mentioned a couple interesting things 90 days back as part of the plan this year. One was to revitalize some of the engagement in the free tier, that top 20% of the free tier. Curious to hear any update on that effort. Then you also mentioned getting inspiration from some of the big mobile gaming companies in terms of new things you could potentially bring into Duolingo. Curious to hear what you have learned and any new strategies on that front. Thanks. Luis von Ahn: Thanks for the question. In terms of the free tier, we have done a few things. We made it so that the free tier is better than it was two months ago. These changes take time—it has only been two months since the last earnings call—so it is not like we have done a thousand changes, but there are more things available to free users, and we are very happy with that. We think over time that will increase word-of-mouth. In terms of getting inspiration from mobile games, we have always gotten a lot of inspiration from mobile games. Ultimately we are trying to make something as good at teaching as a one-on-one human tutor but also as fun as a mobile game. If you look over the last quarter, very soon you will see really cool avatar costumes—that is directly coming from mobile games; users are going to love that. We are making changes in how we show rewards to users; for example, showing them as cards now, which feels really collectible. Another thing important for the free tier: we want monetization tactics that are not at odds with the free tier. We found some really good ones this quarter. One is longer free trials. Historically Duolingo, Inc. has given a seven-day free trial. We are finding that giving longer free trials is really good. It increases bookings, and it is good for the user. For example, a one-month free trial feels great to them. We are pretty happy with that. Operator: Our next question will come from Andrew Boone with Citizens JMP. Please unmute your audio and video and ask your question. Andrew M. Boone: Thanks so much for taking the questions. I would love to talk about MAU growth and top of funnel at large. Help us understand the deceleration there—understood the comp and everything from last year—but how do we think about what has been the deceleration and whether that needs to accelerate to support DAU growth? Luis von Ahn: It is not just one team looking at that. Related to MAU growth is top of funnel, and that we do work on. The reality is that top of funnel has been about flat for this quarter, and we would like to accelerate it. We are working on that. There is a lot with marketing that I think will be really good, particularly in underpenetrated regions. That is one thing. The other is making changes to the product to teach better and be better for free users. That should accelerate word-of-mouth. Historically, the main driver of top of funnel has been word-of-mouth. Word-of-mouth is beautiful because it is free, but we do not have that much control over it in the way we can measure retention. So we are doing things we think will be really good for word-of-mouth, but we do not have the same granularity of control. Andrew M. Boone: And then, Luis, just a strategic question in terms of keeping users on platform. You have always focused on fun. It seems there is a change as we think about more of a voice-front experience. Talk about keeping the entertainment value and what has to change as you move toward more of a voice-like experience. Thank you. Luis von Ahn: I understand why you might perceive a change, but internally there is no change in terms of fun. We are huge believers that the hardest thing about learning something by yourself is staying motivated. That is the secret sauce of Duolingo, Inc. What has gotten us so far is that we know we have to motivate our users. People may say they want to learn something, but ultimately they will do what is most fun. So we spend a lot of effort making it fun. We think making voice and speaking more prominent does not decrease fun. Our metrics suggest it does not; it can be a pretty fun experience. Humans are very visual creatures, so you will continue to see beautiful animations and game-like elements even with voice in there. Our teams dedicated to making the app more fun are really firing on all cylinders. You will see a bunch of stuff in the next couple of days. For example, avatar costumes—I am dressed up as a hot dog, and I love it. Operator: Your next question will come from Eric Sheridan with Goldman. Please unmute your audio and video and ask your question. Eric Sheridan: Hi, great to see everybody. Thanks so much for taking the questions. Maybe a two-parter. Luis, for you, what have been the key lessons so far in terms of scaling AI, both in terms of the user experience as well as the scale of content for the platform over the last couple of months? And, Gilian, as AI scales on both sides of that equation, how should we think about what that means for margins longer term? Thanks to both. Luis von Ahn: Great question. We are very excited about AI. At the highest level, we are trying to make something as good at teaching as a one-on-one human tutor and as fun as a mobile game. For the teaching part, AI is what will get us there. For example, our video call feature that practices conversation has gotten significantly better over the last year. The conversations are more fluid, and users are saying about twice as many words on average as they were a year ago. Similarly, content: the amount of learning content we put out in the last quarter dwarfed everything we have ever done. We put out 20.5 thousand units of content in one quarter—about what we put out in the entire year last year. And last year we were already using AI. We are just getting better at using it. We are also working on models picking what exercise to give each user, with significantly more personalization—exactly what a one-on-one human tutor does. Gilian Munson: From a cost perspective, there are two things to think about. One, the adoption of AI in customer-facing features. You see our gross margin guidance has us landing at about 69% in the fourth quarter, and that assumes we are going to put a lot more of that ingredient in our product. Two, our operating expenses: we have started to see some pretty big increases in AI costs internally, and our guidance reflects that. But there are always waves of efficiency that come with AI. You might have AI costs come up, and then the team optimizes, and then you move forward. In Q1, gross margin was better than we would have expected and pretty good year-over-year, even with a lot of new AI content, because on a per-unit basis the costs have come down a lot. It goes in waves: costs come down, we adopt more, and we manage that. As you think about overall margins, expect us to be in that 69% range on gross margin, and we will manage operating expenses accordingly. Operator: Your next question will come from Bryan Smilek with JPMorgan. Your line is open. Unmute your audio and video and ask your question. Bryan Michael Smilek: Great, thanks for taking the questions. Luis, going back to last earnings as well—great to see voice being infused across the ecosystem. Can you discuss the affiliated impact on Max overall? Are you seeing Max subscribers cross back down to Super? How should we think about the product go-to-market for Max now that AI is becoming more available across the broader ecosystem? Luis von Ahn: Thanks for that question because it helps us clarify. What we said last time was that we wanted to add video call to our medium tier, Super Duolingo. It is important for us to do that because video call is such a good feature in terms of teaching, and we want significantly more people to have access to it. We started doing that. At the moment, we have a number of experiments giving video call to Super subscribers, particularly new Super subscribers. We have not scaled this to all our existing user base. So at the moment, there is no change for Max. There are a lot of possibilities for what Max could be. We could lower the price of Max, or give Max subscribers unlimited video call versus not unlimited for Super. There are a number of options, but it has only been two months since we last spoke, so we have not run all the experiments. In terms of metrics we are not seeing a big difference, except that a cohort of new users is not even seeing Max—they are only seeing Super—and that is one of many experiments. Bryan Michael Smilek: Thank you. That is helpful. And for Gilian, looking at the guidance—understand the tougher comp on bookings into Q2—can you help me think about the puts and takes that drive back-half reacceleration? You mentioned about 20% DAU growth with ebbs and flows each quarter. Would that back-half guidance imply that DAUs would improve from early benefits from these product initiatives? Gilian Munson: As you look at the second-half guidance, in general we are planning the business based on that 20% DAU growth basis. You may see some early returns on the investments we are making, but I would not bank on a lot of that. We are taking the long view this year and want to allow ourselves to operate in the range of bookings guidance we gave so we can make all the investments we want and do what we think is right for customers. Q2 is a really tough comp because of the release of Energy in particular and a handful of other features that made bookings a year ago really strong. You will see us bounce back from that comp, and then you will continue to see DAU numbers drive bookings. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio and video and ask your question. Nathaniel Jay Feather: Thanks for taking the question. The rapid increase in your ability to do content generation is really interesting. Now that you have a full course set across language learning, at least across most common languages, are you starting to A/B test new content for different engagement? Historically, have you seen an increase in retention, pay rates, etc. with higher quality content? And looking further, how does that impact your thought on expanding into additional subjects beyond language learning now that the cost to entry is lower? Luis von Ahn: Thanks, Nathan. Yes, one exciting thing is we have been working for years to have the top nine languages reach Duolingo score 129, which we now have. Internally someone said, “That is just the beginning.” Now that we have all this content, we are in a much better spot to make it significantly better based on how users perform. We are starting to do that. We have seen that changes in content quality and the type of content shown have meaningful impacts on retention, particularly new-user retention. We are running many experiments; for example, what we teach in the first unit matters a lot. Do we teach greetings, or words like “mom” and “dad”? It is not as simple as “always teach greetings.” These choices impact retention. We are also likely to move to generating content just for you based on everything we know—maybe not the immediate next exercise, but two exercises from now we might generate a sentence just for you. We are getting to that point, which is very exciting. In terms of other subjects, each has unique challenges. AI is helping us add new subjects faster—chess is a great example; we added it in about nine months. But each subject has its own content needs. Adding math is relatively easy if you want a wall of text like ChatGPT, but if you want diagrams and user interaction, that is harder. AI makes it easier, but it is still not trivial. We are happy with the subjects we have and are very excited about Math. You saw we started this call with a video for Math. We have reached a point where our math course covers pretty much all content between grades two and twelve and can actually explain things when you get them wrong. We are very excited about that. Nathaniel Jay Feather: Great. That is helpful. And thinking about the balance sheet—you have a lot of cash and high free cash flow. What are your thoughts on the right level of buybacks, and what are some central uses of that cash going forward? Gilian Munson: As we look at the cash, you saw we returned some level of cash back to shareholders via a buyback in the quarter. We have a $400 million authorization, so we are willing to spend that money. In general, we are focused on operating the business, so we are investing in the business as well. It will be a balance of the two. On a buyback, you buy more when the stock is lower and less when it is higher. We will look at where the stock is; we think it is a great time to buy our stock. It is a great way to offset dilution from the last couple of years. With our free cash flow estimates, we are going to generate almost as much cash as that buyback anyway this year. On capital allocation, of course there is M&A. We are out there always looking, but as you have seen, a lot of what we have done is fairly small in nature—not a big deal that hits the balance sheet hard. Duolingo, Inc. is very focused on growing Duolingo, investing in Duolingo, and going from there. Luis von Ahn: GameStop wants to buy eBay. We may want to do that too. I am kidding. Operator: Your next question will come from Ryan MacDonald with Needham. Please unmute your audio and video and ask your question. Deborah Belevan: I am going to leave that last comment alone a little bit. We are not buying eBay, just so you know. Ryan Michael MacDonald: Maybe we can talk about the announcement in late April about advanced content being available across all the top subjects. From a marketing perspective, how big of an unlock is that in terms of deploying incremental performance marketing budget now that you have all the content available? How should we think about how that may help replenish the top of the funnel through the back half of the year and into next year? Luis von Ahn: In performance marketing, this matters most for English learners. English learners are most interested in more advanced content. Some of the main places we are using performance marketing are underpenetrated markets, particularly in Asia. In a number of large Asian markets we can do profitable performance marketing. Historically, because our free version is so good, it has not been easy for us to do profitable performance marketing—people we acquire are super happy as free users. But we are finding we can do that in some places; for example, in China we are able to acquire profitably, and these are English learners. I would say the main thing is we have historically underinvested in performance marketing, and we are getting a lot more professional about it this year. You will see the benefits in the next few months. We are building the infrastructure for the right attribution to users and the right place after you acquire them—things a company our size should have built years ago, but we kind of ignored it. We are pretty excited about that. Ryan Michael MacDonald: And as you are testing video call in Super Duolingo for a cohort of net-new paid subs, what are you seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally for that feature at the Super level? And, Gilian, how is that informing your view on gross margin profile as we move forward? Luis von Ahn: We are running tests on what the right price should be for Super with video call. I cannot tell you all the results yet. We started this work a couple of months ago, and it takes time to build and run A/B tests and get results. What I can tell you is that people are willing to pay more for Super with video call. How much more, I will be able to tell you in a quarter or two. Gilian Munson: One of the reasons we have been focusing everyone on operating within ranges of financials is to allow ourselves to do this kind of work—testing different ways of approaching the customer on price. All of that is anticipated in the guidance around the ranges we want in 2026. In any given quarter, it might be a little more or less, but we anticipated that coming into the year and are executing against it. No big surprises, and the financials we have laid out for 2026 can accommodate that. Operator: Moving forward, we are allowing analysts one relevant follow-up in order to get through the queue. Thank you. Your next question will come from Ralph Schackart with William Blair. Please unmute your audio and video and ask your question. Ralph Edward Schackart: Hopefully this is relevant. Luis, historically you have a bit of a paradox: you over-monetized historically, and now maybe we are in a duration where you are under-monetizing the user base. Stepping back, what signals are you looking at today that inform you you are on the right path? And more broadly, when would be the right time to start monetizing again? It is only been a couple months since the last call, but would love to hear your thoughts. Luis von Ahn: Great question. We are at the same time under-monetized and over-monetized. Roughly 12% of our monthly active users are paying subscribers. We think that number should be much higher. If you look at other freemium models, they are much higher—Spotify is close to 50%. At the same time, certain types of monetization we probably overdid, making the free user experience have too much friction. Many monetization tactics were at odds with DAU growth—more friction drives some people to subscribe, which is good, but some people leave. What we need to do, and what we are doing, is finding ways to monetize that do not put DAU growth at odds with monetization. Those ways exist. I mentioned longer free trials. We have not experimented much with trial length historically. Other scaled subscription businesses often have one-month or even three-month free trials. You will see us experiment with that. We are seeing that one-month trials increase revenue and are not at odds with DAUs. Saying “one month free” does not drive users away. The work we are doing is finding ways to monetize that are not at odds with DAU growth. They exist; they are just not as quick as adding friction to the free user experience. This year is for experimenting. We will probably experiment with a three-month free trial. That is something we could not have done without operating with the guidelines we set for this year, because a three-month trial delays bookings by a whole quarter. This operating approach gives us room to do that. Operator: Your next question will come from Mark Mahaney with Evercore. Please unmute your audio and video and ask your question. Mark Stephen Mahaney: Thanks. I want to ask about gross margins. Your guidance implies they are going to phase down to the high 60s in the fourth quarter. Is there a reason to think margins hold at that level? Is there a reason to think they should recover higher? How should we think about the trajectory after this year? Gilian Munson: When we think about margins that have AI content in them—take gross margin—you tend to find that as you introduce features, they might be more expensive at first, and then we optimize costs over time. In Q1, margin held up nicely versus the year before because per-unit AI costs came down a lot. As we look forward, we want to put more and more AI as an ingredient in the product. That is why we have margin guidance down to 69%, which is essentially where we were last quarter too. That implies a lot more AI content, which we think is great long term. It is possible we could optimize more, but we want to be putting that much AI in the product. I think 69% is a good place to think of us exiting the year. This is a changing environment, and some optimizations come faster than you expect, so you could see both up and down. Operator: Your next question will come from Justin Patterson with KeyBanc. Please unmute your audio and video and ask your question. Justin Tyler Patterson: Thank you very much, and good evening. Duolingo has always had a high pace of product velocity around A/B tests. Synthetic coding has made it easier to do lots of those. How are you thinking about engineer productivity as a whole, the number of tests being run, and how should we think about that influencing long-term headcount needs? Luis von Ahn: Great question. We A/B test a lot—running hundreds of A/B tests concurrently at all times. That has been our product philosophy and how Duolingo, Inc. has gotten better over time. We are finding that the number of A/B tests we can run is increasing. We believe that is because of AI usage, particularly in our engineering and product organization. The increase is not huge, but it is the first time we have seen an increase on a per-capita basis in years. Last year you might have read on Twitter that you can program anything in five seconds and run 10,000 A/B tests at once with a single engineer—that is an exaggeration. Up until very recently, companies at our scale had not seen a real increase in velocity overall, but we are starting to see that increase. It is still moderate, but it is increasing, and we are happy with it. I do not think we will run 10 times as many A/B tests per engineer, but the trend is positive. Operator: Your next question will come from John Colantuoni with Jefferies. Please unmute your audio and video and ask your question. John Colantuoni: Thanks for taking my questions. Can you give a bit of color on how U.S. DAUs are trending relative to international DAUs and what that relative geographic growth could mean for bookings over time, given U.S. users generally adopt a subscription at a higher rate than international users? Luis von Ahn: DAUs are growing in the U.S., and they are growing in pretty much every country, but in the U.S. they are growing less than in many international markets. Asia is the fastest-growing region. In terms of how that affects monetization, it does not seem to affect it that much. The U.S. monetizes well, but a lot of countries monetize relatively well. A good example is China—China monetizes about as well as Western Europe, which is not as high as the U.S., but pretty high. Given the growth rate in China, that matters. I do not think slower growth in the U.S. implies lower bookings growth overall. My hope is that by making the product teach better, increasing word-of-mouth, and investing some in marketing in the U.S.—which historically we had not—we will drive higher year-over-year growth in the U.S. than we currently have. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Please unmute your audio and video and ask your question. Shweta R. Khajuria: Thank you for taking my question. With AI-driven content creation, there was a meaningful increase in content. How are you managing quality of content as that continues to grow against volume and engagement? Luis von Ahn: We spend a lot of effort on quality. The main reason our content is not growing even faster is because we are making sure it is very high quality. We do evaluations of our content with AI and with humans. We then test it with our own users in small amounts to see if it is high quality, and if it is, we increase exposure. As amazing as AI is, if you are not careful you can get a lot of slop. We are trying very hard for that not to happen. Over the last couple of quarters, the quality has actually increased. We know this from spot checks and rating the quality across content. Operator: Your next question will come from Omar Dusa lki with Bank of America. Please unmute your audio and video and ask your question. Analyst: Hi. I want to get back to performance marketing. Glad to hear the company is treating that with more seriousness. Last time we spoke, I got the impression the product would be leaps and bounds better in the future and really change the way people learn languages. Does the maturity of the product itself bottleneck scaling performance advertising spend? Performance advertising typically tries to optimize specific behaviors in users. Is that the case? And do you have any sense of when you might be ready to really put the pedal to the metal, assuming your organization has done its experiments—when would the product be ready to go full-bore on performance marketing? Luis von Ahn: I would say the bottleneck for performance marketing for us has been, first, building the infrastructure to be a much more serious performance marketing machine, which we are doing now. Second, and not the quality of teaching, is how good our free tier is. One problem, depending on region and what we advertise, has been acquiring a user and having them be very happy free users rather than subscribers. That is the main bottleneck we need to overcome. At the moment, in some geographies we have profitable performance marketing, but in many we do not. Gilian Munson: The only thing I would add is that we are making an investment in marketing this year, and it is not just performance marketing. The team has a multi-tiered approach to marketing and to stepping up that investment that is well thought through and has diversity to it. Analyst: I want to make sure I am not thinking about performance marketing the wrong way, because I thought it would be difficult to performance market a product that is not stable or mature, since you do not actually know what you are marketing if it is changing so much. Luis von Ahn: I would not say that. Duolingo, Inc. has been around for 15 years. It has never stayed the same, and it never will. That is not going to change, but I do not think that has been the problem. Operator: Your next question will come from Alex Brondelow with Wells Fargo. Your line is open. Please ask your question. Analyst: Thanks so much for the question. You mentioned how fast China is growing. There have been two successful brand tie-ins over the last 12 months—Luckin Coffee last year and Meituan in March. Are there learnings we can take from how successful those brand tie-ins have been in China to extend that success to other markets over the next year? Luis von Ahn: Thank you. We have had incredible brand partnerships in China. Our IP and brand in China are very strong, and that commands some of the largest brands wanting to partner with us. For example, we very soon have a partnership with McDonald’s in China. Large brands come to us. Brands in China, like Luckin Coffee, are more open to partnerships than many Western brands—you do not see Starbucks changing all their stores every two weeks with a new brand, whereas Luckin does. There are learnings our partnerships and marketing teams in China are bringing to other places, particularly in Asia. But some of this is specific to the China market. Also, China is not just growing fast because of partnerships; it is kind of the other way around. The great partnerships are coming in part because we are growing fast and seen as a very cool brand. There is a huge appetite for English learning in China that keeps growing, and that is the main reason China is growing. Operator: Your next question will come from Alexander Sklar with Raymond James. Your line is open. Please ask your question. Alexander James Sklar: Thanks. On the relationship between DAUs and top-of-funnel growth versus the visibility you have talked to on the shape of the bookings inflection this year, what early tests—or maybe it is tier or geo mix—are providing your visibility in terms of that bookings inflection exiting the year? Gilian Munson: On bookings, if you look at the quarterly progression we are guiding to as you go Q2 into Q3 and Q3 into Q4, it is fairly on par with where the company has been in the last couple of years. We are playing a long game here, and the investments we are making may show some things this year, but we are really looking beyond this year. 2026 is about operating around that 20% DAU growth and growing the business. What you are seeing in Q3 and Q4 is typical seasonality. There has been an adjustment in Q1 and Q2 to our new monetization balance, but in Q3 and Q4 what you are seeing is quite typical for us. Operator: I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks. Luis von Ahn: Thank you. Thanks, operator. I would like to thank everyone for joining us, and we look forward to seeing you on the next call.
Operator: Please stand by. Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Call for Tactile Systems Technology, Inc. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group, for a few introductory comments. Please go ahead. Sam Bentzinger: Good afternoon, and thank you for joining the call today. With me from Tactile Systems Technology, Inc.’s management team are Sheri Louise Dodd, Chief Executive, and Elaine M. Birkemeyer, Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the risk factors section of our Annual Report on Form 10-Ks as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. With that, I will now turn the call over to Sheri. Sheri Louise Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our first quarter 2026 earnings call. Here with me is Elaine M. Birkemeyer, our Chief Financial Officer. We are pleased to report a strong start to 2026, with first quarter results reflecting focused execution of our three strategic priorities, continued strength and durability of our commercial action plan, and operational excellence including preparing for recent changes regarding the introduction of prior authorization for fee-for-service patients. Specifically, in Q1, we delivered total revenue of $75.3 million, representing growth of 23% year over year. By business line, lymphedema revenue grew 23% year over year to $62.2 million, and airway clearance revenue increased 22% year over year to $13.0 million. Q1 results include a minimal contribution from our recent acquisition, Lymphotech. Our revenue performance reflects continued strategy and execution against key revenue drivers: our phased technology and people go-to-market investments, which drive referrals and market share; NCD-related tailwinds, which drive favorable advanced pump product mix; depth and breadth of our DME relationships, which drive market expansion and share; and, not to be understated, disciplined operational execution across the enterprise. Further, top-line strength drove meaningful margin expansion, gross margins increased 250 basis points to 76.5%, and adjusted EBITDA increased $4 million year over year to $3.7 million. We ended the first quarter with approximately $75 million in cash, maintaining substantial financial flexibility as we continue to invest for long-term growth. For 2026, we are updating our full-year revenue guidance to a range of $360 million to $368 million. This update reflects the inclusion of Lymphotech and our increased confidence in commercial execution while maintaining a disciplined approach as prior authorization outcomes under new Medicare requirements for our category continue to mature. For the remainder of the call, I will review our Q1 performance by business line and then provide updates on our ongoing strategic priorities. Elaine will follow with a review of our first quarter financial results and an update on our outlook for 2026. Turning first to lymphedema. Revenue grew 23% year over year in Q1. We are pleased to see the significant growth compared to last year, which was expected given the momentum of our field and back-office strategy execution. Our go-to-market investments are delivering. Our sales organization is fully resourced with broad geographic coverage and a well-balanced staffing model of one account manager for every product specialist. With those resources in place, we are shifting our focus from capacity investment and onboarding to productivity and operating leverage. Territory productivity increased meaningfully in Q1 year over year. Robust CRM utilization, combined with continued enhancements including workflow tools, is increasingly supporting referral management prioritization and account development, and we expect continued territory optimization and sustained productivity gains over time. From a products perspective, overall lymphedema growth in the quarter was supported by both Nimble and Flexitouch, with Flexitouch growth outpacing Nimble. As expected, this dynamic was largely tied to our decision in October 2025 to align our advanced pump documentation criteria with the Medicare NCD. While this alignment had always been planned, the timing reflected our increasing confidence that the MAC administration of the NCD had stabilized. Importantly, the NCD has created a more direct and clinically aligned pathway for patients who require advanced pump therapy compared to the prior LCD policy. This will continue to be a tailwind for Flexitouch as we continue to educate providers on the policy change and drive the right patient, right pump messaging. Notably, the NCD policy language also allows for advanced pump coverage for patients with head and neck lymphedema, and we are pleased to see increasing clinical adoption for these underserved patients who have no other pneumatic or nonpneumatic compression device options. This NCD-driven Flexitouch strength was also evident in our Q1 payer mix with sales in our Medicare channel growing 40% year over year. To a smaller extent, Medicare strength also reflects some order acceleration ahead of the April 13 effective date for the new prior authorization requirements for PCDs billed under traditional Medicare fee-for-service. Importantly, underlying demand remains healthy, and as the new prior authorization process settles, we expect quarterly ordering patterns to normalize. As a reminder, the inclusion of the prior authorization process for basic and advanced PCDs for Medicare patients was announced in January 2026 and aligns with prior authorization decisions in other growing DME categories. During our Q4 call, we discussed our expectation that this new requirement will add additional steps to the order process, such as assembling and submitting a prior authorization documentation packet and checking the status of each submission in order to process the claim. Additionally, these new requirements require patients to have a face-to-face clinical visit with a treating physician, not just a therapist, to establish and document medical necessity. To be ready for the go-live date, we accelerated the prior authorization module in our AI portfolio, which had originally been planned for launch in 2027. In the weeks leading up to April 13, we demonstrated operational agility in validating the technology and systems, training and staffing our team, and successfully deploying a new process on schedule. The Medicare PCD prior authorization requirement has been in place for just three weeks. We are actively managing early transition dynamics as both we and the MACs adjust our respective processes. As the industry leader and a DME provider with extensive experience operating in other prior authorization environments across Medicare Advantage and commercial plans, we believe we are well positioned to support patients through this transition. Turning to our other payer channels, our commercial business remains healthy and is demonstrating quarter-over-quarter consistency. In the VA channel, performance reflects a different operating and growth profile than Medicare and commercial. Unlike those channels where reimbursement policies are more dynamic and have driven more pronounced year-over-year comparisons, the VA reimbursement environment is notably more stable, which naturally results in less quarter-to-quarter volatility. From a commercial execution standpoint, the VA call points span a diverse set of specialties, including vascular, oncology, and therapy practices, with success driven by sustained relationship-based engagement and navigation of local VA systems. As our recently expanded field organization continues to deepen engagement, establish workflows, and build trusted relationships within these accounts, we expect the VA to become a more meaningful contributor over time. We view the VA as a strategic long term opportunity that is well aligned with our evolving portfolio and an incremental growth contributor alongside our Medicare and commercial channels, with growth unfolding in a deliberate and durable manner. Turning now to airway clearance. Sales of AffloVest increased 22% year over year in the first quarter. The key drivers of our robust performance remain consistent with what I have shared previously. Our relationships with the top respiratory DMEs remain strong, including at the C-suite, and AffloVest continues to be well placed across these accounts. There are additional opportunities to deepen engagement within our top 10 DME partners, given the breadth and scale of their national footprints and alignment of individual branch performance goals. We are committed to delivering high-quality medical education and training for providers and DME staff, supporting sales skills of AffloVest and airway clearance therapies at the DME national and area sales meetings, manufacturing a superior airway clearance product, and providing AffloVest account manager continuity to our DME partners, all of which we believe are critical inputs to driving consistent growth and valued partner status. As the market leader in airway clearance therapy, we remain focused on serving the millions of diagnosed and undiagnosed bronchiectasis patients in the U.S. We expect our commercial strategy, clinical education efforts, and strong DME partnerships to continue driving growth throughout the year, in addition to the launch of our next-generation AffloVest product, which I will touch on shortly. We are committed to evolving our lymphedema strategy for growth from that of a product company to an integrated solutions leader for lymphatic dysfunction, and the acquisition of Lymphotech is an important milestone in this exciting evolution. Lymphotech sits squarely within our strategy to support patients across the full continuum of care, which begins with getting an accurate, timely, and objective lymphedema diagnosis. Lymphotech’s 3D measurement and monitoring addresses this need directly, replacing traditional manual measurement methods that are time consuming, highly variable, and dependent on clinician technique. Currently, the Lymphotech platform is FDA cleared and commercially available as a SaaS-based solution. As we shared last quarter, a key element of this acquisition is broadening our R&D capabilities to support next-generation approaches to disease assessment and treatment, and we look forward to sharing updates on our progress in the quarters ahead. The integration is progressing as planned since closing in February. The Lymphotech cofounders and team are actively contributing to both the go-to-market commercialization strategy as well as helping to identify the capabilities and integration points across the diagnostic and therapy product development road maps. We are being deliberate and strategic in our approach to maximizing the provider, clinician, and patient experience. Beyond the team and the technology, Lymphotech also earned selection as a funding recipient under a new federal research program focused on lymphatic disease. Specifically, the Advanced Research Projects Agency for Health recently announced two landmark programs, LIGHT and GUIDE, committing a combined more than $290 million across all awardees over five years to advance lymphatic diagnosis and therapeutics. Lymphotech was selected as one of seven GUIDE funding recipients and is focusing its research on the development of a new responsive garment using bioimpedance feedback to deliver adaptive compression with Bluetooth-enabled remote monitoring. We believe this program has the potential to extend personalized treatment to millions of diagnosed patients. Along with the first U.S. clinical practice guidelines for lower extremity lymphedema presented in March, which validated PCD therapy, we believe awareness of lymphatic disease and evidence-supported therapies is reaching a historic inflection point for the category. As the industry leader, Tactile Systems Technology, Inc. is well positioned at the center of this momentum, further bolstered by our three ongoing strategic priorities focused on improving access to care, expanding treatment options, and enhancing lifetime patient value. Let me now provide a few updates on each of these. Beginning with improving access to care, where we are focused on several internal- and external-facing initiatives. Internally, we continue to transform each step of the order process with new technology infrastructure and more efficient workflows. AI-enabled technology is playing an increasingly meaningful role in our back-office transformation. Over the past several months, we have been leveraging AI capabilities in our order intake processes and parts of our medical record review and have been pleased with both the technology performance and the enhanced workflow efficiencies it is enabling. As I shared earlier, this quarter we successfully accelerated and launched the prior authorization component of our AI platform for Medicare fee-for-service orders ahead of the April 13 deadline. Looking ahead, we remain on track to further expand the use of AI capabilities across the entire order process, including patient eligibility and benefits verification, and full medical record review. With the rollout of these expanded features, we believe we will accelerate speed of therapy, reduce revenue-impacting human errors, and improve operational efficiency, each of which should support margin expansion over time. Externally, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers. For commercial payers, we continue to make steady progress on head and neck coverage and are working to align certain commercial policies to the NCD rather than their current alignment to the retired LCD. As part of that work, our head and neck clinical evidence program continues to advance with data progressing through the peer-reviewed and publication process. Payer engagement is a continued patient advocacy commitment we make for all patients, operationalized through payer education, appealing denials, and activating clinical support with medical directors as needed. Next, on expanding treatment options. We are excited to share we recently received FDA 510(k) clearance for our next-generation AffloVest product. Key enhancements with this next-generation device are focused on improving the patient experience and include further weight reduction, new digital connectivity, and improved size adjustability to allow for a more customized fit. Additionally, the clearance maintains our indication for use across the full patient age spectrum, from pediatrics through geriatric populations, reinforcing AffloVest’s position as a solution for bronchiectasis patients at every stage of life. We remain on track for commercial launch this year to ensure the product is available for the 2026 to 2027 winter respiratory season, and we look forward to sharing more updates with respect to timing as we get closer. Our second innovation area is focused on the advanced pump category. As we shared last quarter, our product roadmap includes the introduction of incremental features and product enhancements for Flexitouch focused on the patient experience. These include a new controller, reduced external hosing, and remote control functionality through our Kylie patient engagement application. We anticipate go-to-market readiness in 2027 for these features. Beyond these innovation updates, we are also focused on identifying integration points across the combined Lymphotech and Tactile product development portfolios. While it is too early to share specific details of a Lymphotech-integrated product portfolio, we are excited by the expansion of diagnostic and therapy delivery opportunities. Finally, our third strategic priority of enhancing the lifetime patient value encompasses more efficient and personalized engagement before, during, and after the order and delivery process. As we shared last quarter, we are continuing to focus on targeted care navigation pilots designed to provide clearer guidance to patients earlier in the process and reduce administrative friction. Results to date continue to support our thesis that patients value clear communication and guidance earlier in the process. We are refining these pilots to optimize touchpoints, and we are evaluating how to expand their impact in a measured and scalable way. We believe this work will reduce patient leakage, enhance the patient experience, and over time decrease the need for sales representative involvement in the order process, supporting both growth and operating leverage. Taken together, our progress across these strategic priorities reinforces our confidence in the durability of our commercial momentum. Our Q1 results reflect strong execution across both business lines, meaningful progress and agility in our operation transformation initiatives, and the expected return on our go-to-market people and technology investments. Intentionality and discipline are key constructs in the way we are operationalizing our strategy; as a result, the business performance is there. This approach is supported by a strong balance sheet and a thoughtful capital allocation strategy that balances growth investments with shareholder returns. We are confident in the trajectory of our business and the multiple catalysts ahead as we move through 2026 and beyond. With that, I will now have Elaine review our Q1 financial results in more detail and provide an update on our outlook for 2026. Elaine M. Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to first quarter financial results are on a GAAP and year-over-year basis. Total revenue in the first quarter increased by $14 million, or 23%, to $75.3 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre, Nimble, and Lymphatex systems, increased $11.7 million, or 23%, to $62.2 million, and sales of our airway clearance products, which includes our AffloVest system, increased $2.3 million, or 22%, to $13.0 million. Growth was broad based and reflected strength across both volume and revenue per unit, including higher shipments, strong collections, and a favorable mix across payer and product category. Continuing down the P&L, gross margin was 76.5% of revenue, compared to 74% in 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections, and favorable product and payer mix reflected in our revenue. Importantly, these improvements reflect structural enhancements in the business rather than temporary cost actions. First quarter operating expenses increased $9.3 million, or 19%, to $59.1 million. The change in GAAP operating expenses reflected a $5.2 million increase in sales and marketing expenses, a $1.0 million increase in research and development expenses, and a $3.0 million increase in reimbursement, general, and administrative expenses. As we discussed previously, we are annualizing investments made in 2025 while continuing to invest in IT infrastructure and automation to support long-term growth. Despite these ongoing investments, operating loss decreased $3.0 million, or 66%, to $1.5 million. Interest income decreased $200,000, or 26%, to $700,000 due to our decreased cash position. Interest expense decreased $400,000, or 93%, to $28,000. Income tax expense was $900,000 compared to an income tax benefit of $1.1 million. Net loss decreased $1.2 million, or 41%, to $1.8 million, or $0.08 per diluted share, compared to $3.0 million, or $0.13 per diluted share. Adjusted EBITDA increased to $3.7 million compared to an adjusted EBITDA loss of $300,000 in the prior year, with margin expanding to 4.9% from negative 0.4%, reflecting a meaningful improvement in operating leverage. With respect to our balance sheet, we had $75 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $83.4 million in cash and no outstanding borrowings as of 12/31/2025. The change in cash during the quarter primarily reflects the Lymphotech acquisition, share repurchases, and normal seasonal items such as bonus payments. We continue to see improvement in working capital, including a meaningful reduction in days sales outstanding. Turning to a review of our 2026 outlook. For the full year 2026, we are raising our guidance and now expect total revenue in the range of $360 million to $368 million, representing growth of approximately 9% to 12% year over year. This guidance assumes both our lymphedema and airway clearance businesses will grow in a similar overall range, with airway clearance growing modestly faster. The increase in guidance is driven by three primary factors. First, we continue to expect strength in the commercial execution across the business. Second, we have included the contribution from Lymphotech. Third, we have incremental early confidence in how the MACs are navigating the new prior authorization requirements we discussed on our last call. More broadly, we believe underlying demand remains durable, and our tools and processes designed to support prior authorizations are tracking well against plans. While prior authorization approval data is still early and continuing to take shape, our outlook appropriately reflects discipline until we have a longer track record of consistent outcomes. For modeling purposes, for the full year 2026, we expect our GAAP gross margins to be 76% to 77%, our GAAP operating expenses to increase 10% to 12% year over year, the increase relative to our prior outlook reflects one-time acquisition and legal related costs, net interest income of approximately $3 million, a tax rate of 28%, and a fully diluted weighted average share count of approximately 22 to 23 million shares. We continue to expect to generate adjusted EBITDA of $49 million to $51 million in 2026. This outlook reflects the annualization of 2025 investments and continued strategic investments in 2026, which we believe are important to support long-term growth and operating leverage. Our adjusted EBITDA expectation assumes certain noncash items, including a stock compensation expense of approximately $9 million, intangible amortization of approximately $3.6 million, depreciation expense of approximately $3.2 million, litigation-related expenses of approximately $1 million, and one-time acquisition-related and integration costs of $1.3 million. With that, I will turn the call back to Sheri for some closing remarks. Sheri Louise Dodd: Thank you, Elaine. We are encouraged by a strong, balanced start to the year and the trajectory of our business. Our Q1 results demonstrated broad-based performance and reflect disciplined execution, improving productivity from a fully built commercial organization, and the increasing benefits from investments we have made in technology and infrastructure. As we look ahead, our focus remains on the fundamentals that matter most: expanding access to care, innovating across our product portfolio, and enhancing lifetime patient value. While we remain mindful of near-term adjustments related to Medicare prior authorization, ultimately, we believe this change reinforces our emphasis on clinical rigor, access durability, and long-term reimbursement stability, and we are well positioned to navigate it. We are operating from a position of strength supported by a resilient balance sheet, multiple growth levers in motion, and a clear strategy to translate consistent execution into sustained growth over time. With that, operator, we will now open the call for questions. Operator: Thank you. We will now be conducting a question and answer session. Sheri Louise Dodd: You may press 2 if you would like to remove your question from the queue. Again, that is 1 to ask a question. Operator: And our first question will come from Ryan Zimmerman with BTIG. Ryan Benjamin Zimmerman: Good afternoon, and congrats on a nice start to the year here. I want to ask about some of the dynamics that are starting to occur in the second quarter. Sheri, I think you called out some pull-forward dynamic with, you know, lymphedema sales ahead of February. And so, you know, one, I think if I look at the beat versus kind of where you are raising guidance, came in, you know, there is about a $1.7 million difference there. I just want to understand if that was the pull-forward effect, and then just anecdotally, kind of what you are seeing with the MACs in February, you know, how they are responding to this, how physicians are responding to this, and, you know, the cadence of sales we should think about. I apologize, there is a lot here. The cadence of sales we should think about over the balance of the year because you have historically seen, you know, kind of 2Q step up from 1Q. So, you know, is there a bit of a pause or dynamic in the market we need to think about for 2Q? Sorry for the multipart question there. Sheri Louise Dodd: No, it is okay. Let us take it layer by layer here. So what I will first say is I want to kind of reorient this concept of a pull-forward, because it was not really a pull-forward. What we did is we had patients whose orders were in process, and if they were not all the way completed by that date, they would have been exposed to an overall denial. And so what we did is a little bit of an acceleration of that, but I would not characterize it as pulling orders, if you will, from Q2 and shipments from Q2 into Q1. What we have been doing and what we have been seeing truly is great on our side in terms of our systems and our processes are working. We are really pleased. We accelerated what we were going to do next year and got it all in place by that go-live date, so very pleased with that. So what you are seeing in terms of our positioning on the prior authorization does not have anything to do with our readiness. It really has to do with some early variability that we are seeing within the MACs, and, again, Ryan, we are only three weeks into this entire process, so it is still new. Orders are flowing through; we are seeing what those denial and approval rates are, but we are seeing some differences between the MACs. And so there should not be variability between the MACs. If you are in one state, you are a Medicare patient, and you have the exact same criteria, you should not be denied based on where you live. And so we are seeing a little bit of variability. This is not uncommon because MACs are trying to make sure their interpretation is the same, how the data and information is rolling through on their side, training and education. So everything we are seeing, we do not think is anything other than administrative, and we are going to have an opportunity to talk to the MACs about this. We also do not see any of this being long standing. We believe we are going to be able to adjust, and with more experience in the prior authorization, we believe that our confidence in what that true process time is as well as those approval rates will increase. From a guidance standpoint, we did pull through what would be the Lymphotech revenue into there as well as some of our overall business delivery confidence, and then we are going to hold a little bit until we have a few more weeks—it is not going to be the full year—until we start to see what that prior auth process looks like, again, more from the MACs’ side than on our side. Elaine M. Birkemeyer: You did a great job. Ryan, I think the only other question you had was a little bit on sequencing and kind of Q2 and Q3. So, you know, we do continue to expect to see growth in Q2 over Q1 like we always have. I will say the Q2, Q3 this year will look a little bit different, I think. Together, those two quarters will be the same, but I would say we will see a little bit of a lighter step up in Q2 than some of the years past and probably a bigger step up in Q3 as it starts to normalize. Just as that went into effect, it created a little bit of a delay as that prior auth made a way for those responses and for this whole new process to get going. So I would say collectively, the two quarters are going to be the same, but there will be a little bit of a difference between the two. Ryan Benjamin Zimmerman: Okay. Very helpful. And then I am going to sneak one more, and I will get back in queue, because I probably have asked too many now. But just on the Lymphotech contribution, so I appreciate you guys calling that out. When do you expect that to be, you know, meaningful in the year, number one? So how should we think about when it really starts to deteriorate? And then two, you know, as we think about kind of what it can do over time, you know, how are you thinking about what Lymphotech can offer in terms of a contribution to the business as we look out further into 2027 and beyond? Thanks for taking the question. Sheri Louise Dodd: You bet. So on Lymphotech, the grants that we discussed—super excited about the LIGHT and the GUIDE grants—actually come through as revenue, which is why now it is in the overall guidance that we put forward. But prior to that, when we did our original guidance, we did not see any real growth happening from Lymphotech or any big contribution. So what you are seeing now is really a result of the grant coming through as revenue. Where we are most excited about Lymphotech is not going to materially impact this year. I mean, we did the acquisition on multiple fronts, but that ability and the R&D capabilities that Lymphotech brings will be a big part of how we are thinking about our go forward, not just as a Flexitouch next gen, but if you think about therapy in general. And when you see the details—as I described the details of that GUIDE—actually looking at garments that are using bioimpedance and delivering on personalized care, we are very excited about that. I just cannot share any timelines on what that R&D portfolio looks like right now, but we will be able to share that much more in the quarters to come as that gets further defined in our overall strategy for therapy delivery. On the diagnostic side, one of the big drivers we know for Lymphotech is actually getting the FDA approval for more of that diagnostic indication and then getting through the CPT codes that actually enable a payment for the diagnostic. So that is going to take a little bit of time, but on the here and now, we are super excited to have the federally funded government grants helping support the R&D efforts that we know are going to fit directly into our future portfolio. Sheri Louise Dodd: Hey, Ryan, the last thing I will say—you had a great question, but I kind of want to bookend it about, you know, the guidance and the flow through. Again, we said it is only three weeks in. We saw and we held on the NCD when it converted from the LCD to the NCD because we knew there were going to be changes in interpretation and time needed to get progressing before we felt super confident about what we could do to lean into that. And so everything we are doing now is really based on precedent and what we have done before, and it worked well. We are confident that these administrative pieces in the early days of the prior auth will flow through, and we are in the best position to handle it. So it is a real thing, but we do not sit here with a lot of concern. We just want more time to be able to fully articulate what that benefit will be. So the question you did not ask, but I wanted to bookend it based on the questions that you did ask. Ryan Benjamin Zimmerman: Thank you. Sheri Louise Dodd: Yep. Thanks. Operator: And our next question comes from Brandon Vazquez with William Blair. Brandon Vazquez: Congrats on a nice quarter. I hate to do this, but can we stick for a second on this concept of the pull-forward versus accelerated? I am not sure I fully understand it, and I want to make sure it is clear because I think it will be important to understand, one, the strength in the quarter and, two, the sequential changes from here. So maybe just spend a second specifically on the nuances between why a pull-forward is—or sorry—why accelerated sales is not necessarily a pull-forward of sales from Q2? Sheri Louise Dodd: We did the order acceleration for patient benefit, not to cover revenue. Typically, a pull-forward is because you are trying to cover revenue—you are trying to accelerate what you would have received in revenue in the next quarter and bring it into this quarter. When we talk about order acceleration, we really did this for the patient benefit. Those patients that had an order in process, if they did not clear the order by that April 13 date, it would have had to go all the way back and be resubmitted into a prior auth. So we had some orders—this is not a material amount—that were going to fall on that date of April 13. We put extra resources to help make sure that that order went through, but we were not taking an order from Q2 to book the revenue into Q1. Brandon Vazquez: Okay. Got it. That is clear. Thank you. Maybe a follow-up here, a little bit of a broader picture. A lot of commercial investments you guys have that have gone through 2025 and are ramping into this year. Maybe help characterize where some of these are in terms of maturing. Should the benefits still be growing? Are we reaching maturity for some of them, like the commercial team, things like that? So maybe just talk to us about what inning we are in for some of these more meaningful commercial investments. Thanks. Sheri Louise Dodd: Certainly. We are really pleased with where we sit right now in terms of our headcount, and as I stated in the prepared remarks, we are moving from capacity building and onboarding to true productivity. We are at a place where we have a fully resourced sales organization with that one-to-one ratio of our territory managers to our account specialists, so we feel in a really good place. As far as our CRM tool, our reps are continuing to use that tool, including workflow tools that really help support their activities—that is also going very well—and we expect that revenue per rep year-on-year growth to turn positive as we progress throughout the year. Net-net, we are certainly transitioning from build-and-bring-the-tool to actually having a fully resourced field organization that is stepping up and continues to step up. We are seeing that increase in overall referrals per rep and feel in a really good place with that. Operator: And as a reminder, that is star one if you would like to ask a question. We will go next to Adam Nader with Piper Sandler. Kyle Edward Winborne: Yes, hi, this is Kyle on for Adam. Thanks for taking the questions, and congrats on a good start to the year. Maybe I will ask on the EBITDA guidance. The Q1 result beat expectations and then you raised revenue guidance. So just trying to help understand—or maybe you could help us unpack—keeping the EBITDA guidance kind of where it is. I know you mentioned some of the acquisition costs and some of the one-time expenses there, and I noticed the uplift in OpEx spend for the year. Should we understand a lot of that as kind of part of this acquisition, or is it more of this robust R&D pipeline? Can you just help us a little bit there? Elaine M. Birkemeyer: In terms of that, I think there are probably two factors. One is a portion of the increase is due to Lymphotech. As Sheri mentioned, that is really related to the grant work we are doing, where it is really service-based work that is on the lower-margin side. Again, this is not the broader business model, but happens to be in our revenue this year. And so that is one of the reasons why. Then secondarily, as you said, we did have some in-period one-time costs in our OpEx as well. But I would say the biggest driver is really just the type of revenue lift that is coming from Lymphotech and the nature of that revenue. Kyle Edward Winborne: Okay. Got it. That is helpful. And then, congrats on the clearance for the next-gen AffloVest. I know that was exciting to get through. Just wanted to ask on that specifically. It sounds like you will be able to have this launched for this winter season as you discussed. How should we think about that in terms of the growth with that product—with the next-gen system with the advanced features? And then is there very much of that baked into the guidance for the full year, maybe just a little bit towards the end of the year? Is it kind of just an upside lever at this point? Sheri Louise Dodd: Yes, thanks for the question, and we are super excited to have gotten the FDA approval for this product and really excited to have these features that are going to help drive that patient experience. Just as a reminder, the reimbursement is exactly the same for our current generation as well as the next-generation AffloVest, so there is no additional reimbursement in place for that, and it definitely will be available. We are currently working with our DMEs on the timing to make sure that they wind down the inventory that they currently have on the Gen 5 and that training and education are all done in time for that respiratory season at the end of this year and into next year. From an overall guidance standpoint, our guidance assumes both lymphedema and airway clearance are going to grow in a similar overall range, with airway clearance growing slightly faster, and that is already built into our guide. We anticipated having the product this year and, again, with no incremental dollars out there on the reimbursement. It is simply a better patient experience, and we will continue to drive penetration and adoption within our DMEs. Operator: And moving next to Ben Haynor with Lake Street Capital. Benjamin Haynor: Good afternoon. Thanks for taking the questions. First off for me, wondering on the guidelines for lower limb—any more color you can share on what the initial reaction has been from clinicians? And then just maybe some commentary overall on mix of the lymphedema market—is 52% of cases lower limb? Any color you can provide for investors there would be helpful. Sheri Louise Dodd: Sure. On the guideline standpoint, we are really pleased to have the guidelines presented at AVS in February, and it is anticipated that those guidelines will be published this summer. As always, it is great to have the guidelines. In terms of the dissemination of the guidelines and training clinicians, that is something that our teams are going to be prepared for and help with the overall education. We are really pleased that the guidelines specifically called out pneumatic compression devices as being part of guideline-based care, which is differentiating from non-PCD products. So we are excited to have us positioned well with the overall evidence-based care guidelines, and we will roll that out and help communicate that. Elaine M. Birkemeyer: And then in terms of kind of mix of what is lower versus upper extremity, I think the best way to think about this is really what causes lymphedema for patients. We have said about a third of patients get lymphedema due to cancer, while the remainder are different other causes, with a big one being CVI. Cancer often can be upper body—if you think about breast cancer, head and neck cancer. There could still be some lower extremities with any type of pelvic cancer, but that is where you tend to see upper extremity, whereas the other drivers, typically CVI, happen to be lower extremities. So that probably gives you a little bit of a sense of it, but it really has to do with what is the underlying cause or driver, which is what determines where the area of lymphedema is in the body. Benjamin Haynor: That is definitely helpful. And would you expect additional clinical guidelines to be forthcoming for, you know, upper extremities or upper areas of the body? Sheri Louise Dodd: There certainly is, as Elaine said, that is largely in the oncology area. So there are definitely some white papers positioned in this area, and that could definitely transpire. I am not aware of anything specifically that is in the works on the upper extremity side, but we are really pleased at how well positioned and adopted pneumatic compression therapy is in upper extremity patients, particularly with therapists, and in oncology it is well understood, whereas lymphedema in the lower extremity can be almost a process of elimination. Certainly, with patients that have cancer, you know that you have removed a lymph node or you know that you have done something with the lymphatic system during a surgical procedure—different than lower extremity. So we tend to see that in the oncology space, and with lymphedema therapists there is more understanding of the lymphatic disruption that has happened with the specific oncology intervention. So guidelines could be helpful, but there is not as much of a disconnect as we have seen in the lower extremity. Benjamin Haynor: So numerically, you have not only more patients but less penetration, if you will, amongst that group. So it is kind of a double whammy theoretically for you guys. Sheri Louise Dodd: What you said is accurate. Elaine M. Birkemeyer: I think it is accurate that the lower extremity is the larger population. I think what Sheri is highlighting is that the guidelines are more meaningful for that population because there is not an obvious trigger to the lymphatic disruption, and so these guidelines really help it get discovered earlier. Versus upper extremity, there is an obvious trigger, and so patients and clinicians are more likely to watch out for it in the absence of guidelines. Benjamin Haynor: Okay. I think we are on the same page. Perfect. And then lastly for me, if I could sneak in one more. Is there any color you can provide on, you know, this new pharmaceutical out there for bronchiectasis? Has there been any impact that you find notable on the airway clearance side of things? Sheri Louise Dodd: Certainly. We have said and believe that the introduction of the pharmaceutical product specifically for patients with bronchiectasis is helping awareness for the broader category, so it has been a nice category lift. The airway clearance, though—and they call it the vicious vortex—is that you have issues of inflammation, and you have got mucus, and then you have infection. The pharmaceutical product helps support inflammation, but inflammation is just one part of this whole vicious vortex associated with bronchiectasis. There is still going to be inflammation, and with inflammation you are still going to have mucus, and with mucus you are still going to have opportunities for infection. So that need to actually clear the airway is still very relevant for this patient population. This is what we are hearing from our clinicians, and the positioning of the product as well is not to say it replaces airway clearance. It is actually alongside—could be used alongside and adjacent to it—but it is not one versus the other. We are happy that it is helping grow awareness and creating education around the disease of bronchiectasis, but we are not seeing this change the actual care pathway for these patients; it is just an option to be used alongside an airway clearance product. Benjamin Haynor: Makes sense. Thanks for taking the questions, and congrats on the quarter. Operator: Thank you. And ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines, and have a wonderful day. Operator: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Enel Chile First Quarter 2026 Results Conference Call. My name is Carmen, and I'll be your operator for today. [Operator Instructions] During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include Enel Chile S.A. current expectations, intentions, plans, beliefs, and projections. Forward-looking statements are based on management's current assumptions and expectations, do not guarantee future performance, and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in the Enel Chile's press release on its first quarter 2026 results. In the presentation accompanying this conference call, Enel Chile's annual report on Form 20-F on the risk factors. You may access our first quarter 2026 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed. Isabela Klemes: [Foreign language] Good morning, and welcome to Enel Chile's 2026 first quarter results presentation. We greatly appreciate you taking the time to join us today. My name is Isabela Klemes. I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo; and our CFO, Simone Conticelli. Our presentation and related financial information are available on our website, www.enel.cl, in the Investor section, as well as through our investors app. In addition, a replay of the call will soon be available. At the end of presentation, there will be an opportunity to ask questions via webcast chat through the Ask a Question link. Media participants are connected in listening mode. Gianluca will kick off the presentation by covering key highlights of the period, our portfolio management actions, and providing updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention, and now let me hand over the call to Gianluca. Gianluca Palumbo: Thank you, Isabela. Good morning, and thank you for your participation. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. During the quarter, hydrological conditions were favorable, which helped us reduce portfolio risk and supported a stable operating performance across the business. We will come back to this point in more detail later on. At the same time, through EGP Chile, we started the construction of 3 battery energy storage projects in the northern part of the country. These BESS projects will add around 0.5 gigawatts of additional capacity and will play a key role in strengthening the flexibility of our portfolio while supporting our commercial strategy. In addition, Enel Generacion Chile signed a new LNG supply agreement with Shell. This agreement allows us to better valorize surplus gas volumes already available and to optimize LNG and Argentine gas supply for our generation business. Importantly, this initiative is fully aligned with our long-term business vision for Chile. This is particularly relevant in the context of the growing deployment of battery energy storage systems, which are essential to ensure a more flexible and efficient portfolio. Let's now move to the country and regulatory context. Starting with the VAD 2020-2024 process, tariff resettlements have been postponed until July 2026. At this stage, the regulator is working on alternative solutions to fund this payment with the objective of avoiding any impact on regulated customers' tariffs. Turning to the VAD 2024-2028 process. During the quarter, the regulator published the preliminary technical report, volume 2, in January 2026. Over the next few months, we are awaiting the publication of the final report. Let's now turn to business profitability. The first quarter of 2026 delivered consistent financial results. EBITDA showed a solid improvement compared to previous years, plus 16% during the period. The extraordinary general meeting approved a capital increase of CLP 360 billion at Enel Distribucion Chile, reinforcing the company's balance sheet and overall financial flexibility. In addition, the annual general meeting approved the final dividend, fully in line with our commitment to shareholder returns and value creation. In the next slides, we will go deeper into each of these areas and provide further details on the key drivers behind these results. Let's move to Slide 4 to talk about hydrology and the progress of our battery energy storage project. Let me begin with our hydro generation. Hydro generation during the quarter remained broadly in line with last year's levels, as shown on the left-hand side of the slide. For 2026, we are forecasting hydro generation at 10.7 terawatt hours. This assumption is based on a conservative view on hydrology, fully consistent with the average evolution observed over the last 13 years that allows us to confirm our 2026 guidance. This is the case, even though the probability of an El Nino event has increased in recent weeks, with potential impacts mainly expected in the second half of the year. This level of performance is supported by our well-diversified hydro portfolio, together with continuous operational optimization. Moving now to gas activities. On gas sourcing, we have signed contracts with Argentine gas suppliers with a longer tenure compared to previous years. These contracts secure firm volumes at more competitive prices, providing stable supply until April 2027. In parallel, in the context of high gas prices and the more flexible demand outlook for our thermal fleets, we concluded a negotiation related to our long-term LNG agreement. This approach is well aligned with our view of a gradual ramp-up of battery storage in the coming years, supported by a solid and reliable gas supply from Argentina. Finally, let me focus on battery storage. We continue to strengthen our generation portfolio through the development of battery energy storage systems. These investments will increase the flexibility of our portfolio and support the long-term resilience of our generation mix. In addition, they will continue to optimize our sourcing strategy. In this context, approximately 450 megawatts of new battery capacity are currently under development and will gradually start operations from [ 12-'27 ] ahead, in line with our planned investment schedule. Now let's move to Slide 5, where we will review our generation portfolio and the energy balance. Let me start with our generation portfolio. We entered 2026 with a solid and well-diversified portfolio. In fact, our total net installed capacity stands at 8.9 gigawatts, of which 78% comes from renewable energy sources and BESS. Therefore, this structure enhances flexibility and supports a balanced and resilient energy mix. Moving now to our energy balance. During the first quarter of 2026, net production remained stable compared to the same period last year. This performance reflects the flexibility of our generation portfolio. Higher contributions from wind, solar and efficient natural gas combined cycles more than compensated for the slightly lower hydro generation. Physical energy sales amounted to 7.5 terawatt hours, fully in line with the level recorded in the first quarter of last year. This confirms the stability of our commercial positioning, supported by our diversified sourcing mix. On energy purchases during the quarter, we maintained a similar purchasing mix compared to last year. This included 1.3 terawatt hours of net spot market purchases and 0.8 terawatt hours sourced from third parties. And now I would like to take a moment to share with you some key topics related to the distribution business, which we will cover on the next slide. Let me start with the tariff review shown on the left-hand side of the slide. We are in the 2024-2028 distribution tariff review process. In January of this year, the regulator released the second version of the technical report. The remaining technical steps are expected to lead a final tariff determination in the second half of 2026. Overall, the review is progressing in line with the regulatory timetable. Turning now to the VAD 2020-'24. The settlement of the outstanding debt with distribution companies, which was originally scheduled to begin earlier, has been postponed to July 2026. For Enel Distribucion, the amount to be received is around USD 65 million, while at the distribution sector level, the total amount involved is approximately USD 900 million. We remain confident that the process will progress toward the prompt resolution, considering its relevance for the sector and the need for orderly completion. Turning to distribution reform. We continue to see constructive and positive engagement from stakeholders, together with the growing and broad consensus on the need to further evolve and modernize the distribution framework in Chile. This is particularly important in the context of electrification and considering the long-term nature of distribution investments. Finally, a few words on grids and execution. We continue to reinforce specific parts of the network, while at the same time expanding digitalization and remote control solutions across the network. These actions allow us to restore service faster, improving customer experience, and strengthen the flexibility and resilience of our networks. Overall, execution and distribution remains solid, with a clear and continued focus on service quality. And with that, I will now hand over the presentation to Simone. Simone Conticelli: Many thanks, Gianluca, and good morning, everyone. I will begin my presentation with an overview of our key results for the period. As shown on the slide, during the first quarter of 2026, EBITDA reached $423 million, with a 16% increase compared to the same period of last year. The improvement was mainly driven by a better integrated margin performance. First quarter net income amounted to $162 million, representing a 7% decrease compared to the result of first quarter 2025, mainly due to higher depreciation following the commissioning of the new renewable plants and lower capitalization of interest. Finally, first quarter FFO reached $122 million, representing a 12% increase compared to the same period last year. The improvement is due to a combination of several factors, which will be commented on the following slides. And now let's move to the next slide to talk about the investment made during the quarter. First quarter investment amounting to $111 million were mainly allocated to the development of BESS project, increasing the value of our power plant fleet, and the reinforcement of our distribution network. Let's review the allocation in more detail. 41% or $46 million were invested in renewable and storage. 31% or $34 million supported thermal power projects. 20% or $31 million was directed toward grids investments. In the renewable segment, we have focused our effort on the development of BESS project, as announced in our strategic plan, on the enhancement of hydro capacity performance, and on the improvement of fleet availability. In the thermal segment, the priority has been the maintenance and performance enhancement of the power plant fleet. Finally, regarding grids, the focus remain on the resilience program to strengthen the distribution network and ensure service continuity under adverse weather condition. Passing to the nature of investment. First, asset management CapEx totaled $58 million, accounting for 52% of the total CapEx. The main activities have been the maintenance of Atacama, Quintero and San Isidro CCGT, the maintenance of renewable fleet aimed at ensuring plant availability, and some activities for the corrective maintenance and digitalization of grids. Second, development CapEx amounted to $40 million, mainly invested in batteries development, which represented 75% of total, and digital meters and grids remote control equipment. Finally, customer CapEx totaled $13 million, mainly invested in low and medium voltage connection project and initiative to support load increase. Let's now go on to the next slide, which provide a closer look at the EBITDA performance. In the first quarter of 2026, our EBITDA reached $423 million. The increase of $58 million compared to the same period of 2025 is mainly explained by the following factors. Starting with the integrated business, we recorded an increase of $67 million, mainly due to, first, lower natural gas costs that reduce the variable production cost of our thermal power plants and the spot energy purchase costs. And second, the positive impact of the optimization of gas sourcing, which allowed us to improve LNG and Argentine gas supply for our thermal fleet, extracting value from our gas contracts portfolio, as previously commented by Gianluca. These positive impacts were partially offset by the termination of certain high-priced regulated contracts and higher provision related to energy and transmission charges adjustments booked in 2025. Going to grids. We recorded a decrease of 18%, mainly due to the positive impact of issuance provision on 2025 and the impact of the higher O&M expenses associated with the anticipation of the 2026 winter plant activities, partially offset by a higher contribution from complementary distribution activities, mainly related to the new customer connections. Now let's move to the next slide to review the net income evolution. Net income amounted to $162 million in the first quarter of 2026. The difference compared to the first quarter 2025 is mainly due to the $58 million improvement in EBITDA, thanks to the more efficient sourcing, partially offset by higher depreciation and amortization, mainly related to the commissioning of new renewable capacity in the generation business and higher financial expenses, partially due to lower interest capitalization in the generation business. And now passing to the next slide, let's analyze the FFO composition for the first 3 months of 2026. In the first quarter 2026, FFO reached $122 million as a result of the following factors: first, EBITDA totaled $423 million, as previously explained; second, the increase of net working capital amounted to $161 million, mainly due to seasonality of energy payments and gas optimization agreement, for which the payment was registered in April; third, financial expenses amounted to $93 million, also including the settlement of hedging derivatives; finally, income tax expense payments amounted to $48 million, mainly related to generation business. Passing to the comparison with the results of the first quarter of 2025, the 2026 FFO was $13 million higher, mainly thanks to the EBITDA increase for $58 million, the lower increase of net working capital for $27 million, mostly due to lower CapEx payment related to the new development capacity, the positive effect of energy payment scheduling, partially offset by the increase of account receivable following the LNG agreement settled in April, the higher financial expenses for $62 million, and the higher income taxes for $9 million, reflecting higher monthly payment tax rates. Now let's take a look at our liquidity and leverage position. Gross debt amounted to $3.9 billion as of March 2026, remaining broadly flat compared to December 2025. The slight increase reflects the seasonal cash and working capital requirements, which were temporarily funded through a $50 million drawdown on the CAF credit line, partially offset by a $9 million reduction in IFRS 16 lease liability. The average term of our debt maturity reached 5.4 years by March 2026 versus the 5.8 years seen in December 2025, and the portion at a fixed rate was 85% of the total debt. The average cost of our debt reached 4.9% as of March 2026, in line with December 2025 figures. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with next year maturities. As of March 2026, we have available committed credit lines for $640 million and cash equivalent for $454 million. So thank you all for your attention, and now I will pass the floor to Gianluca for the closing remarks. Gianluca Palumbo: To conclude, our resilient and diversified business model supported solid and stable results in the first quarter of 2026, even in a volatile operating environment. A well-balanced portfolio combined with disciplined execution continues to provide resilience, allowing us to navigate changes in market and climate conditions with confidence. Second, electrification is clearly emerging as a key driver of demand growth in Chile. This trend is supported by structural developments across mining, industry, transport and electromobility. In this context, we remain closely engaged and well-positioned to support the country's electrification process, leveraging our integrated offering of clean energy, infrastructure and services. At the same time, we continue to closely monitor regulatory developments and their potential impacts. Finally, our solid financial position and flexible business model continue to support the execution of our investment plan and our ability to meet financial commitments. This financial strength allows us to continue investing in renewables and battery storage while maintaining financial discipline and delivering sustainable returns to our shareholders. Now let me hand it over to Isabela for the Q&A session. Isabela Klemes: Thank you very much, Simone and Gianluca. We now start the Q&A. As a reminding, we are receiving questions from our chat on the application. So I will start now, Gianluca and Simone, with the first question. We actually received this question from several analysts, including Andrew McCarthy from LarrainVial. I will do the questions, okay? So the first one is, congrats on the results. Apart from the gas valorization agreement, which is a positive one-off in your results, could you please indicate which other one-off negatives you have incurred in your first quarter 2026 figures? Basically, I'm interested in knowing the recurring EBITDA booked in the first quarter 2026. Actually, on the same, we also received a question regarding what we have mentioned in the EBITDA, regarding the provisions recorded in the first quarter 2026 related to energy and transmission charges. Simone? Simone Conticelli: So thank you for the question. So you are right, in this quarter, we have more than one nonrecurrent effect. The first one is the impact of the agreement with Shell. That is a positive impact, but then was partially offset by some problem with the transmission line that impacted in our efficiency. And on the other side, this impact can be around $50 million, and then around $60 million of adjustment coming from the previous year. The main part from 2023, it was related to an adjustment of the ancillary services booked in this year after quite a long discussion with the system, we finally take the final decision, and this has an impact of minus $30 million. So to make a synthesis, if you normalize all these nonrecurrent effect, our results is around $360 million, $370 million for the quarter. Isabela Klemes: Okay. So we are receiving several questions. Let me go to the second one. So the second one is coming from Javier Suarez from Mediobanca. Javier has several questions that I will split here. So the first one is, can you update on the key factors on the ongoing negotiations with regulator of the distribution regulatory framework? And also on the same page on distribution, he also is asking why, in other words, what is the reasons for the postponement of the settlement to July 2026 relating to VAD 2020-2024? Gianluca, this is yours. Gianluca Palumbo: Yes. Okay. So let me start for the first part. On the distribution regulatory framework, the VAD 2024-2028 process is still ongoing, so the methodology remains based on the reference model company with a regulated real post-tax WACC, as you know, of 6%. We believe there is still room for improvement in the CNE proposal, and we are actively participating with the distribution association in the observation and the discrepancy process. The final technical report is expected by June 2026, and the tariff decree in early 2027. So regarding the postponement of the VAD 2020-2024 settlement, the estimated impact is around USD 765 million. The recovery mechanism was defined by the SEC in February 2026, but collection was postponed by 3 months. So in this moment, our current planning assumption is collection from July 2026, while the Ministry of Energy is also evaluating alternative mechanisms, including potential debt factoring. Isabela Klemes: Now, another question from Javier. The other question from Javier, Simone, this is for you. Can you give more details on the profitability of the BESS project in Chile in terms of IRR? Simone Conticelli: Yes, thanks for the question. First of all, let me make a initial comment saying that Enel is developing new BESS, following the strategical goal to balance our portfolio. So first of all, we see this BESS project like an improvement of our portfolio and a way to have some energy shift that can result in a better match between the demand and the production curve. But looking at the BESS project as a stand-alone project, what we can say is that we launch this kind of project only if the return is at least 300 basis points above our WACC. Also that we make also some stress test trying to change the market condition to see the resilience of this kind of project also to some more stressed and critical scenarios. Isabela Klemes: So move on. The other question is coming from Fernan Gonzalez. This is also for you, Simone, from BTG Pactual. So the question is: why did energy purchase cost in the generation segment increase so much if volumes were similar with last year and its spot prices were significantly below the first quarter 2025 levels, even in the non-solar hours? Simone? Simone Conticelli: Okay. So in such a way, we answer at the beginning indirectly to this question, because this negative impact from adjustment from the past, entered as sourcing cost, and so You are looking also at the impact of this negative adjustment. Isabela Klemes: So moving on, we're receiving a lot of questions. So the next one is coming from Andrew McCarthy, another question from Andrew from LarrainVial. Good morning. Energy losses in the distribution segment continued to deteriorate during the first quarter 2026. Can you comment on what is driving that, how you expect to evolve, and what can be done to reverse the trend? Gianluca. Gianluca Palumbo: Okay. Thank you for your question. Energy losses increased mainly due to tariff adjustments and some change in customer behavior, which have led to a rise in not technical losses, such as the debt. So in the first quarter, losses were also impacted by lower than expected demand and a more competitive market environment. That said, our loss levels remain below the regional averages, and we have a clear plan to reserve the trend. So we are strengthening our loss reduction strategy through this plan. So first of all, improved inspection targeting using better analytics. Second, expansion of micro and macro metering, so this is an action to help the balance -- micro balance. Increased field action and controls, considering the better analysis that we will do. And finally, enhanced coordination with authorities to address illegal connection. That is one of the problem that we have. So looking forward, we expect losses to gradually decline, targeting around 5.7% by 2028, supported by these operational and technological improvements. That is very important for us. Isabela Klemes: I'm checking here other questions. Okay. So the other question is coming from Felipe Flores from Banchile Citi. The question is: my question is related to the capital increase in distribution. Will this be subscribed by Enel fully using cash? How does the company plan to finance it, or it's already covered? How much would take to recover the money? So Gianluca, if you can give some color on the capital increase. Gianluca Palumbo: Yes, of course. Okay. The capital increase is intended to strengthen Enel Distribucion financial position, and it's expected to be supported by controlling shareholders in line with its long-term commitment to the business. So from a financial perspective, it will be covered through group level financial resources, ensuring obviously efficiency and flexibility. So in terms of returns, this is not a short-term recovery investment. It supports the long-term sustainability of the business through improved financial structure, lower financial costs and maybe it's very clear, the ability to execute the investment plan under regulatory framework. This is the last question that I can add in this case. Okay. Isabela Klemes: I'm checking here. We have receiving another question. Some of them, we have already talked about that is related the capital increase and also on the postponement on the VAD, so I'm continue checking here. Another one was a question also, Gianluca, regarding the VAD 2020-2024, that potentially is going to be a new pack. But Gianluca has already answered this. That is one of the proposals that could be done in order to have the payment on the VAD. So let me -- just a second. Okay. So we have other questions that is coming from Juan Felipe Becerra, that is relating -- he can -- he ask Simone, if you can give more details on the gas optimization contract on Shell. We have already included, but if you can check also. Now, he has another question. Does this optimization imply lower contracted volumes or changing pricing terms with Shell? And regarding the 3 BESS projects highlighting the presentation, can you provide more details on the expected time line for each project to reach COD and enter in EGP capacity? Simone? Simone Conticelli: So let's start talking about the Shell agreement. This is an agreement that has the goal to optimize our portfolio. As you know, we have a very valuable portfolio of gas contracts. Part of the contracts is for GNL. Part of this contract is for gas from Argentina. What I want to stress is that the total amount of volume of gas that we can manage is higher of our needs, even stressing the needs of our power plant during a dry year. So what we have done in this agreement is try to rebalance the amount of the GNL contract to make coherent our portfolio. And we did it in a very right moment in such ways, so we have also positive impact on 2026 results. On the other side, talking about the BESS. Isabela Klemes: Yes. This is go to Gianluca. Gianluca Palumbo: So regarding the 3 BESS, to complement, the answer, regarding the 3 BESS projects highlighted in the presentation, let me know that, we could you provide more detail on expected time line. So in this case... Isabela Klemes: Yes. So the question, Gianluca, was regarding the BESS. What we are expecting the COD on the BESS side. Also what Gianluca was saying that we are expecting -- it's included in our business plan that we have recently presented. And Gianluca, if you want, now your mic is up. Gianluca Palumbo: Okay. I understand. Isabela Klemes: Going back again. Thank you. Gianluca Palumbo: Okay, okay, okay. During 2025, we focused on engineering, permitting and project preparation. With the regulatory framework now in place, we are starting construction in 2026 and expecting the COD during the third and the fourth quarter of 2027. So our strategy also included additional BESS investment, like we presented in the last Capital Markets Day, in 2027 and 2028, reinforcing storage as a core pillar of our portfolio. So we will continue to closely monitor market conditions, maintain flexible approach, focus on profitability and value creation. This is our pillar in our optimization of our portfolio. Isabela Klemes: Another question is coming from Jay Samani from Scotiabank. This is for you, Simone. SO where do you see Enel Chile next avenues for growth, given that lower demand from unregulated customers? He's mentioned about the termination of the PPA -- regulated PPAs. How is Enel Chile position itself for long-term? And can we expect the company to maintain the current earnings level for growth? He's asking about our business plan. Simone Conticelli: So can you repeat me the first part of the question, please? Isabela Klemes: Yes. Jay is asking you, where do you see that Enel Chile is going? What are the strengths of our plan? He's also mentioned that we see -- we have seen the results, not the reduction of the regulated PPAs, so he's asking what we are seeing the long-=term? So we are seeing more regulated customer coming on, new auctions, and how we are positioning ourselves in the long-term? Simone Conticelli: Okay. Enel will confirm its strategy. In this moment, clear we see a reduction in the volumes of regulated contract, but this is related in how the auction now will rise in the market. What we have to stress is that we want the full last to auction also at a valuable price on the market. So we have a very good portfolio in term of price in the short-term. Also, we can stress the fact that the pricing of our portfolio, the average price in the next 3-year, we will maintain the same value, even if the price on the market is going down. And for the full following year, we will keep on looking to a good mix among short-term opportunity and also long-term contract. That can be new regulated auction, but also, long-term contract with the big customer. Isabela Klemes: We have a last question that is coming from Isabella from Bank of America. So she's asking: what is the minimal cash position you are operationally comfortable with? You currently have a cash position of around $454 million. Do you plan on using your credit lines this year, or will you refinance your short-term debt? Simone Conticelli: So thanks for the question. You know that our business has a strong seasonality with some needs in terms of financing in the first and in the second quarter, and then -- and higher cash production in the second half. We have an internal model to define the comfortable minimal cash position to cover the net working capital needs. And then for the future financial needs, we plan to refinance using a long-term financing that in this moment is under negotiation. Isabela Klemes: We do not have any more questions coming here from the chat. So any other doubts that you may have, the Investor Relations team will be fully available to execute other calls and to go into more details. Thank you very much for connecting today. Have a nice holiday. Thank you. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Kylie Bundrock: Good morning, everyone. I'm Kylie Bundrock, ANZ's Group General Manager, Investor Relations and M&A. Thank you for joining us for the presentation of our first half 2026 financial results which are being presented from ANZ's offices in Melbourne and stand on the lands of the Wurundjeri people. On behalf of the ANZ team, I pay my respects to elders past and present and also extend my respects to any Aboriginal and Torres Strait Islander people joining us for today's presentation. Our results materials were lodged this morning with the ASX and are also available on the ANZ website in the shareholder center. A replay of this results presentation session, including Q&A, will be available on our website shortly after this session concludes. The results presentation materials and the presentation being broadcast today contain forward-looking statements or opinions. And in that regard, I'll draw your attention to the disclaimer in the front of the results slide pack. Our CEO, Nuno Matos; and CFO, Farhan Faruqui, will present for around 45 minutes, after which I'll go over the procedure for Q&A before moving to questions. Ahead of that, a reminder that if you would like to ask questions, you can only do that via the phone. And so over to you, Nuno. Nuno Goncalo de Macedo E de Almeida Matos: Thanks, Kylie. Good morning, everyone. Thank you for joining us. It's almost a year since I joined ANZ as CEO, and this has been a period of significant change for our bank. During this time, we launched a refreshed strategy, ANZ 2030, including the definition of our strategic pillars and initiatives, clear guidance of our major financial metrics, and we outlined our 5 immediate priorities. In parallel, we made good progress in clarifying our dividend outlook as well as strengthening our capital position and increasing our collective provisions and coverage ratio. These changes have resulted in better managed, more sustainable business, which is delivering stronger financial results. While we are early in our transformation, we are already more focused on our customers, simpler, more resilient and have materially improved value for our shareholders. Before turning to performance, I will take a moment to reflect on the external environment. As Australia's most international bank, we have a front-row seat to global developments. The real impact of this crisis remains ahead of us with the physical flow of critical commodities from the Middle East being key. While we have made a small downward adjustment to our global GDP forecast, at this stage, we'll still see the global economy growing at around 3.2% this year. In Australia, consumer and business confidence is materially weaker. However, spending and business conditions have only impacted modestly so far and employment growth is stable. This supports our central expectation that Australia will avoid a recession, although the situation is extremely dynamic, and we are prepared for a range of outcomes. The longer the flow of oil is constrained, the greater the chance the crisis shifts from being primarily an inflation challenge to more of a supply and growth challenge with greater economic impact. Turning to our customers. Generally, corporates have been taking prudent steps by shoring up liquidity, prioritizing optionality in their treasury management and perhaps most importantly, improving supply chain resilience. For large corporates in sectors which are most impacted such as transport, energy and construction, we are starting to see an increase in working capital needs, reflecting higher input costs, longer shipping routes and buffers for future disruption. Unlike other recent disruptions, capital markets have remained open, reducing the need for customers to solely draw on bank lending lines. While our business banking customers in Australia and New Zealand generally entered this period well prepared, for smaller businesses, particularly in the impacted sectors, higher operating costs are placing pressure on margins and cash flow. We are supporting our business customers through this time, including by offering 0 interest loans through the Australian government's $1 billion economic resilience program, where we are already seeing strong demand. Turning to our retail customers. Households in both Australia and New Zealand entered this period with high saving buffers, and we have not seen any material increase in hardship applications. However, in recent weeks, consumers have needed to sharply increase spending on transport, leaving them with less discretionary spending. We will continue to monitor emerging pressures and support our customers with appropriate assistance. The impact of the current crisis on ANZ's credit, capital and liquidity position has been minimal as of today. Our business is strong and structured to allow us to adapt to periods of uncertainty. First, we have very limited direct exposure to the Middle East at less than 0.5% of our total group exposure, and we are focused on high-quality investment-grade counterparties. Second, we have a strong balance sheet and continue to have good access to funding markets with limited increases in funding costs. As one of the world's most highly rated banks, we remain an attractive destination for global debt investors and depositors. And third, we are seeing the benefits of actions taken to transform the profile of ANZ's portfolio over the last decade. This includes prioritizing capital-light flow business over lending, while 83% of our wholesale portfolio is investment grade as reflected in our continuing low loss rates. That said, the situation is dynamic and the longer it continues, the greater the impact. Reflecting this raised risk in the external environment, we have taken a Collective Provision charge of $126 million this half, with our provision coverage ratio up 4 basis points to 1.22% in the half and up 9 basis points since March 2025. Now turning to our performance for the half. Our return on tangible equity was 11.6%, an improvement of 161 basis points. In parallel, our balance sheet and capital positions remains strong with common equity Tier 1 at 12.39% at the end of March, having improved 36 basis points from September. We proposed an interim dividend of $0.83 per share and increased the franking rate to 75% from 70%, reflecting our improved performance in the Australian geography. Our capital levels are appropriate. As a result, we will not apply a discount to the dividend reinvestment plan for the interim dividend, which will now be neutralized. When we launched the ANZ 2030 strategy last October, we were clear that this is a 2-phase strategy. The first phase across FY '26 and '27, it's about delivering on immediate priorities at pace in order to get the basics right, including a substantial improvement in productivity and initial investment for growth. In the second phase, beyond '27, we will realize the benefits of those strong foundations to drive outperformance. In each phase, we expect to improve returns and deliver value. We are now 1/4 of the way through the first stage and already showing tangible progress. We are also investing in capabilities now to execute the second phase which will differentiate ANZ from our peers while significantly improving our customer experience and the strength of our human and digital channels. As I said, at our Strategy Day, we have 5 immediate priorities, and we committed to regular updates on our progress. First, our new leadership team and our culture reset. Last year, we announced 4 new executives who are now firmly embedded in their new roles. Most recently, we appointed Tammy Medard as the Group Executive Business and Private Bank. And just last week, we took another important step, launching our new corporate values aligned to our purpose and our strategy. These values are not a slogan or catch phrase. They are action-oriented values, which will guide our people to deliver best outcomes for our customers and shareholders safely and consistently and at pace. At Strategy Day, we committed to a safe and secure migration of Suncorp Bank customers to ANZ by June 2027. This program of work was reset in October 2025. At the end of March, we have delivered 34% of this program, and our plan is to get to 57% by the end of this financial year. We remain on track to complete the migration by June '27. During the half, we strengthened the program operating model to support timely decision-making and delivery with clearer accountabilities and enhanced executive oversight. We also made progress building and testing the product solutions required for the integration as well as the core data solution and new end-to-end testing environment. Through this process, we will meet all of our federal and Queensland government commitments. At Strategy Day, we also committed to delivering a single customer front end by September 2027. Again, this program of work was reset in October '25. By March, we completed 13% of all this work and expect to have completed 45% by the end of this financial year. We remain on track for full delivery by September '27. Once complete, we'll serve individuals and small business customers with a single ANZ digital platform and brand. This will bring together the ANZ Plus experience with a broader products and functionality of ANZ existing retail and business platforms. We have made significant progress on our fourth immediate priority, simplifying the bank and reducing duplication. We reduced costs by 9% half-on-half, excluding significant items. And as a result, our cost-to-income ratio reduced to 49.4%, down from 54.6% in the previous half. When launching the strategy, we said we expected the impact of the initial productivity improvements to yield pretax gross cost savings of around $800 million in FY '26. We have realized 49% of the identified productivity savings, and we are on track to deliver in excess of this in the full year. Farhan will provide more detail. By the end of April, 78% of our announced 3,500 employee exits had occurred as well as more than 1,000 managed services consultant departures. Fifth, we are making good progress on our nonfinancial risk management uplift and remain on track to deliver our root cause remediation plan approved by APRA last September. This is a comprehensive framework that details the activities of our enterprise-wide PACT program standing for people, accountability, customers and trust. Today, we have released the second report by Promontory, the independent reviewer appointed to access this progress and regulatory reports -- and regular report, sorry, to APRA and the Board on the execution of the RCRP. All reports are and will continue to be available in full on our website. We are now through the setup phase of the PACT program and on track to largely complete the design phase this year. Last September, we also announced that ANZ had established an ASIC matters resolution program within our federal retail end markets to deliver improvements across a number of areas. This work is progressing and constructive engagement with our regulators on these important matters continues. I will now turn to the strategic initiatives across our divisions with a focus on the customer first pillar. This includes progress in laying the foundations for the second phase of our strategy to accelerate growth and outperform the market beyond 2027. In Australia Retail, excluding Suncorp Bank, we have 6.5 million customers and 11.6% of the market view us as their main financial institution. Our strategic NPS was stable at 2.9, and we remain an uncomfortable #4 of the majors. Total deposits grew 2% with 1% growth in transact and save. Home lending grew 1% at 0.36x system in the half. Having improved service and assessment levels in our home loan business, we increased momentum throughout the half to 0.85x system in March. We expect to be around system or at system in April and in the second half. This will be further supported by us having joined the first homebuyers guarantee scheme. Under our ANZ 2030 Customer First strategy, we are laying foundations for growth through deep propositions for attractive customer segments, including migrants and mass affluent, strengthened proprietary origination and elevated channel experience. Early progress on our customer proposition enhancements includes enabling New Zealand customers relocating to Australia to open accounts before arrival and launching competitive digital international money transfers to meet core migrant and affluent needs. Alongside this, we are upgrading our physical and digital channels, including the delivery of the single customer front end in 2027, the ongoing modernization of our call center platform and ATM fleet and a branch refresh across our network. In our Business and Private Bank, which has 580,000 customers, excluding Suncorp, MFI share was steady at 16.4%. Business Bank save and transact deposits and lending grew by 2% with lending continuing to lag the market. NPS for the division was down to minus 0.4%, again, an uncomfortable fourth position. Our transformation is focused on improving customer experience and accelerating growth. In contrast, the private bankperforming -- the Private Bank is performing quite well. Deposits increased by 6%, investment funds under management were up 8% and lending rose 17%. We were recognized with 4 awards by Euromoney, including Australia's Best Private Bank. Under our ANZ 2030 strategy, the transformation of the business bank will be driven by building a frontline that matches our ambition in size and quality and ensuring we have the right platform for the right customers while leveraging our strong private bank foundations. In short, our ambition is to have more business bankers who are highly skilled with better tools. In this regard, on the front line, our initial focus is on upskilling our business bankers with our upgraded Banker Academy ready for its first major intake. In this half, we have equipped them with better tools, having launched agenting AI-enabled capabilities in our CRM. With the right foundations in place, we remain committed to increasing business bankers by close to 50% by 2030. On platforms, we are accelerating the delivery of the single customer front end for small business customers. And for our larger business bank customers, we are releasing a new set of improvements to Transactive Global to make it simpler and more agile for this segment. For Private Bank, we recently completed a strategic review of our products, services, people and platforms, and we are moving forward in accelerating this business. Suncorp Bank NPS and MFI continued to perform well with a stable customer base of 1.26 million. We look forward to bringing these customers into the ANZ franchise by June '27, delivering benefits of scale and experience to both our customers and our shareholders. Our institutional business continued to deliver strong and consistent earnings with 2 highlights: 8% growth in operational deposits and 8% growth in market revenues, both FX adjusted half-on-half. Our institutional business is relationship-led with a unique international network and unified digital platform. We have a clear strategy focused on transaction banking services delivered through market-leading platforms, a capital-light profile and target customer acquisition. We are seeing the benefits of this strategy. Around 1/4 of our strong operational deposit growth has been driven by new clients across target sectors, including financial institutions. Our customers benefited from our continued improvements to our Transactive Global platform as well as data and insights from our markets platforms, which is helping them manage risk during a period of financial market volatility. In institutional, we have been clear that we focus on supporting our customers in lending in the context of a holistic relationship while balancing risks and returns. Finally, we recently announced an agreement to acquire Worldline's share in our merchant acquiring joint venture, moving us to full ownership. This will allow us to regain control of the merchant customer relationship and ensure it is consistent with our strategy to be a leading payments and transaction bank. In New Zealand, ANZ remains the largest bank with 2.7 million personal and business banking customers. Refreshed customer propositions helped increase personal and business MFI share to 33.3% and 31.6%, respectively, at the end of March. On the other hand, our NPS for both personal and business remains a challenge to be addressed. Save and transact deposits grew in the first half by 4%, in line with the market. In New Zealand, we gained share in total deposits and lending across personal and business and agri with the only exception being home lending. To build on our existing scale, we are replatforming for the future to bring the customer experience in line with our leadership position, refreshing our customer propositions and investing in business bankers. The replatforming rollout is well underway with the successful migration of customer records to our new modern banking platform completed in the first half. Now before I hand to Farhan, I would like to leave you with 3 key messages. Our transformation is running at pace, and we are making good progress in executing our 5 immediate priorities safely, sustainably and on time. In parallel, we are investing in line with our ANZ 2030 strategic initiatives to deliver for our customers, accelerate growth and outperform the market beyond 2027. And importantly, we are already delivering materially better returns for shareholders. With that, I will hand over to Farhan. Thank you. Farhan Faruqui: Thank you, Nuno, and good morning to everyone joining us today. We are 6 months into Phase 1 of our ANZ 2030 strategy, and we have made solid progress this half. As I noted at the end of last half, our focus is on sustainably improving our performance, and that means simplifying our organization to drive more efficient outcomes, maintaining a strong balance sheet and capital position, and improving returns for our investors. We have delivered on each of these with progress across all our key financial metrics. Return on tangible equity increased by 161 basis points to 11.6%. CET1 capital ratio increased by 36 basis points to 12.39%. Cost-to-income ratio improved by 519 basis points to 49.4% and revenue to risk-weighted assets increased 15 basis points to 4.88%. Importantly, our performance delivered value for our shareholders with a total shareholder return of 10.7% in the half. Dividends were maintained at $0.83 per share and the franking rate increased from 70% to 75%. As a result of our strong capital position at the end of this half, we will now not be undertaking a second discounted DRP and the interim DRP will be neutralized. In the first half of '26, the group delivered a cash profit after tax of $3.8 billion. Excluding the significant items announced in the prior half, cash profit increased by 14% and profit before provisions increased 12% half-on-half. I want to particularly call out the FX movements, which were more pronounced in this half. As previously reported, we hedge a large portion of our non-Australian dollar earnings. And over this half, these hedges helped offset the adverse FX translation impact. In revenue, we had a negative translation impact of $205 million and a hedge benefit of $19 million -- sorry, of $99 million in other operating income. In expenses, we benefited from a positive translation impact of $107 million. Therefore, at a profit before provisions level, the net FX impact was fully neutralized by our hedging strategy. I'll now step through the key drivers of results, starting with revenue. Our half-on-half comments will be based on comparisons to second half '25 financials, excluding significant items. Revenue was flat in the half. However, on a constant currency basis and excluding the hedge benefit, group revenue increased 1%. On this basis, net interest income was broadly flat. Deposit volume growth and margin management were offset by lending revenue. In addition, lending volume growth was softer in the half, particularly in Australia Home Lending and the Business Bank. Other operating income ex Markets increased by 2% and Markets delivered another solid result with revenue growth at 8%. I will talk more to deposits and lending volume as well as markets income shortly. Now moving to margins. Headline margin was 1 basis point lower in the half, while margin ex Markets was up 2 basis points, reflecting our disciplined approach to margin management. I'll walk through the key factors that impacted NIM this half. Number one, we continued to optimize deposit pricing, offsetting the impact of rate cuts in offshore markets in the half, delivering an overall flat margin outcome for deposit pricing. Asset and funding mix added 2 basis points with growth in save and transact deposits as well as overall deposit growth outpacing lending growth. Three, our replicating portfolios added 2 basis points, benefiting from higher rates and our decision to modestly lengthen the duration of the portfolio. And four, timing impacts from RBA rate changes as well as continued Australia home loan pricing competition drove a 3 basis point asset pricing reduction in the half. When adjusted for temporary factors, we exited March with group NIM consistent with the overall first half average of 1.53%. In terms of outlook, we remain disciplined in our execution. Looking forward, we face both tailwinds and headwinds. We anticipate that higher term rates in our house view of further RBA and RBNZ cash rate increases will be supportive to NIM. In particular, a further 7 basis points of tailwind to NIM from replicating portfolio earnings is expected over the next 12 to 18 months. However, sustained levels of competition and customers shifting to term deposits as rates increase presents potential margin headwinds. Based on these factors and noting that margin outcomes may vary from quarter-to-quarter, we see a bias to the upside in NIM ex Markets in the next half. Moving to the balance sheet. Ex Markets customer deposits grew by $11 billion in the half, and the performance was stronger on a constant currency basis with deposits up $20 billion. Volumes grew in all divisions with the exception of Suncorp Bank, where deposits were broadly flat. Core to our strategy is deepening customer relationships and improving the quality of our deposit base. With this focus, we grew our save and transact deposits by $16 billion on a constant currency basis this half, delivering a positive mix shift. Operational deposit growth of 8% on a constant currency basis was a particular highlight in our payments and cash management business. On the same basis, these deposits have grown 28% over the past 2 years as we continue to prioritize serving the transactional banking needs of our institutional clients. While deposit growth and mix were positive this half, Australia retail deposit growth remained below system and remains a focus, as Nuno has highlighted. Turning to lending. On a constant currency basis, customer loans and advances increased by $16 billion in the half, with all divisions contributing to the growth. In Australia retail, home loans grew $5 billion, reflecting below system housing growth. As Nuno has said, we expect to be at or around system in April and in the second half. Growth across Business Bank was mixed and below the broader market. This business is in transformation, and we are investing to accelerate growth. In New Zealand, business and agri lending grew at 1.1x system and home lending grew 0.8x system in a highly competitive market, characterized by a record level of customer switching and migration to lower-margin fixed rate lending. In institutional, growth this half was in shorter tenure supply chain trade finance. This was pronounced particularly towards the end of this quarter as customers started to secure their supply chain inventories given the current geopolitical environment. Turning to markets. The business again delivered consistent high-quality earnings with income of $1.1 billion, up 8% this half and up 7% on the prior first half on a constant currency basis. This outcome reflects increased customer activity across key products. FX, rates and commodities income all increased compared with the same period last year. In FX and rates, customer demand for structured products increased as customers sought to mitigate downside risks in this environment. In commodities, demand for gold underpinned performance this half. These positive contributions were partly offset by lower franchise credit income due to wider credit spreads. Balance sheet revenues also grew, driven by higher liquid asset volumes and improved yields. The result was further supported by geographic diversification with 72% of markets income generated outside of Australia, providing an important and resilient source of earnings diversification for the group. Looking ahead, our markets business remains well placed to continue to support our customers as they navigate volatile markets. That said, in periods of extreme volatility in financial markets, customers tend to step back from risk management activity and adopt a wait-and-see approach. This could be a headwind in a prolonged Middle East conflict. Now turning to expenses. At the full year results last year, we outlined actions to remove duplication and simplify the organization. We delivered a 9% half-on-half reduction in operating expenses and 8% on a constant currency basis. This reflects a substantive shift in how we manage cost and drive operational efficiency across the organization, representing a structural reset of our cost base. Specifically, 78% of the 3,500 FTE reductions have exited the group as at April 30. More than 1,000 managed service contractors were exited at the start of the financial year. We also optimized third-party spend by consolidating and rationalizing our vendor base, reducing total vendors by [ 80%. ] We exited noncore businesses and activities at pace. These exits reduced complexity and lowered costs in the half. Together, these actions are delivering a step change in cost discipline and realizing approximately $392 million of productivity in the first half. Suncorp Bank synergies contributed a further $29 million of first half productivity, primarily from the removal of duplicative project spend. Investment spend overall was lower this half, reflecting both the seasonal phasing of spend and stopping initiatives not aligned with our strategy. We will remain within our full year investment envelope of approximately $1.5 billion. Our expense rate for investment continues to be a sector-leading approximately 80%. At the full year results, we outlined an expectation that FY '26 costs would be down approximately 3% from the $11.85 billion baseline, which reflects the FY '25 cost base adjusted for significant items. Our productivity program is now on track to deliver an estimated $875 million of savings this year, up from our previous target of $800 million. In addition, we expect an FX translation benefit of $210 million this year if FX rates remain consistent with the first half average. As a result of our recent agreement to acquire Worldline shares in the ANZ Worldline Merchant Acquiring joint venture, we will consolidate the expense base of the business post regulatory approvals. We remain confident that this expense impact can be absorbed within our overall outlook. Taken together, we are updating our expense outlook. We now expect costs to be down approximately 5% in FY '26 from our FY '25 cost base adjusted for significant items of $11.85 billion. Let me turn now to portfolio quality. We recorded an individual provision charge for the half of $148 million, including $79 million for our wholesale and small business exposures. This resulted in an annualized individual provision loss rate of 4 basis points, which has now remained stable for 3 consecutive halves and is well below our long-run loss rate of 11 basis points. Our low individual provisions are the product of portfolio derisking over several years to strengthen our asset quality. We have been monitoring developments in the Middle East, where we have limited exposure, less than 0.5% of total group exposure. This exposure is focused on investment-grade government-related entities, central banks, sovereign wealth funds and sovereign-backed corporates. We believe these customers are well placed to withstand stress, and we continue to support them. Our institutional portfolio continues to be high quality with over 92% of our institutional exposure investment grade. Importantly, nearly 2/3 of this exposure is to financial institutions and sovereigns where we've had near 0 basis points loss experience since the GFC. For Business and Private Bank, we continue to focus on ensuring strong levels of collateral coverage with 83% of exposure being fully covered by collateral and a loss rate of 13 basis points in the half, down from 20 basis points in the second half '25. Our Australian mortgage customers' delinquencies decreased 3 basis points in the half to 83 basis points, and our mortgage customers continue to show resilience with 88% of accounts ahead on repayments and approximately 70% of our customers holding savings buffers of 3 months or more. Similarly, our New Zealand mortgage portfolio delinquencies decreased by 6 basis points in the half, down to 80 basis points. Now while we have not seen a material increase in customer requests for hardship relief, we are very conscious of the stress from higher interest rates and cost of living pressures. We are closely monitoring and providing support for our customers against this evolving macroeconomic backdrop. Now moving to collective provisions, where we considered the Middle East conflict and took a balanced view at the end of March. Transmission to the broader economy is still at an early stage, and our portfolio is strong, but there are clearly risks to both the domestic and global economies, especially if the conflict is not resolved in the near term. We have reflected this view by increasing the weighting to our severe scenario by 2.5%. This increased our collective provision charge by $175 million. Over the half, we also made adjustments to our overlays and together with portfolio growth, credit quality improvements and model changes, our resultant collective provision charge for the half was $126 million. Overall, the collective provision balance has increased to $4.45 billion, lifting coverage by 4 basis points to 1.22% of credit risk-weighted assets. This new collective provision balance represents a post-COVID high in coverage levels, with the collective provision balance now around $2.5 billion above our base case scenario and $65 million above our downside scenario. In reviewing the adequacy of our settings, we also considered, one, our scenario weights are now skewed 52.5% to our 2 downside scenarios, reflecting the current volatile geopolitical environment. Two, existing collective provision balance levels cover 13x the individual provision losses taken in FY '25 and 20x based on the average of individual provision losses taken since FY '23. This is well above peers. Three, the continued resilience of our high-quality onshore and offshore portfolios as evident by consistently low individual provision loss rates. Overall, these settings reflect an appropriate approach, and we will continue to actively review our provision balance as conditions evolve. Now turning to capital. As I noted earlier, we have taken decisive action to strengthen our capital position, and this is reflected in our CET1 ratio increasing to 12.39% as at March. The dividend remained stable at $0.83 per share and franking increases from 70% to 75%. This higher franking reflects the improving performance of the Australian geography. At FY '25 results, we had announced the potential to discount the first half '26 interim dividend subject to our capital position and needs at the time. As I mentioned, this discount will now not occur and the DRP will be neutralized. This is reflective of our improved capital position, including the benefit of higher participation in the full year '25 discounted DRP and clarity on the direction of the RBNZ capital changes. It is also our intention to continue to neutralize future DRPs. With a stable dividend and improving profit, the payout ratio has reduced to 66% and is now broadly in our target range of 60% to 65%. Our payout ratio at this level retains capital for the underlying growth capacity to deliver on our ANZ 2030 strategy. We welcome the announcements in recent months from both the RBNZ and APRA regarding capital settings and capital reviews and agree that these will encourage better capital management and importantly, better alignment between risk settings and capital allocation. Notwithstanding some of the recent volatility in the markets and a modest increase in funding costs, we have continued to have good access to funding markets and a strong liquidity position. Key funding and liquidity metrics remain well above regulatory minimums. However, uncertainty is heightened, and this is an area we will continue to monitor closely. In closing, I wanted to reiterate the financial targets we have set for ourselves, including the upward revision to our productivity target for FY '26. Phase 1 is progressing as intended, and the delivery is now evident in the numbers, improved returns, higher efficiency and strong balance sheet settings while continuing to invest in the franchise. As conditions evolve, including ongoing geopolitical uncertainty, we will continue to actively manage our balance sheet and risk settings and support customers as needed. Our priorities and targets under ANZ 2030 remain very clear. We will continue to report transparently at every result, and we will be held to account on delivery. Thank you, and I'll now pass to Kylie for Q&A. Kylie Bundrock: Thanks, Farhan. [Operator Instructions] I will now hand to the operator for questions. Thanks, Darcy. Operator: [Operator Instructions] Your first question comes from Andrew Lyons with Jefferies. Andrew Lyons: Just 2 questions. Just firstly, on your capital position. Slide 63 highlights that the risk impacts were a tailwind for your core equity Tier 1 ratio via lower credit risk-weighted assets in 1H '26 as it has been in recent halves. However, I'd just be keen to sort of understand the sensitivity of your capital ratios to a deterioration in the macro economy. So can you maybe just talk to if the macro economy plays out per your base case assumptions that you use in your ECL modeling. How do you expect the risk impact within your credit risk-weighted assets to play out over the next couple of years? And maybe I can hazard to ask what it would look like in the downside scenario as well. Farhan Faruqui: Yes. No, thanks for that question, Andrew. Look, I think we are actually -- from a base case scenario standpoint, we have -- and I don't have the numbers for the next 2 years or so, Andrew, but I can tell you that over the next 6 months or so, we have an estimated -- if you were to move to the base case, we would have an estimated $3 billion increase in RWA, which would basically equate to approximately 9 basis points of capital. If we -- I don't have a downside scenario assumption, but I would imagine, obviously, it will be much higher than $3 billion. Andrew Lyons: Yes. Okay. No, that's really helpful. And then just a question around your mortgage lending. APRA data yesterday highlighted that you are clearly closing the gap to system in your mortgage lending. I guess 2 parts to the question. Firstly, how should we think about the NIM implications of reinvigorating growth both from the perspective of more aggressive mortgage pricing, but also the need to fund that higher level of growth? And then also, historically, your systems have impeded your ability to manage a big recovery in volumes. Can I perhaps just ask to date how effectively your systems responded to higher volumes that are now coming ANZ's way? Nuno Goncalo de Macedo E de Almeida Matos: Sure. So this is a topic that we addressed in the last quarters, and we talked about it at length. And I think now we are seeing the results of our first actions in this regard. The first thing I would say is we are not targeting mortgage growth just from a growth perspective. We want to grow in a profitable manner. That's the first thing we want to say. So in terms of the levers we've been working on it, pricing has been one that clearly we paid a lot of attention. We moved from competing at structural discounts into competing using pricing as another lever tactically when it makes sense, means we use discounts for a specific segment that we believe is more profitable than others. We don't do discounts across the board. We're not anymore the cheapest in the market. We changed our competitive stance. And we will keep it that way for the future because, again, as we've been saying, we are targeting sustainable and profitable growth. We also continue to manage aggressively our processes and improving the way we underwrite the way we process loans. And in that regard, as we said, we had significant improvements in this half. We had issues with our loan processing team in last years. That's basically done. That's digested. We have now the right size of a team. We are now in SLAs in market SLAs for basically all products and that's why we feel confident now to regain market flow. As you can see in October -- sorry, in March, we are very close. And in the second half, starting in April, we should be at market or around markets. But we are not only relying on process improvements. We are also improving significantly the quality of our distribution. And that means our proprietary origination teams, we are very much focused on productivity, and that's already a plus in this half. We're able to produce more tickets per individual per lender in our mortgage business. And the way we interact with brokers was also significantly upgraded in terms of times and in terms of experience. But we are also touching the product lever. For example, in the half, we're able to, in record time, launch, and we were lagging to be honest, we were able to launch our first homebuyer proposition. We entered the scheme. This is an important scheme. It represents roughly almost 10% of the market, so we should be there. So we are touching all the levers, product, distribution, processes and pricing, and we are getting out of only competing based on pricing, as we've been saying. With that, the production that we are bringing to our balance sheet from the market, it's accretive, and we are comfortable that it will not hurt our margins in the future. Operator: Your next question comes from Ed Henning with CLSA. Ed Henning: I have a first one on margin, a second one on costs. Just the first one on margin, I just confirm, Farhan, what you said on the call is the exit margin was the same as the half, but there's an upward bias. And the upward bias just on the replicating portfolio with the headwinds on competition and stuff a little bit more muted than what you're seeing currently in the environment on the replicating portfolio? Farhan Faruqui: Yes. So thanks, Ed. The -- I talked about the bias to the upside in the next half. It is driven to a great extent by replicating portfolio. As I said, we have a 7 basis point tailwind in the next 12 to 18 months on replicating portfolio, but a majority of that actually comes through in the next half. So that actually is supportive to NIM as well as obviously, the fact that we have more rate hikes baked into our current house view from both RBA and RBNZ. So I think overall, we feel that we are likely to see more upside on NIM than we are to see anything else from a headwind perspective. Nuno Goncalo de Macedo E de Almeida Matos: But -- and just to complement what Farhan is saying, the reason Farhan is saying is the bias up and it's not the full up, obviously, is that we have impacts on both sides, right? Clearly, with higher rates, customers will migrate to lower margin products on the funding side. So you would expect that both consumers and small business would migrate to, for example, term deposits. And we also have potential in our offshore business, U.S. rates coming down with a new -- let's say, with the new environment on the Fed. So there are undoubtedly very important tailwinds, but it's not just on one side. There's others also on the other side, but it's a net up. That's what we think. Farhan Faruqui: Yes. And I would just add to that, that some of those headwinds are starting to -- the green shoots of that are starting to show up. So we are starting to see a little bit of activity towards switching into, say, term deposits, et cetera, away from save and transact. Ed Henning: Okay. That's great. And just a second question on costs, just to clarify the increase in the savings coming through for '26. Is that additional productivity savings that's not a bring forward of any Suncorp synergies there? And now also with your guidance improved to down 5% this year, previously, you were indicating likely that '27 will be down again from '26. Does that still hold? Or is that a bit more of a challenge? And obviously, you've got -- you've talked about growing your bankers and stuff, and it depends on your timing around that as well. Nuno Goncalo de Macedo E de Almeida Matos: Yes. So let me recap where we are here and reminding you what we guide on this topic. We guide $800 million savings this year. And then net of inflation that equated to a 3% reduction on costs. We are now guiding to a 5% reduction on cost for '26. And that means $875 million of savings, not anymore $800 million plus the FX -- sorry, yes, the FX translation on cost line. So if you want the 5%, it's a simple math of the previous 3% plus 1.8% impact of FX translation plus an additional 0.2% of savings, which is around $75 million. We also would like to remind that we acquired the stake in Worldline, which makes us now the -- let's say, the full -- we have now full ownership, and that includes, so we are going to absorb on those 5%, we are going to absorb the additional costs that we will have by consolidating the Worldline company in our books. So it's a 5%, if you want is 3%, 1.8% of FX, additional 0.2% of savings and no additions on the Worldline. On your question of '27, I want to remind you, we did not guide '27. So we did not disclose any guidance in '27. What I can tell you is that we are not moving forward '27 savings to '26 is not about that. It's to continue to make the company more and more productive. And as we continue to be highly focused on finding those efficiencies, we are not exiting in taking them, and we continue to commit to the mid-40s cost to income by 2028. Farhan Faruqui: Yes. I would just to answer a little bit of your question, so in addition to what Nuno said about not moving forward to synergies from '27, we're also not -- we're also reporting, as you know, at the Suncorp synergies separately. So the $875 million, the new guided number does not include the Suncorp synergies that we're producing, which is separately tracked. And I mentioned that in this half was $29 million. So the $875 million does not represent any moving forward of Suncorp synergy benefits. Operator: Your next question comes from Tom Strong with Citi. Thomas Strong: Firstly, perhaps just on the progress of the Suncorp migration and the delivery of the customer front end. I mean you're further in front on the migration side. But can you just put a bit more color around the next 12 months around where the material points of financial risk are and technology delivery. So we've got a bit more of a better idea of what to expect and an ability to hold this to account over the next year? Nuno Goncalo de Macedo E de Almeida Matos: Well, I believe you have -- we have announced for those 2 projects clear time lines in terms of where do we expect that to be concluded. And I repeat, September '27 for the single customer front end, which means why is this so important? It means that by then, we'll have 8 million customers, retail and small business customers in one single platform, one single brand from what we have today, which are many, right? So it's not a small thing. It's a big thing. We reset the program in October, September '25 when we came to the market with our new strategy, and we start measuring all the tasks we have to do from that date until September '27, we start measuring them. Obviously, the program started. We have many things that we are leveraging on top from the past. So it's not that we are starting from 0, obviously. But we reset the program and we said whatever we have to do from September '25 on, we have a book of work, and we are now measuring that execution. We are at 13% in March '26. And we are very clear that we want to be at 45% by the end of this year. So I think you can take that as a clear pace. Basically, the project will be almost half done 1 year before the finish line. On Suncorp integration, we are at 34% again of the reset book resetting the clock at 0 in October '25. A lot of work had been done before. But again, we calculated the remaining book of work, and we started from that at 0, 34% at March '26. We expect to be at 57% at September '26. So you will -- we will be publishing every quarter, by the way, in Q3, when we launch -- when we'll publish to the market, we will publish again those percentages. And you will be -- every quarter, you will have a very clear definition on where we are. These programs are not long term anymore. They are next year. It's going to be very easy for you to test if we are on time or not. From a financial perspective, from an investment perspective, we have clear definition of the let's say, required investment. And we are -- again, this is not long term. We are very convinced that there won't be any material deviations from the numbers we have in our investment planning. Farhan Faruqui: And just to add to that as well, Tom, no deviation. All of those investment asks for both Suncorp Bank integration as well as the single customer front end are fully baked into our 5% reduction in total cost for '26. Thomas Strong: Okay. That's very clear. And just a second question, if I can. As the Suncorp customers have migrated and we move to a single customer front end, can you just talk about any sort of pricing decisions you'll have to make? I mean if I look at Suncorp customers today get a slightly sharper mortgage rate and a little bit better in terms of TDs and savings. Does this move to a single front end so you need to harmonize some of those different product pricing between the ANZ and Suncorp brands? Nuno Goncalo de Macedo E de Almeida Matos: Yes, undoubtedly, our competitive ambition is to have one face to the market, one face in terms of one product suite, one brand and to have a very simple offer to customers. Now when we say customers, we should talk about segments of customers, which means we might have a specific proposition for segment A, don't read that at Suncorp and then other proposition for segment B and so on and so forth. So yes, there will be inevitably a certain level of harmonization. We don't believe that it will impact at all our competitive position vis-a-vis Suncorp customers. Operator: Your next question comes from John Storey with UBS. John Storey: Just 2 questions from my side. Obviously, there's a big focus on ANZ lifting its revenues over the next few years. I'd be interested if you could just provide a little bit more detail just on the revenue trends that you've seen quarter-on-quarter. It looks to us like operating income is down roughly about 1.9%. Maybe a little bit more detail just on that split between NII and noninterest income would be useful. Nuno Goncalo de Macedo E de Almeida Matos: Sure. Well, we are absolutely committed and a lot of our attention is dedicated to make sure that growth is part of this journey. And that was very clear when we published the ANZ 2030 strategy. Now I would say we want to deliver profitable growth. We are not focused on inflating our balance sheet just to show growth and hurt our shareholders and our returns. When we started this journey some months ago, we read quite well our starting point. We read quite well our business capabilities, and we were very clear on which divisions were performing well and which divisions were not performing well. And which geographies were performing well and which ones were performing less well. We also were very clear about -- we took into account our risk management perspectives and capabilities and our regulatory stance. And we read well our returns, our capital levels and our dividend outlook. We took all that into account. And I believe that we set a very clear strategy to address ANZ from a short-term and long-term perspective, right? We communicated 2 phases. In the first phase, which we -- if you want, we make it tangible by always reporting on our 5 immediate priorities. Those are foundational elements. It's important that we understand that without those elements, the company will not be able to run as fast as it can in a sustainable manner, and we are thinking long term for this company. We want this company to be in a fantastic position to run fast in a sustainable manner. And that's '26 and '27, as we said, right? Beyond '27, we expect to grow and outperform the market in a profitable manner, in an accretive manner. And that's based in improving the customer experience, especially in retail and business banking, in improving our propositions, in strengthening materially our capacity to distribute our products, both from a digital and human perspective and to really focus on being a service bank. We are not a lender only. We are a 360 bank that want to be with customers every single day, and that's transaction banking, right? We also said that we would deliver returns improvement -- improved returns in each phase of our strategy in both phases as we are seeing. But the profile of that improvement is different from -- between Phase 1 and Phase 2. In Phase 1, the one we are now, I think you can observe significant improvements in how we are managing productivity and results are coming out of it. Cost management discipline, structure discipline, organizational design discipline, significant improvements in margin management and in return management and in capital management, which means we want to generate organic capital. We want to be sustainable and accretive. We want to set the way we compete in our own merits, not on pricing only. And we want and we need to increase significantly the way we manage risk. That's all going on. Now silently, but decisively, we are investing in order to be credible in our commitment to accelerate growth beyond '27. And that means improving customer experience, especially on the 2 divisions we said, which undoubtedly are our biggest opportunities, if you want. We are building propositions, especially for the segments we announced, affluent and migrants, which will be launched in due time, even though we are already delivering some tactical improvements. We are, as we speak, replatforming our call center, improving the quality of our ATMs, launching a single customer front end, so important in 2027. In wholesale, we continue silently to improve our digital transaction banking platforms, not only in Australia, not only in New Zealand, but also in our international network. What I'm saying is, at the same time, we put the company in good order and we set the foundations. At the same time, in parallel, we are improving our capabilities. So undoubtedly, our revenues will improve, but they have to be accretive. They have to deliver good returns. That's our ambition, and that's our commitment. And I think, to be honest, the consensus of the market is agreeing with us. That's what -- that's where the consensus is, is a company that needs to transform itself in order to grow faster. What I can assure you is that we are obsessed with that, but we will not do it without having the right foundations. It's better for shareholders to do it this way. Farhan Faruqui: I can just add, if you like, just on the quarter-on-quarter comment, would you like me to answer that now? John Storey: Fine, I'll take it with you, maybe chat a bit later. I just got another one, just quickly on the collective provision, right? I mean Slide 73 and 74. It looks to -- sort of looks to me like you've basically taken effectively a charge of kind of $200 million, right? Obviously, the economic overlays and the reweightings, as you called out, a big driver of that. But if you look at actually how the model spits it out in terms of where the provision actually sits from a divisional perspective, it looks like it actually kicks a lot of it out actually into the Aussie Retail and institutional divisions. I just wanted to ask like why would you not take a more subjective view on increasing the overlays possibly into the business and the Private Banking division, right? Farhan Faruqui: So no, thanks for that. Look, I think we've -- again, I mean, this has been -- there are some overlays that we've also taken, which we haven't described in great detail. But there are on general macro uncertainty, obviously. There is no trend or any particular impacts that we're starting to see in our Business and Private Bank. And there are also offsetting impacts because where we add some provisions, we also have had reductions to offset the increase in the scenarios as well. So there's been a bit of pluses and minuses. I'm happy to walk you through it in more detail, John, when we speak later. But it's not that we chose not to take in Business and Private Bank. All divisions were impacted by the shift in scenario weights, but there were offsetting impacts, which had different outcomes for each division. Operator: Your next question comes from Matthew Wilson with Jarden. Matthew Wilson: First question, how will the pace of the business banking transformation to accelerate growth and lift returns be impacted by the current macro uncertainty that you sort of outlined, given that segment is front and center of the impact, does it create opportunity? How do you avoid adverse selection and the 50% new bankers? What is that in absolute terms? And where will they come from? Nuno Goncalo de Macedo E de Almeida Matos: Yes. Important topic undoubtedly. The transformation of a business, it's about building capabilities, right? So in that regard, the question could be, does that -- do we deviate from our initial plan vis-a-vis the cycle that we might be facing. I wouldn't think so, meaning having to build a new digital front end, what we are doing, it's something that we will do it in any case, right? And we are not going to reduce the pace of our digital capabilities in business banking, be it on the small business side, which is single customer front end or as we've been saying, or building transact -- bringing Transactive Global, which is our institutional platform into the business banking bigger customers in that segment. Those 2 platforms will continue to be upgraded. One built, the other upgraded continuously. We are actually launching in the second half, a very important release of improvements for business banking customers from Transactive Global as an example. So that does not change. In terms of the bankers, and this is an important element, we need on our bankers force, sales force, we need to do 3 things. We need more. Undoubtedly, we are underweight versus the industry for a size of our ambition. That's no doubt about it. So the 50% increase stands. We might fine-tune it according to the cycle to your point, but stands by 2030. We need better banks -- better bankers, and that means train them and skill -- making sure they have the right skills to a different level. And the launch of our Banker Academy, the new Banker Academy is a reality, and we are going to start having intakes in that academy. We need to significantly have better bankers to face customer needs and the competition. And we need to equip them better with CRM tools. The fact that we, in this half, launched a new CRM platform for them with the Agentic AI was a big milestone. So I would say, in terms of infrastructure capabilities, no change at all. We are fully committed to improve the platforms, to improve the CRM tools, to improve their skills. In terms of how fast do we go on the 50%, of course, the cycle might inform you if you should go faster or not. It's too soon to say. At this point in time, our appetite has not changed a bit. So we are committed to accelerate, if possible, anything we can do in that segment. Matthew Wilson: That's very clear. And just one final one. In your sort of opening remarks in the press release, you mentioned that there's been no material change in the overall borrowing behavior of your customers. If deterioration did materialize in the next 6 to 12 months, as is usually the case when that happens, you see a sort of rapid drawdown of facilities. Is that the sort of leading indicator that you're pointing to? If we did see a pickup in system corporate credit growth due to that, then that would be telling us that things are getting a bit tougher in reality. Nuno Goncalo de Macedo E de Almeida Matos: Undoubtedly, that's one, okay? That's a very important indicator when companies start to draw in their liquidity lines. That's one undoubtedly. But to be honest, there are also other indicators that we should be looking into it. Traffic on our highways, on our streets, that's a very important indicator. Discretionary consumer spending, a very important indicator. So there are some leading indicators that we are also looking into it and many others, to be honest. But that one is a very important one. To be honest, so far, yes, there are some cases, but it's still very, very shy. But again, this crisis is still at the beginning, to be honest. These are weeks. It takes some time to really unfold. Hopefully, we will not, but we can't rule out a more nasty environment undoubtedly. Farhan Faruqui: But just to add to that point as well, Matt, as we look forward and particularly when we talk about capital, we have stressed our capital to see if there was a more elevated level of corporate borrowing, what would be the impact from a risk-weighted asset perspective and capital consumption standpoint so that we can be comfortable that we can continue to accommodate the DRP as well as dividends going forward. Operator: Your next question comes from Andrew Triggs with JPMorgan. Andrew Triggs: First question, please. You talked quite a bit about your mortgage growth ambitions into the middle of this year. Can you touch a little bit more on both the Business Banking and Institutional division side of things on the -- sorry, on the latter, noting that the volumes were soft in the half, and it looks like that was more about the Australian division rather than currency impacts that tends to be the division which is harder to forecast in terms of loan growth. Nuno Goncalo de Macedo E de Almeida Matos: Sure. First, I would like to remind or to highlight again what our strategic stands, okay? We see ourselves as a transaction bank, meaning we want to serve customers holistically. We want to be with them on a day-to-day basis, which means we want to be their main bank for their accounts, for their payments, for their FX, for their 360 needs, which include obviously lending. But we are not a lending-driven organization, just to be clear. We are a customer-driven organization, certainly in wholesale. In terms of the second half and obviously not guiding too much, we would say, first, it's uncertain because the cycle is just unfolding at this point in time. But both in institutional and in Business Banking, on the deposit side, the behavior was good or at market. In Business Banking, we feel we grew in deposit side with markets. And in institutional, we feel that it was a good performance. On the lending side, I would expect to accelerate. Now caveats, the cycle. The cycle will inform us if this element I just quote, it's possible, reasonable, doable, et cetera, or desirable. But at this point in time, we think it will be better. In Institutional, I want to be very clear. We don't target lending growth, okay? We remain very flexible. We target customer 360 relationships, and we target flexibility and lending is a part of that relationship. This is very, very important from a return perspective. We want an institutional business that is profitable and is customer focused. Andrew Triggs: And just in terms of the credit quality looking forward, obviously, you have a very strong weighting towards institutional, which is very high-grade customer base. Can you just talk a little bit more about some of the, I guess, the more energy-exposed sectors within that portfolio and how resilient those customers are, especially given they have, I guess, better access to capital markets and the like versus SME customers? Nuno Goncalo de Macedo E de Almeida Matos: Sure. I will give you 2 or 3 data and then Farhan, you can add for that. Our institutional portfolio is 83% investment grade globally. Our international network, it's 91% investment grade. So it's a very robust portfolio. It's a portfolio that has been year after year for almost a decade showed extremely low loss profile. And this is not, in our opinion, a coincidence. This is the result of a decade of strategic shift from a lending-driven business to a customer-driven business focused on transaction banking on customers that really value ANZ because of its regional presence in Asia Pacific and its global presence as a capital provider. So it's consistent -- and we don't expect to change. But obviously, the cycle is here to test us. With that, Farhan, would you like to add some additional elements? Farhan Faruqui: Yes. Look, I think, Andrew, I mean, I think Nuno covered it quite well. I mean we talked about some of the statistics, and I think it's worth just repeating them just to make sure that we are all consistent. But as Nuno said, over 90% of our international exposure is investment grade and is largely driven by high-grade corporates as well as large financial institutions and sovereign exposures. So it's a very well-secured portfolio from that perspective and has shown resilience, as Nuno pointed out, over the years. 92% of all of institutional is investment grade, if you look at it from an ex Markets perspective. Our loss rate has been very low. And if you look at our -- some of the exposures that we've had to our multiple companies, including energy, these energy companies are generally very high-grade companies who operate in the global space and have not shown signs of stress. So of course, this is an area which we continue to watch. But given the level of coverage that we have from a provisioning point of view in institutional as well as overall for the group and the high quality of the portfolio that we carry in institutional, we feel pretty comfortable with where we are in terms of our provisioning level. Operator: Your next question comes from Brian Johnson with MST. Brian Johnson: And just congratulations on the cultural reset that we've seen at ANZ. There's a lot to be admired. Against the backdrop of that, I just had 2 questions, if I may. The first one is just on the New Zealand dollar hedge. When I have a look at Page 70 of the 4D, it seems to be declining. When does it basically run out? And when would you be calling out if the New Zealand dollar continues to be where it is, when would you be specifically thinking that this would cause a negative delta in the reported earnings? Is it FY '27? Or is it the second half of FY '27? Farhan Faruqui: Thanks, Brian. As you can see in the hedge balances that we have right now in New Zealand dollars, we have about just over $2.5 billion of existing hedges at about NZD 1.10. Assuming the FX rate stays exactly where it is today, we expect to see continued benefits coming through in '27 as well, slightly less than what we've seen in '26 or what we will see in '26, but they will continue through '27, and we would expect that all things held equal, if rates don't change, then if there is any headwind, that would happen closer to the second half of '28. Brian Johnson: So, Just -- Farhan, just having a look at Page 70 of the release, we can see that it looks like you're actually reducing the size of that hedge. Like a year ago, it was NZD 3.2 billion -- it was NZD 3.1 billion at September '25. Total hedges were NZD 3.2 billion. It's now down to NZD 2.5 billion. You're hedging the statutory earnings, doesn't -- just the quantum of it, doesn't that actually imply that it starts to bite in the second half of '27? Farhan Faruqui: We have modestly reduced New Zealand dollar hedges at these levels right now, Brian, but our estimation is that we're in good shape for the next 12 to 18 months, which should take us closer to the end of '27. And then we'll start to see some headwinds coming in '28, a function of what the rates are at the time. But we expect closer to the second half of '28 for any material headwind. Nuno Goncalo de Macedo E de Almeida Matos: And what is important to say, Brian, is that our strategy to hedge our FX exposure of New Zealand dollars and U.S. dollars has not changed. So we continue to hedge. We obviously have a dynamic approach to -- depending on the levels of New Zealand dollars, but the strategy to hedge continues, has not changed. Farhan Faruqui: As well as U.S. dollars. Brian Johnson: Okay. The second one is that if I have a look at the slides at the back on asset quality, for example, if I have a look at Slide 83 in what I think is pretty small text, it says that you've got $1.4 billion of commercial property lending in Asia outside of China. That seems to me like quite a big number, particularly given that the disruption that we're seeing in the Middle East probably has a disproportionate impact in basically Asia as opposed, for example, to Europe. When we have a look at the slide on the long-run loss rate, it seems to me that basically COVID -- the GST wasn't a big event in Australia. COVID, we had massive government intervention. The last time we've really seen a cycle in Australia was 1992. But I'm just wondering, with your downside scenarios and your severe downside scenarios, can we get a little bit more granularity on when you are assuming the Middle East Gulf opens up? For example, there's reports that it may not be open until the end of August, and that's one of the more optimistic assessments. There are ones that are much longer. Could you just give us a little bit more granularity? Because when we have a look at your ECL provisioning today, based on what we've seen from NAB and Westpac, it looks that have preguided on this, it looks to be a little bit light relative to peers. And I just want to assess whether there's a risk when we're coming back at year-end that we see further top-ups. Farhan Faruqui: There's a lot in that, Brian. So I'm going to try and see how best I can address that, and I'm happy to have obviously a longer conversation later in the afternoon. But look, when we looked at -- let me start first step back and look at the broader collective provision levels. As we consider that collective provision balance and the change and the shift to the downside to the severe scenarios from downside by an additional 2.5%, we took a fair bit into context. We obviously wanted to -- we took a balanced view in terms of where the Middle East conflict is going to take us. Obviously, there is no ability to forecast when exactly it will end. But the shift from downside to severe of 2.5% was a reflection of the potential that this war could continue for a period of time. The second part that we considered was that we are still 52.5% weighted to the downside, which reflects the fact that we have a cautious view of the next few months as this war situation plays out. The third, of course, was the fact that we have a strong coverage, as I mentioned, even in high stress periods, I mentioned the last 1 year and the last 3 years where we've had 13 and 20x coverage on individual provision losses. But even if you were to go back to all the way back to GFC, even in the high stress years, we've had close to 5x coverage. So it has -- we've had -- our portfolio derisking has actually stood the test of time over the years where our individual provision losses have been well and truly covered by our collective provision balance. So as we took all of those things into account, we felt that the shift and the change that we've made, which, by the way, is equivalent to the percentage shift that our peer banks have done in terms of 4 basis points of collective provision coverage is consistent with what the others have done. But that having been said, I think it's important, Brian, that we're not -- this is a -- obviously, this scenario will continue to play out. And we are obviously very closely monitoring how the situation evolves, and we'll continue to ensure that our provisions are appropriate in the settings based on -- and the settings are appropriate based on how the situation evolves. So I think at this point, our view, as we said earlier, even on a 100% downside scenario, as I mentioned, we have $65 million higher collective provision levels if we go to 100% downside. And we'll continue to monitor that as well. Our portfolio quality, we've talked about the lowest loss rates for the last few years relative to our peers, very stable loss rates over the last 3 halves and a very different portfolio, if you like, relative to our peers. So it's very hard to make that peer comparison given our portfolio and given the derisking that we've done over the years. Brian Johnson: I suppose the issue is though, Farhan, it wasn't that long ago that you used to disclose the long-run loss rate and it's less than a year ago, it was 18 basis points. Farhan Faruqui: Sure. And Brian, we did update. We did update that. Brian Johnson: And It's kind of disappeared now. Farhan Faruqui: Well, it's not disappeared. What we've done is we've basically tried to reflect the current portfolio that we have and applied the loss rate to that portfolio mix. So when we apply that -- when we apply long-run loss rates to our current portfolio mix, our long-run loss rate will be about 11 basis points. We are currently at 4. Operator: Your next question comes from Carlos Cacho with Macquarie. Carlos Cacho: First, I just wanted to ask about kind of mortgage growth. You talked about targeted growth in certain segments. Can you give us a bit more detail where you're targeting? If I look on Slide 9, it does look like at the moment, pretty much all your recent growth has been driven by investors and in particular, IO, where from what we hear from brokers, you're well below peers in that pricing. Is that the primary segment you're going after the investor segment, just given, I guess, slightly higher margins. And so it's maybe a little bit more accretive to compete aggressively on price there? Nuno Goncalo de Macedo E de Almeida Matos: We are going to segments in general. Obviously, we are targeting the whole market. But we price statically, as we said at the beginning, to segments that we believe are more profitable when you take into account returns and risk, obviously. And that enable us to avoid a previous stance where we were at discount for the whole market. So yes, we have been much more considerate at the time of choosing where we apply some additional, if you want, relaxation in pricing. But in general, especially in the bigger segments, talking about the owner-occupied LTVs below 80%, we are either the second or the third among the 5, and we feel comfortable to be in that position. Carlos Cacho: And then just following up on Tom's question about kind of aligning products with the Sun migration and specifically looking at potential margin impacts. At the moment, your ANZ Progress Saver pays a rate that's 130 bps below the equivalent Suncorp product. If you were to align the rates on that, it would appear like it's a pretty significant margin headwind, potentially as high as 4 or 5 basis points. How do you think about that? Are we looking at potentially having another deposit product to avoid that margin headwind? Is that a gradual process? Or does that kick in when the Suncorp customers migrate? It just -- it would be good to understand how your thinking is about aligning those products where there are pretty material differences in the rates or the types of products they offer. Nuno Goncalo de Macedo E de Almeida Matos: Sure. An important question undoubtedly. As I said, we will have, and we can talk about Suncorp, if we talk about Plus. We will have one set of products under one single brand, a simple set of products. But that does not mean that we have only one product on each family. We will have several savings products and several potential TD products, obviously, and so on and so forth. So the way we are going to migrate those products into our family, we'll have to apply to this principle. We don't expect to have material impact due to the fact that at this point in time, we have 3 different platforms with 3 different products because we feel that they represent different customer needs and different customer profiles. Carlos Cacho: So essentially, there will be 3 Bonus Saver products, 3 Online Saver products once we have the new single customer front end is what it sounds like. Nuno Goncalo de Macedo E de Almeida Matos: We will manage that accordingly. And again, customers choose the products they want, right? And we are obviously going to simplify and harmonize with time, but that does not mean that we'll have one single offer for everybody from the start. Operator: Your next question comes from Jonathan Mott with Barrenjoey. Jonathan Mott: I just have one question. And sort of sitting back and thinking about the 2030 strategy since it was announced back in September to where we are today, it's pretty clear that the costs are going really well. You're doing a great job on simplifying the business. But the one thing that's really changed has been the cash rate environment and the bond yield environment. And obviously been very beneficial to industry margins. And the industry revenue seeing the other bank results and updates and preannouncements coming out, looks like it's the strongest revenue environment we've seen in a very, very long time. Yet when we look at ANZ, the revenue this half was flat. So I understand the need to get productivity, you need to get the Phase 1 right before you get to Phase 2, and you will see the revenue benefit then, but your revenue share is really suffering through this process. So my question is, if you look back and think about it, was that something of a mistake that you've lost out on so much revenue relative to your peers? And do you really need to use some of the higher interest rate benefit coming through to get that revenue moving again? Nuno Goncalo de Macedo E de Almeida Matos: Listen, I think I already answered that question very clearly. So I'm not so sure if I should repeat it or not, but I will with pleasure. Jonathan Mott: Yes. It's just the revenue environment is very different to when you made these decisions. And we can understand the process that you're going through. But really, the opportunity for revenue is very, very large at the moment. It's the longer it takes to get there, it's costing you more money. Nuno Goncalo de Macedo E de Almeida Matos: Yes, I couldn't agree more with you. So I'm going to repeat what I said. We have read the situation of the company 6 months ago or if you want 12 months ago, we did a very clear review of where we were as a company. And we looked into the business capabilities we had, especially where we were lagging the markets in retail and business banking. At the same time, we are making sure we take advantage of our engines that are already in good shape, talking about institutional and New Zealand. We also read our stance in terms of risk management and our regulatory obligations. And if you recall, we were returning very close to cost of capital and our capital was below 12%. And there was debate about our dividend sustainability, right? So we have to face reality. We have to face a starting point. And then we draw a strategy and hopefully, we executed with precision. We were absolutely clear on that strategy, right? We said at the beginning, the levers will be productivity, cost management, structure, margin management, capital management, risk management, return management. I think we have been delivering on it. In parallel, we also said that we are building the capabilities in order to be able to compete in a profitable manner. And this is very important. We are not here to write tickets to our balance sheet, if they are not profitable, if they're not accretive. Shareholders don't pay us for that. Shareholders pay if we write good business, profitable that allow us then to share with them the benefits of that business. And that comes with time and with patience, with a long-term view, really thinking about shareholders and not trying to impress in the short term. That's what we are doing with a lot of conviction, with a lot of discipline, but with a lot of patience. So yes, we could discount and go back to our old model of competition and get more tickets. That wouldn't help shareholders. Frankly, it might not even help customers because it would distract us of the most important thing. We want to compete on our merits, better experience to customers, better propositions to customers, better channels that are able to do their job more effectively and a bank that is not a lender, a bank that is with customers every single day and does fantastic service on their accounts, on their payments, on their effects, on capital-light products and also lend with confidence. That takes its own time. And we will not deviate from that. And I think that's for the best interest of the shareholders, as I think it's obvious already. Thank you. Operator: Your next question comes from Richard Wiles with Morgan Stanley. Richard Wiles: I just have one question as well. Farhan, you talked about the group margin being biased to the upside in the second half of '26. Could you talk about the outlook for margins in the Institutional division and also in New Zealand, please? Farhan Faruqui: Sure. I think -- thanks, Richard, for that question. I think it is going to be slightly different outcomes for different divisions. I think that the potential beneficiary of the tailwinds that we have are probably more business and private bank. I think New Zealand, we expect would start to stabilize in the second half. Obviously, it had the impact of the significant negative -- sorry, significant rate reductions -- sorry, significant rate changes over the course of the last half, but we expect to start to see them stabilize. I think Institutional will remain under pressure in terms of the U.S. dollar rates that we talked about as well as potentially competition, both in lending and in deposits. So we think that business banking would improve. The New Zealand business will stabilize. And I think overall, with the gives and takes, I think the retail business probably has more tailwind as well versus the headwinds. So that's sort of the divisional view. But overall, from a group perspective, Richard, we expect that it will be in the upside. Now as Nuno said, there are other factors which move things around a little bit, but it's a bias to the upside. Richard Wiles: Okay. Could I just follow up on the institutional? I think in the half just gone, the margin ex markets in Institutional was broadly flat despite the headwind that you would have had from the falling U.S. dollar rates. The U.S. is on hold at the moment. I mean it's unclear what they'll do on rates. But certainly, after this week's announcement, there's -- it looks like the prospect of rate cuts has been pushed out. So given the stable margin in the last quarter, why aren't you more positive on the outlook for the Institutional margin? Farhan Faruqui: No, I'm always very confident of the fact that Mark and his team managed the institutional margins very well. I was just pointing out the fact that should there be any U.S. dollar rate reductions, then that would obviously put pressure on institutional margins. Of course, if that environment doesn't materialize, then we think there is a very good possibility that institutional margins remain stable, maybe slightly up. Operator: Your next question comes from Matt Dunger of Bank of America. Matthew Dunger: If I could ask on the Institutional business delivering the vast majority of group deposit growth in the half, and you called out a strong result on operational call. Clearly, you're not leaving with balance sheet on the lending side. So what's happening at the customer level? Where are you winning new flows? And do you think you can sustain this momentum? Nuno Goncalo de Macedo E de Almeida Matos: Yes, good question. Well, undoubtedly, our performance in the -- has been for quite some time on the transactional banking side, has been, I would say, very remarkable for quite some years. And we have been growing deposits, operational deposits at double-digit rates for some time. And that's on top of, on one hand, our focus on that type of business and on the consistent investment we have made on having leading platforms for payments, for FX and for markets. So there is a clear strategic rationale for these results. On the lending side, it's fair to say that we have been cautious, and we have been very mindful of returns. We also know that transaction banking and capital finance, they go hand on hand. We know that very well. So we stand very much ready to support our customers. And we are absolutely willing to put more capital into work in this segment, undoubtedly. It's also fair to say the following. One of our major sources of growth in Institutional has been with financial institutional customers, which, as you know, are customers that are less demanding on finance. They are much more demanding on markets business and then on transactional banking. The fact that we have been growing a lot in financial institutions allow us to be less dependent on capital deployment, that this is also a strategic direction that we took. So on one hand, the type of customers we have been banking are more capital-light and we have been growing. And on the other hand, we are return conscious. But above all, we are absolutely, absolutely ready to deploy more capital, certainly now that our capital levels are at a healthy level in this segment, we want to. But what we will not do is to go into a capital deployment bridge as to -- if you want to show up in our balance sheet that has limited value, as I think we know. Thank you. Matthew Dunger: Could I just follow up with the franking rising to 75%, your lending growth has been targeted towards Australia. So just wondering how important it is to sustain this, obviously, raising the franking positive for your retail shareholder base? Nuno Goncalo de Macedo E de Almeida Matos: Yes. I can talk about that and then Farhan, if you want to add something. But our strategy, as we announced it 6 months ago, our strategy is naturally franking accretive, right? Remember, we clearly said we have 2 divisions that are performing well, Institutional and New Zealand. Those divisions -- well, one is -- New Zealand is outside, obviously, Australia. And in Institutional, there is a part outside of Australia. And then we said our biggest opportunity, our biggest gap in terms of capabilities and obviously, in terms of results is retail Australia, Business Banking Australia. So as we close the gap in these 2 business, which is, again, fair to say initial phase more on the productivity side, second phase, more on the revenue side. Those 2 business will become more important on the mix of business of ANZ, which is accretive to franking. So this is to say this 70% to 75% we expect to absolutely be sustainable. And obviously, this is in the best interest of shareholders. If you want, when we announced an $0.83 dividend and we upgrade franking from $0.70 to $0.75, that actually equates to a $0.02 increase on the net dividend for those type of shareholders. Farhan, do you want to... Farhan Faruqui: Yes. I think you've covered it really well, Nuno. I would just say, as you know well, Matt, that obviously, our franking is an outcome of our strategy, not the other way around. And as Nuno said, our strategy is very franking accretive by definition because it is very much focused on the Australian geography. In fact, our entire 2030 strategy is predicated on the fact that not only will we continue to extend the lead in our businesses in New Zealand and Institutional, but we will have a substantial uplift in our businesses in Australia Retail and Australia Business and Private Bank. So therefore, we obviously are expecting to see franking to continue to increase, as I said, it's in line with our strategy. The other point, which we've said before several times, as you know well, is that we have no incentive to keep any franking benefits on our balance sheet. Our intention is to try and distribute as much of the franking as possible because it doesn't benefit us, but it is a significant benefit in the hands of our shareholders. And we want to make sure that we continue to enhance that value for them as we go forward. Operator: Your next question comes from Brendan Sproules with Goldman Sachs. Brendan Sproules: Brendan from Goldman Sachs. I just want to follow on, on Slide 54 around the revenue momentum within the Institutional division. Obviously, over the last 4 halves, you've had pretty flat revenue growth from a customer franchise perspective, particularly in the non-lending space despite the fact your operational deposits are kind of up 20%, I think, since September 2024. To what extent is rate rises important to really get the revenue growing in this business, particularly now that you're not as focused on lending as you may have been in the past? And then I have a second question. Nuno Goncalo de Macedo E de Almeida Matos: Good. Thanks, Brendan. So obviously, for a transactional banking business, not surprisingly, the rate levels are important. That's very clear, and it is what it is. Having said that, this is a very capital-light business and the fact that we have been growing volumes at a very good pace, above market, it means that the sustainability of that flow, that capital-light flow is very strong, right? And it's on top of great capabilities. On the lending side, we don't target lending institutional, but again, it's very much part of our offer. We just don't deploy capital without a clear rationale for deploying capital, right? And it's within a customer relationship, which means it's within a symmetrical and mutual benefit relationship with our customers. And I believe the fact that we are, by far, the leading institutional bank in Australia and New Zealand tells you that customers really value the way we serve them and we operate with them. So yes, rates are important, taking into account that our replicating portfolio takes a lot of that volatility. So the same way we were hurt when rates start to go down in the last half, it's fair to say that we will benefit going forward. But above all, what we are looking in this business, it's sustainability in a capital-light business. And that's one of the ways to make sure that an Institutional business is profitable, right? And it's profitable in a sustained manner and is not dependent so much on cycles of credit, on credit spreads, on credit demand and potential losses. So we are much more comfortable in being the bank of the day-to-day of companies in a 360 manner, even though, as you said, we will have some fluctuation on rates, but I prefer a fluctuation on rates in a capital-light business than a fluctuation on credit cycles, to be honest. Farhan Faruqui: If I can just add one other point to that Nuno is absolutely right, these businesses are, by definition, leverage to the upside on rates. But there is the other element of the fact that Nuno mentioned volumes, but we also very carefully manage and monitor the cost per dollar of FUM in this business because effectively, at the end of the day, we're seeking returns. And those returns from the cash management business drive a number of things. They drive what the cost of dollar per FUM is even if rates aren't going up. We monitor volume, obviously, but also it is a very important feeder product or very much of an integral product to the broader businesses that clients do, whether it's on trade, whether it's on markets flow business, including FX, et cetera, which are intricately linked to payments and cash management. So it's -- it is a very central part of the ecosystem of what we do with our customers, which is the point that Nuno has made around transaction banking and services being center of plate for our customers in institutional. So it has a number of other value drivers, which don't necessarily always show up in just fees and commission, for example. Brendan Sproules: Maybe if I could just follow on from that. I'm just trying to sort of understand where Institutional sits in the longer-term 2030 vision. Obviously, a 13% return on tangible equity is your group target. Currently, Institutional is your largest contributor from a revenue perspective. It's 30% and its return on tangible equity is 14%. It's been pretty constant. Just given what you outlined there, am I imagining that this will still be your biggest contributing division when we get to 2030? And because of the capital-light nature of how you want to run this business that we can expect that return on tangible equity to grow and be a major contributor to the group's overall target of 13%? Nuno Goncalo de Macedo E de Almeida Matos: Yes. Important matter, which is the mix of business and how the mix of business will evolve with the strategy. As you know, we didn't guide on mix of business in that regard. Having said that, what I think it's disclosable is the fact that Institutional is a business where we are a leader, right? We are a leader in Australia, in New Zealand, and we are a highly competitive franchise, especially in Asia Pacific. Leadership has a benefit. It always -- you always over-index in returns when you are the leader, right? So this is a jewel we have. It's a significant part of our business. We want to make sure that, that business continues to be the leader. In that regard, you should not expect a significant reduction of the mix -- in the mix of ANZ in Institutional. Also in that regard, we want to make sure that Institutional remains a very profitable part of our franchise. We don't want to, again, depend on credit. But -- and this is an important element for the cycle, the fact that we have good levels of capital in a cycle where credit spreads potentially will improve, we stand ready to benefit from the improvement of credit spreads because, again, we are a capital finance provider. So Institutional will remain very important. We will remain a leader in the market we just mentioned. It will continue to be a capital-light business. We don't expect degradation of returns, but there will be obviously cycles. I think with that, you have an idea where we want to stay with this business by 2030. Operator: There are no further questions at this time. I'll now hand back for any closing remarks. Nuno Goncalo de Macedo E de Almeida Matos: All right. Thank you, Darcy, and thank you, everyone, for joining us today. Before we wrap up, I would like to reiterate our 3 key messages. First, our transformation is running at pace, and we are making good progress in executing our 5 immediate priorities safely, sustainably and on time. Second, in parallel, we are investing in line with our ANZ 2030 strategic initiatives to deliver to our customers, to accelerate growth and to outperform the market beyond '27. And very important, we are already delivering materially better returns for shareholders. I look forward to consistently updating you on our progress. Thank you so much.
Operator: Good day, and thank you for standing by. Welcome to the Prosegur Cash Q1 2026 Results Presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Miguel Bandrés, Head of IR. Please go ahead. Miguel Ángel Bandrés Gutiérrez: Good morning to everyone, and thank you for joining today's call with Javier Hergueta, our CFO; and myself, will present our Q1 2026 results. The presentation should take around 20 minutes, in which we'll share the most relevant events that have taken place in the period for our business as well as our performance. Javier will review the period's highlights, key financials and our transformation progress, after which I'll share the main developments by region before Javier closes with conclusions and open the Q&A session. Should we not get to respond to everything in this session, we'll get back on any open topics on an individual basis. I want to again thank you all for your attendance. I remind everyone that this presentation has been prerecorded and is available via webcast on our corporate web page, which you can find at www.prosegurcash.com. But before we move to the financial results, I'd like to offer some context regarding the current landscape for the cash industry, which continues to show its resilience and the fundamental necessity our society has for cash. These pieces of information range from access to cash in Australia, the role of cash as a cautionary payment method in Europe, institutional protection of cash in Switzerland or the continued growth of cash in circulation in India. In the first news, we read from Business Insider that the European Central Bank advises holding cash is a key precaution to be taken in the current and growing uncertain environment in the Iran war, broader international tensions, cyber attacks, blackouts or multiple vulnerabilities in digital payment systems. This reminds us that cash is not only a payment method, but also a key element of resilience in moments of uncertainty. Next, as POLITICO Europe covers, Switzerland has decided to safeguard cash after a vote that has drawn broad international attention. This is yet another example of how both institutions and citizens continue to value freedom of choice in payments and the trust that physical money provides. Thirdly, the Monetary Brief from RBA Payments System Board states that authorities in Australia are reinforcing access to and distribution of cash. This is especially relevant for regional and remote areas and ensures that regulators continue to regard cash as an essential service that must remain available to all citizens. Lastly, moving to India, cash in circulation rose to a record level in January, increasing by 11% versus January 2025. This shows that in fast-growing and increasingly digital economies, cash remains highly relevant for everyday transactions and savings behaviors. All these cases emphasize the unique attributes of cash and its vital role for social and financial inclusion. As a market leader, Prosegur Cash remains dedicated to managing this essential infrastructure in close coordination with central banks and financial institutions. With this overview of the cash environment, I would now like to hand it over to Javier, so he can share with us the main highlights of the quarter. Javier Hergueta Vázquez: Thank you, Miguel. Good morning to everyone, and thank you as well for attending. The first quarter of 2026 has been a solid start to the year for our company. Despite an adverse foreign exchange environment, we have been able to deliver strong net profit growth, continue accelerating our transformation and reduce our net debt. All of this once again demonstrates the resilience of our business model. Our top line has shown organic growth of 3.2%, with Europe posting a positive 3.6% trend and building on past quarters. However, this good operating performance has been offset in euro terms by a negative 6.6% foreign exchange impact and a slight 0.2% inorganic effect, with which sales declined by 3.7% to EUR 497 million. Argentina continues to suffer very slow consumption, as we have shared in previous calls, due to the balancing policies the government has set in place. Despite the above, our EBITDA margin has remained broadly stable at 17.3%, in line with the 17.4% reached in the first quarter of 2025. EBITA margin stood at 11.3%, while net profit increased by 8.1% year-on-year to EUR 26 million, showing an improvement in the lower part of our P&L. Regarding Transformation, we continue to advance at a strong pace. These products grew by 6.2% and now account for 36.4% of total sales, 340 basis points more than in 2025. Cash Today continues to be the key driving force of such growth in the period. In terms of cash generation, free cash flow totaled EUR 6 million in the quarter. This has been achieved with lower working capital use than in 2025 and has allowed us to reduce LTM net debt by EUR 47 million. Lastly, I would like to mention the sale of the AVOS in Argentina and Paraguay as well as the cancellation of treasury shares following the buyback process, both of which are relevant milestones of the quarter. I want to underline that we are very closely monitoring the evolution of current geopolitical and strategic tensions, which can have an impact in our business. Despite this is yet to fully materialize, we can already observe an increase in fuel prices that we are in due course passing to tariffs and that should have a marginal net effect, while we have to follow the potential impact on fuel supply chain for which we had already set in place contingency measures such as building fuel reserves. On the other hand, we see that inflation is in an upward trend. This inflationary environment, if it is to stay, will have a positive impact in the speed of cash being used and hence, in our volumes despite lower economic growth. As well as we have read in the news, this growing uncertainty favors the role of cash and its resiliency to the system. As said, different levers that should have a net positive impact are to be monitored. In this context, continuing to control debt and focusing on growing sales to improve our profitability are critical. With this overview, let me now go into the financials in more detail. First, looking at our income statement, revenue reached EUR 497 million in the quarter. As shown on the right-hand side of the page, organic growth stood at 3.2%, while inorganic perimeter had a limited negative impact of 0.2%. Foreign exchange, however, negatively affected us by 6.6%, hitting Asia in a particularly strong manner. When adding all these effects, reported sales decreased by 3.7% year-on-year. EBITDA totaled EUR 86 million, and the margin remained broadly stable at 17.3% of sales, just 10 basis points below the level achieved in the first quarter of last year. Together with depreciation of EUR 30 million, this brings us to an EBITA of EUR 56 million and a margin of 11.3%. Further down the P&L, amortization of intangibles reached EUR 5 million, resulting in an EBIT of EUR 51 million, equivalent to 10.2% of sales. It is also important to note that the financial result improved significantly from EUR 12 million in the first quarter of 2025 to EUR 6 million in the current period. This allows us to reach an earnings before taxes of EUR 44 million, a 2.5% increase year-on-year and to improve our EBT margin over sales to 8.9%. Taxes totaled EUR 19 million, slightly below last year in absolute terms, and the tax rate shows a very positive 300 basis points decrease to 42%, result of active tax efficiency actions as well as an improved tax country mix, which we aim to sustain during the year. With all that, net profit reached EUR 26 million, growing 8.1% versus 1 year ago and representing 5.2% of sales. Consolidated net profit totaled EUR 25 million, up 7.8%, while earnings per share reached EUR 1.68, 8.6% more. I would like to underline the strength of our P&L, especially in the lower part, where the improvement in financial result and tax rate has allowed us to continue increasing profitability for our shareholders despite continued foreign exchange headwinds. Moving now to our cash flow and net debt position. This quarter reflects our consistent disciplined financial management. Starting from the already shared EBITDA of EUR 86 million, provisions and other items deduct EUR 20 million, while tax and ordinary profit amounts to EUR 20 million. Investment in CapEx totaled EUR 22 million in the quarter. A key positive development in the period has been working capital. Its use decreased to EUR 18 million from EUR 40 million in the first quarter of 2025. Thanks to this improvement, free cash flow totaled EUR 6 million, slightly above the EUR 5 million achieved 1 year ago. The conversion ratio stood at 75% and remains at a strong level, especially for demanding first quarter. After interest payments of EUR 10 million, positive EUR 15 million M&A inflows and other minor items, total net cash flow for the quarter was positive by EUR 7 million, a significant EUR 25 million improvement over the same period of last year. Our net financial position improved from EUR 711 million at the beginning of the quarter to EUR 700 million at the end of March. Including IFRS 16 debt, deferred payments and treasury stock, our total net debt stands at EUR 845 million with our leverage ratio at 2.4x. It's important to note that we've achieved a total net reduction of EUR 47 million over the last 12 months, once again, reflecting our disciplined approach to capital management. With this, let me move now to Transformation. Looking into Transformation, I'm very pleased to share that these products continue to grow their relevance and now represent 36.4% of total sales. Revenue from Transformation Products reached EUR 181 million in the first quarter, which is a 6.2% increase versus the same period of 2025. And this all despite as well being negatively affected by currency depreciation. This performance has been supported by a strong contribution from Cash Today. These solutions continue to receive strong customer acceptance across markets. Penetration over total sales has increased from 33% to 36.4%, implying a 340 basis points year-on-year improvement, clearly showing our transformation is advancing at a fast pace. With this, I would like to pass over to Miguel, so he can share with us the key developments in our regions. Miguel Ángel Bandrés Gutiérrez: Thank you, Javier. I would like to start with Latin America, our main region, which accounts for 58% of sales. Revenue in the region totaled EUR 291 million in the first quarter of the year. This implies a decline of 7.4% versus sales achieved a year ago, driven fundamentally by an adverse 8.9% foreign exchange effect. It's important to note that underlying organic growth has remained positive at 1.5%, again, despite the strong halt that Argentina's consumption continues to experience. Transformation Products have also had a very positive quarter. They grew by 5.5% to over EUR 117 million, despite the adverse currency environment and the penetration increased from 35.4% to 40.4% of sales, a significant 500 basis point improvement year-on-year. This development shows that Latin America continues to be a key region for the deployment of our value-added solutions and the customer adoption remains strong. Turning now to Europe that accounts for 32% of group sales. Revenue reached EUR 161 million, 3.6% more than a year ago. This growth is backed by a strong 3.8% organic growth despite a still hesitant economic activity and has had a limited 0.2% negative foreign exchange impact. It's encouraging that the positive trend in Europe continues to strengthen, confirming the good commercial momentum we've seen in recent quarters. Transformation Products in the region grew by 9.1% to EUR 53 million, and the penetration increased from 30.9% to 32.6% of sales, a 170 basis point improvement year-on-year. Europe is, therefore, contributing not only with growth, but also with a higher share of transformation sales that provides a balanced, higher quality growth profile for the group. I'll now turn to Asia Pacific, which represents 9% of group sales and continues to show very attractive underlying dynamics. Reported sales in the region reached EUR 45.3 million, a 2.6% decline versus a year ago. However, this figure is fully explained by a 12.9% foreign exchange impact and a 2.3% inorganic effect, while underlying organic growth remains strong in mid-double-digit territory at 12.6%. Operations in the region continue to evolve very positively with outsourcing opportunities being captured together with growing demand for our services, far outpacing local GDP growth. Transformation Products were broadly stable in reported euro terms at EUR 10.9 million, down 0.6% year-on-year. Excluding currency effect, they, however, have increased by 5.1% and penetration has improved by 50 basis points from 23.6% to 24.1% of sales. The region continues to offer significant growth potential in both the core business and our transformation solutions. Thank you for your attention, and I'll turn back to Javier, so he can summarize our main conclusions. Javier Hergueta Vázquez: Thank you, Miguel. I would now like to summarize our main conclusions. The first quarter of 2026 has been a good start to the year in which despite foreign exchange headwinds, we have delivered net profit growth, continue to accelerate our transformation and reduce our net debt. Reported sales declined by 3.7%, but organic growth was positive at 3.2%, and Europe maintained a particularly good trend at 3.6%. Asia Pacific also continues to show strong underlying growth; while Latin America, again, with the exception of Argentina, remains resilient in organic terms. At profitability level, EBITDA margin remained stable at 17.3% and EBITA margin reached 11.3%. Most importantly, net profit grew by 8.1% to EUR 26 million, emphasizing the behavior of the bottom part of our P&L. Transformation continues to be of growing relevance for us, having grown these products by 6.5% to EUR 181 million and now representing 36.4% of total sales, 340 basis points more than 1 year ago. Cash Today continues as a key growth driver. Cash generation has also been positive with EUR 6 million of free cash flow in the quarter as a result of improved working capital. This cash generation has led to a EUR 47 million reduction in LTM net debt, which results in leverage remaining within our comfort range at 2.4x. Additionally, during the quarter, we completed the sale of AVOS in Argentina and Paraguay that will continue to allow us to focus on our growth verticals. As well, we proceeded to the cancellation of treasury shares following 2025's buyback process. Thank you very much again for your attention. And now we would like to open the line to your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: The first one is about Argentina. Do you foresee any sign of sequential improvement this second quarter in terms of organic evolution? And I don't know if you could disclose what would have been the organic evolution in LatAm excluding Argentina? Second is about the sale of AVOS Argentina and Paraguay to the parent company. Could you disclose the impact of the revenues and EBITDA last year, just in order to have those impacts in the model? Third, about the working capital consumption. I know that first quarter is usually very negative due to seasonality, but we have seen more than a 50% reduction. Do you foresee this reduction sustainable or should we reverse in the coming quarters? And finally, if you could quantify how much the fuel cost represent over your total OpEx? Javier Hergueta Vázquez: We'll take the questions one by one. In relation to the first one on Argentina, despite the recovery being slower than initially anticipated and consumption still being low, we are starting to see some signs of improvement in April at the beginning of Q2 coming from some changes in the monetary policy in the country. Although we anticipate that, that recovery will still be at a lower pace than initially expected, but we are starting to see some signals then. And when we look at the picture ex Argentina in Latin America, what we see is a mid-single-digit growth in organic terms and also growth in euro terms close to that mid-single digit, which also is the same at the group level, not only in Latin America when we exclude Argentina out of the picture. In relation to the AVOS divestment, what you could expect is an impact in terms of revenues of around 1.5% to 2% on a 12-month basis, meaning that part of the impact you will see in 2026 and part of it in the first quarter next year. And in terms of margins, this transaction is accretive because the margins in the AVOS business is below the average margins of the group. When it comes to working capital, basically, I mean, we are seeing here the impact both from a strong focus on management our DSO and DPO, which has been reduced again in Q1 and also lower organic growth than in previous periods in Q1, so that explains a reduction that you've seen in the numbers. But in any case, as you pointed out, I mean, this tends to be seasonal. And at the end of the year, it tends to revert to lower levels. So we understand that the lower levels will remain for the later part of the year. And fourth question, not sure if I got it right. I think you mentioned the operating cost with... Enrique Yáguez Avilés: No. The fuel cost, how much... Javier Hergueta Vázquez: Fuel cost. Okay. Got it. Yes. Well, so I mean you know that fuel is one of the main cost components, of course, after labor, which is the biggest one for us. But what we're seeing here is that the increase that we've been experiencing since the rise in the geopolitical tensions, we are passing on to tariffs, so that's working in that front quite well. The other front, which we are working on is on preparing ourselves for potential stock-outs or disruptions in the supply chain. So we are adopting measures by making available additional deposits, flexible approaches to that just in case it happens, which is not clear if it is the case or not, but just in case it is. So for the time being, I mean, we feel it is pretty much under control. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Lorente from Santander. Manuel Lorente Ortega: Yes. So probably my first question is on Europe. We have seen somehow an acceleration in terms of top line growth, both at the core underlying business and transformational business with good and healthy plus 9%. So my question is whether you have winning a new contract, new clients or what is the reason behind that, let's say, improved backdrop? Javier Hergueta Vázquez: Well, I would say that the growth trend that you're seeing in Europe, which is on the 3.5% range more or less, it's quite in line with what we experienced at the latter part of last year. So it's continuing on that front. And that is, as you say, a result of both the Transformation Products and the core business performing in good shape. This is all despite a slower start, a bit slower start of the year in the ForEx business. It is true that the comparable base was not as demanding in Europe in Q1 as in other geographies, and it will be more demanding in the coming quarters. But we feel that given those are also the strongest periods for the ForEx business, we should be able to maintain the same growth pattern across the year. And I would say that it's the result of many customers performing well. There's not any special big contract. I mean, we've won some interesting contracts at Cash Today, which is performing very well. But I think it's the combination of a very good health all across the business in the region. Manuel Lorente Ortega: Okay. And then probably my second question is on the free cash flow line, especially on the provisions and others line. Working capital has improved very well in the quarter as you highlighted. But on the other front, provisions increased roughly EUR 15 million year-on-year. Is there any explanation on that? And how should we expect that line to evolve throughout the year? Javier Hergueta Vázquez: In that one, Manuel, what you see is mainly the combination of 2 factors. One is we've had some more cash outflow coming from payments on redundancies and some more losses or casualties in Q1. And on the other hand, the timing of some refunds mainly linked to taxations has been different. Those were coming in, in Q1 last year and this year, they're coming later in the year. So that part, that second part, should be neutralized or reversed throughout the year. So overall, the net evolution of it should tend to be more in line with what we had last year. Manuel Lorente Ortega: Okay. And just to finalize then, Q1 results were somehow supportive in terms of volumes and pricing, materially offset by FX headwinds. What do you see for the rest of the year? I mean this is going to be a year, to some extent, of limited top line growth and a more healthy bottom line expansion in a context of improved free cash flow? Or do you see room for acceleration in top line throughout the remainder of the quarter that might lead to, let's say, some top line growth at the end of the year because I'm seeing consensus and consensus is pointing to a very flattish revenue and EBITDA for the year, probably on FX? Javier Hergueta Vázquez: So I would say that the year has started quite in line with what we expected. So we were already aware that there was a tougher comparable base in Q1. Then trying to look ahead of us for the next 3 quarters, I think there are a number of factors on the table right now, which are difficult to ascertain. I mean, we have a geopolitical tension that was not there or at least not in such an intensity a couple of months back. We have to see what happens with the FX and also the expected evolution in Argentina, where, as I mentioned, there are some signals of recovery, but it will be quite gradual. So putting it all together, it's hard to say, I mean, how each piece will be evolving. But assuming that there's nothing too disruptive on that, I would say that the consensus as of today in terms of EBITDA, which is EUR 250 million-plus, sounds like a reasonable figure to me. But as I said, I mean, we'll have to see how things evolve because part of that is out of control for us, and on the rest, we are managing it as much as we can. And as I said, excluding Argentina, if you look at Q1, organic growth is at mid-single-digit levels, which, if the comparable basis starts to help, could be a reasonable target for us. But let's see how things evolve, especially the ones that are out of control in the coming quarters. Operator: [Operator Instructions] There seems to be no further questions at this time. I would like to hand back to the speakers. Javier Hergueta Vázquez: Well, thank you, everyone, for taking the time to join today's conference call. Should there be any further doubts or queries, as usual, our Investor Relations team remains available. And in any case, hope to speak again soon to all of you, and in any case, in the Q2 results presentation. So thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.