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Operator: Good afternoon, everyone. Thank you for joining us on today's webinar. Before we begin, I'd like to announce that we'll be referring to today's earnings release, which was sent to the newswires earlier this afternoon. I'd also like to remind everyone that this conference call could contain forward-looking statements about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management and are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are fully discussed in the company's filings with SEC and SEDAR, and the company does not assume any obligation to update information contained in this call. During the webinar, we will discuss certain non-GAAP financial measures. The non-GAAP financial measures are presented in the supplemental disclosures and should not be considered in isolation of or as a substitute of or superior to the financial information prepared in accordance with GAAP and should be read in conjunction with the company's financial statements filed with the SEC and SEDAR. The non-GAAP financial measures used in the company's presentation may differ from similarly titled measures presented by other companies. A reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures can be found in the earnings press release. Also, I would like to mention that following presentation, there will be a questions-and-answers session. [Operator Instructions] With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer. Frederick Vandenberg: Thanks, Michelle, and thanks to everyone for joining the call. I wanted to talk about a few main things before I hand it over to Assel and Jen for a little bit more detail on the finances and our marketing and sales strategies. The first is the Universal agreement. That shortly after we had the call last quarter or at the year-end, we came to terms with Universal on a longer-term agreement. That has been in the works for a reasonably long time. The core challenge was really aligning the priorities of multiple stakeholders, finance, which is under pressure to reduce costs and the operation promotion teams who are really focused on maintaining the effectiveness and the reach of the platform as well as senior decision-makers above them. Navigating these competing mandates really required a lot of stick handling, but the result is an agreement that we think works across all interests. It provides Play MPE a long-term anchor client that underpins the platform itself, provides revenue stability, opportunities for growth within Universal and future growth initiatives that really strengthens the company's platform and growth trajectory. This really -- this agreement really supports both of us for longer term and expanding and working through as a partnership going forward. And we're really excited about it. I'll go through some of the terms. First, the fees. Ultimately, the structure of the agreement has changed such that the fees now cover use of the existing platform, but excludes any development that they require. And then what we will do is really provide a justification and ROI internally for them if there is any new development that they desire and then fees for that will be separately negotiated. The base fee is $1.6 million annually for the first year with inflation indexes for years 2 and 3. That base fee is 5% lower than the 2023 fees that we had. And this really is a recognition of a longer-term agreement, eliminating the short-term premiums that we had and the cost savings from a reduction in the development requirements for them. We expect that the 2026 revenue will be adversely impacted by about 6.5%. This is really -- this includes a development fee that we've already negotiated on top of the $1.6 million. And we're going through their wish list. So it's currently unknown if we will be able to add any new development fees for them. To make up this difference, we would need to increase independent label revenue by about 14%. And I'll talk about that shortly, what we're doing on the independent front. The -- I think it's worth going through a few more of the terms. As I alluded to above, it's a 3-year agreement. We've never had a 3-year agreement before. We've been in business with Universal for about 20 years now. So we -- it's a long-standing relationship. But this 3-year agreement is the longest agreement we've had, and it really provides a runway to work as a partner with them. The index we have for inflation is there's a 2% increase in 2027 and 2028 on top of that. Again, we've never had an inflation index. We've always -- when we've come to terms, we've always been looking back at a fee that has never indexed for inflation during the years. And so this represents a fairly significant shift in the mentality, recognizing that our costs do rise over time. It also excludes any labels for which UMG does not have a distribution agreement or is currently not owned by UMG. So in the event that they expand their distribution services or expand by acquiring new labels, we can negotiate new fees for that. And it's not articulated in the agreement, but we've had some really productive conversations. The main contact that we -- that I've been negotiating with has returned to distribution -- digital distribution and she's a really tough negotiator, obviously, but she's very pragmatic and she recognizes that where we save them money, where we -- whether it's efficiencies that we can work on or we displace competing platforms that will help us negotiate in the future. So it's an agreement that we're really excited about. Moving on to independent labels. We have been working on a number of things that have started to come together in timing. We mentioned last quarter about the modernization of the platform. That has really 2 main things that we moved Universal over to the online, the web platform and retired the old PC applications. But we also introduced Caster and Caster +. Now Caster + is what we used to brand as Caster, so it can be a little bit confusing there. But Caster is now a fully self-serve platform for labels to sign up and send out content themselves. We have noticed a significant increase in the conversion of leads, and I can talk about marketing in a second. But with that, we've noticed -- we've transitioned people during the quarter to allow them to have the choice between Caster and Caster +. We have noticed that there are -- it's a high degree of what I would say, a poor quality of distribution. So we have some work ahead of us in terms of training our customers on the platform and/or making it a little bit easier to use, so that we can fully scale so we can fully leverage that. But essentially, we're allowing our customers to -- we're making significant headway in allowing our customers to scale client-led distributions. Last year, we talked a lot about our marketing efforts. That was really focused in on a few different things, SEO improvements, so website improvements, so that we were -- we hit more leads, we generate more leads. We've tracked those leads to identify, which customers we really want to focus in on, which has really helped over the course of the last 12 months, allocate resources internally on things that we think are going to help us more. We've recently begun investing a little bit more in social media. We've had a 10% increase in followers. We've improved our digital advertising, and we've expanded our automated outreach to certain clients. And Jen will expand a little bit more on that. And then also, we -- the last thing we did here is increased pricing in certain areas. One area where we -- it's not really an increase in pricing. It's just that we eliminated volume discounts that we enacted last year that were designed to expand the volume of distributions or grow the average size of a distribution. That really didn't have an effect. We've noticed that customers that are trying to do global distributions through Play MPE aren't that price sensitive. It doesn't help to provide discounts. So we removed those. And we also increased our catalog pricing. The upshot of all these things is that we had almost a 24% increase in lead generation. And that -- those leads are really better qualified leads. The -- we've had a 7.3% increase in Caster customers, which is pushed by a 27% increase in new Caster customers. And during the quarter, that represented almost a 3% increase in independent label revenue. Some of those changes really took effect later in the quarter. So you'll see a bump in November revenue of about 15.5%. That really is starting to flow into Q2 as well. We've seen a very strong December result so far. And lastly, we saw MTR revenue go up by 30.5%. Now MTR is still quite low, and we're working on some things that we think will expand MTR's presence. We are going to be reporting -- MTR is tracking just so for anybody who doesn't know, MTR is tracking the actual airplay of a song that goes through Play MPE. We are incorporating the reporting of that into Caster, which I think just makes MTR more visible. And then shortly after that, we're going to make it, so you can buy MTR directly within Caster. It's really changing our focus on product development into to a narrow focus on things that are really going to directly impact Play MPE revenue. And with that -- sorry, cost reductions. Because of the things we've done over the last year, we've really been able to reduce our costs. During the quarter, we realized a total cost reduction of 1.3%. That includes all costs, cash, noncash and capitalized costs. So it doesn't translate neatly into the financial statements, but it essentially is all of our costs. Salary and wages, these are costs that we've realized during the quarter, so 8.2% reduction. Had we done -- undertaken all of these cost reductions at the beginning of the quarter, they would have translated into a 7.7% reduction in total spending with 14.8% on salaries and wages. With those efficiencies that we've gained and the modernization of the platform, we can further reduce our spending. We think it's about 16% that we can comfortably reduce if we want to maintain our revenue growth, but just reduce our investing in product development and taking advantage of some of these efficiencies. And with that, I will turn it over to Assel. Assel Mendesh: Thank you, Fred. I will now walk you through our financial performance for the quarter, and I'll start from revenue. Revenue for the quarter increased by 1.3%. And if foreign currency adjusted, it's actually 1.6%. The major labels are very materially decreased by $1,500 and independent labels increased by 2.5%. And that was a combination of several factors, as Fred mentioned, increase in the independent customers, it's 7.3% in the quarter. And again, most of the increase came in November, as Fred mentioned. Total releases, total purchases increased by 3.7%. Average spend declined by 2.4% per customer. However, this is mostly from our new customer acquired, where we see new customers spending less and while we see older customers spending more. So we believe that as these customers, new customers return once they see the success using our platform effectiveness and leveraging our automated marketing campaigns and sales outreach that we will have a chance to move those customers into a greater spend. And the last one was pricing changes. As Fred mentioned, we reduced volume discounts that we had enacted in the prior year to induce larger distributions. We found that these were not working as large international distributions are not really that price sensitive. And we also increased our price for the annual year-end catalog distribution. So that was for independent labels and the MTR is still less than 1%, very close to 1% of the total revenue, but it keeps growing. So the increase was around 30%. And the revenue continues to be mostly U.S. dollar-denominated, 94.5% this quarter. And next one, but let's move to the overall results. Thank you. As you can see from the table, the adjusted EBITDA for the quarter was $252,50, which is a slight decrease from paper of less than 35,000. However, this decline is mostly just a capitalizable activity during the quarter. So this quarter, we only capitalized a pretty small amount of less than $30,000. And turning to liquidity. The cash balance increased significantly, as you can see, by $244,50, 22% and it's mostly, as Fred mentioned, driven by the several cost reduction initiatives we had during the quarter, which translated into higher operating cash flow. And the last point, the company continues to operate with no debt and no material capital expenditure commitments. So with that, I'll pass to Jennifer to cover sales and marketing portion of today's call. Jennifer Rainnie: Thank you, Assel. I'm going to start off with our sales highlight for Q1. We had a focus on major account engagement and reporting for Q1. Our goal was to really engage with our major accounts, aiming for regular strategic review meetings for long-term growth. We were able to conduct in-person platform presentations with RCA, Epic and Virgin to reengage accounts and reinforce system value. We also felt like we have a lot to share with these accounts with so many enhancements that had been seen in fiscal 2025. The results from these meetings were 180% increase in RCA usage and Epic reactivating on the platform for the first time in 2 years. We also presented an updated enhanced reporting overview to UMG to both their hubs, their Europe hub and L.A. teams, providing all labels with a deeper and more actionable promotional data. Staff training and enablement, we developed and implemented a standardized training syllabus for new major account onboarding. And we delivered this training both virtually and in office on site with Warner promotional teams and other major independent labels. On the side of independent label growth, our India business revenue significantly increased in Q1, particularly a sharp 15.5% rise in November. And growth was driven by an improved pricing strategy that we had previously mentioned, also a targeted marketing campaign encouraging holiday releases, plus our sales team upselling compatible lists. This led to a strong Q2 interest, better lead generation and improved conversion rates overall in Q1. For sales tools and list add-ons, we've been continuing to develop sales tools to boost our platform usage. We launched a new list brochure detailing expanded contact database offering. And we've had strong adoption of list add-ons. So we've been focused on supporting the list team and offering to upgrade from domestic to international holiday packages during our holiday campaign as well as adding multi-supervisor lists. And all of these add-ons will significantly increase average order value per campaign. We're going to be continuing to do this going forward. Some of our marketing highlights. So our holiday campaign focus was really what we focused on in Q1. Marketing really centered on the annual holiday format campaign. We saw a significant increase in holiday releases, and we were provided with a healthy year-over-year revenue increase. I think a key success factor in this was an earlier marketing push. Internally, our e-mails launched on August 27, and then we followed up with October 6, October 20 and a November 17 push. These were a month ahead of our marketing last year for our holiday initiative. The promotion ran in Q1 and also into Q2. And our content also doubled during the holiday campaign with active users and visitor rates compared to last year. And just in general, our social media growth has been strategically focused on authentic content and partnerships, resulting in a 35% increase in organic Facebook views and a 10% year-over-year increase in followers. And then finally, I'll touch on our operations and list management highlights for Q1. Overall, we've seen an improved communication and strategic planning between list management and marketing. We really saw the impact of this with the boosted campaign results in Q1 and moving into Q2 with our holiday campaign. Also, the list team have been busy working on introducing a new satellite radio list in Q1. This is going to be offering channel and show-specific content across various genres. The satellite radio offers significantly higher royalties. So basically 10x more per spin than a terrestrial broadcast, creating a strong value proposition. We feel like these trackable lists offer a direct spend tied to measurable ROI, making them an ideal selling tool for independent artists and labels. And our new satellite radio lists are soft launching in Q2. We're expecting -- sorry, a high client interest in these new lists. And that ends my highlights for Q1. I will turn it back over to you, Michelle. Operator: Thank you, Jennifer. [Operator Instructions] Our first question today is from Olivier. After years of saying revenues with snowball and repeated software iterations, growth still hasn't materialized. No buyback to support the share price and ROIC is now negative. Any updates from the consultant engaged to unlock shareholder value? Frederick Vandenberg: The consultant engaged didn't provide anything regulatory, but the -- I mean, we do see a very promising increase in independent revenue in November, and that's continued into December. So I think with growth in independent revenue and cost reductions, we'll see profitable results going forward. As far as the buyback or returning capital to investors, we'll have to decide on what we do with that surplus going forward. Operator: Our next question is from Gerry asking for a breakdown of revenue percent by product segment in Q1. Frederick Vandenberg: We break down our segments into customer type and what we talk about publicly is really independent versus major labels, and then we break that into geography. In the United States -- United States or internationally, we break that down further into music format. And now with MTR, we have an additional product that we bring attention into. MTR, again, is a little bit less than 1% of revenue. So it's still pretty small. But it grew by 30%, and we are working on things going forward that we think will improve that revenue growth. One is making it a little bit easier to purchase by putting it really in front of our Play MPE customers in Caster and making it easy to buy as you buy a Caster promotion. But we're also doing an ad tracking test. I believe it's this month or at least this quarter. We are looking at more global tracking and also more volume tracking for MTR. For other groups worth talking about where there's been significant change, there was reasonable growth with U.S. independent in Q1, where it was a little over 4%. Canadian independent growth was in excess of 50%. That was offset by some reductions in major label use. What you've seen -- what we've seen is that periodically, labels -- major labels go through cost-cutting initiatives where they cut senior staff. And we think it's going on right now. It has gone on recently. And that's why you see Jen was talking about certain things about onboarding new people at major labels, training them, getting them engaged in the platform. That really is a function of the turnover we're seeing at the major labels. So we think that, that reduction is temporary. So those are the major changes in segments. Operator: I see here that Gerry has raised his hand. Gerry, you can go ahead and unmute your mic. Gerry Wimmer: Can you hear me? So a couple of questions here. You talked about OpEx savings of 7.7%. Those -- will those be fully reflected in your fiscal Q2? Frederick Vandenberg: They should be. Yes, that's right. I mean, barring any other changes, but yes, that's effectively what we're talking about. Gerry Wimmer: And you also mentioned that you believe there are additional cost savings to be had, taking the total cost savings up to 16%. Frederick Vandenberg: The 16% was on top of the 7%... Gerry Wimmer: It was on top of the 7%... Frederick Vandenberg: No, those changes have not been made, but those are -- that's what's available and what we're looking at, we're considering right now. Gerry Wimmer: And when do you anticipate -- if you decide those changes to take. When would they be reflected? Frederick Vandenberg: It's really what we're looking at internally. And I would expect that we will go one way or the other. And if they -- those -- that decision will be made very shortly, I believe. Gerry Wimmer: Okay. Can you talk about your capital allocation priorities for fiscal 2026? Does it include any acquisition plans? Frederick Vandenberg: Okay. That's a good question, Gerry. We are capable of generating, I think, significant cash. We have about $0.14 per share in cash right now. There are acquisition opportunities available to us, and we are looking at them. And I think they are becoming more and more attractive as time moves on. One in particular where we're showing a significant headway in Canada, and I think we can move forward there potentially. As far as the other capital expenditures, it's really always been software development. That's what we capitalize costs for. And with the modernization of the platform, we've significantly reduced those. That's what we've been talking about with the cost reductions. Gerry Wimmer: In your press release, you talked about momentum heading out of Q1. How should investors quantify that momentum to revenue growth? What should we be looking for? Or what should we be seeing? Or maybe clarify what that momentum -- how should we quantify the momentum? Frederick Vandenberg: I mean that's a good question. We talked about momentum in November, where we saw independent revenue growth by 15.5% that growth has -- we've seen pretty strong growth into December. In fact, it's wildly outstripped the 15%. Some of that is seasonal. So we don't expect this kind of growth. But it was really -- we had a really strong continuation after the quarter. We generate -- I would say, about 1/3 of our customers are -- in any particular time are new customers, but they generate about 7% of our revenue. The new customers are really ones that are smaller, our customer purchasing demand is highly variable. It's not -- you're not buying a software package or something that people use every month and use at the same level. We're looking at customers that are small independent label to Universal, which is the largest collection of record labels in the world. So our marketing approach really has moved customers into customer buckets, personas as we call them. And our approach is really to align our marketing efforts where we attract customers that we believe are going to be larger in spend. And then secondarily, so we're tracking bigger customers, and we're encouraging customers that we do attract to spend more. So there's things that we're working on where we leverage expanded analytics that we've worked on to market to these people what we've seen for example, we see that typically, if an artist sends out a song, they tend to get greater results the more they send out. So we leverage analytics like that to programmatically e-mail out or market to rather those kinds of customers to grow use. As far as projecting it. I mean, we've really had a really strong December. And I mean, I think our marketing approach is the right way to go. So we're just -- combined with the cost savings, I think in terms of our value, we're really looking at profitable runways forward where we can maintain our ability to grow sales while at the same time, generating a positive net margin. Gerry Wimmer: Final question, Fred. You mentioned the renewal of the Universal agreement. I think you mentioned that the annual fee or reoccurring fee over 3 years will be 6% lower on an annual basis. Is that correct? Frederick Vandenberg: That's how it will impact this year, Yes. We -- it's really a restructuring of the agreement so that we -- they're going to pay separately for development. If we can negotiate new development fees, that will eat into the impact, plus as we move forward, inflation will grow by 2% per year. Gerry Wimmer: Do you still anticipate for fiscal 2026 that as a result of the new agreement that you will be in a net revenue growth position? Frederick Vandenberg: That's a good question. If we continue on the results of November and December, we will easily grow revenue. We have to continue that strong performance over the last couple of months. Yes. But the cost reductions that we have or can consider will ensure that we will be -- will have a positive net margin. As far as where we end up revenue, I would really probably like to see a few more months where I can see how our revenue is growing. The revenue that we -- the reason -- sorry, I'm fumbling with this question, but the revenue growth that we've seen in independents is coming from a number of different sources. So we've got increased lead generation, increased lead conversion. That conversion rate is -- sorry, the conversion rate is increasing, but it's also the speed with which it's converting is improving. The reengaging older customers. The price changes that we had are not inconsequential. And so it's not just one thing that's impacting our independent revenue growth. It's a few different things. So I'm pretty optimistic about how it's going to play out. Whether that overshoots the cost reduction of UMG, it's hard to predict at this stage. I would like a little bit more run room before I predict it. Gerry Wimmer: Okay. And Fred, my last question, you talked about reengaging with some acquisition targets or target. How should investors look at the size of acquisitions you're capable or willing to make from an annual revenue contribution that these acquisitions could bring? Is it $1 million, $2 million, $4 million? Just try to quantify what type of acquisition would you be willing to digest and scale? Frederick Vandenberg: Willing to digest. Our ability to service the customers that would result from an acquisition is very -- is strong. It's easy to -- easy to incorporate that growth. So it's a very high-margin purchase of customers, essentially what it would be. It's whether or not we can purchase it at a price that is appropriate. We have -- I believe we are the largest -- we're obviously a small company, but I believe that we're the largest in the world at what we do. I believe we're the best in the world at what we do. And I think that Universal's contract renewal is a clear indication of that. Whether we can acquire customers at a price is really a negotiation by negotiation endeavor. We see some competitors with international presence. But generally, they are within a particular geography, and there's a number of them. And I think we can look at acquisitions. So the size of the acquisition varies tremendously, I believe. We're the largest in the world. So if you look at that, then anything that we acquire would be smaller, but there's a few of them out there that we could acquire. And it's just a matter of whether the price is right. And we do have enough cash, I think, to make some cash offers on those. So... Operator: Thank you, Gerry. Our next question was submitted by Andy. What is the company doing with the cash on hand it has? Is it invested? Will the company be issuing dividends? Frederick Vandenberg: Yes. Cash on hand is invested. It's a reasonably -- well, it's a very safe investment. So the returns are small. As far as -- I mean, we have a decision facing us right now, whether we focus in on maximizing cash to grow -- growing cash or we continue to invest in the platform to accelerate revenue growth. The -- if we decide to maximize cash flow, I mean, I think we can be profitable as it is. Then we have a choice of what to do with that cash, whether we use it to make acquisitions or not is one question. But then -- as far as growing investor value, we have to be -- I mean, we have to consider what's best -- in our best interest of our investors. We can issue dividends or initiate a buyback. The issuing a dividend is not a costly endeavor. I mean it's something -- it's a fairly simple process. But there's a few things that we need to be careful of, just the mechanics of moving profit around in the company, getting dividends from -- profit from a Canadian company through a U.S. parent. We have to be careful about how we do that. And also, there's a choice between providing our investors liquidity or the choice between how dividends are taxed in their hands versus gains, capital gains. And that all of that -- all of those decisions have to be made in the context of the stock price. If we're generating positive margins, positive net margins, even though we're a small company, the margins can be significant considering the stock price. We have, I think, roughly about $0.14 a share in cash, and we can generate a reasonable amount of per share earnings that we then will have to decide whether or not we do buybacks or dividends to investors. Operator: We have another question from Andy. Are you able to provide the revenue based on geographical region? How much is North America compared to non-North America? Frederick Vandenberg: That's right in the 10-Q, I believe. Assel. Is that fair? Assel Mendesh: Yes. Frederick Vandenberg: We've used -- Universal is allocated to one territory, and we've moved that from a euro-based contract to a U.S. dollar contract. There's a little bit less risk, I suppose, in terms of fluctuations. And our -- going forward, we're probably focused more on the U.S., but I'm not sure exactly what the breakdown is off the top, but I think it's right in the quarter. Assel, sorry, I probably interrupted you there. Assel Mendesh: Yes, it's Note #8 in the 10-Q. But again, UMG contract is in North America. Frederick Vandenberg: Yes, it's not as simple, I guess, to show UMG because UMG distributes with us around the world, Africa, Asia, Europe, everywhere, but Antarctica, I suppose. Operator: It looks like we have 1 more question here from Thomas, who's raised the hand to speak. Thomas, you can go ahead and unmute your mic. Unknown Analyst: I'm not sure if you can give more color on the litigation proceeds, if I can say it like that. I know it hasn't been too long since Q4, but did you guys have any updates or? Frederick Vandenberg: Well, there's no -- nothing to really update. We won the litigation, so we're getting an award of costs. That hasn't been established yet. I suppose that would be established soon. And there's a question of collectibility. We would think it's fairly significant, so we would probably pursue the collection of it. He has filed a notice of appeal that's an intention to appeal. It's not actually an appeal. And I don't think you'll actually follow through on it. I don't want to dare them to it by saying that. But I don't think that there will be an appeal. It's good money after bad for that, for sure. Unknown Analyst: Last call, you disclosed like the growth of MTR revenue. Was that on a year-over-year basis or on a quarterly basis? Was it like for Q4 or for the full year when you disclosed it? Not sure if I remember. Frederick Vandenberg: We disclosed -- sorry, what did we disclose? Unknown Analyst: MTR revenue during the Q4 call, like 2 months ago. Frederick Vandenberg: I don't think we actually disclosed the dollar amount. We just disclosed the percentages. Unknown Analyst: Yes, the percentage and the absolute growth. Was that for Q4 or for the whole year? I think it was for full. Frederick Vandenberg: That was for the full year. The 30% this quarter -- this quarter versus last year's quarter, yes. Unknown Analyst: Okay. And then on the Universal contract, so it's 1.6 plus how much for fees that have been already like agreed upon for this year. Frederick Vandenberg: 35,000 for this year. That's just with 1 product -- 1 project. Unknown Analyst: So I have a hard time figuring out how is it 6%? If -- so Universal was like, what, 2.1 million last 12 months. If we add up 4 quarters. It's about $500,000. Frederick Vandenberg: Yes, it's what will impact this year. So we've had some premiums for the first 4 months of the year. So it's after those premiums. So 6.5% for this year, it will be a reduction on an annual basis. I'd have to figure that out, but it's -- the premiums were -- the short-term premiums that we had were reasonably significant and those have been eliminated, so. Unknown Analyst: Okay. And why did we not know about this, about those premiums? I mean I asked you in April, I guess, about that contract and you told me it's on like on a rolling basis, you won't -- we won't fix anything that's broken and like there was no plans to fix it. We would like to change it. And like -- I mean, we're kind of blindsided by those -- by that new contract, I guess? Frederick Vandenberg: Well, I mean it's -- I have to sort of negotiate what is in the best interest of the company. And it's not -- we were -- we disclosed that we were charging them short-term premiums. We've disclosed that in the past. The growth was there. Universal has global mandate to reduce costs and negotiating those fees was a long process and it, I think, really reflects our ability to reduce our costs associated with that. So it's a net reduction in our revenue for sure, but we can also reduce our costs to support that contract. Unknown Analyst: Yes. I mean it's not really the result. It's more the way it's being communicated and all of that, like where was those, like I'm following the company pretty closely, okay? And like where was it disclosed that there's premiums in our contract with UMG like in an 8-K somewhere? Or I can't remember seeing one in. Frederick Vandenberg: It wouldn't be in these calls here. Unknown Analyst: It would be during the call that it says that our annual contract currently has premiums. Frederick Vandenberg: I would have to go back and see what -- but it is on a month-to-month basis, and we've discussed that before, for sure. Unknown Analyst: And like what's the difference between -- or like why are we happy about an inflation hike if there was already an annual price hike, if I refer to what you told me in April last year? Like what's the difference between last year having annual price hikes and inflation. Are they the same? Or will you still have different annual price hikes? Frederick Vandenberg: Look, the price hike for the month to month, we had a price hike that kicked in just last month. The long term -- I guess if you look at whenever we've had a longer-term deal, this is the first time that they've offered an inflation index for it. This was a month-to-month agreement, so they could cancel at any time. So this is the first time that they've actually committed to a locked-in price increase. Unknown Analyst: Okay. Yes. I mean, again, it's not -- I mean, the result is disappointing, but I understand why -- it's just -- I don't know how it's communicated, I guess, like, I don't know, I would have told that there's somehow negotiations to have a longer-term contract, no matter what the price it is, I guess, like you were not able to disclose it, but just like why not kind of tell us in advance that it's in the works? I guess it reduced the risk of being an investor, right, because it's not like they're going to just disappear the next month like it could have been. I don't know I just a bit disappointed with how it's being communicated. Same thing for cost reductions. Like why was it not communicated last quarter, like for Q1, I mean, Q1 was basically over. You could have told us that there would be cost reductions in Q1. And I mean this is kind of positive, right? It's just what can be done to better communicate to investors, positive things and negative things. They could be -- I don't know. I'm just like thinking of that. Frederick Vandenberg: Well, I mean, I'll take the criticism. I believe we did communicate that we would have cost reductions. We are considering more. So it's not written in stone yet. The -- I mean when we were talking, we didn't provide numbers, I know that. But we did communicate during the year-end call that we had reduced -- we had the capacity to reduce costs associated with product development, simply because of the retirement of the old PC application and some efficiencies that we've got. So now I've got harder numbers on it. Unknown Analyst: Yes. I mean don't always need to provide hard numbers. I guess it's just, I don't know, a good way of telegraphing what's coming up. Frederick Vandenberg: Yes. I mean, fair enough. The -- I mean the Universal agreement, they've been wanting to reduce their fees with us for some time. It's just a matter of -- I mean, there was silent on the agreement for the better part of, well, probably more than a year. And I think things have changed internally for them. So it didn't have much indication from them that they were still considering a longer-term agreement. And I think we -- when we started talking with them a few months ago, again, started talking with them, we're always talking to them. But when we started talking about this specific renewal, the longer-term renewal we got into certain things that I think ultimately really work for us. Obviously, we considered a bunch of different things, and we didn't know where it would end up. The fees, I would like them to be higher, obviously. But I think it's something we can work with. It provides -- it does provide us a long-term sort of anchor tenant and the costs associated with supporting that are lower. And we just can reflect that in our costs to support them. Their need to reduce cost, I think, is really a reflection of the finance mandate to become more profitable. They went public in September of 2021, and that their initiative to force that reduction maximize profit has been going on since then. And they're universal. I mean I think this is a good result for us. I think it's a great result for us. I wish it was higher fees. But ultimately, we're a small company that can be -- provide a positive net margin in this context. Unknown Analyst: Yes, yes. And I mean, yes, it is disappointing. But like I understand the context and you can take my suggestion or not of just like communicating, I guess, more in advance just so it attracts investors of knowing what's to come so they can better, I guess, model what could come up and see that it's a good opportunity, but, yes. Frederick Vandenberg: Understood. Unknown Analyst: And last point, I mean, it's kind of -- yes, I'm not even sure if I may have touched it, but like there's someone that reported selling 1% of the business on the same date that the contract was signed, and it doesn't look good. But I know like that person is considered an insider, even though he's not on the Board, it does look weird. But... Frederick Vandenberg: That was a tax loss selling, and I was aware of that. I was a bit surprised at the timing of it, but that was just a pure coincidence. Unknown Analyst: I know. I know it just -- it does look bad. It's for someone just looking at it like highest volume day in like 5 years, and then it's someone that needs to declare this transaction. But anyway, yes, I figure it looks... Frederick Vandenberg: I mean I can't control that, obviously. I know it was a tax loss selling endeavor. I'm not even sure if I should say that actually, but it wasn't a reflection of the contract or the company. Unknown Analyst: Yes. I was just needed to voice it. All right. Thank you. Frederick Vandenberg: Thanks Thomas. Operator: Thank you, Thomas. That concludes all the questions for today. Thank you very much, everyone. Frederick Vandenberg: Yes. Thanks very much, everyone. And thanks to Michelle, who is joining us from Turks and [ Caicos ] on her vacation. Thanks. I really appreciate you helping us out. Thanks, everyone. Operator: Thank you. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to WaFd, Inc.'s Fiscal First Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brad Goode, Chief Marketing and Investor Relations Manager. Brad Goode: Thank you, Josh. Good morning, everybody. Happy New Year. Let's dive into our 2026 first quarter earnings report. You can find our earnings press release, along with our detailed fact sheet and investor scorecard on our website at wafdbank.com. During today's call, we'll make some forward-looking statements, which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of federal securities law. Information on risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and the recently filed Form 10-K for the fiscal year ended September 30, 2025. Forward-looking statements are effective only as the date they are made, and WaFd assumes no obligation to update information concerning its expectations. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials. With us this morning are President and CEO, Brent Beardall; Chief Financial Officer, Kelli Holz; and Chief Credit Officer, Ryan Mauer. I'd now like to hand the call over to Mr. Beardall. Brent Beardall: Thank you, Mr. Goode, and good morning, everyone, and happy new year. This morning, we will cover 4 areas for you. First, Kelli will provide you with a detailed review of our balance sheet and income statement for the quarter ended December 31, including the impact on our margin from the increase in nonaccrual loans, which everyone has undoubtedly noticed; second, Ryan Mauer will provide comments on the current status of our loan portfolio and credit quality trends; third, I will provide you my insights on our future prospects, capital management and macro developments that impact WaFd; finally, we'll be happy to answer any questions you have. Before turning it over to Kelli, I want to point out that based on your historical inquiries about repricing on our assets and liabilities, we have added a new table to our fact sheet on Page 6. This table details our largest categories of assets and liabilities, what percentage of each is fixed versus variable, then the cumulative amount of repricing and quarterly increments over the next 2 years. Please note that this table takes into account both the variable rate instruments and fixed rate instruments that mature in the stated time frames. It also takes into account the effect of various hedging strategies. Kelli, I'll turn it over to you to walk through the quarter end results. Kelli Holz: Thank you, Brent. As announced, WaFd, Inc. reported net income available to common shareholders of $60.5 million or $0.79 per diluted share for the quarter ended December 31, 2025. This compares to net income to common shareholders of $0.54 per share for the first quarter of fiscal 2025 and $0.72 per share for the September '25 quarter. The $0.07 increase in earnings per share for the quarter was a result of improvements in both income and expense, a modest increase in net interest income and increased noninterest income as well as an overall decrease in total noninterest expense. For the balance sheet, loans receivable decreased $240 million during the quarter, primarily due to a decrease in our inactive loan types, SFR, custom construction and consumer lot loans, which combined decreased by $256 million. Loan originations and advances for the quarter outpaced repayments and payoffs in our active loan types with originations at $1.1 billion and repayments and payoffs at $1 billion. Active loan types include multifamily, commercial real estate, C&I, construction, land A&D and consumer loans. For the inactive loan types, advances were $25 million and repayments and maturities were $321 million. Please see the table in our fact sheet that provides a breakdown between our active and inactive loan types. Total investments and mortgage-backed securities increased $728 million during the quarter, funded primarily by the increase in borrowings of $671 million. Investment purchases were primarily discount-priced agency mortgage-backed securities with an effective yield of 4.93%. This increase in mortgage-backed securities is part of our overall investment strategy currently replacing the single-family mortgage loan balance runoff. Total deposits decreased by $21 million during the quarter, with noninterest-bearing deposits increasing $125 million or 4.9%. Interest-bearing deposits increasing $434 million or 4.5%, while time deposits decreased $580 million or 6.4%. Core deposits ended the quarter at 79.7% of total deposits, up slightly from the September quarter at 77.9%. Noninterest-bearing deposits ended the quarter at 12.6% of total deposits. The loan-to-deposit ratio ended the quarter at 92.7%. We have made significant progress in this area. As you may recall, our loan-to-deposit ratio just 2 years ago at December 2023 was north of 110%. WaFd's liquidity and capital profile remain strong with a robust core funding base, a low reliance on wholesale borrowings and significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of regulatory well-capitalized levels. For the income statement, net interest income increased $1.2 million from the prior quarter the effect of the reduction in interest paid on liabilities outpacing the reduction in interest earned on assets by 2 basis points. The net interest margin was 2.7% in the December quarter compared to 2.71% for the September quarter. For the spot rate as of December 2025 period end, the yield on interest-earning assets was 5.05%, while the cost of interest-bearing liabilities was 2.76% with a resulting margin of 2.77%. Comparing the spot rate at September 30, which was 2.82%, to our December quarter margin realized at 2.7%, 9 basis points of the difference relates to nonaccrual interest, one-time reversals when loans go nonaccrual and also interest income not being recognized going forward from the nonaccrual date. The 3 remaining basis points relates to our purchase of mortgage-backed securities during the quarter, as I mentioned, with a net yield of 4.93%. While these purchases put pressure on the margin, they generate annual net interest income of approximately 1.03% of the average balance is purchased. For the December quarter, this amounted to $1.2 million in net interest income. Looking forward, I would expect more pressure on the margin from additional mortgage-backed securities purchases in addition to increased net interest income. Total noninterest income increased $1.9 million compared to the prior quarter at $20.3 million, contributing to the noninterest income is $3.2 million gain on sale of a branch property offset by losses of $408,000 taken on certain equity method investments in the quarter compared to gains on those investments of $815,000 in the prior quarter. Total noninterest expense decreased $1.3 million or 1.2% from the prior quarter as a result of reduced compensation and technology expenses, offset by increases in other expense. Decreased expenses combined with increased income resulted in a decrease in our efficiency ratio for the current quarter to 55.3% compared to 56.8% in the prior quarter. During the quarter, 1.95 million shares of common stock were repurchased at a weighted average price of $29.75. The impact on earnings per share for these rate purchases was $0.02 for the quarter. Our share repurchase plan currently has a remaining authorization of 6.3 million shares, which, depending on share price, provides a compelling investment alternative. I will now turn the call over to Ryan to share his comments on WaFd's credit quality. Ryan Mauer: Thank you, Kelli, and good morning, everyone. As reflected in our earnings release, we had a solid quarter of new loan production along multiple product lines. As Kelli indicated, total production in our active portfolio was $1.1 billion for the December quarter. This loan production was centered in commercial and industrial of 46%, commercial real estate of 23% and construction of 25%. Importantly, we were able to achieve this level of loan production with a consistent approach to underwriting that maintained a moderate risk profile. Adversely classified loans decreased by $51 million in the quarter and now represent 2.94% of net loans compared to 3.16% as of the September quarter and 1.97% as of December 2024. Total criticized loans increased by $30 million to 4.6% of net loans compared to 4.93% -- excuse me, 4.39% as of the September quarter and 2.54% as of December of 2024. It should be noted that the increase in criticized loans is not concentrated in any one business category or line, and is reflective of the economic environment where elevated interest rates and economic uncertainty impacted both commercial and consumer borrowers. In addition, an asset being criticized does not imply that loss exposure exists. Rather, it is a representation that the borrower is experiencing some level of financial stress that needs to be addressed. Nonperforming assets increased to $203 million or 0.75% of total assets from $143 million or 0.54% at September 30, 2025. The change is due to nonaccrual loans increasing by $62.7 million or 49% since September 30, 2025. This was offset by a decrease in REO of $2.3 million during the same time frame. Delinquent loans increased to 1.07% of total loans at December 31, 2025, compared to 0.6% at September 30, 2025, and 0.3% at December 31, 2024. While elevated in comparison to recent periods, these credit metrics remain modest in light of WaFd's loan loss reserve and capital position and are indicative of our culture of early and proactive portfolio management. It is important to note here that the increases in delinquencies and nonperforming assets were largely impacted by 2 commercial relationships over 90 days past due. Outstanding balances to these relationships amount to $58 million collectively. Although appropriately placed on nonaccrual per policy, there was no charge-off taken upon revaluation, and we are actively collaborating with both borrowers to resolve the issues. If nonperforming assets and delinquencies were adjusted for these relationships, NPAs would be 0.67% of total assets compared to 0.64% at September 2025 and delinquencies would be 0.78% of total loans compared to 0.6% at September of 2025. The net provision for credit losses in the quarter was $3.5 million. The provision is the result of decreased loan balances, mixed credit metrics, including increasing trends and negative migration of criticized and nonperforming loans, and $3.7 million of net charge-offs taken during the quarter. Net loan charge-offs for the quarter represented a nominal 7 basis points of total loans annualized at December of 2025. The charge-off was driven by a relationship in the C&I energy sector as a result of depressed oil prices, coupled with diminished working capital. For reference, over the last 10 years, net charge-offs have averaged a recovery of 2 basis points per year. And over the last 3 years, net charge-offs have averaged 10 basis points per year. The allowance for credit losses, including the reserve for unfunded commitments, provides coverage of 1.05% of gross loans at December 31, 2025, compared to 1% in December of 2024. For the commercial loan portfolio, the allowance represents 1.33% of net loans compared to 1.26% as of December of 2024. Credit metrics at December quarter end, while elevated from prior quarters, remain at healthy levels overall and have been impacted by 2 primary drivers: first, the elevated interest rate environment has impacted loan demand and borrowers' expense structures; second, the economic uncertainty driven by tariffs continues to impact borrowers' top line revenue results as well as material costs. Looking forward, these factors remain headwinds for credit quality. While the uncertainty related to tariffs remains elevated, the interest rate environment appears to be easing in the near term. With that, I will turn the call over to Brent for his comments. Brent Beardall: Excellent. Thank you, Ryan. I think we've started off the year well with a 10% linked quarter EPS growth and a 40% year-over-year growth, and importantly, 18% growth in transaction deposits on a linked quarter basis. Our strategic plan Build 2030 is designed to fully shift our focus to where we can add the most value to our clients and our shareholders, serving the banking needs of businesses. This shift takes time, disciplined effort and comes with specific goals. The most important goal is increasing our noninterest-bearing deposits to total deposits from 11% last year, up to 20% by 2030, and we are currently sitting at 12.6% today. It is an ambitious goal, but it is what we need to do as it will also drive increased loan demand and branch utilization. The way our peers have achieved their lower cost of funds is to focus on serving small businesses, which is exactly what we're doing. Here's what we've accomplished so far. It's hard to believe that it was just January last year that we recognized or reorganized our frontline bankers into 3 segments -- 3 teams to kick off Build 2030. During that time, we've become a preferred SBA lender and 98% of our branch managers who formally specialized in mortgage lending have now passed our small business credit certification process. Our 3 different lines of business are: first, our business bank, handling commercial credit needs up to $10 million and all small business and consumer deposits. This includes our 208 branches through our 9 Western states; our corporate bank, all large commercial credits and treasury needs; then our commercial real estate bank, recognizing our historical strength and expertise in commercial real estate, we have dedicated a team to serve the credit and treasury needs of real estate developers and investors. We acknowledge that we have work to do to improve our profitability. As you have heard, our margin is 2.7% for the quarter with return on tangible common equity of 10.6%. If we can get our margin up to 3% which is our short-term goal within the next 2 years. Everything else being equal, return on intangible common equity would be 12.9%. The key from my perspective is growth in C&I loans and deposits, supported by growth in CRE loans while running an efficient bank. I'm very pleased to see our efficiency ratio down to the top end of our target range at 55% this quarter. We believe that we have the products and teams in place to grow our active loan portfolios by 8% to 12% over the next 1 to 2 years. Last quarter, our active loan portfolio was essentially flat, but we believe we have now turned the corner and will start growing. Looking forward, our lending pipelines continue to expand while deposits remained challenging. Our lending pipeline is up $697 million or 28% over the last quarter. To detail it, our total lending pipeline as of the September 30, 2025 quarter was $2.5 billion. And today, our total lending pipeline is at $3.2 billion while deposits remain fairly flat. Looking at the number of accounts. In the last year, noninterest-bearing accounts are up by 5,800 accounts, a 2.5% increase, which is modest, but importantly, it reverses a trend of declining numbers we had seen over the last several years. C&I loans after opening up business lending to our branch teams, in the last year, we have increased the number of C&I loans we have on our books by 97%. With each of these new business relationships, we are planting the seeds for additional growth going forward. As we announced last quarter, we launched WaFd Wealth Management on August 31 with hiring of experienced professionals from a wirehouse firm here in Seattle. Our goal is to organically grow wealth management to $1 billion in assets under management in the first 2 years and then go from there. Early indications are very positive. Assets under management amounted to just over $400 million as of December 31, and it is nice to fill a hole that we have had in our product offering. We see wealth as an essential element in growing our noninterest income going forward. Turning to capital. With our stock price trading below tangible book value for some of last quarter, you have seen that we were aggressive in repurchasing our shares. We repurchased 2 million shares at a price of $29.75 or 99% of tangible book value. Over the last 7 quarters, your company has repurchased 5.8 million shares at a weighted price of $29.45. This represents 7% of the shares outstanding on March 31, 2024. We continue to believe that with our robust capital levels, when our share price is depressed, share repurchase is the best use of capital. Based on current trading, I think our stock today is trading at about 1.1x tangible book value. As you know, we've appealed our FDIC, Needs to Improve, CRA rating to the highest levels of the FDIC, a committee called the SARC, the Supervisory Appeals Review Committee. We made our case in early December, recognizing it is a long shot, but we felt compelled to do so because our belief is the FDIC examiners were comparing apples to oranges, by comparing WaFd with lenders that sell their loans, and all of this on a segment of our loan portfolio that we have now exited. We expect to hear the final conclusion within the next week, but are anticipating moving forward with the Needs to Improve rating. With that, it looks like we have 4 questions in the queue. So operator, I'll let you open it up to questions. Operator: [Operator Instructions] And our first question comes from Matthew Clark with Piper Sandler. Matthew Clark: First one was around the margin outlook at least in the near term. What's your plan for that $800 million of borrowings that comes due or reprices within the next 3 months? Brent Beardall: Yes. Simple, we will replace that with current borrowers not looking to shrink at this point. So we'll replace it, and if the Fed continues to cut rates, that rate will come down. Matthew Clark: Okay. And then the interest income reversal, I just want to double check the dollar amount. I know you gave the basis points on a spot basis, but I just wanted to just verify the dollar amount of interest income reversal this quarter. Brent Beardall: Kelli, do you want to give that? Kelli Holz: Certainly, for the quarter, nonaccrual interest amounted to just over $5 million. Matthew Clark: Okay. Yes, in the ballpark. Okay. And then the 2 new C&I nonaccruals, can you just give us some color on the types of businesses those relate to and the plan for resolution? Brent Beardall: Yes. Again, we want to be careful and not to call out any specific borrower. Ryan can talk to you about the types of business. But as we laid out, we're working with the clients and are optimistic at this point that we'll have resolution. Ryan, do you want to discuss a little bit further? Ryan Mauer: Yes, I would just say, very generically, one is in manufacturing business being impacted by markets tariff situations, cost of labor, those sorts of things. The other business is a real estate-related entity -- commercial real estate. Matthew Clark: Okay. And then last one for me, just on expense growth this year, kind of where you stand on the build-out of the SBA platform and whether or not you plan to hire more C&I lenders? I'm just trying to get a sense for how we should think about overall operating expense growth this year. Brent Beardall: Yes. Obviously, we'll have our annual merit increases, which will go into effect this March quarter. So as you've seen in the past, and we will be optimistic -- or opportunistic as we look at teams out there, but no significant plans for increases of large teams coming over. We think we have the teams in place and the tools in place. And obviously, we'll continue to make investments strategically from a technology standpoint as well. But I think absent the merit increases, I think we're at a pretty good run rate. And then as we get production to increase, obviously, bonus compensation will increase from there. But I think we're at a pretty solid run rate right now. Operator: Our next question comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: Kelli, you mentioned -- just wanted to kind of circle back. I think you said the expectation is that you would expect further margin pressure, but yet growth in NII dollars, is that at least in calendar 1Q? Kelli Holz: Correct. With the current strategy to replace single-family runoff with mortgage-backed securities. Jeff Rulis: And I guess kind of sinking that, and I know that's different time frames, but Brent sort of mentioned the short-term goal to get to a 3% margin. Just -- I guess if you could kind of meet the 2, I guess, the balance of calendar '26, is this sort of a near-term little headwind and then hope to kind of lift from there? Any color on the trajectory? Brent Beardall: Yes. So again, I want to be very careful not to provide guidance going forward. But clearly, this quarter was impacted by the increase in nonaccruals likewise, as this was impacted negatively a quarter from now or 2 quarters from now, it can go the other way, it would be meaningful for us, not only the catch-up of the previous accrued interest that wasn't counted, but then the ongoing accrual to be very positive for us as well as the continued shift in terms of our balance sheet, as you saw to lower cost deposits. So that's where we see the optimism to get to 3% margin over the short term. Jeff Rulis: Okay. And then the -- just on the loan portfolio, is the inactive runoff this quarter, is that a pretty fair number to use in terms of maybe $200 million, $250 million a quarter in terms of that shrinkage offset by, Brent, I think you said active -- hope to get to 8% to 10% growth? Brent Beardall: Yes, yes, very much so. I would just say the inactive could spike up for us if we have a reduction in long-term rates, right? So there's no refi boom going on, whatsoever. And if we get to a point that we have long-term mortgage rates go down, you could see that after spike up significantly. And we also have a meaningful amount of discount remaining on the Luther book that was accretive to income if and when that happens. Jeff Rulis: Okay. And then just the last one, Brent. On that buyback, your sub tangible book, certainly pencils, I guess, with shares, maybe 10% plus above that average buyback price last quarter. How price sensitive are you? And then maybe balance that with capital? How -- what levels do you think you could be comfortable lowering to if you were -- if you remain pretty active on buyback? Brent Beardall: I don't think you'll see us meaningfully shift our capital ratios at this point, right? We're not looking to meaningfully cut into those. Obviously, we're producing a large amount of income and absent growth, repurchase of shares is our best alternative. I would just say, as you've seen us in the past, the closer we are to tangible book value, the more aggressive we'd be. I still believe that 1.1x tangible, it's the best investment we can make today. Operator: Our next question comes from Andrew Terrell with Stephens. Andrew Terrell: If I could just start and just clarify on the margin. I totally get the kind of mechanics and why there might be some pressure moving into investments. But when you're referencing the near-term kind of expectations, I would assume the margin reset is higher in calendar 1Q just based off of the -- you're lapping the 9 basis point headwind of interest reversal this past quarter. So I guess, is it -- is the margin expected to decline from the reported amount or from the spot rate that you gave, I think it was 2.77% at 12/31. Brent Beardall: I think we're referring to the spot rate, not the reported amount. Andrew Terrell: Got it. Okay. And if I just think about mix of the balance sheet, securities roughly around that 18% of assets today. Is there a target mix of the balance sheet? Or specifically, is there a level where you wouldn't want to build the bond book anymore? Brent Beardall: Yes. If you compare us to our peers, I think we're still relatively light in terms of our bond book compared to others. And as we've talked about, we kind of think of our single-family mortgages as a bond book. They're just not securitized. So I'm not looking to put $8 billion additionally into bonds as we get out of that, but there's certainly room for us to grow the bond portfolio. I don't think we've announced anything that -- I'd say over the longer term, 25% to 30% wouldn't be out of the question. But over the short term, you'll see us kind of ratchet that up over time, depending on the opportunities what the investments are available to us in the market. Andrew Terrell: Yes. Understood. Okay. And just last one for me. I mean the transactional deposit growth was really strong this quarter, both NIB deposits and interest checking as well. I was hoping you could maybe just give a little more color on what you saw that kind of drove that throughout the quarter? Is it just reflective of early momentum from the changes you've made earlier in 2025? Anything unusual in the pace of deposit growth this quarter? Just wanted to maybe unpack the core deposit growth this quarter. Brent Beardall: Yes. I would attribute it to 2 things. The momentum that we're getting in terms of our business shift or mix shift towards more C&I and treasury management. But also, we need to acknowledge that it's the cyclicality, the seasonality towards calendar year-end, those deposits tend to build up a little bit and the credit cards come due, and those come due. And typically, in the first calendar quarter, you see that shift out. So we will see with the results of this quarter. But to your point, a significant runoff in terms of CDs, and that was really offset by increasing our transaction counts that we're very pleased. So time will tell, but we're optimistic. Operator: [Operator Instructions] Our next question comes from Kelly Motta with KBW. Kelly Motta: I did want to ask a follow-up maybe, Kelli, on the MBS purchases. Is my understanding last quarter, that the inactive runoff would be in part to fuel those purchases. It looks like you did a bit more and took out some borrowings, which again drove NII growth, but at the expense of some margin. As you look ahead, is that still a fair way to think about the growth in the securities portfolio? And how should we be thinking about that use of borrowings and potentially using those with that trade ahead? Kelli Holz: Certainly, we did accelerate some of the mortgage-backed securities purchases in excess of, as you mentioned, of the runoff in the single-family intentionally this quarter to get a head start on it. But absent any meaningful loan growth we would use potentially borrowings and deposit growth to continue to grow the balance sheet for investments if they make sense for us. Kelly Motta: Got it. That's helpful. And then I did want to get a point of clarification, Brent, if I may, on your expectations for growth in the active portfolio. I think you said 8% to 12% over 2 years versus -- I think we're seeing that amount in 2026. Is that the right way to think about it? So maybe a slower run up to that 8% to 12% as that pipeline pulls through? Just trying to kind of square that of commentary whether 8% to 12% over fiscal year 2026 is still in the realm of possibility? Brent Beardall: Yes. I'd say in fiscal year 2026, we're probably 6% to 10%, and then we're thinking in fiscal 2027 on the higher end of that range as we really turn things back on, open them up and the most optimistic sign on that is what we're seeing in the pipeline. So spring should -- this next quarter should be a good quarter for us from a loan production standpoint. Now we have to prove it. Kelly Motta: Got it. That's helpful. And you noted your CRA, you Needs to Improve, your fight, you've taken it to the highest level with the expectation that these are very difficult to overturn. Is there anything that getting that lifted would unlock in terms of your ability to look ahead, it seems like you're working SBA trying to get these active portfolios going. But just wondering if there's kind of any additional opportunity that could be unlocked when you think through that CRA Needs to Improve? Brent Beardall: Yes. Really, the most of it is around branching and how easy or difficult it is to do branching activities. And with over 200 branches, you might imagine, we have branches all the time that we need to move as leases expire and so forth. And right now, there are all kinds of hurdles we have to jump through if we can get those moved at all. But it's also with regards to mergers and acquisitions, and we're not actively looking to do deals at all. We need to show that the Luther Burbank was worthwhile, but we like having the options, and having a Needs to Improve, doesn't preclude you from doing a merger and acquisition, it just makes it much more difficult. So if we got out of that, that would be welcome news from our perspective. Kelly Motta: Got it. Got it. That's helpful. And then just maybe one more high-level question for me on that 3% margin trajectory. In your [ expectation ] -- or wish to move towards that over the intermediate term. Are you baking in any additional rate assumptions? Said another way, you've added some borrowings and have some higher cost funding that needs to work down, would rates be some sort of an element to needed to get you there? And maybe if you could just kind of help us out with how you guys are thinking about the kind of recipe in order to get to that 3%. Brent Beardall: Yes. We're really kind of looking at the combination of the forward curve versus what our gut told us, and we're kind of baking in 1 to 2 cuts this year into that assumption. Operator: Thank you. I would now like to turn the call back over to Brad Goode for any closing remarks. Brad Goode: Josh, thanks so much. Hey, thanks, everybody, for joining this morning's call, our second call with you all. Please contact me if you have any further questions. And we hope you have a great day and a great weekend, and go Seahawks. Brent Beardall: Thank you, everyone. Go Seahawks. See you. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded, and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you, sir. Abhishek Jain: Thank you, Yashashri. Warm welcome to our Q3 FY '26 earnings call. We'll begin the call with the business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer. We also have our CHRO Saurabh Govil, and our Chief Strategist and Technology Officer, Hari Shetty this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srinivas Pallia: Thank you, Abhishek. Good evening, and thank you for joining us today. A very happy new year to you. Let me start with the broader environment. Before walking you through our quarterly performance and how we are positioning Wipro for an AI-first world. Across our client landscape, One thing is clear: organizations are reshaping priorities as AI influences how they plan, invest and operate. In fact, AI is now a standing board level mandate led by CEOs who recognized its ability to transform business models, unlock productivity, and create lasting competitive advantage. We are also seeing the same themes continue from past quarters in our deal pipeline. Cost optimization, vendor consolidation and a clear shift towards AI-led transformation. In quarter 3, we also marked two important milestones for Wipro. In December, we completed 80 years as a company. And in October, we celebrated 25 years of being listed on the New York Stock Exchange. These milestones reflect a legacy of strong governance, value and integrity, a foundation of trust that continues to differentiate us with our clients, partners and investors. Turning to quarter 3 performance. Our IT Services sequential revenue at $2.64 billion grew 1.4% on a constant currency basis. Excluding HARMAN DTS acquisition, revenue grew 0.6% in constant currency terms. Growth was broad-based with three of our four markets and four of our five sectors reporting sequential gain. Americas 1 delivered sequential and year-on-year growth driven by strong performance in health care, consumer and LatAm. Americas 2 saw a sequential decline. Europe grew sequentially in quarter 3, led by a ramp-up of the earlier announced mega deal. We're also seeing good traction in the U.K. and Western Europe. APMEA grew sequentially and year-on-year, led by India, Middle East and Southeast Asia. PFSI continues to show strong traction with the ramp-ups and new wins. CAPCO revenue was impacted by furloughs and remained flat year-on-year. Our operating margin at 17.6% expanded 0.4% over adjusted quarter 2 margin and 0.1% year-on-year. We closed $3.3 billion in total contract value and $871 million in large deal bookings. Last quarter, I introduced Wipro Intelligence. It's a unified approach to delivering AI-powered transformation across industries. This approach is anchored on 3 strategic pillars. First, industry platforms and solutions. We are building consulting-led AI solutions across sectors. For example, platforms like PayerAI in health care, NetOxygen for lending and AutoCortex for automotive. These solutions help streamline operations, improve customer outcomes and open up new avenues for growth. Second, our delivery platforms accelerate AI adoption at scale. WINGS, part of our Wipro Intelligence, brings AI into the heart of operations from application management to infrastructure support and business process operations. Vega adds AI-driven capabilities across the development life cycle from wide coding to model tuning and data pipeline. Together, these platforms help our clients modernize faster and operate smarter. Third, the Wipro Innovation Network. This connects our labs with partners, start-ups, universities and deep tech talent around the world. This ecosystem helps us explore new technologies and build solutions for the future. We launched innovation labs in 3 cities in the U.S., Australia and the Middle East, expanding our network, growing our global footprint and strengthening our role as a trusted innovation partner. We are also partnering with client GCCs to drive transformation and turn their call centers into high-impact innovation labs. Let me now share 2 examples of large deal wins that we had, leveraging Wipro Intelligence. First, a leading global education provider in the U.K., which is expanding rapidly across markets has chosen us as a strategic partner for a multiyear transformation. The goal is to build a single secure intelligent operating model that can scale with their growth and improve stakeholder experience. Using WINGS, we will standardize core processes, embed automation and AI-driven insights and optimize costs through a global delivery model. Second, a leading U.S.-based fitness technology company has selected Wipro for a multiyear transformation to accelerate its shift to a subscription-based wellness model and support global expansion. We will use both WINGS and Vega to embed AI and automation across IT infrastructure and core functions, driving efficiency, productivity, growth and better customer experiences. These engagements highlight a clear trend. Clients are bringing us in much earlier and recognizing the step change in the way we deliver and innovate. I would now like to update you on HARMAN DTS. First, a warm welcome to all HARMAN DTS employees joining us. With the acquisition now complete, we have added engineering and AI capabilities that truly complement what we do. This strengthens our engineering global business line and helps us accelerate AI-driven product innovation for clients. The integration also opens new regions and high-growth industries and allows us to take on larger, more complex transformation programs. As our teams come together, we look forward to entering new markets, building deeper client relationships and turning innovation into long-term value. Finally, guidance for quarter 4. In quarter 4, we are projecting sequential IT services revenue growth of 0% to 2.0% in constant currency. With that, I will hand it over to Aparna for the detailed financials. Thank you. Over to you, Aparna. Aparna Iyer: Thank you, Srini. Good evening, ladies and gentlemen, and wish you all a very, very happy new year. Let me share a quick update on the financial performance. Our IT services revenue for quarter 3 grew 1.4% sequentially in constant currency terms and 1.2% sequentially in reported currency. Revenue grew 0.2% year-on-year in reported terms, while declining 1.2% year-on-year in constant currency terms. Our constant currency revenue growth numbers included 0.8% as contribution from the HARMAN DTS acquisition that was closed in quarter 3 '26. Our operating margin for the quarter was 17.6%, an expansion of 40 basis points over the adjusted operating margin for Q2 and 10 basis points improvement on a year-on-year basis. I would also like to highlight that this is one of our best margin performance in the last several quarters. As we move to Q4, we will need to factor for incremental dilution of HARMAN DTS. That said, our endeavor, as always, will be to maintain the margins in a similar band as in the last few quarters. Adjusted net income for the quarter was INR 33.6 billion, and adjusted EPS for the quarter was at INR 3.21, an increase of 3.5% quarter-on-quarter and flat year-on-year. Moving on to our strategic market unit and sector performance. All the numbers I will share will be in constant currency. Americas grew 1.8% sequentially and grew 2.8% on a year-on-year basis. Americas 2 declined 0.8% sequentially and 5.2% on a year-on-year basis. Europe grew 3.3% sequentially and declined 4.6% on a year-on-year basis. APMEA grew 1.7% sequentially and 6.6% on a year-on-year basis. From a sector standpoint, BFSI grew 2.6% sequentially and 0.4% year-on-year. Health grew 4.2% sequentially and 1% year-on-year. Consumer grew 0.7% sequentially while declining 5.7% year-on-year. Tech and Com grew 4.2% sequentially and 3.5% on year-on-year terms. EMR declined 4.9% sequentially and 5.8% year-on-year. To give an added color, Capco was flat on a year-on-year basis in Q3. Before I move on to other financial parameters, I'd like to draw your attention to 2 specific one-off charges that we took in our P&L that also impacted our net income. These changes are not included in our -- these charges are not included in our IT Services segment margins. First is an increase of INR 302 crores towards gratuity expenses due to implementation of the new labor code. Second is regarding the restructuring exercise that was completed during the quarter and its impact is about INR 263 crores. I'd like to confirm that we've now completed the restructuring we wanted to do and do not anticipate any further charges. Our operating cash flow continued to be higher than the net income and stood at 135% of net income for quarter 3. Our gross cash, including investments is now at $6.5 billion. Our net other income in Q3 grew 15% sequentially. Accounting yield for the average investments held in India was at 7.2%. Our effective tax rate at 23.9% for Q3 '26 was better than the quarter -- same quarter last year of 24.4%. In terms of our guidance, we would like to reiterate what was stated by Srini. We expect our revenue from the IT Services business segment to be in the range of $2.635 billion to $2.688 billion. This translates to a sequential guidance of 0% to 2% in constant currency terms. Our guidance includes the incremental 2 months of revenue from HARMAN DTS. It is impacted by fewer working days in Q4 and certain delayed ramp-ups in some of the large deals that we won earlier in the year. Lastly, I'd like to share with you that in our recently concluded Board meeting, the Board of Directors have declared an interim dividend of INR 6 per share. With this payout, the cash distributed to our shareholders during the current financial year will be in excess of $1.3 billion, and we will be able to significantly exceed the minimum threshold that we had laid out in our capital allocation policy for the block ending financial year 2026. With that, I'm going to ask Yashasvi to open it up for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of Nitin Padmanabhan from Investec. Nitin Padmanabhan: I had a couple of questions. So one is, I think this quarter, we lost almost $24 million of revenue in energy manufacturing resources. Just wanted your thoughts on that vertical. And how do you see the deal pipeline there? When do you think this can sort of turn around? The second is you alluded to some delays in ramp-ups impacting growth for next quarter to give some -- if you could give some color there. I presume this is related to the large deals. By when do you see this sort of beginning to ramp going forward? And third, where are we expecting to have the wage hike cycle. Those are the three. Aparna Iyer: So Nitin, I'll take your second question. And then on EMR, I'll ask Srini to answer, and on attrition, we have Saurabh here, he could take that on hike -- salary hike sorry. Nitin, in terms of our large deal conversion, each deal is different. One of the significant deal wins we had in Q4 of the last financial year, Phoenix is now fully ramped up and its revenue is fully realized and it's part of our quarter 3 performance. So that's on track. Some of the other deals, given the nature of the deals that we won, we've earlier also highlighted that these deals will take a few quarters to ramp up. So it's a question of it coming in through the course of the next few quarters. And therefore, we have called it out saying that in Q4, we may not be able to realize the full impact and therefore, we're calling it out. The other lever that is playing out is typically furloughs do come back, but Q4 continues to have lower working days, which is not really sometimes offsetting for those furloughs. And therefore, we've given you the guidance we have. But these deals should continue to convert. This deal a little different. We are confident it will take some time, but it will ramp up. Srini, You want to talk on EMR and then Saurabh can talk. Srinivas Pallia: Thanks, Aparna. Happy New year, Nitin. As far as EMR is concerned, our performance in this sector clearly has been impacted based on the macroeconomic uncertainty, we have seen some during tariff related and also some disrupted supply chain issues that we faced. However, our pipeline continues to remain strong in the sector. And essentially, the significant pipeline is around either vendor consolidation or cost takeout. And if I were to give a little bit of color to our specific segments, we have -- we see good momentum in energy in both Americas and Europe, and as far as manufacturing is concerned, we are seeing that in Europe. Also, our Capco business, which is doing some -- is also seeing some traction on the energy consulting side. So net-net, that's the situation that we have right now with the EMR, Nitin. Over to you, Saurabh. Saurabh Govil: Salary hikes, we will take a call in the next few weeks in terms of doing it. Our intention is to look at it this quarter, but we'll confirm it in the next couple of weeks. Nitin Padmanabhan: Perfect. That's helpful. Just one clarification. Do you think EMR should start getting back to growth sometime next year? That's the last question from my end. Srinivas Pallia: As far as EMR concerned, Nitin, I'll just repeat that. One is the pipeline. Like I said, specifically, we have good momentum on the pipeline in energy in both Americas and Europe. And as far as the manufacturing is concerned, it's in Europe. I think our focus right now is to convert these deals and then that should drive the revenue growth for us. And we are just getting focused on winning some of those deals, Nitin. Nitin Padmanabhan: Perfect, very helpful. Thank you so much and all the very best. Aparna Iyer: Thank you. Srinivas Pallia: Thank you. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats on a solid performance. So Srini, my question was mainly on the -- basically the consumer vertical. You mentioned about the challenges in the EMR vertical. Banking has been doing well for us. In the consumer vertical, the growth was tepid in this quarter. We continue to decline on a Y-o-Y basis. How do you see the outlook in this vertical? We know this vertical also has been impacted a lot by the tariff uncertainty that has basically impacted the producers. But any -- in your conversation with the clients in terms of our interactions in the pipeline, do you see it turning the corner in coming quarters? Or do you think it will be some time before some clarity emerges in this vertical? Srinivas Pallia: Thanks, Vibhor. If you look at our consumer sector, clearly, if you recollect, I talked about it before as well that the tariffs had an impact on this, and that is reflected in our numbers. And also, if you reflect, there was a large SAP program, which was put on hold last year by our customers. And again, the client is yet to reinitiate. And that is one of the things that is impacting our year-on-year performance as well in this particular thing in this particular market sector. However, the overall trend that we see right now is mixed here for us in consumer. Some of the wins we had earlier this year is slowly ramping up, and that should support the growth in this sector. I do not have -- from a quarter 4 perspective, whatever growth we are seeing, that's baked into our forecast number. Vibhor Singhal: And similar thing on the -- basically [ tech ] vertical. I know it's not that big a vertical, but I think both tech and health vertical appear to be doing good. Any specific project ramp-up that we saw in this quarter, which led to this growth? Or do you think it's a growth which we can sustain in the coming quarters as well? Aparna Iyer: Sorry, which sector did you refer to Vibhor? Vibhor Singhal: Aparna tech and the health care verticals, both of them separately. Aparna Iyer: In some sense, in health care, we've been consistently doing well, and we've had both in our year-on-year performance. Seasonally, obviously, we have the open enrollment season that really does improve our health performance in Q3. So that has also added to the performance. In terms of our tech and, we've continued to do well in some of our large technology players. And there is a little bit of the HARMAN acquisition numbers, which is also reflected in the overall sector's performance. And I think communications in general have done -- has been better for Europe and APMEA. That's the color I can give you. Vibhor Singhal: Perfect. That's really helpful. But -- just one last question from my side. You mentioned about the few headwinds in Q4 that you would be facing. And if I look at our guidance, 0% to 2% in the consolidated level, and if we were to, let's say, extrapolate the 2-month incremental impact of HARMAN acquisition, the organic growth will probably fall somewhere between minus 1.5% to plus 0.5%. Is that the right understanding? And is the reason for that very much as you mentioned in your opening remarks as well. Aparna Iyer: Vibhor for some reason, we are not able to hear it clearly. Can you just slow down the question? Vibhor Singhal: Yes, can you hear me? Operator: I'm sorry, his line is disconnected. We'll move on to the next question. [Operator Instructions]. Next question is from the line of Ravi Menon from Macquarie. Ravi Menon: Congrats on a really strong margin performance this quarter. Now that you've come to sequential growth even in a seasonally weak quarter, I surprised that organically, we seem to be hinting at a slight decline possibly at the lower end of our guidance next quarter. And Capco should also be coming out of from the furloughs that it's had this quarter, right? So could you talk a bit about that? And beyond that, do you think that sequential growth is possible looking at the pipeline and the slight improvement possibly if we have on the demand environment? Aparna Iyer: So I will ask Srini to talk through the demand environment. You know we guide based on the visibility that we have at the start of the quarter. I've shared with you that some of the furloughs that typically does come back has been partially offset by the lower working days that we are also seeing this year. And to that extent, we are seeing some softness continue, right? But that said, our endeavor would be to obviously execute the quarter better through this next 90 days, right? Srinivas Pallia: So Ravi, if I look at it, there is no significant change in the demand environment. specifically the discretionary spend as the uncertainty continues. Second, January is the time when many of our customers will finalize their budgeting process. We'll have a much better understanding and view of where they are going to spend. But having said that, if I look at the current pipeline that we have, a significant piece of this pipeline is around cost optimization and vendor consolidation, which are the key levers for our clients. And they are using this as a lever for savings, and they want to reinvest these savings into AI capabilities and also some of the advanced transformational projects that they want to do. For us, we believe this is an opportunity for us to capitalize on this, and we'll make strategic bets in each of these sectors and markets, continue to invest in our clients to do this. From a full year visibility, like Pana said, there is uncertainty in the market and customer continue to remain in wait and watch mode. At this stage, our guidance represents best visibility we have. And if there are any further updates, we will definitely share, Ravi. Ravi Menon: And the -- you talked about vendor consolidation and cost takeout and clients actually using those savings for transformation. Are they actually giving both to the same vendor? Or do they prefer to split that out? What that you're seeing at least in the wins that you have? Srinivas Pallia: So Ravi, it's a mix. There are certain clients who are doing that and continuing with the current partners. And there are certain clients who are changing, and there are certain clients who are increasing the scope and using multiple partners as well. So it clearly varies from client to client. Ravi Menon: And one last question on the HARMAN DTS. Which segments do you think this really improves your possibility of win rates? Srinivas Pallia: So Ravi, if I understand the question, how the HARMAN DTS acquisition will help us, right? Ravi Menon: Correct. Yes. which sectors do you expect the win rates to improve? Srinivas Pallia: So clearly, HARMAN brings in both design to manufacturing capabilities and AI-powered product innovation. In that context, clearly, the sweet spot for a combined unit is, especially the engineering global business line that we have is the tech and com sector. That's, I think, primarily the one where we see a significant opportunity. And the other 3 sectors, I would pick are health, consumer and EMR, Ravi. Operator: We'll take our next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Just the first question is because of delay in ramp-up of deal wins of the last 2, 3 quarters, is it fair to assume if those ramps up in the first quarter next year, then the seasonal softness, which generally comes in the first quarter may not be true next year? Aparna Iyer: So Sandeep, yes, in some sense, that will be the objective that we ramp up enough so that we can offset for some of the weakness that could arise. That said, we don't guide for Q1, but we would like to clarify that it's just delayed and some of those do take time to ramp up and confident that it will ramp up and we will keep you posted. Sandeep Shah: Okay. Just Aparna, I wanted to understand the guidance on the margins, which you said narrow band compared to Q3 margins or earlier range? Aparna Iyer: So you again know we don't guide for margins. You've seen our performance over the last 8 quarters. We've consistently improved, right? I think all credit to the team, we have been fairly resilient on margin, and we will continue our endeavor to keep it. But that said, we will have to invest for growth. And that's the #1 priority, right? We've acquired DTS HARMAN, and that will mean an incremental dilution to our margins that we will have to absorb. So we continue to chase and win large deals and they come with a different margin profile. And these are very important investments we'll have to make. And there will also be decisions that will have to be made on wage increases that Saurabh spoke of. A lot of moving parts. Our endeavor is going to be to make sure that we keep it in that band of 17% to 17.5%. If you recall, we had said that while we stated that band with the acquisition, we will see pressure to that. Right now, we are continuing to hold that band, which itself is a positive. But like I said, we will have to take it quarter-to-quarter. There will be some quarters where we will have to invest in our people, in our deals, in our clients and for growth. So we will make those trade-offs. Sandeep Shah: Yes. Just last couple of questions. The deal TCV in this quarter, both on large deal and total has been slightly softer versus very strong momentum in the earlier 3 quarters. So any reason where is it the client decision-making being slowed down or it's the intense competitive pressure, which has led to some decline in the win ratio? Aparna Iyer: Yes. Typically, like I said, some of these deals, they tend to club, right? We are contesting a lot of large deals. They are in the cycle. We are hopeful of closing them. You will continue to see the momentum on large deal wins. At $1 billion or maybe we are just shy of $100 million. That's been the normal trajectory. Obviously, in the first half, we had a few mega deal wins, 4 to be specific. We hope to win more, right? So I wouldn't read into it in terms of slower decision-making cycle or competitive pressure. I would just say that they tend to lump up. We have a lot of good deals, and we will see the momentum pick up. Sandeep Shah: Okay. And just the last question, Aparna with the war chest of $6.1 billion, though we are distributing dividend, but is it fair to assume that buyback continues to remain one of the options in the mind to give this excess cash back to the shareholders? Aparna Iyer: We have said that buyback will continue to be a means by which we will return cash to our shareholders. It's certainly an option on the table, and we will consider it at an appropriate time. Sandeep Shah: Okay, thanks and all the best. Aparna Iyer: Thank you. Operator: Next question is from the line of Kumar Rakesh from BNP Paribas. Kumar Rakesh: I have just one question. Srini, do you think given the kind of mix which you have, both of vertical and the capability at Wipro, you would be able to get back in line with the industry average revenue growth -- or would it make sense to just slow down your margin, get to mid-teens sort of a margin, be able to better compete with some of your peers, maybe peers as well or maybe acquire some of the companies to reset the mix. What's your thought on that? Srinivas Pallia: Kumar, clearly, first, if you look at our inorganic strategy, it is very clearly aligned to the strategic priorities we called out. We constantly look for sectors and the markets combination in terms of where we need to invest, where we need to acquire new capabilities. And if you look at specifically HARMAN DTS, clearly, it's giving us a combination of both what I would call as capabilities and also a few new markets that they are already in. So we will -- we continue to look at opportunities for us, Kumar, as we continue to move forward. Our strategy is both growing our organic and inorganic and continue to invest in inorganic. And you are right, we do have cash. And as far as that is concerned, it is an opportunity for us to look at the market, scan the market and do the right investment that makes it a win-win for us. Operator: Next question is from the line of Rishi Jhunjhunwala from IIFL. Rishi Jhunjhunwala: Just wanted to understand ex of HARMAN doesn't look like there would be much of a sequential growth in 4Q and 1Q, as we were discussing earlier in the call, historically has had some weak seasonality. I noticed a pretty sharp increase in our overall headcount in this quarter. So just wanted to understand, given the outlook for the next couple of quarters, what is driving this? And how do we read that? Saurabh Govil: The headcount for this quarter is primarily driven from 2 things. One is the acquisition, DTS acquisition. And second is one of the large deals in Phoenix, we had done as reding. I think when we ramped up the deal. So that's been the reason for seeing the ramp-up in this quarter. Otherwise, from a hiring standpoint and supply side, I don't see a challenge. Attrition has been at 2 percentage low for the quarter, trending the same in the next quarter. We are going to go to the campuses again. We had taken a bit of a hiatus in this quarter -- next quarter. So from a supply side, utilization is looking up net of the furloughs, which we -- net of the leaves which people have taken. So we are fairly confident in the headcount supply side to manage the demand. Rishi Jhunjhunwala: Understood, sir. The second question is just wanted to understand this restructuring cost that we have booked in our financials. Is it in the same nature as what we did in 1Q? And if not, if you can give some color around that? Saurabh Govil: The restructuring basically has pivoted on obsolete skill and primarily in 2 areas. One is in Europe, where we have a tough labor laws and second is in Capco. These are the 2 big areas that we did that, similar to what we have done in Q1. Rishi Jhunjhunwala: Understood. And just last thing, there was a bookkeeping question. There is a spike in D&A in this quarter. Any particular reason? And is that a normalized level going forward as well? Aparna Iyer: We have taken a provision for bad debt charge. And I think that's the line item that will show an increase. That's in the usual course of business. You should see that go off starting next quarter. Rishi Jhunjhunwala: Aparna, I was asking about depreciation and amortization? Aparna Iyer: Okay. And typically, we do assess the intangibles every year. And if -- based on the expected forecast, et cetera, sometimes we tend to accelerate such amortization. In this quarter, we did accelerate some amortization towards one of the earlier acquisitions, and that's reflected. And that should also normalize. However, we will have an increased amortization charge coming in for the DTS HARMAN. So yes, you should wait for the next quarter to get some more normalized then... Operator: Next question is from the line of Kawaljeet Saluja from Kotak Securities. Kawaljeet Saluja: I had just a couple of questions for you. First is that at $6.5 billion, it seems that you have plenty of excess cash. So how do you intend to flush this excess cash out? Would it be through dividends or is buyback on the cards? And if buyback is on the cards, then what are the considerations set required to move towards that path? That's the first question. Aparna Iyer: Okay. You're right. We did note that we've been having excess cash. And as a result of that, last year, we had increased our capital allocation. And we've said that we would start increasing our dividend payout. We did that. We paid out INR 6 in the last financial year. This year, we've almost paid INR 11 per share, which is about $1.3 billion. We should opt -- nearly account for like -- if I had to just annualized our YTD EPS is about 88%, 89% of that. So at least what the increased dividend is doing is we're not adding to the excess cash and leaving enough for watches for whatever acquisitions and organic investments we need to make. Is buyback an option to still consider in terms of returning excess cash to shareholders? Indeed, it is. And what are the considerations for that, we will have a discussion with the board on that, and we will come back considerations include whether we have enough net cash available in order to pursue the investments we need, and we will keep the market posted, Kawal. But other statutory considerations are quite in the place for buyback. Kawaljeet Saluja: Can you repeat that last part again? I missed it. Aparna Iyer: I said there are some statutory considerations that you can't do a buyback within 12 months. You can't do it if there is a merger pending for NCLT, et cetera. None of that is -- I mean, all of that is conducive, Kawal, for us.. Kawaljeet Saluja: So let's say, if you had to theoretically decide to do a buyback, today, you can do that. Whereas in the past, there was an NCLT process or merger, which would have acted as an impediment -- there is no such impediment. I mean you can do that as and when you feel it's the right time. Is that the way to look at it? Aparna Iyer: Yes. Absolutely. Kawaljeet Saluja: Noted. The second question is for you and Srini. Let's say, if those 2 mega deal ramp-ups were not delayed, then what would the guidance have been for, let's say, the March quarter? Any way to detail it out either quantitatively, which may be difficult or even qualitatively, that will be very helpful to understand the growth trajectory. Aparna Iyer: Obviously, we can't talk about it quantitatively, Kawal. And qualitatively, like I said, it's only delayed. these ramp-ups should happen. And each deal is different in its nature, right? For example, something like Phoenix, which was entirely net new and fully where there was a clear go-live date and readiness, we've been able to do that, and that's fully into our revenue starting Q3. So that played out perfectly to plan, right? Now in some of the other larger deals that -- or mega deals that we could be winning in terms of vendor consolidation, these deals typically have both an element of renewal and new. Obviously, the renewal is fully in and that continues, and we're not seeing any changes in terms of the expectations. In case of the new, the element of new, some of these things are taking longer, either due to client situations where there could be some changes in the client environment that they're going through and therefore, there is a little bit of a delay in terms of the timing of the ramp-up or it could just be the nature of how it is going to play out, right? Because we will have -- it will take 6 quarters. That's what I earlier alluded to. So it is going to take that time. And we are hopeful that this will flow through in the coming quarters. Kawaljeet Saluja: Noted. Thank you so much. All the best. Aparna Iyer: Thank you. Thank you Kawal. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Yes. Thank you all for joining the call. Have a nice day. Thank you. Operator: Thank you. Thank you, members of the management team. On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded, and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you, sir. Abhishek Jain: Thank you, Yashashri. Warm welcome to our Q3 FY '26 earnings call. We'll begin the call with the business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer. We also have our CHRO Saurabh Govil, and our Chief Strategist and Technology Officer, Hari Shetty this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srinivas Pallia: Thank you, Abhishek. Good evening, and thank you for joining us today. A very happy new year to you. Let me start with the broader environment. Before walking you through our quarterly performance and how we are positioning Wipro for an AI-first world. Across our client landscape, One thing is clear: organizations are reshaping priorities as AI influences how they plan, invest and operate. In fact, AI is now a standing board level mandate led by CEOs who recognized its ability to transform business models, unlock productivity, and create lasting competitive advantage. We are also seeing the same themes continue from past quarters in our deal pipeline. Cost optimization, vendor consolidation and a clear shift towards AI-led transformation. In quarter 3, we also marked two important milestones for Wipro. In December, we completed 80 years as a company. And in October, we celebrated 25 years of being listed on the New York Stock Exchange. These milestones reflect a legacy of strong governance, value and integrity, a foundation of trust that continues to differentiate us with our clients, partners and investors. Turning to quarter 3 performance. Our IT Services sequential revenue at $2.64 billion grew 1.4% on a constant currency basis. Excluding HARMAN DTS acquisition, revenue grew 0.6% in constant currency terms. Growth was broad-based with three of our four markets and four of our five sectors reporting sequential gain. Americas 1 delivered sequential and year-on-year growth driven by strong performance in health care, consumer and LatAm. Americas 2 saw a sequential decline. Europe grew sequentially in quarter 3, led by a ramp-up of the earlier announced mega deal. We're also seeing good traction in the U.K. and Western Europe. APMEA grew sequentially and year-on-year, led by India, Middle East and Southeast Asia. PFSI continues to show strong traction with the ramp-ups and new wins. CAPCO revenue was impacted by furloughs and remained flat year-on-year. Our operating margin at 17.6% expanded 0.4% over adjusted quarter 2 margin and 0.1% year-on-year. We closed $3.3 billion in total contract value and $871 million in large deal bookings. Last quarter, I introduced Wipro Intelligence. It's a unified approach to delivering AI-powered transformation across industries. This approach is anchored on 3 strategic pillars. First, industry platforms and solutions. We are building consulting-led AI solutions across sectors. For example, platforms like PayerAI in health care, NetOxygen for lending and AutoCortex for automotive. These solutions help streamline operations, improve customer outcomes and open up new avenues for growth. Second, our delivery platforms accelerate AI adoption at scale. WINGS, part of our Wipro Intelligence, brings AI into the heart of operations from application management to infrastructure support and business process operations. Vega adds AI-driven capabilities across the development life cycle from wide coding to model tuning and data pipeline. Together, these platforms help our clients modernize faster and operate smarter. Third, the Wipro Innovation Network. This connects our labs with partners, start-ups, universities and deep tech talent around the world. This ecosystem helps us explore new technologies and build solutions for the future. We launched innovation labs in 3 cities in the U.S., Australia and the Middle East, expanding our network, growing our global footprint and strengthening our role as a trusted innovation partner. We are also partnering with client GCCs to drive transformation and turn their call centers into high-impact innovation labs. Let me now share 2 examples of large deal wins that we had, leveraging Wipro Intelligence. First, a leading global education provider in the U.K., which is expanding rapidly across markets has chosen us as a strategic partner for a multiyear transformation. The goal is to build a single secure intelligent operating model that can scale with their growth and improve stakeholder experience. Using WINGS, we will standardize core processes, embed automation and AI-driven insights and optimize costs through a global delivery model. Second, a leading U.S.-based fitness technology company has selected Wipro for a multiyear transformation to accelerate its shift to a subscription-based wellness model and support global expansion. We will use both WINGS and Vega to embed AI and automation across IT infrastructure and core functions, driving efficiency, productivity, growth and better customer experiences. These engagements highlight a clear trend. Clients are bringing us in much earlier and recognizing the step change in the way we deliver and innovate. I would now like to update you on HARMAN DTS. First, a warm welcome to all HARMAN DTS employees joining us. With the acquisition now complete, we have added engineering and AI capabilities that truly complement what we do. This strengthens our engineering global business line and helps us accelerate AI-driven product innovation for clients. The integration also opens new regions and high-growth industries and allows us to take on larger, more complex transformation programs. As our teams come together, we look forward to entering new markets, building deeper client relationships and turning innovation into long-term value. Finally, guidance for quarter 4. In quarter 4, we are projecting sequential IT services revenue growth of 0% to 2.0% in constant currency. With that, I will hand it over to Aparna for the detailed financials. Thank you. Over to you, Aparna. Aparna Iyer: Thank you, Srini. Good evening, ladies and gentlemen, and wish you all a very, very happy new year. Let me share a quick update on the financial performance. Our IT services revenue for quarter 3 grew 1.4% sequentially in constant currency terms and 1.2% sequentially in reported currency. Revenue grew 0.2% year-on-year in reported terms, while declining 1.2% year-on-year in constant currency terms. Our constant currency revenue growth numbers included 0.8% as contribution from the HARMAN DTS acquisition that was closed in quarter 3 '26. Our operating margin for the quarter was 17.6%, an expansion of 40 basis points over the adjusted operating margin for Q2 and 10 basis points improvement on a year-on-year basis. I would also like to highlight that this is one of our best margin performance in the last several quarters. As we move to Q4, we will need to factor for incremental dilution of HARMAN DTS. That said, our endeavor, as always, will be to maintain the margins in a similar band as in the last few quarters. Adjusted net income for the quarter was INR 33.6 billion, and adjusted EPS for the quarter was at INR 3.21, an increase of 3.5% quarter-on-quarter and flat year-on-year. Moving on to our strategic market unit and sector performance. All the numbers I will share will be in constant currency. Americas grew 1.8% sequentially and grew 2.8% on a year-on-year basis. Americas 2 declined 0.8% sequentially and 5.2% on a year-on-year basis. Europe grew 3.3% sequentially and declined 4.6% on a year-on-year basis. APMEA grew 1.7% sequentially and 6.6% on a year-on-year basis. From a sector standpoint, BFSI grew 2.6% sequentially and 0.4% year-on-year. Health grew 4.2% sequentially and 1% year-on-year. Consumer grew 0.7% sequentially while declining 5.7% year-on-year. Tech and Com grew 4.2% sequentially and 3.5% on year-on-year terms. EMR declined 4.9% sequentially and 5.8% year-on-year. To give an added color, Capco was flat on a year-on-year basis in Q3. Before I move on to other financial parameters, I'd like to draw your attention to 2 specific one-off charges that we took in our P&L that also impacted our net income. These changes are not included in our -- these charges are not included in our IT Services segment margins. First is an increase of INR 302 crores towards gratuity expenses due to implementation of the new labor code. Second is regarding the restructuring exercise that was completed during the quarter and its impact is about INR 263 crores. I'd like to confirm that we've now completed the restructuring we wanted to do and do not anticipate any further charges. Our operating cash flow continued to be higher than the net income and stood at 135% of net income for quarter 3. Our gross cash, including investments is now at $6.5 billion. Our net other income in Q3 grew 15% sequentially. Accounting yield for the average investments held in India was at 7.2%. Our effective tax rate at 23.9% for Q3 '26 was better than the quarter -- same quarter last year of 24.4%. In terms of our guidance, we would like to reiterate what was stated by Srini. We expect our revenue from the IT Services business segment to be in the range of $2.635 billion to $2.688 billion. This translates to a sequential guidance of 0% to 2% in constant currency terms. Our guidance includes the incremental 2 months of revenue from HARMAN DTS. It is impacted by fewer working days in Q4 and certain delayed ramp-ups in some of the large deals that we won earlier in the year. Lastly, I'd like to share with you that in our recently concluded Board meeting, the Board of Directors have declared an interim dividend of INR 6 per share. With this payout, the cash distributed to our shareholders during the current financial year will be in excess of $1.3 billion, and we will be able to significantly exceed the minimum threshold that we had laid out in our capital allocation policy for the block ending financial year 2026. With that, I'm going to ask Yashasvi to open it up for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of Nitin Padmanabhan from Investec. Nitin Padmanabhan: I had a couple of questions. So one is, I think this quarter, we lost almost $24 million of revenue in energy manufacturing resources. Just wanted your thoughts on that vertical. And how do you see the deal pipeline there? When do you think this can sort of turn around? The second is you alluded to some delays in ramp-ups impacting growth for next quarter to give some -- if you could give some color there. I presume this is related to the large deals. By when do you see this sort of beginning to ramp going forward? And third, where are we expecting to have the wage hike cycle. Those are the three. Aparna Iyer: So Nitin, I'll take your second question. And then on EMR, I'll ask Srini to answer, and on attrition, we have Saurabh here, he could take that on hike -- salary hike sorry. Nitin, in terms of our large deal conversion, each deal is different. One of the significant deal wins we had in Q4 of the last financial year, Phoenix is now fully ramped up and its revenue is fully realized and it's part of our quarter 3 performance. So that's on track. Some of the other deals, given the nature of the deals that we won, we've earlier also highlighted that these deals will take a few quarters to ramp up. So it's a question of it coming in through the course of the next few quarters. And therefore, we have called it out saying that in Q4, we may not be able to realize the full impact and therefore, we're calling it out. The other lever that is playing out is typically furloughs do come back, but Q4 continues to have lower working days, which is not really sometimes offsetting for those furloughs. And therefore, we've given you the guidance we have. But these deals should continue to convert. This deal a little different. We are confident it will take some time, but it will ramp up. Srini, You want to talk on EMR and then Saurabh can talk. Srinivas Pallia: Thanks, Aparna. Happy New year, Nitin. As far as EMR is concerned, our performance in this sector clearly has been impacted based on the macroeconomic uncertainty, we have seen some during tariff related and also some disrupted supply chain issues that we faced. However, our pipeline continues to remain strong in the sector. And essentially, the significant pipeline is around either vendor consolidation or cost takeout. And if I were to give a little bit of color to our specific segments, we have -- we see good momentum in energy in both Americas and Europe, and as far as manufacturing is concerned, we are seeing that in Europe. Also, our Capco business, which is doing some -- is also seeing some traction on the energy consulting side. So net-net, that's the situation that we have right now with the EMR, Nitin. Over to you, Saurabh. Saurabh Govil: Salary hikes, we will take a call in the next few weeks in terms of doing it. Our intention is to look at it this quarter, but we'll confirm it in the next couple of weeks. Nitin Padmanabhan: Perfect. That's helpful. Just one clarification. Do you think EMR should start getting back to growth sometime next year? That's the last question from my end. Srinivas Pallia: As far as EMR concerned, Nitin, I'll just repeat that. One is the pipeline. Like I said, specifically, we have good momentum on the pipeline in energy in both Americas and Europe. And as far as the manufacturing is concerned, it's in Europe. I think our focus right now is to convert these deals and then that should drive the revenue growth for us. And we are just getting focused on winning some of those deals, Nitin. Nitin Padmanabhan: Perfect, very helpful. Thank you so much and all the very best. Aparna Iyer: Thank you. Srinivas Pallia: Thank you. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats on a solid performance. So Srini, my question was mainly on the -- basically the consumer vertical. You mentioned about the challenges in the EMR vertical. Banking has been doing well for us. In the consumer vertical, the growth was tepid in this quarter. We continue to decline on a Y-o-Y basis. How do you see the outlook in this vertical? We know this vertical also has been impacted a lot by the tariff uncertainty that has basically impacted the producers. But any -- in your conversation with the clients in terms of our interactions in the pipeline, do you see it turning the corner in coming quarters? Or do you think it will be some time before some clarity emerges in this vertical? Srinivas Pallia: Thanks, Vibhor. If you look at our consumer sector, clearly, if you recollect, I talked about it before as well that the tariffs had an impact on this, and that is reflected in our numbers. And also, if you reflect, there was a large SAP program, which was put on hold last year by our customers. And again, the client is yet to reinitiate. And that is one of the things that is impacting our year-on-year performance as well in this particular thing in this particular market sector. However, the overall trend that we see right now is mixed here for us in consumer. Some of the wins we had earlier this year is slowly ramping up, and that should support the growth in this sector. I do not have -- from a quarter 4 perspective, whatever growth we are seeing, that's baked into our forecast number. Vibhor Singhal: And similar thing on the -- basically [ tech ] vertical. I know it's not that big a vertical, but I think both tech and health vertical appear to be doing good. Any specific project ramp-up that we saw in this quarter, which led to this growth? Or do you think it's a growth which we can sustain in the coming quarters as well? Aparna Iyer: Sorry, which sector did you refer to Vibhor? Vibhor Singhal: Aparna tech and the health care verticals, both of them separately. Aparna Iyer: In some sense, in health care, we've been consistently doing well, and we've had both in our year-on-year performance. Seasonally, obviously, we have the open enrollment season that really does improve our health performance in Q3. So that has also added to the performance. In terms of our tech and, we've continued to do well in some of our large technology players. And there is a little bit of the HARMAN acquisition numbers, which is also reflected in the overall sector's performance. And I think communications in general have done -- has been better for Europe and APMEA. That's the color I can give you. Vibhor Singhal: Perfect. That's really helpful. But -- just one last question from my side. You mentioned about the few headwinds in Q4 that you would be facing. And if I look at our guidance, 0% to 2% in the consolidated level, and if we were to, let's say, extrapolate the 2-month incremental impact of HARMAN acquisition, the organic growth will probably fall somewhere between minus 1.5% to plus 0.5%. Is that the right understanding? And is the reason for that very much as you mentioned in your opening remarks as well. Aparna Iyer: Vibhor for some reason, we are not able to hear it clearly. Can you just slow down the question? Vibhor Singhal: Yes, can you hear me? Operator: I'm sorry, his line is disconnected. We'll move on to the next question. [Operator Instructions]. Next question is from the line of Ravi Menon from Macquarie. Ravi Menon: Congrats on a really strong margin performance this quarter. Now that you've come to sequential growth even in a seasonally weak quarter, I surprised that organically, we seem to be hinting at a slight decline possibly at the lower end of our guidance next quarter. And Capco should also be coming out of from the furloughs that it's had this quarter, right? So could you talk a bit about that? And beyond that, do you think that sequential growth is possible looking at the pipeline and the slight improvement possibly if we have on the demand environment? Aparna Iyer: So I will ask Srini to talk through the demand environment. You know we guide based on the visibility that we have at the start of the quarter. I've shared with you that some of the furloughs that typically does come back has been partially offset by the lower working days that we are also seeing this year. And to that extent, we are seeing some softness continue, right? But that said, our endeavor would be to obviously execute the quarter better through this next 90 days, right? Srinivas Pallia: So Ravi, if I look at it, there is no significant change in the demand environment. specifically the discretionary spend as the uncertainty continues. Second, January is the time when many of our customers will finalize their budgeting process. We'll have a much better understanding and view of where they are going to spend. But having said that, if I look at the current pipeline that we have, a significant piece of this pipeline is around cost optimization and vendor consolidation, which are the key levers for our clients. And they are using this as a lever for savings, and they want to reinvest these savings into AI capabilities and also some of the advanced transformational projects that they want to do. For us, we believe this is an opportunity for us to capitalize on this, and we'll make strategic bets in each of these sectors and markets, continue to invest in our clients to do this. From a full year visibility, like Pana said, there is uncertainty in the market and customer continue to remain in wait and watch mode. At this stage, our guidance represents best visibility we have. And if there are any further updates, we will definitely share, Ravi. Ravi Menon: And the -- you talked about vendor consolidation and cost takeout and clients actually using those savings for transformation. Are they actually giving both to the same vendor? Or do they prefer to split that out? What that you're seeing at least in the wins that you have? Srinivas Pallia: So Ravi, it's a mix. There are certain clients who are doing that and continuing with the current partners. And there are certain clients who are changing, and there are certain clients who are increasing the scope and using multiple partners as well. So it clearly varies from client to client. Ravi Menon: And one last question on the HARMAN DTS. Which segments do you think this really improves your possibility of win rates? Srinivas Pallia: So Ravi, if I understand the question, how the HARMAN DTS acquisition will help us, right? Ravi Menon: Correct. Yes. which sectors do you expect the win rates to improve? Srinivas Pallia: So clearly, HARMAN brings in both design to manufacturing capabilities and AI-powered product innovation. In that context, clearly, the sweet spot for a combined unit is, especially the engineering global business line that we have is the tech and com sector. That's, I think, primarily the one where we see a significant opportunity. And the other 3 sectors, I would pick are health, consumer and EMR, Ravi. Operator: We'll take our next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Just the first question is because of delay in ramp-up of deal wins of the last 2, 3 quarters, is it fair to assume if those ramps up in the first quarter next year, then the seasonal softness, which generally comes in the first quarter may not be true next year? Aparna Iyer: So Sandeep, yes, in some sense, that will be the objective that we ramp up enough so that we can offset for some of the weakness that could arise. That said, we don't guide for Q1, but we would like to clarify that it's just delayed and some of those do take time to ramp up and confident that it will ramp up and we will keep you posted. Sandeep Shah: Okay. Just Aparna, I wanted to understand the guidance on the margins, which you said narrow band compared to Q3 margins or earlier range? Aparna Iyer: So you again know we don't guide for margins. You've seen our performance over the last 8 quarters. We've consistently improved, right? I think all credit to the team, we have been fairly resilient on margin, and we will continue our endeavor to keep it. But that said, we will have to invest for growth. And that's the #1 priority, right? We've acquired DTS HARMAN, and that will mean an incremental dilution to our margins that we will have to absorb. So we continue to chase and win large deals and they come with a different margin profile. And these are very important investments we'll have to make. And there will also be decisions that will have to be made on wage increases that Saurabh spoke of. A lot of moving parts. Our endeavor is going to be to make sure that we keep it in that band of 17% to 17.5%. If you recall, we had said that while we stated that band with the acquisition, we will see pressure to that. Right now, we are continuing to hold that band, which itself is a positive. But like I said, we will have to take it quarter-to-quarter. There will be some quarters where we will have to invest in our people, in our deals, in our clients and for growth. So we will make those trade-offs. Sandeep Shah: Yes. Just last couple of questions. The deal TCV in this quarter, both on large deal and total has been slightly softer versus very strong momentum in the earlier 3 quarters. So any reason where is it the client decision-making being slowed down or it's the intense competitive pressure, which has led to some decline in the win ratio? Aparna Iyer: Yes. Typically, like I said, some of these deals, they tend to club, right? We are contesting a lot of large deals. They are in the cycle. We are hopeful of closing them. You will continue to see the momentum on large deal wins. At $1 billion or maybe we are just shy of $100 million. That's been the normal trajectory. Obviously, in the first half, we had a few mega deal wins, 4 to be specific. We hope to win more, right? So I wouldn't read into it in terms of slower decision-making cycle or competitive pressure. I would just say that they tend to lump up. We have a lot of good deals, and we will see the momentum pick up. Sandeep Shah: Okay. And just the last question, Aparna with the war chest of $6.1 billion, though we are distributing dividend, but is it fair to assume that buyback continues to remain one of the options in the mind to give this excess cash back to the shareholders? Aparna Iyer: We have said that buyback will continue to be a means by which we will return cash to our shareholders. It's certainly an option on the table, and we will consider it at an appropriate time. Sandeep Shah: Okay, thanks and all the best. Aparna Iyer: Thank you. Operator: Next question is from the line of Kumar Rakesh from BNP Paribas. Kumar Rakesh: I have just one question. Srini, do you think given the kind of mix which you have, both of vertical and the capability at Wipro, you would be able to get back in line with the industry average revenue growth -- or would it make sense to just slow down your margin, get to mid-teens sort of a margin, be able to better compete with some of your peers, maybe peers as well or maybe acquire some of the companies to reset the mix. What's your thought on that? Srinivas Pallia: Kumar, clearly, first, if you look at our inorganic strategy, it is very clearly aligned to the strategic priorities we called out. We constantly look for sectors and the markets combination in terms of where we need to invest, where we need to acquire new capabilities. And if you look at specifically HARMAN DTS, clearly, it's giving us a combination of both what I would call as capabilities and also a few new markets that they are already in. So we will -- we continue to look at opportunities for us, Kumar, as we continue to move forward. Our strategy is both growing our organic and inorganic and continue to invest in inorganic. And you are right, we do have cash. And as far as that is concerned, it is an opportunity for us to look at the market, scan the market and do the right investment that makes it a win-win for us. Operator: Next question is from the line of Rishi Jhunjhunwala from IIFL. Rishi Jhunjhunwala: Just wanted to understand ex of HARMAN doesn't look like there would be much of a sequential growth in 4Q and 1Q, as we were discussing earlier in the call, historically has had some weak seasonality. I noticed a pretty sharp increase in our overall headcount in this quarter. So just wanted to understand, given the outlook for the next couple of quarters, what is driving this? And how do we read that? Saurabh Govil: The headcount for this quarter is primarily driven from 2 things. One is the acquisition, DTS acquisition. And second is one of the large deals in Phoenix, we had done as reding. I think when we ramped up the deal. So that's been the reason for seeing the ramp-up in this quarter. Otherwise, from a hiring standpoint and supply side, I don't see a challenge. Attrition has been at 2 percentage low for the quarter, trending the same in the next quarter. We are going to go to the campuses again. We had taken a bit of a hiatus in this quarter -- next quarter. So from a supply side, utilization is looking up net of the furloughs, which we -- net of the leaves which people have taken. So we are fairly confident in the headcount supply side to manage the demand. Rishi Jhunjhunwala: Understood, sir. The second question is just wanted to understand this restructuring cost that we have booked in our financials. Is it in the same nature as what we did in 1Q? And if not, if you can give some color around that? Saurabh Govil: The restructuring basically has pivoted on obsolete skill and primarily in 2 areas. One is in Europe, where we have a tough labor laws and second is in Capco. These are the 2 big areas that we did that, similar to what we have done in Q1. Rishi Jhunjhunwala: Understood. And just last thing, there was a bookkeeping question. There is a spike in D&A in this quarter. Any particular reason? And is that a normalized level going forward as well? Aparna Iyer: We have taken a provision for bad debt charge. And I think that's the line item that will show an increase. That's in the usual course of business. You should see that go off starting next quarter. Rishi Jhunjhunwala: Aparna, I was asking about depreciation and amortization? Aparna Iyer: Okay. And typically, we do assess the intangibles every year. And if -- based on the expected forecast, et cetera, sometimes we tend to accelerate such amortization. In this quarter, we did accelerate some amortization towards one of the earlier acquisitions, and that's reflected. And that should also normalize. However, we will have an increased amortization charge coming in for the DTS HARMAN. So yes, you should wait for the next quarter to get some more normalized then... Operator: Next question is from the line of Kawaljeet Saluja from Kotak Securities. Kawaljeet Saluja: I had just a couple of questions for you. First is that at $6.5 billion, it seems that you have plenty of excess cash. So how do you intend to flush this excess cash out? Would it be through dividends or is buyback on the cards? And if buyback is on the cards, then what are the considerations set required to move towards that path? That's the first question. Aparna Iyer: Okay. You're right. We did note that we've been having excess cash. And as a result of that, last year, we had increased our capital allocation. And we've said that we would start increasing our dividend payout. We did that. We paid out INR 6 in the last financial year. This year, we've almost paid INR 11 per share, which is about $1.3 billion. We should opt -- nearly account for like -- if I had to just annualized our YTD EPS is about 88%, 89% of that. So at least what the increased dividend is doing is we're not adding to the excess cash and leaving enough for watches for whatever acquisitions and organic investments we need to make. Is buyback an option to still consider in terms of returning excess cash to shareholders? Indeed, it is. And what are the considerations for that, we will have a discussion with the board on that, and we will come back considerations include whether we have enough net cash available in order to pursue the investments we need, and we will keep the market posted, Kawal. But other statutory considerations are quite in the place for buyback. Kawaljeet Saluja: Can you repeat that last part again? I missed it. Aparna Iyer: I said there are some statutory considerations that you can't do a buyback within 12 months. You can't do it if there is a merger pending for NCLT, et cetera. None of that is -- I mean, all of that is conducive, Kawal, for us.. Kawaljeet Saluja: So let's say, if you had to theoretically decide to do a buyback, today, you can do that. Whereas in the past, there was an NCLT process or merger, which would have acted as an impediment -- there is no such impediment. I mean you can do that as and when you feel it's the right time. Is that the way to look at it? Aparna Iyer: Yes. Absolutely. Kawaljeet Saluja: Noted. The second question is for you and Srini. Let's say, if those 2 mega deal ramp-ups were not delayed, then what would the guidance have been for, let's say, the March quarter? Any way to detail it out either quantitatively, which may be difficult or even qualitatively, that will be very helpful to understand the growth trajectory. Aparna Iyer: Obviously, we can't talk about it quantitatively, Kawal. And qualitatively, like I said, it's only delayed. these ramp-ups should happen. And each deal is different in its nature, right? For example, something like Phoenix, which was entirely net new and fully where there was a clear go-live date and readiness, we've been able to do that, and that's fully into our revenue starting Q3. So that played out perfectly to plan, right? Now in some of the other larger deals that -- or mega deals that we could be winning in terms of vendor consolidation, these deals typically have both an element of renewal and new. Obviously, the renewal is fully in and that continues, and we're not seeing any changes in terms of the expectations. In case of the new, the element of new, some of these things are taking longer, either due to client situations where there could be some changes in the client environment that they're going through and therefore, there is a little bit of a delay in terms of the timing of the ramp-up or it could just be the nature of how it is going to play out, right? Because we will have -- it will take 6 quarters. That's what I earlier alluded to. So it is going to take that time. And we are hopeful that this will flow through in the coming quarters. Kawaljeet Saluja: Noted. Thank you so much. All the best. Aparna Iyer: Thank you. Thank you Kawal. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Yes. Thank you all for joining the call. Have a nice day. Thank you. Operator: Thank you. Thank you, members of the management team. On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Good morning, and welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Chris, and I will be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on mute. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. I will now turn the call over to Dana Nolan to begin. Dana Nolan: Thank you, Chris. Welcome to Regions Financial Corporation's fourth quarter and full year 2025 earnings call. John and David will provide high-level commentary regarding our results. Earnings documents, including our forward-looking statement and non-GAAP reconciliations, are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks, and Q&A. I will now turn the call over to John. John Turner: Thank you, Dana, and good morning, everyone. Appreciate you joining our call today. Before we begin, I'd like to take a moment and personally thank David Turner for his service and leadership. After nearly a forty-year career in auditing and finance, including twenty years of service at Regions Financial Corporation, he has made a decision to retire. David has been one of, if not, the longest-serving CFOs across the financial space and is highly respected given his depth of experience and his practical approach. David joined the bank at a critical moment in our history. Through his steady leadership, strategic insight, and disciplined approach to financial management, Regions Financial Corporation not only navigated an exceptionally challenging period for our industry but emerged stronger, building the solid foundation we stand on today. While we certainly will miss David's leadership, not to mention his trademark sense of humor, I'm genuinely excited about working closely with Anil Chadda, our newly appointed CFO. Anil brings a deep understanding of Regions Financial Corporation's strategic vision and is fully aligned with our near-term goals and long-term priorities, having been a key member of David's leadership team for the past five years. At the same time, Anil offers a fresh perspective that will help us continue evolving and strengthening our business. With that, let me turn to our financial results. This morning, we reported strong full-year earnings of $2.1 billion, resulting in earnings per share of $2.33 on an adjusted basis. We also generated one of the highest returns on tangible common in the industry at just over 18%. We also reported solid fourth-quarter earnings of $514 million, resulting in earnings per share of $0.58 and $0.57 on an adjusted basis. We had a few items which negatively impacted fourth-quarter earnings by an additional $0.04. Dave will provide more detail on those in a moment. As you look at our results, it's clear we performed well against our strategic priorities and continue to build momentum heading into 2026 and beyond. We've made significant progress in hiring bankers to support our growth initiatives, and our investments in priority markets continue to pay off, accounting for over 40% of our new corporate client growth during 2025. We also made meaningful progress on our multiyear effort to modernize our core systems. When complete, we will be among a very small number of regional banks operating on a true modern core platform, something we believe will strengthen our competitive position. We launched a new native mobile app that's performing exceptionally well, earning a 4.9 out of 5-star rating in the App Store. And we continue to invest in capabilities that matter: authentication, data governance, data management, and real-time data. These investments strengthen security, enhance the customer experience, support growth, and expand the use of both traditional and generative AI across the company. Our transformation touches every layer of our technology stack, and every business, channel, and support function. We feel good about where we are and the opportunities ahead. At the same time, we've remained disciplined and focused on the fundamentals. Loan growth was challenged in 2025. Large corporate customers took advantage of very attractive financing opportunities in the capital markets and paid down debt. Our commitment to ongoing portfolio management and focus on risk-adjusted returns also drove reductions in loans outstanding as we exited certain portfolios and relationships. However, our net interest income continued to benefit from fixed asset turnover and prudent funding cost management, and we expect those tailwinds to persist. We grew adjusted noninterest income by 5% in 2025 as our wealth management and corporate bank businesses achieved another year of record fee income. Treasury Management products and services achieved a second consecutive record while capital markets posted its second-best year ever. We managed expenses prudently, producing 140 basis points of adjusted positive operating leverage. And we grew capital, increasing tangible book value per share by 20%, while returning $2 billion to shareholders through dividends and share buybacks. In summary, we delivered solid financial results through focused strategic execution, advancing our modernization agenda, strengthening our technology foundation, and driving performance across the franchise. We enter 2026 with momentum, a disciplined operating posture, and a clear commitment to generating consistent, sustainable, long-term performance. Before I turn it over to David, I want to thank our 20,000 Regions associates. Their dedication to serving customers, living our values, and executing with integrity is the reason we've been able to deliver the performance we're discussing today. Our progress is a result of commitment day in and day out to doing the right things the right way. Our associates continue to demonstrate what it means to serve with purpose, adapt with resilience, and work as one team. I'm incredibly proud of the way we show up for our customers, our communities, and for one another. I want to thank them for their leadership, their hard work, and their belief in what we're building together. With that, I'll hand it over to David to provide some highlights from the quarter and the full year. David Turner: Thank you, John. Before we move to the balance sheet, let me address the additional fourth-quarter items John mentioned that were not included in our non-GAAP adjusted items. We recorded $26 million of incremental tax expense associated with adjustments to certain state income tax reserves, resulting in a full-year effective tax rate of 21.4%. For the full year 2026, we expect the effective tax rate to return to the 20.5% to 21.5% range. We also incurred a total of $14 million of incremental expense related to severance, pension settlement, and visa class B litigation escrow funding. These items collectively reduced our fourth-quarter EPS by $0.04. Now let's move on to the balance sheet. Average and ending loans were relatively stable versus 2024 and the third quarter. While loan demand has been modestly improving throughout 2025, we experienced over $2 billion in strategic runoff, mainly from leveraged lending and continued resolutions within our portfolios of interest. We also saw consistently elevated refinancing of large corporate loan balances into the capital markets during 2025. The good news is that many of these headwinds are now largely behind us. Client sentiment is improving. Loan pipelines and commitments are strengthening. Excess corporate liquidity is beginning to normalize, and as John mentioned, we've made significant progress in our banker hiring initiative. Taken together, these trends give us confidence that loan growth will return to more normal levels in 2026. For the full year, we expect average loans to be up low single digits versus 2025. Deposits continued to perform well this quarter. Ending balances were up approximately $800 million, supported by strong customer acquisition and retention. Average deposits were roughly flat, modestly outperforming typical year-end seasonality, particularly in consumer banking where we normally see declines ahead of tax season. Importantly, we achieved this stability while continuing to reduce total deposit costs. Rate movements continue to drive a steady mix shift from CDs into money market accounts in both consumer and wealth. Higher third and fourth-quarter CD maturities help lower our average portfolio cost and, as expected, balanced attrition was modest. We saw limited impact on overall balances even as some funds migrated to money market. In the commercial bank, our five-quarter trend of growing total client-managed liquidity on and off balance sheet modestly reversed in the fourth quarter, driven primarily by a decline in off-balance sheet liquidity. Corporate customers are beginning to deploy excess liquidity into business investments, which we expect to support bank borrowings in 2026. Our noninterest-bearing mix remains in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we again expect 2026 average deposits to be up low single digits versus the prior year. Let's shift to net interest income. Despite lower than anticipated loan growth, net interest income grew by 2% linked quarter, at the upper end of our expected range. Additionally, net interest margin rebounded to 3.7%, up 11 basis points inclusive of the nonrecurring benefits from higher than anticipated seasonal HR-related asset dividends and credit-related interest recoveries. The balance sheet remains well-positioned for the current and expected environment. Our neutral interest rate positioning performed as designed in the quarter, with very little impact on net interest income from the Fed's interest rate cuts. In the fourth quarter, interest-bearing deposit costs declined 16 basis points, equating to a 36% linked quarter beta. The falling cycle interest-bearing deposit beta is 33%, and we remain confident in a mid-thirties beta with the potential to outperform over time. Net interest income also benefited from fixed asset turnover in the fourth quarter as a steep yield curve continued to support term loan and securities pricing levels. While we expect these benefits to persist in 2026 and beyond, asset repricing is exposed to middle and long-term rate fluctuations. To mitigate a portion of this exposure, we added $3.5 billion of forward-starting receive-fixed swaps, scheduled to begin throughout 2026. These hedges, distinct from our short-term rate protection, are intended to lock in rate levels on future loan and securities production. Finally, the increase in margin was partly due to lower earning asset balances, including cash, which is now within the range we consider sufficient for liquidity management. Turning our attention to 2026, we expect net interest income to grow between 2.5% and 4%. The first quarter will be modestly lower, driven by fewer days and timing of HR-related asset dividends and the benefit from interest recoveries that benefited the fourth quarter. We anticipate sequential growth thereafter, supported by a well-protected interest rate risk position, continued fixed asset turnover, and balance sheet growth. After normalizing for nonrecurring items in the fourth quarter, a mid-360s net interest margin is a better starting point when looking to 2026. We expect the margin to be around 3.7% in the first quarter, elevated by day count. A continuation of positive trends throughout the year supports a low to mid-370s net interest margin in 2026. Now let's take a look at fee revenue performance during the quarter. Adjusted noninterest income increased 5% in 2025 but declined 6% versus the third quarter. The quarter-over-quarter decline in capital markets reflects postponed M&A transactions and normal seasonality in loan syndication and securities underwriting activity. Real estate capital markets and commercial swap activity were further impacted by the temporary government shutdown. For 2026, we expect Capital Markets quarterly revenue of $90 million to $105 million, trending near the lower end of the range early in the year and moving higher as the year progresses. Wealth Management delivered record full-year revenue and a fourth consecutive quarter of growth, supported by continued sales momentum and a favorable market backdrop. Mortgage income increased 8% in 2025; however, fourth-quarter results were negatively impacted by changes to MSR evaluations and net hedge performance. Service charges increased 4% in 2025, led by another record year in treasury management and strong growth in consumer checking and operating accounts across small business and commercial customers. For the full year 2026, we expect adjusted noninterest income to grow between 3% and 5% versus 2025. Let's move on to noninterest expense. Adjusted noninterest expense increased 2% in 2025 and was stable quarter over quarter. Salaries and benefits rose 3% in 2025, driven by higher health insurance costs, higher revenue-based incentives, and hiring tied to growth initiatives. Equipment software expenses increased 4% in 2025 as we continue our core modernization and migrate further to software-as-a-service solutions. Technology costs will run a bit higher. Historically, technology spend has been 9% to 11% of revenue. Going forward, expect it to be between 10% and 12%. Over time, these investments will drive efficiency and allow us to manage headcount lower through attrition. For the full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%. And we expect to deliver full-year adjusted positive operating leverage. Regarding asset quality, annualized net charge-offs as a percentage of average loans increased four basis points to 59 basis points, reflecting material progress on resolutions within previously identified portfolios of interest, which were reserved for in prior periods. Business services criticized and total nonperforming loans decreased 9% and 8%, respectively, as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined six basis points to 73 basis points. As a result of the improvement in business services criticized loans and NPLs, as well as continued resolutions in stress portfolios, the allowance for credit losses decreased $27 million. The allowance for credit loss ratio declined two basis points to 1.76%. While the allowance as a percentage of NPLs actually increased to 242%. We expect full-year 2026 net charge-offs to be between 40 and 50 basis points. Should macro conditions continue to improve, we have the opportunity to operate towards the lower end or the middle part of that range for the year. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8%, while executing $430 million in share repurchases and paying $231 million in common dividends. When adjusted to include AOCI, common equity Tier 1 remained unchanged compared to the prior quarter, an estimated 9.6%. We expect to manage common equity Tier 1 inclusive of AOCI around this level, providing meaningful flexibility to meet proposed and evolving regulatory changes, support strategic growth, and continue increasing the dividend and repurchasing shares commensurate with earnings. Likewise, liquidity remains stable and robust with ample cash to support growth. As you've heard throughout the call, we feel good about the progress we made this year and, importantly, the momentum we're carrying into 2026. Many of the 2025 headwinds are behind us, and the underlying trends on pipelines, deposit strength, fee income growth, and continued improvement in credit are all moving in the right direction. We're executing well, investing where it matters, and doing it with the same discipline around capital, expense management, and returns that have served us well over the years. There's a lot of opportunity in front of us across our markets, across our businesses, supported by the ongoing modernization of our core systems. We believe we're well-positioned to take advantage of those opportunities and to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks. We'll now move to the Q&A portion of the call. Operator: Thank you. We will now be conducting a question and answer session. 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 if you would like to remove your question from the queue. Our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question. Ryan Nash: Hey, good morning, everyone. Good morning. David, just wanted to say congratulations on the retirement. David Turner: You will certainly be missed on these calls. Maybe not by me, but I'm assuming by others. Ryan Nash: Thank you, Ryan. You just mad because of outbound being no David Turner: was actually hoping to get a come on now out of you. So, I'll take the sports insult. But maybe, to start with loan growth. So, you know, at the conference last month, you guys talked about pipelines being up over 80% and you were growing commitments. Maybe just unpack for us the loan growth guidance, how do you anticipate coming from C&I, from consumer? And within the outlook, is there any further runoff baked in or movement into capital markets that's embedded in there? Thanks. John Turner: Yeah. So, Ryan, it's John. Thank you for the question. Say, first of all, customer sentiment is generally positive, and I think the environment's pretty good. That being commercial customers, I should say. We have seen a nice increase in pipeline activity, quarter over quarter, year over year, and we believe that's a catalyst for growth. We're beginning to see customers use some of their excess liquidity, which we think is also a precursor, obviously, to borrowing and increased line utilization. We've talked about the good markets that we're in. About 40% of our new logos, new customers came from the new markets that we're in. We're continuing to hire bankers. We've targeted hiring almost 120 bankers over a two-year period. We hired about 50 in 2025. So we're working toward adding those additional bankers. They'll all be or firstly, all be in our priority markets, those eight priority markets where we think we have real opportunity. We're adding the small business bankers and our branches to separate from those 120 commercial bankers that we want to add. So we believe those activities really set the foundation for growth. We're leaning into our expertise. We have some really strong specialized industry groups, particularly in energy and health care, power utilities, where we think we're going to continuously expansionary activities, and we really like our real estate banking team and all the capital markets products that we have to go with that. And we think position us to grow on the wholesale side of the business. So while we're guiding to lower single-digit loan growth, we feel good about how we're positioned today. We've seen nice commitment growth and, again, pipeline activity is positive. On the consumer side, I would say customers are still in really good shape from our perspective. Activity is still good. While we don't expect a lot of growth out of our consumer business, I expect that we'll see some. But the primary driver will be our commercial banking activities and leaning into the strength of our franchise, both our core markets and our growth markets, our priority markets where we have opportunities. The final question you had was related to runoff. We think we've worked through most of the portfolio shaping activities that have been underway over the last twelve to eighteen months. And so don't believe that would be a headwind as it has been particularly through 2025. Ryan Nash: Got you. Maybe as my follow-up. So John, the banks over the last ten years have been focused on improving returns and it's obviously resulted in you guys having peer-leading returns. And you know, the environment now feels like the markets are much more focused on growth and you know, you're obviously taking steps with a lot of the hiring that you guys are doing, but maybe just talk a little bit about how you're thinking about the trade-off between growth and returns at this point? And do you foresee that a lot of this hiring that you're doing is gonna result in an uptick in growth over time so that you guys are gonna be growing more in line with peers. How do you think about that trade-off over the medium term? Thank you. John Turner: Well, I'd say first and foremost, we're focused on capital allocation, on risk-adjusted returns. On ensuring that we're delivering top quartile returns on tangible common equity. That's our focus. That was our commitment back to ourselves and to the market in 2014, 2015. And I think that focus has allowed us to continue to shape our business in a way that we are performing at the top of our peer group from a return on tangible common equity perspective. And as a result, our shareholders are benefiting as a result of that. And I would say that as we think about growth, we've historically said we want to grow with the economy plus a little, and that reflects the good markets that we're in. I think that will always be true. Our desire is to deliver consistent, sustainable, long-term performance to eliminate some of the volatility that had characterized our franchise back in the February and early two thousands in particular and, I guess, all through the February, through that decade. And I think we've generally done that. And so, to me, there's no trade-off between growth and returns. We need to make sure that we're sound first, we're profitable second, that we're growing third. And we think we can do all those things given the markets that we're in. And, Ryan, I'll add this, David. You know, there's a lot of discussion about balance sheet growth. We also we're fixated on earnings per share growth, with the right return profile, and our earnings per share growth has been quite nice over an extended period of time relative to the peer group. So there are a lot of other ways to continue to make money. We acknowledge we want to grow the balance sheet, but you need to do it in a responsible way. When it's there. And if you try to force it, you're gonna get yourself in trouble. We've been very disciplined with that, and we're in great markets with the hires that John mentioned, and we think we can grow faster on the balance sheet than what you've seen. At least in 2025. Ryan Nash: I was trying to let you get off easy on your last call, David, but appreciate the color. Thank you. Operator: Our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Scott Siefers: Good morning, everyone. Thank you for taking the question. David, I was hoping you could maybe help to kind of unpack the fourth-quarter capital markets performance and outlook. The postponed M&A transaction is definitely understandable given the shutdown, but you'd also, in the release, noticed a lower syndication and security underwriting activity that kinda feels like the will start on the slower end but pick up from there. So just curious about any comments about pipeline, why it trajects or leaps back up after the first quarter, etcetera? David Turner: Yeah. We feel good about capital markets in total. Loan syndications have a little bit of seasonality there in the fourth quarter, came in a bit weaker than we had hoped, but we believe that can pick up in 2026. We'll have a little bit of a slow start in the first quarter, but it'll pick up, and we believe that the guidance that we've given you is pretty good. You know, M&A activity by its nature is a bit episodic. We do have a lot in the pipeline. It just didn't get closed in the fourth quarter. We expect that to get closed in the first half of the year. And so we think capital markets, it had its second-best year in its history. It just had a, you know, it just didn't have the fourth quarter where we wanted it to be. So think we're gonna rebound and feel very confident that we're gonna get that up on a run rate in the guidance we've given you. John Turner: I would just add in with respect to real estate corporate bank and capital markets related activities, adding a couple of bankers to that business, and we think that will be a catalyst for some additional revenue. Improving interest rate environment helps as well. So, the business is pretty well balanced, I think, between a variety of sources of revenue, and we expect that 2026 will be another good year for capital markets, and we should see nice growth over 2025 performance. Scott Siefers: Perfect. Thank you. And then, so the deposit beta performance, you know, it sounds like it's going very well and could still ultimately outpace your expectations? Just maybe some additional thoughts on pricing trends, what you're seeing competitively, and especially how they move from here if we had another couple of rate cuts throughout '26? David Turner: So that last part of your question is important, and it's we want to remain competitive, but we also have to acknowledge where the market's going. We had a pretty big CD maturity quarter as we told you at the last conference we were at in the fourth quarter that helped propel that 36 basis point improvement over beta. For the quarter, 33% on a cumulative. We think, and our guidance is really centered around the mid-30% change. And so we think if you look at the first quarter, we'll have another $3.5 billion of CD maturities. We got another $5 billion in the second quarter. It's a pretty big quarter there. So, being reactive, we've had nice reactivity from our corporate banking group and our consumer banking group and the wealth group. To react to what's going on in the marketplace. To watch what the Fed's doing, but also to stay competitive in the markets that are important. Scott Siefers: Perfect. Okay. Thank you. And, David, just congratulations on your retirement. We'll certainly miss you on these calls and elsewhere. David Turner: Thank you, Scott. Appreciate it. Operator: Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question. Gerard Cassidy: John. Good morning, Gerard. John Turner: Good morning. Gerard Cassidy: David, congratulations. You're leaving big shoes to fill. Good luck in the future endeavors. David Turner: Thank you, Gerard. Appreciate it. Gerard Cassidy: John and David, can you share with us, you mentioned in the slide, I think it was slide three, on the loans about the downsizing of the portfolio. And you specifically pointed it out about $2.6 billion of loans in 'twenty five were refinanced through the capital markets. Can you share with us what's the attraction that the customers are seeing? Is it lower rates, easier terms? What's the real driver of that going into the capital markets? John Turner: Gerard, most of that activity is in investment-grade credits within our real estate corporate banking business, so REITs, within the energy portfolio and financial services, insurance companies, that we bank. And so the cost of capital was lower. They could borrow more cheaply. Terms were potentially better. An activity that does occur on an annual basis. We see particularly in those three industries, customers enter the capital markets and raise some capital. And that activity occurred this year as well. Probably a little earlier than it does sometimes. Oftentimes, within the REIT portfolio, particularly, it's the third quarter of the year, but we did see a fair amount of activity in 2025. Gerard Cassidy: Was it more pronounced John, in '25 than years past that you can recall? John Turner: Seems to be. Yeah. Seem to have been. Because the market was not open for a while, and then when it did open, we did see a lot of activity. Gerard Cassidy: Got it. And then just following up on credit quality. Credit's in good shape. You guys have identified the, you know, the higher risk portfolios of office, commercial real estate, and trucking. And transportation. Any color on the trends you mentioned that the backdrop is getting better economically for trucking? What are you guys seeing in those higher risk portfolios as we look into '26? John Turner: Yeah. Well, first of all, I'd say to your point in credit, quality or the deterioration in credit quality peaked a couple quarters ago. We've seen four quarters of improvement in nonperforming loans. Down from 96 basis points to 73. Criticized loans down 32% over a four-quarter period. Charge-offs, which is a trailing indicator, reached a high point this quarter at 59 basis points. We expect that obviously to come down. We're guiding to 40 to 50 basis points and feel very confident that we'll perform within that range. So we do expect to continue to see improvement in credit quality. I would say trucking and transportation is getting better. But still, challenged. From our perspective. Other industries like forest products, some construction-related activity or building materials industries still struggling a little bit. But in general, I would say we continue to see, as reflected in the metrics in our own portfolio, continued improvement and, so are optimistic about 2026 and beyond. David Turner: Gerard, I'll add that. So we're sitting with an allowance for loan loss credit loss of $1.76. Right now, we put a schedule in the back of our appendix. It shows you what kind of day one CECL was when she's when an environment pretty benign from a credit standpoint. That implies based on the current portfolio that we have today that our reserve could be $1.64. So over time, and we can debate what that means in terms of over time, you should expect us all things being equal, to get back to a normalized environment that $1.76 to trend down to $1.64. You saw a bit of that. We're down two basis points this quarter. And you should see that trend continue. Throughout '26. Gerard Cassidy: Very good. Thank you. Operator: Our next question comes from the line of John Pancari with Evercore. Please proceed with your question. John Pancari: Good morning, John. Good morning, David. John Turner: Morning. John Pancari: David, you're a legend. Best of luck. We will miss you. And, apparently, other banks are gonna miss you too. I've been hearing from a number of other executives just saying how much they're gonna miss you at different conferences and everything. So and, you know, Walt, we look forward to working with you. David Turner: Thank you, John. John Pancari: So just a question on the capital front. Just given the CET one at 10.8, you did the $430 million buyback in the fourth quarter. I mean, can you just kind of frame how you're thinking about the pace of buybacks as you look at the capital need for organic? You talked about loan growth, you know, generally improving and some of the runoff slowing. So how do you balance that in terms of the pace of buybacks? Do you think it's reasonable as you look at 2026? Anil Chadda: Sure, John. This is Anil. I'll take that. So we look at every quarter, we generate about forty basis points of capital. And we'll pay a dividend of 18 basis points of that. To your point, beyond that, our number one focus is to invest back into our business through good loan growth. When we see that, we're definitely gonna fund that with capital. When we don't see that, we're gonna step in and buy back shares like we saw us do this quarter. So the $430 million is really a testament to what we were seeing in terms of loans coming onto the balance sheet. We saw an opportunity early in the quarter in particular when the stock price was down a bit and stepped in and bought back shares then. Our goal is to always invest in loan growth, and when we see that good quality loan growth, we're gonna step in there and generate and invest capital into that. David Turner: And then, you know, and I'll add to it. So we're at 9.6% on an adjusted CET one adjusted for AOCI. Our range is 9.25% to 9.75%, so we're right on top of that. Have a little extra. And, we're gonna do exactly what Anil said, use it for loans and then buy it back if not there, if the loan growth is not there. John Pancari: Got it. Okay. Very helpful. Thanks for that. Then separately, I guess you could just give us your updated thoughts around M&A potential whole bank M&A. Just kind of, pick up. We know that there's a potential, you know, need for scale in certain businesses, certain markets, obviously, that you could argue is, you know, here. And then lastly, you know, you just, I guess, the check that we could see in a seven a window close. How do you view it? What's your updated thoughts on that front? John Turner: Yeah. Well, maybe I'll ask the last part first. The window clearly is open. But I don't think decision-making of any sort should be driven by whether the window's open or closed. I mean, ultimately, it ought to be about whether or not the transaction is in the best interest of the bank's shareholders and will create value for shareholders over time. We remain our position is unchanged. M&A is not depository M&A is not part of our strategy today. We're continuing to observe what's going on in the marketplace. We do not suffer from fear of missing out at this point. We're gonna continue to operate our business, execute our plan, focus on our transformation of our core deposit system and all that goes with that over the next fifteen to eighteen months. And, and just continue to do what we've been doing. Operator: Our next question comes from the line of Peter Winter with D.A. Davidson. Please proceed with your question. Peter Winter: Thanks. Good morning. John, I wanted to ask about just overall banking. Obviously, it's a very competitive business, but do you see risk of losing market shares as these bigger regional banks are coming into your markets? Or is it really an opportunity to take advantage of some dislocation? John Turner: Well, we think it's an opportunity. I mean, we again, are in really good markets, core markets, where we've been for a hundred and twenty-five, 150, and some it's a hundred and seventy-five years. Have a really strong brand. We have very good market share, bankers that are well known in their communities, and a really good job taking care of our customers. And we have an opportunity to grow in those markets, and we are doing that. Separately, we're in growth markets. We talk about our eight priority markets where we have a chance to grow and last year, about 40%, as I said earlier, of our new commercial banking relationships were won in those markets. And so, you know, I view it as an opportunity to continue to grow. We're gonna focus on our customers on providing unique ideas and solutions to help them grow their businesses, whether they be businesses or consumers. We're gonna take care of our customers, and I think we'll have an opportunity to continue to grow our business regardless of what the conditions are, the markets that we operate. Peter Winter: Got it. And then can you talk about where you are in the process of the modernization of the platform and maybe highlight some of the benefits from this initiative versus competitors? John Turner: Sure. So we have worked through all the very difficult integration work, and we've now entered the user testing phase, and that will go on for likely the next two plus quarters. We should, sometime in the third quarter, move to production and a pilot phase where we'll begin with a small cohort of customers piloting the system to ensure that it does everything that we believe it will do, and that'll lead us to beginning a conversion of our customer base in early 2027, assuming everything continues to go as planned. Been really happy with the progress we're making. The team's doing a great job. It is a super complex and challenging effort, but we have been, as I said, really pleased with the effort, activity, and the progress that we're making. To your question about the benefits to us, we think that will give us a speed to market, as we want to offer customers new products. It will support our ambition to be sound in that the system will be very contemporary in nature. We're not customizing any aspect of it, so we can continue to update the system as the vendor provides updates and that will be super helpful to us. It also, I think, will enhance our ambition to provide a really great experience, an omnichannel experience to our customers. And we think that that will be really, really important. Another benefit is in order to convert your 5 million customers from one system to another, you have to go through the process of cleansing all your data, organizing your data in a way that will facilitate a lot of things, including additional work we're doing around artificial intelligence and generative AI. So, we think there are a lot of benefits both direct and indirect, that will support the business. And, are excited about how that will position us going forward. Peter Winter: Got it. Thanks. And, David, I'll add my congratulations to retirement. It's truly been very enjoyable working with you over these years. David Turner: Thank you so much. Appreciate it. Operator: Our next question comes from the line of Christopher Spar with Wells Fargo. Please proceed with your question. Christopher Spar: Hi. Good morning. Thanks for taking the call. So my question is regarding the expense outlook. And just looking at the headcount increase, the competition increase, large regional banks basically kind of threw down the gauntlet earlier today. Talking about how they're kind of expanding to growth markets. And I understand that you're gonna kind of defend your market share or try to grow that, but I'm just wondering, like, if you know, how are you gonna be able to keep costs kind of with inflation where it is and with higher headcount? And then second, the follow-up will be on the tech initiative and the increase in tech spend. I get it where you are. You can see you can manage headcount lower through attrition. I'm just wondering about the ability to do that in the timeline for that as well. Thank you. Anil Chadda: Yeah. Thanks for the question. This is Anil. So, it's an important question and something that we've been focused on for going back ten years. There's always been important places where we need to invest in our business, whether it's in risk management, whether it's in security, of course, growing our bankers is something that we've been very focused on over the past couple of years. We always have to find ways to fund that growth. Over the past ten years, you can see in our slide deck, our compound annual growth rate for expenses is 2.8%. So it's incumbent upon us every day to make sure we're making the right investments to grow revenue. Making the right investments in technology, but also find ways to fund those investments. That's been a critical part of our history. It's something really important to us now. It's evident in our expense guide for the next year. And it's evident in our commitment to positive operating leverage. So it's something we've seen before, and it's something that we continue to execute day in and day out. Christopher Spar: Thank you. Operator: Our next question comes from the line of David Chiaverini with Jefferies. Please proceed with your question. David Chiaverini: Hi. Thanks. So I had a follow-up on loan growth. And the pace of hiring. So you mentioned about hiring 120 bankers. Over two years. You did 50 in 2025. I'm curious, how does this pace compare to the prior say, three to five-year trend? And do you expect incremental hiring above this pace as you take advantage of the M&A disruption? John Turner: Yeah. So it would be a bit of an uptick in hiring, I would say, over the previous I think your time frame was three years and reflects hours. Double the pace, I would say. Reflects our commitment to, again, growing primarily in these primary markets where or priority markets where we see opportunity. With respect to incremental hiring, one of our expectations of our leaders in our markets is that they're constantly recruiting and identifying who the best bankers are in the markets. That they operate in. So to the extent that we find an opportunity to hire a banker or a team of bankers who are recognized in their markets as being really good at what they do, and we think they'd be a great addition to the Regions team. I expect our teams will recruit them to come to work for us whether they're included in the 120 targeted bankers or not. So we're actively looking for bankers all the time. Who can provide great service to our customers and be additive to our teams. David Chiaverini: Thanks for that. And as we think about the guide of low single digit for 2026, as the headwind subside, it sounds like borrower sentiment is improving, pipelines are up significantly. You're mostly through the runoff. Is this low single this year kind of a step function to mid-single digit looking out to 2027? John Turner: I think that's reasonable to assume. We're not haven't committed to that yet. Dana won't let me provide any guidance beyond 2026, but I think you can expect momentum to continue. We expect momentum to continue to build in our business, particularly as we're recruiting more talent. And we're benefiting from the opportunities that are in our markets. David Chiaverini: Great. Thanks for that. And, David, congrats on your retirement. David Turner: Thank you. I appreciate it. Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question. Ebrahim Poonawala: I guess just one a couple of follow-up questions. One, on the systems conversion, John and David, I'm not sure if you've mentioned when this will all be completed. And in the meantime, does it restrict your ability to do something? I heard your comments around M&A earlier, but if you wanted to it sort of restrict that flexibility in the meantime or not? John Turner: We expect to be completed toward the latter part of 2027. And I would say technically, it does not restrict our ability to do an M&A transaction practically it would be very challenging, we believe. So, that is a factor. In certainly in how we think about how we're positioned relative to M&A and outreach. Ebrahim Poonawala: Got it. And just one follow-up on the loan growth front. When we think about just the tariff uncertainty and maybe the Supreme Court's gonna rule on this next week, do you think that may materially change sort of sentiment among your customers when they think about borrowing and investing? Or do you think they have enough clarity today to kind of move forward with expected plans? John Turner: We think they have enough clarity. I hear and don't talk with many customers who are overly focused on that topic. Ebrahim Poonawala: Got it. Anil, congratulations. And David, all the best. Look forward to seeing you soon. David Turner: Thank you. Thank you so much. Appreciate it. Operator: Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please proceed with your question. Betsy Graseck: Good morning. Hi, good morning. David, I'll throw in my comments too. Thank you so much for the time and insights over the years, and I hope that wherever retirement takes you, you have a fantastic and enjoyable time. David Turner: Thank you, Betsy. I really appreciate it. Betsy Graseck: And, Anil, look forward to working with you. I do just have two short follow-ups. One is just on the net interest margin as you discussed way earlier in the call. You know, coming in in 1Q similar to where we are today and then dipping down a bit and then you know, ending the year. Roughly where we are today, if I have that right. And I'm just wondering what is the dip down a function of, and how low does it go during that? Pressured point? David Turner: Yeah. I think so first off, we need to level set where we finish. So we had about four basis points of NIM in there through things that won't that we aren't counting on repeating. Interest recoveries, being one in the HR asset dividend, was unusually high. We always have a little bit of that. That mean we won't have an interest recovery. We just don't count on it. So that's four basis points. So we start with three sixty-six. We think we'll finish the quarter first quarter at three seventy, and it'll inch up from there throughout the year. And maybe we get a few more points on top of that. Somewhere between the low three seventies and the mid three seventies perhaps. And that's assuming you see our assumption is that we have that mid 30% beta expectation in our loan growth in low single digits. I think, would be important. And, you know, and we have we don't have any big changes in the ten year in particular. As we get repricing fixed asset repricing benefits. Betsy Graseck: Okay. Great. Thank you. And then on the you talked about the tech spend going from 9% to 11% of revs to 10% to 12 and that, that offset would be headcount. And I'm just wondering, is that expected to be managed in a way that the tech investment spend and the headcount offset each other in each quarter, or should we expect any kind of expense ratio changes as you're going through this? Which sounds like no, of course, but you tell me. John Turner: Yeah. Betsy, we don't have any big initiatives planned. I mean, again, we're as I think Anil pointed out, one of the, we believe, strengths of the company is how effective we've managed our expenses over the last ten plus years. And so we're always looking for opportunities to improve. There are areas that are probably obvious to you where there we believe there's opportunity for improvement. And use of technology, which will result in a reallocation headcount more than likely into places where we have a chance to support growth. So I think we'll manage it over time as again, as the opportunities develop, it won't be part of a broad onetime initiative. David Turner: Yep. Betsy, that comment was meant to be a very broad comment. It was not to be a backhanded way of saying we're gonna have volatility in our quarterly expense structure because of it. So don't read that into it. Betsy Graseck: Sounds good. Thank you. Appreciate it. Operator: Our next question comes from the line of Chris McGratty with KBW. Please proceed with your question. Chris McGratty: Good morning. John Turner: Good morning. Chris McGratty: Thank you. I'm interested in your trends in consumer account checking account growth. That's been a big focus. The larger banks this quarter and the number of accounts they're opening. With your exceptional retail deposit base, can you just talk about trends in new account growth? John Turner: Yep. We're seeing nice growth in consumer checking accounts. Again, our focus is on a core consumer checking customer. One that is going to have a direct deposit with us, is going to actively use their debit card and use their checking account. That is our history. That is the source of our very loyal, low-cost deposit base, and that's what we're continuing to focus on. Growing. We have seen a nice increase in digital originations. So as we have developed our digital capabilities, our mobile banking platform has continued to improve. And we're seeing additional enhancements to our growth initiatives as a result of that. Customer has to have a direct deposit with us for us to count on a, you know, a new oh, yeah. Well, should say also, we just introduced a new capability that allows a customer to pretty easily move their direct deposit from a competitor to Regions, which has resulted in, I think, a nice increase to some of the uptick in activity. Chris McGratty: Great. And just a finer point on the tech question. The 10 to 12, is that a kind of a one-year catch-up, or is that kind of a new level set? I know you've been at nine to 11 for a bit of Anil Chadda: Yeah. We'd say that's a new level set. We've been running at about 11 so the upper end of that nine to 11 range. So we've shifted our guidance to 10 to 12. Chris McGratty: Okay. Thank you very much. Operator: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question. Erika Najarian: Good morning. Thank you so much. Good morning. Actually, most of my questions have been asked and answered, but maybe just one for Anil since you're on the line. You know, could you give us a sense of when you take over and fill these very large shoes that David has left for you, what would you tell investors your sort of top three priorities are as you take on the role? Anil Chadda: Yeah. First, it's great to step into the role with the stability that we have. We have a great strategic plan that John has outlined and the board's approved, and it's critical for us to continue to execute that. It's nice to come in when you're performing very well. It's incumbent upon us to continue to do that. And David has built a phenomenal team in finance. Great partnerships with our businesses, and that is job number one, two, and three, is to continue on the great path we've been on, execute our plan, and to continue to deliver great financial performance. Erika Najarian: Got it. And, David, you'll be missed, but I'm sure investors won't miss you smoking them on the golf course. And it's scary to think that you're actually potentially going to get better and lower handicap. David Turner: I'm going to work on my putting. So congratulations, and welcome again, Anil. Erika Najarian: Thank you. David Turner: Thank you very much, Erika. Operator: Our final question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Matt O'Connor: Morning, Matt. Good morning. Hoping you guys could talk about your leverage to the recovery in commercial real estate. Obviously, there's the credit aspect of it. You've been pretty clear about being past the worst there and being well reserved for remaining office loans. But as we think about from a loan volume perspective, obviously, we're seeing industry loans inflect. It does seem like there's more and more momentum building. So how do you think about that leverage? You do have a good slide in there showing a lot of maturities coming in the next couple of years. Which is the case for the industry. So is that upside risk? As we think about growing loans overall? Or is there a risk that more of the CRE loans get refied away from you than expected? David Turner: Yeah. I mean, we've so we've been very successful, you know, when things mature to be being able to refinance those. The rate environment's helping a bit more on growth in that space, in particular, in multifamily because we've been able to, you know, as rates have come down, the math's starting to work. So before the rates came down, we were demanding more of a down payment. To make the math work for us. Well, that didn't happen with the developer. So now it's coming into equilibrium. We're seeing demand for the multifamily. We're seeing more opportunity there. And yes, we had derisked commercial real estate over the years, but that is not constraining our ability to grow. When we get paid, the risk that we take. And so hopefully, we'll have the opportunity to grow over time. John Turner: Yeah. I'd just add, Matt. We have really strong real estate banking teams, great customer base. We have developed, I think, a portfolio of products that allowed us to meet our customers' needs across a variety of financing capabilities and requirements and I feel like it's a business that we will continue to invest in. We'll continue to see it grow, and I am confident that it will be an important contributor to our longer-term success both on the balance sheet and the income statement as capital markets activity picks up. Matt O'Connor: Okay. Thank you very much. John Turner: Thank you. Okay. Is that that's all our call today. Thank you very much for your participation, and your support of Regions Financial Corporation. We appreciate it. And, everybody, congratulations. I'll add my congratulations to David Turner. Done a great job for us here. Been a really important member of our leadership team. We will miss him and his sense of humor, but are excited about Anil and his filling the role as CFO. So thank you again for your participation. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time.