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Jean Poitou: Hello. Good afternoon or good morning. Thanks for joining. Welcome to our first quarter results announcement session for 2026 at Ipsos. I'm Jean Laurent Poitou, the CEO of Ipsos, and I'm here with Olivier Champourlier, our Chief Financial Officer. What I'm going to be covering today are our results for the first quarter of 2026, an update on our strategy execution. Horizons is the name. You heard about it if you attended our January Capital Markets Day, and we talked about it a bit as we announced our full year results of 2025. I'll provide an update of where we are on the execution path. And then we will take a look at how we are considering the rest of 2026 with an outlook. But let me start with our first quarter 2026 results and our revenue, which stands at EUR 555 million. If we compare this with the same number a year ago, it's 2.4% less, which, in fact, if we didn't have a significant 5.4% negative currency impact would be a total growth of 3%. That total growth is broken down into 4.3% of impact of the acquisitions we made, particularly the BVA Family, minus the negative impact of having disposed of our Russian business or 80% of it as it happens. So it's not consolidated anymore. And then the organic growth is minus 1.4%, and the combination of all this is what drives the minus 2.4% total growth, but this is in the context of encouraging commercial momentum in Q1. I have had the opportunity to look at the order book for Q1 in many different dimensions, and I'll cover them in a second. Overall, our organic growth of our order book is 1% against the same quarter last year with an acceleration towards the latter part of the quarter in March, which means that the revenues for many of those orders, which happened late in the quarter will generate revenue further into 2026. Now as I look at the order book expansion, first by sector. One notable encouraging signal is the fact that our Public Affairs business, which we have had lackluster performance with in the years past and which dragged on our growth in '25 in particular, is back, rising demand, rising order intake. And I'll talk about it some more because it's so important. Solid traction with our consumer and packaged goods clients. They represent about 1/4 of our business. So it is very important for us that our computer -- our consumer and packaged goods clients, which are also the clients among which the AI solutions that we increasingly deploy in the market are resonating with most. If I look at this now by geography, our 4 largest market, North America, France, U.K. and China are driving our growth. And in particular, we have a very robust performance in China, which, as you may remember, has had some quarters of stability or a bit less. Now looking at it from the standpoint of our largest clients, the top 30 clients of Ipsos, the ones where we have dedicated client account leadership and campaigns. Those 30 drive our growth very significantly from a sales standpoint in Q1. So good performance across several dimensions of our business from a sales standpoint. Late in the quarter, this will translate gradually into revenue as also our strategy implementation accelerates and drives expanding order book through the quarter. So that's what I wanted to cover, generally speaking. Let me focus a little bit on Public Affairs because as you heard, we made among our strategic choices, one of them was to continue as a multi-specialist, in particular, continue to believe strongly in the power of having Public Affairs being the global player present in 66 markets serving public decision-makers, doing political polling and helping with policy assessment. That global footprint is one of our very, very differentiating assets as is the fact that we have our own proprietary panels, which serve us extremely well in the public sector. We also have the ability in many of our large markets and countries to do face-to-face interviews to knock on doors and ask real respondents about what their views are or what their voting intents are. And then finally, we have the ability to leverage some of the methodologies and some of the services that primarily have been borne out of our private sector business into Public Affairs, such as, for example, when we know how to interview and assess the engagement of employees in the private sector, we apply that in the public sector as well. So Public Affairs is back. We have won prominent government contracts across multiple geographies, which had struggled in quarters past, particularly in the U.S., but also in France and the U.K. So I have confidence that Public Affairs will be one of the drivers of our growth in 2026. Let me now hand it over to Olivier, who will comment on the numbers on a more detailed basis. Olivier Champourlier: Thank you, Jean-Laurent. Good afternoon, good morning, everyone. Let me go into the details of our Q1 revenue. As said by Jean-Laurent, the revenue was EUR 555 million in Q1, down 1.4% on an organic basis. There was a negative impact of currency of 540 basis points due to the appreciation of the euro against several currencies, in particular, the U.S. dollar, the pound sterling and APAC currencies. Acquisition net of disposals contributed positively to the growth in Q1 by 430 basis points, reflecting the impact of the 2025 acquisition, mostly the BVA Family that was acquired in June 2025, net of the disposal of our Russian operation in Q1 2026. As a reminder, Russia was accounting for around 2% of our total revenue. Factoring in those items, the total revenue was down 2.4% and excluding foreign exchange currency effect, it was up 3%. Moving on to the revenue by region. EMEA, our largest region, representing 52% of group revenue, delivered total growth of 5.3% on a reported basis, including 0.1% organic growth. The positive performance was mainly driven by the acquisition of the BVA Family because this business was mostly in France, U.K. and Italy, offset by the disposal of the Russian activities in Q1. In contrast, the Middle East, which represents around 3% of the total revenue of the group was impacted by the geopolitical situation in the region and posted an organic decline of its revenue of 4.4% in the first quarter 2026. In the Americas, which represents 1/3 of the total revenue in Q1, revenue declined by 4.1% on an organic basis. This is mainly driven by the U.S. However, commercial momentum has improved with a strong increase in the order intake at the end of the quarter in March, particularly. Several contract wins in Public Affairs sustained a recovery in the segment. As a result, the order book in the Americas was slightly positive at the end of March. In Asia Pacific now, the revenue was up 0.2% on an organic basis but declined by 6.3% on a reported basis due to the negative impact of many currencies in the region against the euro. The first quarter was encouraging with China returning to strong growth. We have indeed a strong momentum in China with large international local clients, especially in technology and automotive. China is one of the markets where we have seen a rapid adoption of our AI-driven offers. Let me now turn to the performance by Audience segment. Our Consumer segment revenue, which accounts for half of the revenue in the quarter posted a positive growth organically of 0.5%. We continue to see sustained demand from CPG clients for deeper understanding of consumer behavior in a volatile and rapidly changing environment. Our services in market positioning, innovation testing and brand health tracking are benefiting from this demand. This is also an area where our AI solutions and platform such as Ipsos Synthesio and Ipsos.Digital play a growing role in helping clients reacting faster and making better informed decision. The Clients and Employees Audience revenue was down 3.3%. This decline is mostly explained by timing effect in our Audience Measurement activities which will translate into positive growth over the coming quarters, thanks to a positive order book at the end of March. The Citizens segment now. The revenue, which include Public Affairs and Corporate Reputation, declined by 2.3% on an organic basis. As mentioned by Jean-Laurent previously, the first quarter marks an important turning point as we have seen the return of public sector orders in markets that had impacted our growth in the last few years, like the U.S. and France, where we see a rebound. During the quarter, we booked several significant multiyear contracts, which reinforce our confidence in the rebound of this activity later during the year. Finally, the Doctors and Patients Audience revenue was down 4.4% on an organic basis. This activity had a strong start of the year in 2025, where Q1 was plus 5.4%. So this, therefore, creates a tough comparison basis. In addition, we have experienced a slowdown at the start of this year in qualitative studies from the pharma industry clients, but we see an improvement trend based on our order book. Beyond those 4 Audiences, I would like also to underline the performance of our Do-It-Yourself platform, Ipsos.Digital, which recorded a double-digit growth in the first quarter of 2026. At the end of the first quarter, I would like to underline that our order book is growing by 1% and is in line with the historical pattern. More specifically, the order book at the end of March 2026 represents 55.6% of expected full year 2026 revenue at the end of the first quarter. Overall, this is consistent to the average of the last 4 years, where the total of the order book at the end of the first quarter was 55.5% of the full year revenue. Overall, this analysis supports our outlook for the remainder of the year. Turning now on profitability and cash generation. It's important to notice that our gross margin and our cash generation at the end of the first quarter are in line with our expectations. I will now hand over to Jean-Laurent, who will tell you more about how we have been able to execute our Horizons strategic plan. Jean Poitou: Thanks, Olivier. And before I provide some color on the outlook for the remainder of the year, let me say something about what's going to drive our growth for the remainder of the year and namely the switching to execution mode on the Horizons strategy, which we talked about back in January and which we highlighted the main components of during our Capital Markets Day. Those 6 items here are the 6 key strategic choices we made and the ones that we are starting to see bear fruits in our positive growth of the order intake in Q1, starting with the fact that we have confirmed our intent strategically to leverage our multi-specialist business offerings. I talked about what this means with the return and rebound of Public Affairs, but it is also very important to note that we are equipping our teams with a first set of 6 and more to come as those are successful, Globally Managed Services, powered by our Ipsos.Digital platform, systematically and consistently applied to services for each of them wherever the client we serve is based. Those GMSs led by Shaun Dix are already structured with representatives in the key markets where we have decided to grow them with specific accountabilities, budgets, the platforms are there. We are leveraging some of the past investments and adding more through the course of 2026. And then Ipsos.Digital, the platform, which is showing continued momentum in the market, led by Andrei Postoaca. The teams there have also been demultiplied by having specific leaders in our key markets to drive further growth of our digital platform, reinforced by the fact that it is the foundation on which many of our service line-specific, activity-specific AI solutions are based. Our global company with a local footprint, strategic choice starts to show us the first fruits of growth, particularly in the market you saw in China, where you saw Lifeng, our CEO there, in the Capital Markets Day, explain how he had already started to launch some of the initiatives, and that's what we are seeing translate into significant growth in that particular market. But also in the U.S., which is the other big market where we decided that we would have in addition to the core Horizons initiatives, some markets, particularly tech industry and technification specific initiatives in the U.S. Mary Ann Packo, our CEO; and Lindsay Franke, who you saw on the Capital Markets Day present that strategy are driving it aggressively, and I'm pretty confident that this will materialize in the quarters ahead into accelerated growth. Speed is an initiative where it will take time because it's the most profound from an operating and tooling standpoint, from a training and capability and skills evolution standpoint. So this will take a bit longer to materialize at scale. We have started on this. AI as a catalyst for market leadership is now being led from a technology standpoint by Nathan Brumby, our recently appointed Chief Technology and Platforms Officer. Nathan joined us close -- just over 2 months ago and is in full swing. And we have a road map, and I'll show you some examples of Ipsos AI solutions in a minute for Q2, Q3 and Q4 launches of AI-powered products. Also access to real people as a critically relevant competitive advantage is one of our key choices. I'm happy to report that we are seeing increasing level of in-sourcing. What we mean by this is using our own panels, our own respondents rather than outsourcing to third-party providers of such. And this is a key component of our operational transformation, which is led by Alexandre Boissy, our newly appointed Deputy CEO, joining us from Air France, where he had very important responsibilities. And we are happy to say that our operations transformation agenda is also starting to show signs of increased ownership of our own panels. And then if I think about our evolution to higher value-added services and in particular, our ability to expand our footprint at the clients we serve, our commercial excellence, I mentioned the fact that we are starting to see very superior growth at our top clients. And this is being led by Eleni Nicholas, who's driving an initiative across those large clients. So with Olivier now being formerly our Chief Financial Officer, he was named an interim, and we are happy to confirm it, and I'm very happy, Olivier, that we will be able to continue and work together in that capacity. And more importantly than those leaders, the whole of 20,000 or close there to people at Ipsos and many of our leaders across the globe are being mobilized to make the strategy execution happen at scale and at pace. So let me give you examples of some of the AI technologies and global services -- new services that we are launching or that we have already in store and that we are accelerating through the GMS model. First of all, an example of what we call behavioral measurement, looking at how people behave when they either buy or consume or use the products of our clients. Two examples of very large consumer and packaged goods players, one in the beverage industry, the other one in the home care industry, products for detergents and washing machines and the like. We are using AI technologies to help observe with clips and videos that people themselves provide us rather than checking diaries on paper saying how much coffee did I drink today or how many washing machines and how much powder did I use for each of them. So we're using videos to not just translate what was written into what's visible on the video, but also understand better the gestures, the expressions, the satisfaction, many subtle consumer signals that wouldn't be otherwise available to our clients. A second example is in social media. We are using AI technologies to examine at scale what videos are successful and why detecting patterns on social media. For example, in China, that would be RedNote, which is a very prominent video channel on social. And then we are using the insights generated by this video analysis of those clips to identify which influences, which patterns are the most likely to drive interest and ultimately, the brand awareness or decisions to buy. This is helping our clients decide faster where to target, which influencers to pick and what formats to use at scale. A third example is in China, which is, of course, one of the innovation hubs of the world, where we have now a very large consumer and packaged goods clients who's relying on Ipsos' synthetic consumer digital twins to replicate the personality traits and the behavioral logic of the clients of that CPG company. Now we are doing this because it helps answer sometimes simple, sometimes slightly more complex questions faster than a full-fledged survey, bearing in mind that we do that with a lot of care to the reliability and continuous update by recalibrating with real respondence and continuously validating the results of those digital twins. So those are 3 examples I wanted to give of how we're embedding technology and AI to create more value at our clients. Let me now turn to the numbers for 2026. First of all, it's very obvious that everything I'm about to project is based on factoring in what we know and acknowledging what we don't know about what's happening in the Middle East. What we know? In the Middle East itself, which as Olivier highlighted, is about 3% of our total revenue, we are seeing obviously an erosion of our revenues to the tune of several millions, and that's no surprise. But we believe that the outlook will turn as -- governments, in particular, and large spenders will return to growth as and if the crisis and the war slows down and ends, which we all hope for. We don't see significant consequences outside of the Middle East region, very few, if any, client cancellations, delays in decisions or postponements of contracts. So there's marginal examples here and there, but essentially limited observed consequences outside of the Middle East, which therefore means that barring escalation or prolonged conflict in the Middle East, we don't see at this stage, at this stage, significant impact on our group's full year outlook. Now the situation, as we all know, remains highly volatile, and therefore, both the monitoring, but also the contingency planning in case things deteriorate or escalate or continue in the long run are being prepared. We've done that in 2008. We've done that in 2020. So we know how to adjust and react in case we need to do so. On a more positive note, let me reiterate why we believe that the positive order book momentum of the first quarter is a good signal of accelerating order intake and therefore, gradual expansion of our revenues throughout the remainder of 2026. First of all, we launched the strategy. We're in full execution mode. But obviously, we're going to bear fruits increasingly as quarters after quarter things happen, particularly with Globally Managed Services, Ipsos.Digital, the impact of our commercial actions and so on and so forth. It's also reassuring to see that we're about at the same percentage of our full year outlook from an order book already in our books at this point of the year as we have historically over the last few years. But also, I have spent time with our leaders in the various markets. We are looking at it both from a pipeline analysis standpoint and from an outlook based on their knowledge on the front line closest to our clients. And this also reinforces the predictions that we have already highlighted for the year of a 2% to 3% estimated organic growth and an operating profit, which would be equivalent to 2025, which it was at 12.3%. And I have to highlight something here. Russia was a profitable business compared with the average of Ipsos, and it's now no longer in our numbers. BVA is a company that we acquired, and we're extremely happy with this acquisition, but it was in 2025, and it will continue for a good part of 2026 to be a drag on our profitability with the fact that it was 6 months only in '25, and it's going to be the full year in '26. So in fact, reaching an equivalent profitability in '26 to the one we observed in '25 is actually increasing the core profitability outside of those perimeter effects. So with that, I would like to thank you for your attention so far. I'm about to open to questions and answers, obviously, invite you to our May 20 General Meeting of Shareholders and also to our first half results announcement, which will take place on July 23. Thank you very much, and let's open it up to questions and answers. Operator: [Operator Instructions] The first question today comes from Davide Amorim with Berenberg. Davide Amorim: Two questions from me, please. Could you please give us a bit more detail on the organic growth decline in Q1? What exactly happened compared to your initial expectation at the start of the year? And what makes you confident that you can still achieve the full year guidance growth despite the more challenging environment? Secondly, Middle East is, I mean, approximately 3% of your group revenue and declined by almost 4.5% in Q1, even though the conflict only started in March. How should we think about the trend for the rest of the year? And how could be the impact on your profitability if the conflict continues? Jean Poitou: Thank you. I'll start on the Q1 1.4% negative organic growth first. Of course, the 2.4% is heavily impacted by currency effects to the tune of minus 5.4%. But the minus 1.4% in organic growth is, I guess, what your question is focused on. So on that point, it is in line with our expectations that we would have a negative Q1. That is not a surprise based on what we had calendarized for the year when we looked at the full year. We knew that horizons would kick in gradually throughout the year. So that was part of our expectations for the year. In terms of what makes us confident, I highlighted the fact that having an order book that is growing, having a percentage of the full year outlook at this point of the year, which is similar to what it has been relative to the previous full year's actuals, the fact that we see when we look at it country by country, service line by service line, we see confirmation that we will be in the bracket we have given guidance around are some of the parameters that I wanted to reinforce as positive signals towards meeting our initial growth expectations. I don't know, Olivier, if you want to provide additional color on this? Olivier Champourlier: Well, I would like to say that the order intake at the end of Q1 actually is slightly better than what we thought when we have built up our budget in 2026, so which makes us confident or slightly confident that we are in line with the way we calendarize the phasing of the order intake this year. So as you have seen actually, there is a lag between the revenue and the order intake. But this is really important to look at the way we recognize revenue over the full year because in our company, actually, depending on whether you recognize a short-term contract or long-term contract, it can create some phasing effects when you look at the quarterly revenue. So one of the KPIs that we are looking at is more the order intake and how it's going to translate into the full year revenue more than focusing on the single quarter itself. Lastly, on Middle East. So as we have disclosed, so the MENA region represents 3% of the revenue. For the moment, there have been a couple of million of impact. It's pretty small actually. We have reacted pretty quickly to mitigate the impact on the profitability of the region. There are a couple of actions that we can take place, hiring freeze and so on. There are a couple of measures. But it's pretty limited to MENA for the moment. We have spent a couple of days with all the management discussing the impact. And for the moment, we don't see any impact or any cancellation anywhere else. This being said, the macroeconomic environment is pretty volatile. It's true that if the conflict is continuing, we know that the consequence will be that the barrier will be high. There will be some further inflation and it may have an impact and it will have an impact on the global economy. But we are watching that very carefully. And we are used to this kind of macroeconomic condition like in 2008, 2020, and we are able to adapt our cost basis to mitigate any shortfall in the revenue that will come if the conflict will continue. Jean Poitou: But we are not -- to the latter part of your question on the what if it lasts for months and not weeks and what if it escalates and drives, for example, the global economy into recession in some of the major geographies we serve. We are not providing a guidance that assumes any of that at this point. If it was to happen, of course, we will adjust the cost base to mitigate the impact on profitability, but that's not something we're guiding to at this juncture. Other questions? Operator: The next question comes from Conor O'Shea with Kepler Cheuvreux. Conor O'Shea: Three questions from me. Firstly, on the Healthcare business, it was down in Q1. I think in the press release, you mentioned tough comps, but I think the comps were similar for the first 3 quarters of last year. So would you expect that activity to remain under pressure for at least another couple of quarters? That's the first question. Second question, in the clients and employees activity, in the press release, you mentioned some effects of timing, phasing lags that should unravel and improve in the subsequent quarters. Can you go a little bit more detail about that? I think it's in Audience Measurement. And then third question, just more generally, given the expected time horizon of some of the new initiatives to take hold and make a contribution to growth and so on. Would you expect the second quarter to potentially to be also negative in terms of organic growth at say, a constant macro outlook? Or would you be expecting to see at this stage an improvement already in Q2? Olivier Champourlier: Yes. I will answer the first question regarding the Healthcare business, which is actually the way we disclose it is not exactly the Healthcare business, but it's more the business with the pharma companies. So what happened this year, so that's true that we disclosed a negative growth, but we have seen the order intake improving gradually. There have been some clients in the pharma sector that are under restructuring and are taking longer to take a decision. We have also some program that have been confirmed last year at the beginning of the year for the full year, but the client, they confirm it more on a quarterly basis, so which drag -- drop in the revenue in H1. But overall, the order intake is improving month after month. So it should turn into more positive territory in the coming months. It's a similar pattern when it comes to Clients and Employees because we mentioned that the Audience Measurement activities, the revenue is declining in Q1. But when you look at the order intake, it's positive at the end of March because the way contracts have been confirmed by clients is different from last year, and this will translate into positive growth in the coming months. And last question is more about the phasing of the revenue. So as you can see, the first Q1 is minus 1.4%. And obviously, to finish the year in line with the guidance, which was between 2% to 3%, you will see an acceleration of the growth moving gradually in positive territory to finish in line with the guidance. Jean Poitou: And I think that's the key point. It's gradual recovery. What will exactly happen in Q2, we're not guiding by quarter. But yes, it is an acceleration throughout the year. And it is based on the speed at which we execute our Horizons strategy. It is based on the fact that we have mobilized the leadership of this company around the key initiatives I've referred to when reiterating what the main strategic pillars were and how we stand relative to each of them. The Globally Managed Services, the Ipsos.Digital, the commercial acceleration, the technology and AI investments will gradually add more solutions to our bag of tricks, and this will gradually allow us to expand our revenue and strengthen our growth. Conor O'Shea: Okay. Very clear. But I mean just to drill on the numbers. I mean, if the second quarter is better than the first quarter, but it's, as you say, a gradual process, but the first half is, let's say, flattish overall on organic, then the second half needs to be around 4% or so. The order book has improved, but we're talking about plus 1%, not talking about plus 4%. So is the pickup, let's say, month-over-month so significant that, that kind of second half trajectory is looking doable at this stage? Jean Poitou: The short answer is it is looking doable. As I said, we spend a lot of time also with the teams in every one of our markets and services looking at this, looking at obviously, the pipeline at a more granular level. Historically, as you will have witnessed, there are quarterly changes, which is why we're not -- it's not a perfectly constant 1 month after the next progression. There's always swings because some of the orders can be quite sizable and then they generate revenue later. Some of the orders we took in Q1 were actually in March. So they will generate revenue starting already now. So that's why we're not looking at it at a month-by-month or certainly announcing it at a month-by-month basis. But yes, the short answer is it is doable. Operator: The next question comes from Hai Huynh with UBS. Hai Huynh: It's Hai from UBS. Just again a little bit on the order book and revenue conversion. Can you help me a little bit on how the stronger March order intake translate into revenue? Is it going to be kind of Q2? Or is it more weighted towards half 2 in terms of the timing? And within that also, in April, have you seen an improvement sequentially in April so far versus March as well? That's the first question. And then the second one is, I know it's only the quarterly top line update, but you're still guiding for flat margins despite some dilutive effects from BVA Family. And you're investing a lot this year into in-sourcing, for example. So what are the offsets that makes you confident that you're actually going to be flat margins this year? Jean Poitou: Okay. On your second question first, maybe. We are taking, obviously, a number of measures. We are looking at our cost structure. We are looking at our pricing and everything. So yes, we are offsetting the impact of both losing the Russia accretive business and absorbing some of the remaining dilutive impact over 12 months against 6 of BVA through very disciplined execution on our cost base. But on the conversion and on the ability to say something about April, April, we're still very early to have any numbers worth disclosing here, but on the conversion pattern. Olivier Champourlier: Yes. And I would say about the order book, it was positive in March, and it will generate and translate into revenue from April to the remainder of the year. It's difficult to say at this stage of the year, if it will be more in Q2 or in the second half of the year, but it's going to be in the coming months for sure. This is true that you should have in mind that we have a growth trajectory that is going to accelerate. As far as all the investment that we are making in this Horizons plan, will deliver some fruit. We mentioned the GMS, the local country-specific plan. There are some regions that are more advanced than some other. In China, the plan started already at the end of last year, and we have seen that it's delivering already some fruit with a very good Q1 and good sales momentum in China, which is really encouraging us to continue in that direction in some other markets outside China. Operator: The last question today comes from Anna Patrice with Berenberg. Anna Patrice: A couple of questions from my side. First of all, when you talk about the organic growth in the order book of 1%, what kind of organic growth is it? So until when this organic growth? Does it mean that it implies that you already have in your pocket 1% organic growth for the full year 2026? Or where does it stop? That's the first question. Second question, you mentioned several times in China that there was a significant improvement. Can you maybe elaborate what was the organic growth in China last year, for example? And what is it already in Q1? And what was the comparison basis maybe? And then the last question is on the America performance, minus 4%. If you can elaborate which sectors are declining and which sectors are growing? Jean Poitou: Can you reiterate the first question, please? Anna Patrice: Yes. First question is on order book, 1% organic growth at the end of March. This 1% organic growth, what is it exactly? Is it 1% organic growth that you have in your books for the full year 2026? Or what exactly does it mean? Jean Poitou: So just to clarify, when we talk about the order book and the order book growth, it is the part of the orders we took that is delivering revenue in 2026, right? So there's 1% more in our order book for the year, right? Then some of them are shorter term than others, which can last all the way until December. Olivier Champourlier: Yes. So that means that at the end of March, the order book is plus 1% compared to the end of March last year. And the order book in the Ipsos definition is the sales that have been converted that will generate revenue on the full year. And as we mentioned it, at this stage of the year, we have in our order book 55.6% of the annual revenue. And it's in line with what we have seen in average over the last 4 years. Now answering your last question about what was the growth in Greater China in Q1 2029. So it was around minus 3%. So we have seen definitely a turning point in our activity in Russia, which started in China, which started already at the end of last year, but has accelerated and now it's quite strong in Q1 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Jean Poitou: Okay. Thank you very much. So in closing, our commercial momentum is strong in spite of a minus 1.4% organic growth Q1. And to use the words of one of the questions, the signals we see on the commercial front, not just that 1% increase, but also the pipeline, the comparison with prior years says that the growth we have suggested for the year is absolutely doable. So I want to thank you for your attention today, and we will be talking again in May. Thank you. Olivier Champourlier: Thank you very much.
Jean Poitou: Hello. Good afternoon or good morning. Thanks for joining. Welcome to our first quarter results announcement session for 2026 at Ipsos. I'm Jean Laurent Poitou, the CEO of Ipsos, and I'm here with Olivier Champourlier, our Chief Financial Officer. What I'm going to be covering today are our results for the first quarter of 2026, an update on our strategy execution. Horizons is the name. You heard about it if you attended our January Capital Markets Day, and we talked about it a bit as we announced our full year results of 2025. I'll provide an update of where we are on the execution path. And then we will take a look at how we are considering the rest of 2026 with an outlook. But let me start with our first quarter 2026 results and our revenue, which stands at EUR 555 million. If we compare this with the same number a year ago, it's 2.4% less, which, in fact, if we didn't have a significant 5.4% negative currency impact would be a total growth of 3%. That total growth is broken down into 4.3% of impact of the acquisitions we made, particularly the BVA Family, minus the negative impact of having disposed of our Russian business or 80% of it as it happens. So it's not consolidated anymore. And then the organic growth is minus 1.4%, and the combination of all this is what drives the minus 2.4% total growth, but this is in the context of encouraging commercial momentum in Q1. I have had the opportunity to look at the order book for Q1 in many different dimensions, and I'll cover them in a second. Overall, our organic growth of our order book is 1% against the same quarter last year with an acceleration towards the latter part of the quarter in March, which means that the revenues for many of those orders, which happened late in the quarter will generate revenue further into 2026. Now as I look at the order book expansion, first by sector. One notable encouraging signal is the fact that our Public Affairs business, which we have had lackluster performance with in the years past and which dragged on our growth in '25 in particular, is back, rising demand, rising order intake. And I'll talk about it some more because it's so important. Solid traction with our consumer and packaged goods clients. They represent about 1/4 of our business. So it is very important for us that our computer -- our consumer and packaged goods clients, which are also the clients among which the AI solutions that we increasingly deploy in the market are resonating with most. If I look at this now by geography, our 4 largest market, North America, France, U.K. and China are driving our growth. And in particular, we have a very robust performance in China, which, as you may remember, has had some quarters of stability or a bit less. Now looking at it from the standpoint of our largest clients, the top 30 clients of Ipsos, the ones where we have dedicated client account leadership and campaigns. Those 30 drive our growth very significantly from a sales standpoint in Q1. So good performance across several dimensions of our business from a sales standpoint. Late in the quarter, this will translate gradually into revenue as also our strategy implementation accelerates and drives expanding order book through the quarter. So that's what I wanted to cover, generally speaking. Let me focus a little bit on Public Affairs because as you heard, we made among our strategic choices, one of them was to continue as a multi-specialist, in particular, continue to believe strongly in the power of having Public Affairs being the global player present in 66 markets serving public decision-makers, doing political polling and helping with policy assessment. That global footprint is one of our very, very differentiating assets as is the fact that we have our own proprietary panels, which serve us extremely well in the public sector. We also have the ability in many of our large markets and countries to do face-to-face interviews to knock on doors and ask real respondents about what their views are or what their voting intents are. And then finally, we have the ability to leverage some of the methodologies and some of the services that primarily have been borne out of our private sector business into Public Affairs, such as, for example, when we know how to interview and assess the engagement of employees in the private sector, we apply that in the public sector as well. So Public Affairs is back. We have won prominent government contracts across multiple geographies, which had struggled in quarters past, particularly in the U.S., but also in France and the U.K. So I have confidence that Public Affairs will be one of the drivers of our growth in 2026. Let me now hand it over to Olivier, who will comment on the numbers on a more detailed basis. Olivier Champourlier: Thank you, Jean-Laurent. Good afternoon, good morning, everyone. Let me go into the details of our Q1 revenue. As said by Jean-Laurent, the revenue was EUR 555 million in Q1, down 1.4% on an organic basis. There was a negative impact of currency of 540 basis points due to the appreciation of the euro against several currencies, in particular, the U.S. dollar, the pound sterling and APAC currencies. Acquisition net of disposals contributed positively to the growth in Q1 by 430 basis points, reflecting the impact of the 2025 acquisition, mostly the BVA Family that was acquired in June 2025, net of the disposal of our Russian operation in Q1 2026. As a reminder, Russia was accounting for around 2% of our total revenue. Factoring in those items, the total revenue was down 2.4% and excluding foreign exchange currency effect, it was up 3%. Moving on to the revenue by region. EMEA, our largest region, representing 52% of group revenue, delivered total growth of 5.3% on a reported basis, including 0.1% organic growth. The positive performance was mainly driven by the acquisition of the BVA Family because this business was mostly in France, U.K. and Italy, offset by the disposal of the Russian activities in Q1. In contrast, the Middle East, which represents around 3% of the total revenue of the group was impacted by the geopolitical situation in the region and posted an organic decline of its revenue of 4.4% in the first quarter 2026. In the Americas, which represents 1/3 of the total revenue in Q1, revenue declined by 4.1% on an organic basis. This is mainly driven by the U.S. However, commercial momentum has improved with a strong increase in the order intake at the end of the quarter in March, particularly. Several contract wins in Public Affairs sustained a recovery in the segment. As a result, the order book in the Americas was slightly positive at the end of March. In Asia Pacific now, the revenue was up 0.2% on an organic basis but declined by 6.3% on a reported basis due to the negative impact of many currencies in the region against the euro. The first quarter was encouraging with China returning to strong growth. We have indeed a strong momentum in China with large international local clients, especially in technology and automotive. China is one of the markets where we have seen a rapid adoption of our AI-driven offers. Let me now turn to the performance by Audience segment. Our Consumer segment revenue, which accounts for half of the revenue in the quarter posted a positive growth organically of 0.5%. We continue to see sustained demand from CPG clients for deeper understanding of consumer behavior in a volatile and rapidly changing environment. Our services in market positioning, innovation testing and brand health tracking are benefiting from this demand. This is also an area where our AI solutions and platform such as Ipsos Synthesio and Ipsos.Digital play a growing role in helping clients reacting faster and making better informed decision. The Clients and Employees Audience revenue was down 3.3%. This decline is mostly explained by timing effect in our Audience Measurement activities which will translate into positive growth over the coming quarters, thanks to a positive order book at the end of March. The Citizens segment now. The revenue, which include Public Affairs and Corporate Reputation, declined by 2.3% on an organic basis. As mentioned by Jean-Laurent previously, the first quarter marks an important turning point as we have seen the return of public sector orders in markets that had impacted our growth in the last few years, like the U.S. and France, where we see a rebound. During the quarter, we booked several significant multiyear contracts, which reinforce our confidence in the rebound of this activity later during the year. Finally, the Doctors and Patients Audience revenue was down 4.4% on an organic basis. This activity had a strong start of the year in 2025, where Q1 was plus 5.4%. So this, therefore, creates a tough comparison basis. In addition, we have experienced a slowdown at the start of this year in qualitative studies from the pharma industry clients, but we see an improvement trend based on our order book. Beyond those 4 Audiences, I would like also to underline the performance of our Do-It-Yourself platform, Ipsos.Digital, which recorded a double-digit growth in the first quarter of 2026. At the end of the first quarter, I would like to underline that our order book is growing by 1% and is in line with the historical pattern. More specifically, the order book at the end of March 2026 represents 55.6% of expected full year 2026 revenue at the end of the first quarter. Overall, this is consistent to the average of the last 4 years, where the total of the order book at the end of the first quarter was 55.5% of the full year revenue. Overall, this analysis supports our outlook for the remainder of the year. Turning now on profitability and cash generation. It's important to notice that our gross margin and our cash generation at the end of the first quarter are in line with our expectations. I will now hand over to Jean-Laurent, who will tell you more about how we have been able to execute our Horizons strategic plan. Jean Poitou: Thanks, Olivier. And before I provide some color on the outlook for the remainder of the year, let me say something about what's going to drive our growth for the remainder of the year and namely the switching to execution mode on the Horizons strategy, which we talked about back in January and which we highlighted the main components of during our Capital Markets Day. Those 6 items here are the 6 key strategic choices we made and the ones that we are starting to see bear fruits in our positive growth of the order intake in Q1, starting with the fact that we have confirmed our intent strategically to leverage our multi-specialist business offerings. I talked about what this means with the return and rebound of Public Affairs, but it is also very important to note that we are equipping our teams with a first set of 6 and more to come as those are successful, Globally Managed Services, powered by our Ipsos.Digital platform, systematically and consistently applied to services for each of them wherever the client we serve is based. Those GMSs led by Shaun Dix are already structured with representatives in the key markets where we have decided to grow them with specific accountabilities, budgets, the platforms are there. We are leveraging some of the past investments and adding more through the course of 2026. And then Ipsos.Digital, the platform, which is showing continued momentum in the market, led by Andrei Postoaca. The teams there have also been demultiplied by having specific leaders in our key markets to drive further growth of our digital platform, reinforced by the fact that it is the foundation on which many of our service line-specific, activity-specific AI solutions are based. Our global company with a local footprint, strategic choice starts to show us the first fruits of growth, particularly in the market you saw in China, where you saw Lifeng, our CEO there, in the Capital Markets Day, explain how he had already started to launch some of the initiatives, and that's what we are seeing translate into significant growth in that particular market. But also in the U.S., which is the other big market where we decided that we would have in addition to the core Horizons initiatives, some markets, particularly tech industry and technification specific initiatives in the U.S. Mary Ann Packo, our CEO; and Lindsay Franke, who you saw on the Capital Markets Day present that strategy are driving it aggressively, and I'm pretty confident that this will materialize in the quarters ahead into accelerated growth. Speed is an initiative where it will take time because it's the most profound from an operating and tooling standpoint, from a training and capability and skills evolution standpoint. So this will take a bit longer to materialize at scale. We have started on this. AI as a catalyst for market leadership is now being led from a technology standpoint by Nathan Brumby, our recently appointed Chief Technology and Platforms Officer. Nathan joined us close -- just over 2 months ago and is in full swing. And we have a road map, and I'll show you some examples of Ipsos AI solutions in a minute for Q2, Q3 and Q4 launches of AI-powered products. Also access to real people as a critically relevant competitive advantage is one of our key choices. I'm happy to report that we are seeing increasing level of in-sourcing. What we mean by this is using our own panels, our own respondents rather than outsourcing to third-party providers of such. And this is a key component of our operational transformation, which is led by Alexandre Boissy, our newly appointed Deputy CEO, joining us from Air France, where he had very important responsibilities. And we are happy to say that our operations transformation agenda is also starting to show signs of increased ownership of our own panels. And then if I think about our evolution to higher value-added services and in particular, our ability to expand our footprint at the clients we serve, our commercial excellence, I mentioned the fact that we are starting to see very superior growth at our top clients. And this is being led by Eleni Nicholas, who's driving an initiative across those large clients. So with Olivier now being formerly our Chief Financial Officer, he was named an interim, and we are happy to confirm it, and I'm very happy, Olivier, that we will be able to continue and work together in that capacity. And more importantly than those leaders, the whole of 20,000 or close there to people at Ipsos and many of our leaders across the globe are being mobilized to make the strategy execution happen at scale and at pace. So let me give you examples of some of the AI technologies and global services -- new services that we are launching or that we have already in store and that we are accelerating through the GMS model. First of all, an example of what we call behavioral measurement, looking at how people behave when they either buy or consume or use the products of our clients. Two examples of very large consumer and packaged goods players, one in the beverage industry, the other one in the home care industry, products for detergents and washing machines and the like. We are using AI technologies to help observe with clips and videos that people themselves provide us rather than checking diaries on paper saying how much coffee did I drink today or how many washing machines and how much powder did I use for each of them. So we're using videos to not just translate what was written into what's visible on the video, but also understand better the gestures, the expressions, the satisfaction, many subtle consumer signals that wouldn't be otherwise available to our clients. A second example is in social media. We are using AI technologies to examine at scale what videos are successful and why detecting patterns on social media. For example, in China, that would be RedNote, which is a very prominent video channel on social. And then we are using the insights generated by this video analysis of those clips to identify which influences, which patterns are the most likely to drive interest and ultimately, the brand awareness or decisions to buy. This is helping our clients decide faster where to target, which influencers to pick and what formats to use at scale. A third example is in China, which is, of course, one of the innovation hubs of the world, where we have now a very large consumer and packaged goods clients who's relying on Ipsos' synthetic consumer digital twins to replicate the personality traits and the behavioral logic of the clients of that CPG company. Now we are doing this because it helps answer sometimes simple, sometimes slightly more complex questions faster than a full-fledged survey, bearing in mind that we do that with a lot of care to the reliability and continuous update by recalibrating with real respondence and continuously validating the results of those digital twins. So those are 3 examples I wanted to give of how we're embedding technology and AI to create more value at our clients. Let me now turn to the numbers for 2026. First of all, it's very obvious that everything I'm about to project is based on factoring in what we know and acknowledging what we don't know about what's happening in the Middle East. What we know? In the Middle East itself, which as Olivier highlighted, is about 3% of our total revenue, we are seeing obviously an erosion of our revenues to the tune of several millions, and that's no surprise. But we believe that the outlook will turn as -- governments, in particular, and large spenders will return to growth as and if the crisis and the war slows down and ends, which we all hope for. We don't see significant consequences outside of the Middle East region, very few, if any, client cancellations, delays in decisions or postponements of contracts. So there's marginal examples here and there, but essentially limited observed consequences outside of the Middle East, which therefore means that barring escalation or prolonged conflict in the Middle East, we don't see at this stage, at this stage, significant impact on our group's full year outlook. Now the situation, as we all know, remains highly volatile, and therefore, both the monitoring, but also the contingency planning in case things deteriorate or escalate or continue in the long run are being prepared. We've done that in 2008. We've done that in 2020. So we know how to adjust and react in case we need to do so. On a more positive note, let me reiterate why we believe that the positive order book momentum of the first quarter is a good signal of accelerating order intake and therefore, gradual expansion of our revenues throughout the remainder of 2026. First of all, we launched the strategy. We're in full execution mode. But obviously, we're going to bear fruits increasingly as quarters after quarter things happen, particularly with Globally Managed Services, Ipsos.Digital, the impact of our commercial actions and so on and so forth. It's also reassuring to see that we're about at the same percentage of our full year outlook from an order book already in our books at this point of the year as we have historically over the last few years. But also, I have spent time with our leaders in the various markets. We are looking at it both from a pipeline analysis standpoint and from an outlook based on their knowledge on the front line closest to our clients. And this also reinforces the predictions that we have already highlighted for the year of a 2% to 3% estimated organic growth and an operating profit, which would be equivalent to 2025, which it was at 12.3%. And I have to highlight something here. Russia was a profitable business compared with the average of Ipsos, and it's now no longer in our numbers. BVA is a company that we acquired, and we're extremely happy with this acquisition, but it was in 2025, and it will continue for a good part of 2026 to be a drag on our profitability with the fact that it was 6 months only in '25, and it's going to be the full year in '26. So in fact, reaching an equivalent profitability in '26 to the one we observed in '25 is actually increasing the core profitability outside of those perimeter effects. So with that, I would like to thank you for your attention so far. I'm about to open to questions and answers, obviously, invite you to our May 20 General Meeting of Shareholders and also to our first half results announcement, which will take place on July 23. Thank you very much, and let's open it up to questions and answers. Operator: [Operator Instructions] The first question today comes from Davide Amorim with Berenberg. Davide Amorim: Two questions from me, please. Could you please give us a bit more detail on the organic growth decline in Q1? What exactly happened compared to your initial expectation at the start of the year? And what makes you confident that you can still achieve the full year guidance growth despite the more challenging environment? Secondly, Middle East is, I mean, approximately 3% of your group revenue and declined by almost 4.5% in Q1, even though the conflict only started in March. How should we think about the trend for the rest of the year? And how could be the impact on your profitability if the conflict continues? Jean Poitou: Thank you. I'll start on the Q1 1.4% negative organic growth first. Of course, the 2.4% is heavily impacted by currency effects to the tune of minus 5.4%. But the minus 1.4% in organic growth is, I guess, what your question is focused on. So on that point, it is in line with our expectations that we would have a negative Q1. That is not a surprise based on what we had calendarized for the year when we looked at the full year. We knew that horizons would kick in gradually throughout the year. So that was part of our expectations for the year. In terms of what makes us confident, I highlighted the fact that having an order book that is growing, having a percentage of the full year outlook at this point of the year, which is similar to what it has been relative to the previous full year's actuals, the fact that we see when we look at it country by country, service line by service line, we see confirmation that we will be in the bracket we have given guidance around are some of the parameters that I wanted to reinforce as positive signals towards meeting our initial growth expectations. I don't know, Olivier, if you want to provide additional color on this? Olivier Champourlier: Well, I would like to say that the order intake at the end of Q1 actually is slightly better than what we thought when we have built up our budget in 2026, so which makes us confident or slightly confident that we are in line with the way we calendarize the phasing of the order intake this year. So as you have seen actually, there is a lag between the revenue and the order intake. But this is really important to look at the way we recognize revenue over the full year because in our company, actually, depending on whether you recognize a short-term contract or long-term contract, it can create some phasing effects when you look at the quarterly revenue. So one of the KPIs that we are looking at is more the order intake and how it's going to translate into the full year revenue more than focusing on the single quarter itself. Lastly, on Middle East. So as we have disclosed, so the MENA region represents 3% of the revenue. For the moment, there have been a couple of million of impact. It's pretty small actually. We have reacted pretty quickly to mitigate the impact on the profitability of the region. There are a couple of actions that we can take place, hiring freeze and so on. There are a couple of measures. But it's pretty limited to MENA for the moment. We have spent a couple of days with all the management discussing the impact. And for the moment, we don't see any impact or any cancellation anywhere else. This being said, the macroeconomic environment is pretty volatile. It's true that if the conflict is continuing, we know that the consequence will be that the barrier will be high. There will be some further inflation and it may have an impact and it will have an impact on the global economy. But we are watching that very carefully. And we are used to this kind of macroeconomic condition like in 2008, 2020, and we are able to adapt our cost basis to mitigate any shortfall in the revenue that will come if the conflict will continue. Jean Poitou: But we are not -- to the latter part of your question on the what if it lasts for months and not weeks and what if it escalates and drives, for example, the global economy into recession in some of the major geographies we serve. We are not providing a guidance that assumes any of that at this point. If it was to happen, of course, we will adjust the cost base to mitigate the impact on profitability, but that's not something we're guiding to at this juncture. Other questions? Operator: The next question comes from Conor O'Shea with Kepler Cheuvreux. Conor O'Shea: Three questions from me. Firstly, on the Healthcare business, it was down in Q1. I think in the press release, you mentioned tough comps, but I think the comps were similar for the first 3 quarters of last year. So would you expect that activity to remain under pressure for at least another couple of quarters? That's the first question. Second question, in the clients and employees activity, in the press release, you mentioned some effects of timing, phasing lags that should unravel and improve in the subsequent quarters. Can you go a little bit more detail about that? I think it's in Audience Measurement. And then third question, just more generally, given the expected time horizon of some of the new initiatives to take hold and make a contribution to growth and so on. Would you expect the second quarter to potentially to be also negative in terms of organic growth at say, a constant macro outlook? Or would you be expecting to see at this stage an improvement already in Q2? Olivier Champourlier: Yes. I will answer the first question regarding the Healthcare business, which is actually the way we disclose it is not exactly the Healthcare business, but it's more the business with the pharma companies. So what happened this year, so that's true that we disclosed a negative growth, but we have seen the order intake improving gradually. There have been some clients in the pharma sector that are under restructuring and are taking longer to take a decision. We have also some program that have been confirmed last year at the beginning of the year for the full year, but the client, they confirm it more on a quarterly basis, so which drag -- drop in the revenue in H1. But overall, the order intake is improving month after month. So it should turn into more positive territory in the coming months. It's a similar pattern when it comes to Clients and Employees because we mentioned that the Audience Measurement activities, the revenue is declining in Q1. But when you look at the order intake, it's positive at the end of March because the way contracts have been confirmed by clients is different from last year, and this will translate into positive growth in the coming months. And last question is more about the phasing of the revenue. So as you can see, the first Q1 is minus 1.4%. And obviously, to finish the year in line with the guidance, which was between 2% to 3%, you will see an acceleration of the growth moving gradually in positive territory to finish in line with the guidance. Jean Poitou: And I think that's the key point. It's gradual recovery. What will exactly happen in Q2, we're not guiding by quarter. But yes, it is an acceleration throughout the year. And it is based on the speed at which we execute our Horizons strategy. It is based on the fact that we have mobilized the leadership of this company around the key initiatives I've referred to when reiterating what the main strategic pillars were and how we stand relative to each of them. The Globally Managed Services, the Ipsos.Digital, the commercial acceleration, the technology and AI investments will gradually add more solutions to our bag of tricks, and this will gradually allow us to expand our revenue and strengthen our growth. Conor O'Shea: Okay. Very clear. But I mean just to drill on the numbers. I mean, if the second quarter is better than the first quarter, but it's, as you say, a gradual process, but the first half is, let's say, flattish overall on organic, then the second half needs to be around 4% or so. The order book has improved, but we're talking about plus 1%, not talking about plus 4%. So is the pickup, let's say, month-over-month so significant that, that kind of second half trajectory is looking doable at this stage? Jean Poitou: The short answer is it is looking doable. As I said, we spend a lot of time also with the teams in every one of our markets and services looking at this, looking at obviously, the pipeline at a more granular level. Historically, as you will have witnessed, there are quarterly changes, which is why we're not -- it's not a perfectly constant 1 month after the next progression. There's always swings because some of the orders can be quite sizable and then they generate revenue later. Some of the orders we took in Q1 were actually in March. So they will generate revenue starting already now. So that's why we're not looking at it at a month-by-month or certainly announcing it at a month-by-month basis. But yes, the short answer is it is doable. Operator: The next question comes from Hai Huynh with UBS. Hai Huynh: It's Hai from UBS. Just again a little bit on the order book and revenue conversion. Can you help me a little bit on how the stronger March order intake translate into revenue? Is it going to be kind of Q2? Or is it more weighted towards half 2 in terms of the timing? And within that also, in April, have you seen an improvement sequentially in April so far versus March as well? That's the first question. And then the second one is, I know it's only the quarterly top line update, but you're still guiding for flat margins despite some dilutive effects from BVA Family. And you're investing a lot this year into in-sourcing, for example. So what are the offsets that makes you confident that you're actually going to be flat margins this year? Jean Poitou: Okay. On your second question first, maybe. We are taking, obviously, a number of measures. We are looking at our cost structure. We are looking at our pricing and everything. So yes, we are offsetting the impact of both losing the Russia accretive business and absorbing some of the remaining dilutive impact over 12 months against 6 of BVA through very disciplined execution on our cost base. But on the conversion and on the ability to say something about April, April, we're still very early to have any numbers worth disclosing here, but on the conversion pattern. Olivier Champourlier: Yes. And I would say about the order book, it was positive in March, and it will generate and translate into revenue from April to the remainder of the year. It's difficult to say at this stage of the year, if it will be more in Q2 or in the second half of the year, but it's going to be in the coming months for sure. This is true that you should have in mind that we have a growth trajectory that is going to accelerate. As far as all the investment that we are making in this Horizons plan, will deliver some fruit. We mentioned the GMS, the local country-specific plan. There are some regions that are more advanced than some other. In China, the plan started already at the end of last year, and we have seen that it's delivering already some fruit with a very good Q1 and good sales momentum in China, which is really encouraging us to continue in that direction in some other markets outside China. Operator: The last question today comes from Anna Patrice with Berenberg. Anna Patrice: A couple of questions from my side. First of all, when you talk about the organic growth in the order book of 1%, what kind of organic growth is it? So until when this organic growth? Does it mean that it implies that you already have in your pocket 1% organic growth for the full year 2026? Or where does it stop? That's the first question. Second question, you mentioned several times in China that there was a significant improvement. Can you maybe elaborate what was the organic growth in China last year, for example? And what is it already in Q1? And what was the comparison basis maybe? And then the last question is on the America performance, minus 4%. If you can elaborate which sectors are declining and which sectors are growing? Jean Poitou: Can you reiterate the first question, please? Anna Patrice: Yes. First question is on order book, 1% organic growth at the end of March. This 1% organic growth, what is it exactly? Is it 1% organic growth that you have in your books for the full year 2026? Or what exactly does it mean? Jean Poitou: So just to clarify, when we talk about the order book and the order book growth, it is the part of the orders we took that is delivering revenue in 2026, right? So there's 1% more in our order book for the year, right? Then some of them are shorter term than others, which can last all the way until December. Olivier Champourlier: Yes. So that means that at the end of March, the order book is plus 1% compared to the end of March last year. And the order book in the Ipsos definition is the sales that have been converted that will generate revenue on the full year. And as we mentioned it, at this stage of the year, we have in our order book 55.6% of the annual revenue. And it's in line with what we have seen in average over the last 4 years. Now answering your last question about what was the growth in Greater China in Q1 2029. So it was around minus 3%. So we have seen definitely a turning point in our activity in Russia, which started in China, which started already at the end of last year, but has accelerated and now it's quite strong in Q1 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Jean Poitou: Okay. Thank you very much. So in closing, our commercial momentum is strong in spite of a minus 1.4% organic growth Q1. And to use the words of one of the questions, the signals we see on the commercial front, not just that 1% increase, but also the pipeline, the comparison with prior years says that the growth we have suggested for the year is absolutely doable. So I want to thank you for your attention today, and we will be talking again in May. Thank you. Olivier Champourlier: Thank you very much.
Operator: Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Co Limited's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host today, for today's call, Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella. Stella Wang: Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Fourth Quarter 2025 Earnings Conference Call. The company's results were released earlier today and available on the company's IR website at www.jinkosolar.com as well as on Newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Xiande Li, Chairman and CEO of JinkoSolar Holding Company Limited; Mr. Pan Li, CFO of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, CEO of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar's business operations and company highlights. Since our CMO, Mr. Gener Miao, is currently on a business trip, I will deliver the remarks on sales and marketing in his behalf. Following that, Mr. Pan Li will walk through the financials. After that, we will open the call for questions. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements, except as required under the applicable law. It's now my pleasure to introduce Mr. Li, Xiande, Chairman and CEO of JinkoSolar Holdings. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li. Xiande Li: [Interpreted] The global PV industry continued to experience volatility due to structural imbalances and shifting trade environment in 2025 impacting financials across the industrial chain. In this entering environment, we maintained disciplined operations and our technological leadership continuously driving upgrades of our n-type TOPCon technology and iterating our high-efficiency products. For the full year 2025, total module shipments reached 86 gigawatts ranking first globally for the seventh consecutive year, impacted by persistently low module prices, the elimination of obsolete production capacity and still evolving product mix and high-efficiency products ramp up. We incurred a net loss for the full year. In the fourth quarter, gross margin decreased sequentially, and our net loss expanded due to rising costs of raw materials such as polysilicon and silver as well as foreign exchange rate fluctuations. However, our energy storage business maintained its rapid growth trajectory, marking an important step in our ongoing transformation into an integrated energy solutions provider. Shipments of ESS grew significantly year-over-year to 5.2 gigawatts in 2025. This approximately 1.7 gigawatts hours recognized as revenue. Our deepening penetration into high-value markets is expected to more than double ESS shipments in 2026, serving as a primary driver for enhancing our profitability profile. Since the fourth quarter, government guidance supporting the high-quality development of the TV industry has continued to strengthen. A series of policy measures have steadily accelerated the phasing out of outdated capacity and the normalization of market competition. guiding the industry to gradually transition from competing on scale and price to quality and value. Leading companies have actively responded to this high-quality development directive pushing module prices back to reasonable levels. In the first quarter of 2026, driven by the pass-through of cost pressures from rising commodity prices, such as silver coupled with the impact of export tax rebates on demand, module prices rebounded significantly sequentially. As the industry's competitive landscape continues to normalize, and supply and demand dynamics marginally improved. Module prices are expected to remain relatively stable with high efficiency and differentiated products continue to command a premium. We continue to drive technological breakthroughs and lead the direction of industry innovation. As of the end of 2025, the maximum lab efficiency of our anti TOPCon cells reached 27.99% while conversion efficiency of our anti TOPCon-based perovskite tandem cell reached 34.76%. As a global leader for TOPCon technology, we held over 700 TOPCon patents by the end of the fourth quarter, surpassing most of our competitors. Furthermore, we partnered with Crystalline to provide the application of AI in R&D of perovskite tandem cell and accelerate the commercialization of next-generation technologies. We continue to drive product upgrades and performance iterations consistently enhancing product competitiveness. In the fourth quarter, shipments of high-efficiency products that exceed 640 wattP increased sequentially to approximately 3 gigawatts, a USD 0.01 premium compared to our conventional products. As our Tiger Neo, the third generation of Tiger Neo series which delivers maximum power output of 670wattp sequentially scales up production volume and shipments this year and accelerate market penetration across diverse application scenarios. The value proposition of our high-performance products will increasingly stand out and is expected to command a higher premium. We continued to enhance our cost control capabilities across market cycles offsetting the impact from raw material price fluctuations through supply chain optimization and technology core upgrades. Development of silver coated copper technology is progressing as planned with large-scale production expected to gradually ramp up in 2026. Our initiatives in smart manufacturing have already begun to generate initial results. Through our lighthouse projects represented by Shanxi Super Factory, our vertically integrated production model continues to improve production efficiency and cost competitiveness providing a replicable blueprint for our global manufacturing footprint. We view our energy storage business as a strategically vital second growth engine. We continue to strengthen our R&D for our core technologies, enhance our system solution capabilities and improved localized customer service and life cycle support, leveraging our global PV distribution channels, we are steadily scaling east shipments and greater synergies between our solar and storage solutions are increasingly materializing. Currently, our sign and high potential ESS orders exceeded 10 gigawatt hour in total. As the global energy transition advances and the demand for great flexibility increases, the role of energy storage with the renewable energy system continues to strengthen. Looking ahead to 2026, we will continue to deepen penetration into high-value markets and explore application scenarios, including 0 carbon industrial parks and data centers. We continue to optimize our global manufacturing and supply chain footprint, enhancing our ability to adapt to diverse market policies and customer needs. Our 2 gigawatts N-type module facility in the U.S. maintained high utilization rates as we continue to strengthen local manufacturing and service capabilities. We are also actively developing new models for long-term engagement in key markets to better address customer demand for high-efficiency products and solutions. 2025 mark the final year of the 14th 5-year plan during which cumulative installed capacity of wind and solar power surpassed the coal-fired power for the first time, becoming the largest source of electricity generation. At the same time, solar power generation has fully entered a market driving phase. The industry's development framework is shifting from scaled expansion towards greater emphasis on operational capabilities and comprehensive value creation, which read is the competitive bar for technology and products. At the same time, recent volatility in global energy markets has highlighted the critical need for energy security, we're enforcing the long-term value of renewable energy. Looking forward to the medium to long-term as the construction of new power systems advances and the new load demand growth from data centers, for example, application scenarios for solar and storage will continue to broaden, enhancing the value of the green power. Industry competition will gradually transition from being cost and skill driven to a model centered on technology called innovation, product competitiveness and the ability to deliver integrated solar/storage solution. We will continue to consolidate our technological leadership, deepening our global footprint accelerate the development of our integrated solar plus storage strategy and consistently improve our capabilities to deliver comprehensive solutions. This will steadily strengthen our long-term competitiveness and profitability at an industry landscape reship. Before turning over to Gener, I would like to go over our guidance for the full year of 2026. We expect a new integrated production capacity to reach approximately 100 gigawatts by the end of 2026, including 14 gigawatts from overseas facilities. We expect module shipments to be between 13 gigawatts and 14 gigawatts for the fourth quarter of 2026 and between 75 gigawatts and 85 gigawatts for the full year 2026. Gener Miao: Thank you, Mr. Li. We are pleased to report that both our robust global sales network and strong product competitiveness drove quarterly and annual module shipments to once again ranking first across the industry. Total shipments were 26 gigawatts in the fourth quarter with total motor accounting for nearly 93% of the mix. For full year, total module shipments were 86 gigawatts. Geographically, overseas markets remained our primary driver accounting for about 60% of total module shipments in 2025. We actively capitalized on growing demand across Asia Pacific and emerging markets, which together accounted for nearly 40% Shipments to the U.S. were in line with our expectations and accounted for approximately 5%. We continue to optimize our product mix increasing the proportion of high-efficiency product shipments and focusing on high-value application scenarios. This high efficiency models highlighted by the Tiger Neo, the third generation of Tiger Neo series have earned widespread recognition for their higher power generation and better LCOE. The order book for these modules has grown steadily since the fourth quarter, allowing us to command a premium over conventional products. As we continue to enhance our product competitiveness, our brand reputation and the customer recognition has strengthened in tandem. Internet's latest global energy storage Tier 1 list for the first quarter of 2026, we are recognized as a Tier 1 energy storage provider for eighth consecutive quarter. Furthermore, we achieved an S&P Global CSE score of 78 points, the highest one among PV module companies. And we were included in the 2026 surtainability year book. On the demand side, recent policy guidance and the discussions during China's 2 sessions and the subsequent industry forums have reinforced the strategic focus on energy efficiency carbon reduction and zero-carbon industrial parts. This provides a solid foundation for the continued growth in Chinese solar market during the 5-year plan. Globally, the ongoing global electrification process, the continuous growth of new power loads from data centers and increased focus on energy security following recent energy crisis are collectively driving demand. Local solar and solar plus storage solutions and their deployment flexibility are ideally positioned to address these issues. In healthy energy system resilience and facilitating seamless incremental power demand for countries. By the end of the fourth quarter of 2025, cumulative global module shipments surpassed 390 gigawatts with other sales network covering nearly to 100 countries and regions. Notably, total cumulative shipments of our Tiger Neo series exceeded 220 gigawatts ranking first in the industry as we continue to reinforce our global market leadership and a strong customer base. 2026 marks our 20th anniversary, and we are using this milestone as an opportunity to further strengthen our product, brand and customer service systems to continuously enhance our competitiveness in the global market. With that, I will turn the call over to Pan. Mengmeng Li: Thank you, Stella. In the challenging fourth quarter, we achieved a 20.9% sequential increase in solar module shipments and a slight sequential increase in total revenues. Our operating efficiency improved significantly from last quarter Operating cash flow was approximately $470 million in the fourth quarter and $280 million for the full year, $25 million hitting the target we set at the beginning of the year to reach positive full year operating cash flow. Looking ahead to we expect full year operating cash flow to remain positive. Looking at our fourth quarter financials in more detail. Total revenue was $2.5 billion, up 8.3% sequentially and down 15% year-over-year. The sequential increase was probably driven by increase in solar motor shipments, while the year-over-year decrease was mainly due to a decrease in average selling price of modules. Gross margin was 0.3% compared with 7.3% in the third quarter and 3.8% in the fourth quarter '24. The sequential decrease was mainly due to a higher revenue cost for products sold while the year-over-year decrease was mainly due to a decrease in average selling price of modules. Total operating expenses were $473.6 million up 28% sequentially and 21% year-over-year. The sequential and year-over-year increases were mainly due to an increase in the impairment of long-lived assets in the fourth quarter of '25. Total operating expenses accounted for 18.9% of total revenues compared to 16% in the third quarter. Operating loss margin was 18.6% compared with 8.7% in the third quarter. Now let me briefly review our '25 full year financial results. total module shipments were 86 gigawatts, down 7.3% year-over-year. Total revenues were about $9.4 billion, down 29% year-over-year. The decrease was mainly attributed to the decrease in the average selling price of solar modules. For the full year, gross profit was USD 201 million, a decrease of 86% year-over-year. Gross margin was 2.2% compared to 10.9% in '24, primarily due to a decrease in average selling price of modules. Total operating expenses were $1.48 billion, down 23% year-on-year, primarily due to a reduction in shipping costs driven by lower volumes of solar module shipments and declining average freight rate in 25 as well as lower employee compensation cost. Operating loss margin for full year of '25 was 13.6% compared with 3.6% for the full year of '24. Excluding the impact of the changes in fair value of convertible notes issued by JinkoSolar in '23, changes in the fair value of the long-term investments, share-based compensation expenses, the net loss resulting from a 5 incident at one of our production facilities in Shanxi province in 2024. And the impairment of the long-lived assets, adjusted net loss attribute to JinkoSolar Holdings ordinary shareholders were about for $8 million in 2025. Moving to the balance sheet. At the end of the fourth quarter, our cash and cash equivalents were $3.3 billion compared even at the end of the third quarter of '25 at $3.8 billion at the end of fourth quarter of '24. AR turnover days were 94 days compared with 105 days in the third quarter. Inventory turnover days was 75 days compared to 90 days in the third quarter. As these metrics show, operating efficiency is steadily improving. At the end of the fourth quarter, total debt was about $6.7 compared to $5.6 billion at the end of the fourth quarter of '24. Net debt was $3.44 billion compared to $1.76 billion at the end of the fourth quarter of '24. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed. Operator: [Operator Instructions] Your first question today comes from Philip Shen from ROTH Capital Partners. Philip Shen: Wanted to get your outlook and assumptions for pricing for Q1 and Q2. I think in your prepared remarks, you said you expect the global ASP to be stable. But are you assuming $0.10 a lot in Q1 and Q2? And then can you also talk about your gross margin cadence as we get through the year? Do you think Q1 is low, is it lower than Q4? And can it go higher from here? Are you guys speaking? Did you guys hear my question? Haiyun Cao: Sorry, Philip, this is Charlie. I'm [ muting ] my phone. Can you hear me? Philip Shen: Okay. Yes, I can hear you now. We didn't... Haiyun Cao: Okay. Let's get back to your question. And if you look at the price index, the market pricing. And I think the module price is rebounding in the last 3 to 5 months and reflecting the cost inflation and as well as I think most of the Tier 1 companies is more disciplined. And as well as there's backdrop as anti-evolutions. And if I talk to specifically Q1, Q2 ASP, we expect quarter-by-quarter, the improve and gradually. And it's a combination of the price inflation in placing as well as we are marking the next-generation Tiger Neo 3 high-inflation products. And that is -- I think we get a lot of changing from our customers, and there is a price premium. So as a combination, I think the market price is up and players are more disciplined. and we have more mix on the high increasing products. Philip Shen: Great. And so we can see the pricing improves. So can you quantify at all? So Q1, do we see $0.11. Q2, do we see $0.12? And then can you also speak to Q1 and Q2? Haiyun Cao: Yes, I think we're not in a position to disclose detailed in ASP for looking. But if you look at the market price, I think you're right, it's kind of the price level depending on different products and different ratings. It's roughly in the range of, I think, 11.5% or maybe 14, depending on different markets, different products in different regions. Operator: Your next question comes from Rajiv Chaudhri from Sunsara Capital. Rajiv Chaudhri: I just have a few questions. The first 1 is on the gross margin impact of the 3 factors you mentioned the foreign exchange, the U.S. dollar rate, cost of silver and the cost of polysilicon. Can you break down for us the amount -- the significance of each of these factors. And just give us a sort of -- if these factors had not shifted from Q3, what the gross margin could have been in Q4, so we understand what the impact was? Haiyun Cao: Yes, I think -- so back to your question, I think if nothing changed, we expect the Q4 margin should be stable or maybe a little bit higher in the fourth quarter. But fourth quarter, there's some headwinds. And just -- you are talking about it's -- if we look at the magnitude, the first one will definitely the commodities, particularly the silver. And I think the price -- the market price is sold. It's up 250% to 300%, not a dramatic change. And second one will be the RMB appreciation. And the polysilicon is not -- the price a little bit higher in Q4, but it's not a significant impact. Rajiv Chaudhri: Okay. So silver was #1, the exchange rate #2 and polysilicon, much less. Great. Next question is on depreciation and CapEx. What were the depreciation and CapEx numbers for '25? And what is your target for '26. Haiyun Cao: The depreciation a year per year in 2025, it's roughly -- sorry, an USD 1 billion per year. So -- and the CapEx in 2025, I think roughly, it's the same number. It's USD 1 billion. It's a totally different number, okay, it's coincidence. And definitely in 2026, we will further cut the CapEx is roughly, I think, roughly RMB 5 billion and roughly USD 700 million. And we make the investment on the CapEx, particularly the last year. It's -- the purpose it upgrades the roughly 40 gigawatts capacity through the next-generation technology, we call it Tiger Neo 3, and we don't have any additional investment plan in 2026. By 2026 payment is the outstanding the payable to the suppliers. Rajiv Chaudhri: I see. Okay. And the other question is on market share and size of market. Can you give us an idea of what you think the market size was in 2025. And obviously, that will allow me to calculate your market share. But related to that is a question of your guidance and the market share that you expect to get in 2026. Haiyun Cao: We -- last year, we delivered roughly 85% roughly gigawatts and were the top 1 in the industry. I think roughly, we get 13%, maybe 13% to 14% market share. And we expect 2026, the global demand a little bit flat or maybe down a little bit small percentage given last year, China reached to the very high peak over 300 gigawatts. And -- but overseas market continued to grow in 2026 and it's kind of the short term, the market size, the total market size a little bit down in 2026 because China specific situations. But for the next year, long term, we are very optimistic. If you look at the conflict Middle East, I think more and more countries, including China, have more determination to push more renewable energy and the energy independence securities are more -- will become more first priorities and for a lot of governments. And for the '26, we guided to 85 gigawatts with a flat with last year, maybe a little bit lower, reflecting the total market size in 2026. I'm talking about that the total markets could be a little bit lower compared to last year. And basically, I think the market share will be relatively stable. But the key operational targets will be improved -- significantly improve our financial performance were healthy operational cash flows, and we will more focus on the high-value customers and from the Utility segment and the DG segment as well. Rajiv Chaudhri: I see. So would you expect in this scenario that your -- the share of international will be even higher than last year in your sales? Haiyun Cao: I think so. I think so because we are trying to lower our exposure in China. And definitely, China last year, it takes around 40% of our shipments in 2025 for Jinko. And I expect 2026, China the percentage will be will be lowered to 30%, maybe a little bit lower, and we're getting more market share from overseas market, particularly the markets with more disciplined and the customer would like to pay for the branding, the qualities and the high increasing products. Rajiv Chaudhri: So Charlie, if some of the Tier 3 and the weaker companies are getting out of the market shouldn't we expect your market share to grow in 2026 even if the market overall is down, are you just being very conservative here? Haiyun Cao: No. Unfortunately, it's not a conservative estimation. And we think this year is kind of the -- how to say, the transition year. And next year, we are looking forward to a lot of good opportunities. And we believe this year, you're right, a lot of Tier 2, Tier 3 even relatively bigger guys will be facing, I think, liquidation issues or maybe consolidation issues. And we -- what we want to do is we penetrate the market with customers who is willing to be a ratable price and we are able to get a reasonable, I think, reasonable profitabilities. Rajiv Chaudhri: Charlie, final question. On the exchange rate, obviously, you experienced a negative margin pressure because the dollar weakened -- sorry, the dollar weakened against the renminbi and your products are priced in dollars globally. Would you consider shifting that into pricing globally in so that in future, as the dollar continues to weaken against RMB that you will -- you are not punished for it because it seems to me that it makes sense to consider this as a strategic rethink. Haiyun Cao: Yes. We're trying to diversify the minimize the risk of facturation in the currencies. And if you look at the price determination in our sales orders, it really depends on the customers, how they view their exposures. Most of our customers, I think the PPA is still in U.S. dollars. So it's kind of a natural hit when they prop the modules from the module makers, but some customers are willing to pay RMB denominated. And we are encouraging the customers who is willing to switch to the to RMB to a little bit lower, the exposure -- currency exposures. And on top of that, I think currency hedging will continue to do that. It's a little bit difficult, but we're trying to minimize impact. And for the pricing impact, we periodically, we reassess the possible the exchange rates and put into the pricing for the future sales order. Operator: Your next question comes from Alan Lau from Jefferies. Alan Lau: So First of all, I would like to understand the company's view on its potential collaboration with the U.S. leader in its local plan in both the space-based solar and also in some huge local 100 gigawatts deployment heard that Ghana was on the ground with some progress. So I would like to know if the company would share updates on that front? And another thing is recently, it seems there's market discussion on China may be prohibiting or stopping the export of solar equipment as well. So would this impact that collaboration? Haiyun Cao: Thanks for the questions. And for the second question, I didn't have any information or comment. And I know there is some kind of message, even public news from overseas media channels. And -- but for the -- I think you are talking about the U.S., the Tesla SpaceX it's probably information Elon Musk is making very bullish and plan to build and 100 gigawatts by Tesla and 100 gigawatts by the SpaceX. And I think it's -- why do you have such bullish plan? I think particularly from Tesla perspective, public news show, okay, because the AI, it is -- there's a lot of demand for electricity, renewable energies and the U.S. is lack of electricity and renewable energy will be the final solutions. And I think we size simply we have visited a lot of equipment suppliers and manufacturing, including JinkoSolar. They have decided the technology to be TOPCon but we don't have any further information to disclose. But again, under Jinko is Pioneer and the innovators for the top content knowledge. And we have, I think, the most powerful capabilities to build integrated the capacities, the digitalizations and have a very strong powerful patterns as well in the gold. And we are quite open to explore the corporate rating opportunities and with partners in different countries. And you can -- so that is the information I think I can see. But in summary, I think the property information show, okay. The Tesla, SpaceX has a plan to build capacities. They are doing a lot of the work including visiting Chinese manufacturing. And -- but we -- from Jinko perspective, we didn't have any further information to these goals. And -- but we are open for the business opportunities, if any. Alan Lau: So good luck for the potential chance on collaboration. And then to follow up, is there any -- what's your view on the pattern -- popcorn patent loss raised by First Solar. So are you seeing this is impacting your shipment in the U.S. or it's not really affected. Haiyun Cao: Yes. We don't expect any disruption or impact in our business and ongoing business in the United States and the first solar litigations, and we have been actively engaged experienced lawyers and to Fight. And we don't believe we infringe relevant patents of First Solar, and we did the research for the producing process. We don't believe it's relevant. And on top of that, we have a very solid experience a couple of years ago, and to deal with 337 with [indiscernible] Solar and remain in the final. And -- but again, we do a lot of preparation work and -- but we are confident, and there is an impact for our operations in the United States. Alan Lau: Understood. Clear. So switching gear to the fee-related issue. So I would like to know, I think probably for this year, there are sufficient projects already safe harbor for this year. So I wonder if you may share with investors on your plan on meeting the fee requirement going forward? Like is there any progress in sourcing partner, et cetera? Haiyun Cao: Yes. I think there's a lot of the safe harbor, the downstream projects and the project will get through the construction and the connections in the next 2 or 3 years. And for the long felt compliance for the manufacturing in our Florida facilities and we are in the final stages and recent negotiations with potential investors. And if there are any is significant make too. We will make the announcement. And we expect it to be closed in the next couple of months. Alan Lau: Understood. That's very good news. And then I would like to switch gears to ESS, like I think the Chairman has guided on the shipment that in the shipment may be doubled. I wonder if you can share in which region are those shipments is going to be? And is there any AI data center-related deals that is being negotiated or in discussion. Haiyun Cao: For the storage business, ESS business and AIDC definitely it's a very hot topic, and we are actively in early stage and discussion with few potential customers. And return. And I think we -- hopefully, we are able to finalize some deals by the end of this year. And therefore, the stories segment by ratings and China really take our small precedes and is roughly 10% to 15%. And our focus will be the Europe, Latin America and some projects from Middle East and Asia Pacific regions. So that's the breakdowns. In the U.S., last year, received around 600-megawatt hours, and we are building solidify our teams. And hopefully, we can make significant breakthrough in the U.S. market in 2026 as well. Alan Lau: Understood. So is there an expected gross margin target on the ESS side of the business? Haiyun Cao: Yes. It's we estimate to be 10% to 15%. That -- we did have a very good backlog last year. And the industry is facing increase of the price of late. And -- but we are trying to manage and minimize exposures, but we estimate it could be in a range of 10% to 15%. Alan Lau: Understood. That's very clear. I think my last question is on the shareholders' return. I wonder if the company -- what's the pace of the buyback or the company? Like is there any further shareholders' return program for this year? Haiyun Cao: I think we will convene 1 make the investment return in the combination of the share repurchase and the dividend and -- it could be -- the magnitude we have not determined, but we'll definitely do that. Alan Lau: Resulting in the past, it was around like the plan was around $200 million per year, but I'm not sure if this is still the plan, different situation in the industry for now. Haiyun Cao: U.S. holding companies and I think now the U.S. company has around USD 200 million in cash. And -- but we're trying to make some investment on this so -- including solar, robotics and some relevant and industries. And so we need to allocate between equity investment and shareholder returns. But we have sufficient, I think, the cash and to return on investment and to investors maybe in the range of 50% to a year. Operator: Your next question is a follow-up from Philip Shen from ROTH Capital Partners. Philip Shen: I wanted to ask about the perovskite outlook. You guys have highlighted your efficiencies there in the laboratory and was interested in getting your perspective on when perovskite could be commercialized in your capacity footprint? Are we looking at maybe 2 to 5 years? Or do you think it's beyond 5 years? Haiyun Cao: So we did make some through the laboratory for the perovskite technology and it's reaching roughly 24% to 25%. But talking to commercial mass adjusting, we think still have a lot of R&D work to do. it will be in the next maybe 3 to 5 years and -- but it's not -- definitely, it's not in the near term. Philip Shen: Yes. Okay, Charlie. And then in terms of your shipments to the U.S. market I think you had in your deck 5% of your shipments went to the U.S. What is your expectation for shipments to the U.S. market in 2026? Haiyun Cao: It's 5% to 10%. And there's a little bit of talent because the shortage of the solar cell in supplies. And -- but we are trying to reach to at least the metal point. Philip Shen: The midpoint of the 5% to 10%, is that what you mean? Haiyun Cao: Yes, yes. Midpoint, yes. Philip Shen: Got it. Can you talk about the source of your non-fosales? Are you sourcing them from the Mid East? Or where are they coming from? Haiyun Cao: Yes, in general, there's several different players and manufacturing, I think, in Africa in different continents. And we I think we are able to secure some of the productions from the suppliers. Philip Shen: Okay. And then in terms of the war, I just wanted to if there are any impacts to the business at all? And then you have your large manufacturing facility here your building in Saudi Arabia. So I want to see if -- do you have any thoughts on that? Haiyun Cao: Thanks for the question. And the Saudi joint ventures, we didn't make any, I think, the break ground, and it's still in the early preparations and waiting for the implementations of the policies, local policies. So we didn't make any investment and significant investment in the joint ventures. And the Middle East contract that it has several impacts. I don't believe it's a long term. Firstly, it will have an impact on our shipment to the Middle East, and we take a sizable market in the Middle East. And given the logistic challenge, and we need to replan we work with our customers, we schedule the cement plants. And there is a significant push for the oil price. And it's a kind of the fundamental cost for a lot of materials, particularly the chemicals and as well as logistics cost. So there is some kind of push for the cost from shipment costs, EV and -- but we are trying to manage in a renewable level. But I don't believe that's a long term, but short-term, there is some kind of impact, but we can get it. Philip Shen: Right. Charlie, so how much do you plan -- like what's the plan for shipments to the Mid East before the war 2026 percentage of your '26 shipments were you thinking? Haiyun Cao: You mean by year? A year? Philip Shen: Yes. For the full year. Like prewar were you thinking like 20%. Haiyun Cao: Yes. I think it's roughly 20%. And -- but it's not is not impacting all the countries but impacts some countries. Philip Shen: Right, in the short term right? Right. So in the short term, maybe it's half of that is maybe challenged by the? . Operator: There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the 2026. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin. Thank you. Abbe Goldstein: Good morning, and welcome to The Travelers Companies, Inc. discussion of our first quarter 2026 results. We released our press release, financial supplement, and web presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, CFO; and our three segment presidents, Greg Toczydlowski of Business Insurance, Jeffrey Klenk of Bond and Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take your questions. Before I turn the call over to Alan, I would like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under Forward-Looking Statements in our earnings press release and in our most recent 10-Q and 10-Ks filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investors section on our website. And now I would like to turn the call over to Alan Schnitzer. Alan Schnitzer: Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We are pleased to report an excellent start to 2026 with strong underwriting performance across all three segments and a strong result from our investment portfolio. We also continued to deliver on key strategic initiatives during the quarter. For the quarter, we earned core income of $1.7 billion, or $7.71 per diluted share, generating core return on equity of 19.7%. Over the trailing four quarters, we generated a core return on equity of 22.7%, driven by excellent underlying fundamentals. Underwriting income of $1.2 billion pretax benefited from strong levels of underlying underwriting income and favorable prior year development. Each of our three segments generated attractive underlying and reported margins. Turning to investments. Our high-quality investment portfolio continued to perform well. After-tax net investment income increased by 9% to $833 million, driven by strong and reliable returns from our growing fixed income portfolio. Our underwriting and investment results together with our strong balance sheet enabled us to return more than $2.2 billion of excess capital to shareholders during the quarter, including approximately $2 billion of share repurchases. Even after that return of capital, and having made important investments in the business, adjusted book value per share was 16% higher than a year ago. In recognition of our strong financial position and confidence in the outlook for our business, I am pleased to share that our Board of Directors declared a 14% increase in our quarterly cash dividend to $1.25 per diluted share, marking 22 consecutive years of dividend increases with a compound annual growth rate of 8% over that period. Turning to the top line. With disciplined marketplace execution across all three segments, we generated net written premiums of $10.3 billion in the quarter. In Business Insurance, we grew net written premiums to $5.8 billion. Excluding the property line, we grew domestic net written premiums in the segment by 6%. The declining premium volume in property continues to be a large account dynamic. Property premiums were higher in our small commercial business, and about flat in our middle market business. Renewal premium change in Business Insurance was 5.8%. Retention increased a point from recent quarters to a very strong 86% and was higher or stable in every line, reflecting deliberate execution on our part and a generally high level of stability in the market. Renewal premium change in our core middle market business was about unchanged sequentially, also with retention higher at 89%. In terms of the product lines, RPC in auto, CMP, and umbrella remained in the double digits. RPC in GL and workers’ comp was stable, and RPC in the property line was positive. New business in the segment was a record $775 million, a reflection of our strong value proposition. In Bond and Specialty Insurance, we grew net written premiums by 7% to $1.1 billion. In our high-quality management liability business, renewal premium change ticked up sequentially with excellent retention of 87%. In our industry-leading surety business, we grew net written premiums by 14%. In Personal Insurance, we generated net written premiums of $3.5 billion with solid retention and positive renewal premium change in both auto and homeowners. We will hear more shortly from Greg, Jeff, and Michael about our segment results. The results we released this morning are part of a larger story. They reflect a set of advantages that we have developed and that have compounded over a long period of time. Over the course of many years, we have managed through a wide variety of challenging conditions: the 2008 financial crisis, dramatic changes in interest rates, a major inflection in liability loss cost trends, the global pandemic, severe natural catastrophes, and periods of heightened geopolitical and economic uncertainty. We did not predict the full scope of any of those events. But by carefully balancing risk and reward on both sides of the balance sheet, we were positioned to manage successfully through all of them. We have consistently delivered growth in book value per share and earnings per share at industry-leading returns, averaging more than 1 thousand basis points above the ten-year Treasury over the last ten years, and with industry-low volatility. We have also built as strong a capital position as we have ever had. That track record is not a coincidence. It reflects a set of structural advantages that hold up regardless of the environment. Starting with the breadth of the franchise. We are a market leader across nine major lines of insurance, serving personal and commercial customers across the country and diversified across distribution partners, industry class, and customer size. That balance, which represents a bigger advantage than people sometimes appreciate, has resulted in our consolidated loss ratio being less volatile than the loss ratio of our least volatile segment. In an uncertain world, that kind of structural hedge is a meaningful source of stability. Where we operate also matters. More than 95% of our premiums come from North America. At a time of considerable geopolitical complexity, that concentration is a strategic advantage. And the domestic market offers substantial room for growth. With our broad product capability, our leading market position, and the execution you have seen from us over the years, we are well positioned to continue gaining share, as we have in our commercial businesses over the past five years. Equally important is our ability to navigate the loss environment. We have the data, the analytics, and the discipline to see changes in loss activity early and to reflect what we see in our reserves, our risk selection, our pricing, and our claim strategy. That capability is foundational, because until you have an accurate view of the loss environment, the many downstream decisions are working from the wrong inputs. Our early identification of the acceleration in social inflation is a good example. We adjusted before the market did, and since then, we have grown the business and significantly improved our margins. Our scale is also a significant and growing advantage. Our profitability and cash flow support our ability to invest more than $1.5 billion annually in technology, including in our ambitious AI strategy. Our size gives us the data to power AI and the resources to deploy it, creating a virtuous cycle of better insights, better decisions, and better outcomes. Our financial strength also enables us to absorb the increasing severity of weather losses, and all of these benefits position us as a preferred counterparty in the reinsurance market. Beyond that, our product breadth, risk control, claim expertise, and other capabilities that benefit from scale make us more relevant to our distribution partners, deepening those relationships and our access to quality business. Over time, companies that can leverage scale effectively will have a meaningful edge in consolidating industry premium. As for our investment portfolio, the principles that guide us are the same ones that have served us well for decades. We consistently manage for risk-adjusted returns, not headline yield. More than 90% of our portfolio is in high-quality fixed income, with an average credit rating of AA-. Issue of the day, private credit, is a nonissue for us. We manage interest rate risk by holding the vast majority of our fixed income securities to maturity and carefully coordinating the duration of our assets and liabilities. Our investing discipline has produced default rates that were a fraction of industry averages through every stress event in the past two decades. You cannot gracefully reposition a portfolio in the middle of a dislocation. The time to build that resilience is before you need it. In short, whether we are talking about underwriting or investing, the advantages we have built are designed to deliver across environments. And they have. Before I wrap up, I would like to share that a number of my colleagues and I have just returned from our The Travelers Companies, Inc. Leadership Conference, a multi-day event we host each year for the principals and senior leaders of our most significant distribution partners. As we have shared before, the vision for our innovation agenda includes enhancing our value proposition as an indispensable partner to our agents and brokers. We continue to make significant investments to ensure that we realize that vision through best-in-class products, services, and experiences. What we heard consistently is that our deep specialization across a wide range of modernized, simplified, and tailored products, along with a broad and consistent appetite and extraordinary field organization, the ability to deliver exceptional experiences and our industry-leading claim capabilities, are major differentiators in the market. To sum it up, we are off to an excellent start for 2026, and we are highly confident that the advantages that have driven our success will extend our strong record of outperformance. I will now turn the call over to Dan for the financial results. Dan Frey: Thank you, Alan. The Travelers Companies, Inc. delivered $1.7 billion of core income in the first quarter, resulting in a quarterly core return on equity of 19.7% and a trailing twelve-month core return on equity of 22.7%. First quarter earnings were driven by yet another very strong quarter of underlying underwriting income, which at $1.2 billion after tax marked our seventh consecutive quarter of more than $1 billion. Net investment income of more than $800 million after tax and net favorable prior year reserve development of $325 million after tax also contributed to the strong bottom line result. After-tax cat losses were just over $600 million. The all-in combined ratio of 88.6% was again excellent. The underlying underwriting gain reflected $10.6 billion of earned premium and an underlying combined ratio of 85.3%. Within the underlying combined ratio, the first quarter expense ratio came in at 29%. That is what we expected given the timing of expenses in Q1, and we still expect the full-year expense ratio to be in line with our prior guidance, right around 28.5%. The previously announced sale of most of our Canadian operations closed as expected on January 2, and I wanted to take a couple of minutes to summarize the impact of that sale on our first quarter results. Let us start with premium volume. The year-over-year comparison, with Canada’s business included in 2025 but not included in 2026, reduced the first quarter growth rate for consolidated net written premium and net earned premium by about two points each. The impact in both Business Insurance and Bond and Specialty was about one point, while the impact in Personal Insurance was about four points. The impacts on the growth rate of both written and earned premium will be similar for the remaining quarters of this year. To help with modeling the year-over-year impact for the rest of the year, we provided the quarter-by-quarter dollar impact on Slide 19 of the webcast presentation. Within net income for the quarter is a gain on sale consistent with our expectations when we originally announced the transaction last May. That gain does not impact core income. And finally, within the equity section of the balance sheet, you see a reduction in accumulated other comprehensive loss, which is primarily because the previously unrealized FX loss related to the sold Canadian entities became a realized loss upon sale. The move from unrealized to realized had no impact on total equity or on book value per share. Turning back to the rest of the quarterly results, catastrophe losses for the quarter totaled $761 million pretax, with the largest events being the winter storm that impacted much of the country in January, and a large tornado-hail event in March, both of which you can see in the table of significant cat losses in the MD&A section of our 10-Q. We reported net favorable prior year reserve development of $413 million pretax in the first quarter, with all three segments contributing. In Business Insurance, net favorable development of $162 million pretax was driven by commercial property and workers’ comp. In Bond and Specialty, net favorable PYD of $65 million pretax was driven by better-than-expected results in surety. Personal Insurance recorded net favorable PYD of $186 million pretax, with both auto and home contributing. After-tax net investment income increased 9% from the prior-year quarter to $833 million. Fixed income NII was higher than in the prior-year quarter in line with our expectations, benefiting from both higher yields and a higher level of invested assets. New money yields at the end of Q1 were about 70 basis points higher than the yield embedded in the portfolio. Our outlook for fixed income NII by quarter, including earnings from short-term securities, is consistent with the guidance we provided on our fourth quarter earnings call: expecting roughly $810 million after tax in the second quarter, growing to approximately $840 million in the third quarter and then to around $870 million in the fourth quarter. Net investment income from our alternative investment portfolio was also positive in the quarter, although down from a year ago. Given recent movement in the equity markets, this is a good time to remind you that results for our private equities, hedge funds, and real estate partnerships are generally reported to us on a one-quarter lag. And while not perfectly correlated, our non-fixed income returns tend to directionally follow the broader equity market. In other words, the impact of the decline in financial markets that occurred in the first quarter will be reflected in our second quarter results. Turning to capital management. Operating cash flows for the quarter of $2.2 billion were again very strong, as we generated more than $2 billion in operating cash flow for the fourth consecutive quarter. As interest rates increased during the quarter, our net unrealized investment loss increased from $1.5 billion after tax at year end to $2.4 billion after tax at March 31. Adjusted book value per share, which excludes unrealized investment gains and losses, was $161.60 at quarter end, up 16% from a year ago. Adjusted book value per share also increased 2% from year end, despite the very strong level of share repurchases during Q1. Share repurchases this quarter included $1.8 billion of open-market repurchases, in line with the guidance we shared last quarter. And as a reminder, $700 million of that $1.8 billion came from the closing of the Canadian business sale in January. We had an additional $185 million of buybacks in connection with employee share-based compensation plans, and we still have approximately $5.2 billion remaining under prior board authorizations for share repurchases. Dividends were $238 million in the quarter, and as Alan mentioned earlier, our Board authorized a 14% increase in the quarterly dividend to $1.25 per share. In summary, our first quarter results once again demonstrate significant and durable underwriting earnings power and attractive margins across our well-diversified book of business, along with steadily increasing NII from our growing investment portfolio. I will now turn the call over to Greg for a discussion of Business Insurance. Greg Toczydlowski: Thanks, Dan. Business Insurance had a strong start to 2026, delivering another quarter of excellent financial results and successful execution in the marketplace. Segment income of $839 million was a first-quarter record, benefiting from strong underlying underwriting results and net investment income as well as favorable prior year reserve development. For the fourteenth consecutive quarter, we delivered an underlying combined ratio below 90%. That sustained underwriting success reflects the strength of our risk selection, granular pricing segmentation, and field execution. Turning to the top line, we generated net written premiums of $5.8 billion. Domestic net written premiums were up 4% over the prior-year quarter as we grew our leading middle market and Select businesses by 5% and 3%, respectively. National property premium declined as we maintained our disciplined underwriting standards. Turning to production, we achieved renewal premium change of 5.8% for the quarter. Excluding the property line, RPC was nearly 8% and in line with the fourth quarter. Renewal premium change was positive in all lines and higher sequentially in the umbrella and auto lines. Retention increased to 86%, up sequentially from the fourth quarter, a reflection of our continued focus on retaining our high-quality book of business in generally stable market conditions. Strong new business of $775 million was a quarterly record. These production results benefit from the investments we have made in product and underwriting precision. Our new commercial auto product, TCAP, which contains industry-leading segmentation, is now live in 47 states. We also recently enhanced our property pricing models, refining catastrophe and non-cat segmentation. Our advanced analytics, market-facing tools, and sales enablement capabilities also played key roles in our success, reflecting the competitive advantages these investments continue to build. We are pleased with these production results and the excellent execution by our field organization. As for the individual businesses, in Select, renewal premium change was strong at 8.8%, while retention increased one point sequentially to 82%. As expected, we are seeing the benefit of having largely completed our targeted CMP risk-return optimization effort. New business of $157 million was strong and in line with last year’s record. These results underscore our continued investments in product, underwriting, and agent experience. BAP 2.0 is now fully deployed nationwide, completing a multiyear initiative that has transformed our small commercial offering. The recent rollouts of the product in California and New York were meaningful milestones. The industry-leading segmentation embedded in the product is contributing to profitable growth. We continue to enhance Travis, our digital quoting platform, which processes over 1 million transactions annually. In Middle Market, renewal premium change was 6.6%, while retention improved two points from the fourth quarter to a very strong 89%. Price increases remain broad-based, as we achieved higher prices on about three-quarters of our middle market accounts. New business of $468 million was up 7% compared to the prior-year quarter, reaching a new quarterly high. Once again, another great quarter for Business Insurance. We are energized by both the impact of the new capabilities contributing to our strong performance and by the additional capabilities we are currently building that will drive our continued success throughout the remainder of 2026 and into the future. With that, I will turn the call over to Jeff. Jeffrey Klenk: Thank you, Greg, and good morning, everyone. We are pleased to report that Bond and Specialty started the year with another strong quarter on both top and bottom lines. We generated segment income of $254 million, an excellent combined ratio of 83.3% and a strong underlying combined ratio of 88.9%. Turning to the top line. We grew net written premiums by a very strong 7% in the quarter to $1.1 billion. In our high-quality domestic management liability business, renewal premium change was slightly higher sequentially while retention remained strong at 87%. We are encouraged by our continued progress in achieving improved pricing through our purposeful and segmented initiatives while continuing to deliver strong retention. Turning to our market-leading surety business. We are very pleased that we increased net written premiums by 14% from the prior-year quarter. Bond premium growth came from both long-term accounts, many of which are relationships spanning decades, as well as high-quality new accounts recently added to our industry-leading portfolio. These new surety relationships reflect years of efforts spent by our outstanding field team earning trust as well as the strategic investments we have made over time to deliver value beyond the bond itself. Our portfolio of premier contractors is well positioned to continue to benefit from higher and broad-based infrastructure spending. So Bond and Specialty Insurance delivered strong results in 2026, driven by our consistent underwriting and risk management diligence, excellent execution by our field organization in delivering our leading products and value-added services, and by continuing to leverage our market-leading competitive advantages. And with that, I will turn the call over to Michael. Michael Klein: Thanks, Jeff. Good morning, everyone. In Personal Insurance, we delivered segment income of $704 million for 2026. Strong underlying underwriting income and favorable prior year development both contributed to this excellent bottom line result. The combined ratio of 82.9% was a terrific result in the quarter. The underlying combined ratio of 78.3% improved by 1.6 points compared to 2025, reflecting strong profitability in both Automobile and Homeowners and Other. Net written premiums for the segment were $3.5 billion. As a reminder, we completed the sale of our Canada personal lines business on 01/02/2026. The decrease in domestic net written premiums of 5% year over year reflects the impact of both auto and home actions we have taken over the past year to improve property pricing, terms, and conditions, and to reduce exposure in high-catastrophe-risk geographies. The decrease also reflects higher ceded premium related to the expanded coverage we purchased as part of the enterprise catastrophe reinsurance program, which renewed on January 1. Turning to Automobile. Bottom line results continue to be very strong. First quarter combined ratio was 82.9%, reflecting a very strong underlying combined ratio of 88.3% and a 6.3-point benefit from favorable prior year development. As a reminder, the first quarter is historically our seasonally lowest combined ratio quarter in Auto. In Homeowners and Other, first quarter combined ratio was an excellent 83%. The underlying combined ratio of 69.7% improved by approximately three points compared to the prior-year quarter, primarily related to the continued benefit of earned pricing. As another reminder, the second quarter historically has been the seasonally highest quarter for homeowners weather-related losses. Turning to production. In Automobile, retention of 82% was relatively consistent with recent periods, and renewal premium change continued to moderate, reflective of our strong profitability. We are pleased to note that both Auto new business premium and the number of new business policies written increased compared to the prior-year quarter. In Homeowners and Other, retention improved to 85%. Renewal premium change in homeowners moderated, reflecting our successful efforts to align replacement costs with insured values. We expect renewal premium change to further moderate into the mid-single digits reflecting improved profitability. We were encouraged to see new business premium higher year over year as we broadened our disciplined efforts to deploy property capacity. These production results reflect progress toward our objective of delivering profitable growth over time. We are executing a range of initiatives to generate new business growth in both Auto and Property, including continuing to enhance product and pricing segmentation, unwinding eligibility restrictions, lifting agent binding limitations, and increasing new agency appointments. We are focused on providing total account solutions that, together with continued investment in digitization and ease of doing business, make us an indispensable partner for our agents, and an undeniable choice for customers. To sum it up, we are operating from a position of strength. The underlying profitability in our personal lines business is excellent. Our multiyear efforts to improve returns and manage volatility in the property portfolio are largely behind us, and early signs of growth momentum in both Auto and Home are encouraging. And with that, I will turn the call back over to Abbe. Operator: Thanks, Michael. We will now open the call for questions. To ask a question, please press star followed by the number one on your telephone keypad. We ask that you please limit your questions to one. Your first question comes from Gregory Peters with Raymond James. Good morning, everyone. Gregory Peters: So for my first question, Alan and Dan, you have talked about your investment in technology every year for years now, and I am curious how it is affecting the culture of the company. I am thinking about this from two perspectives. First of all, a number of your peers have talked about the potential for headcount reduction. And then at the SBU or line of business level, there are risks, I suppose, of deploying new technology both on growth and margin, and maybe sometimes that might outweigh the benefits. So some perspective on those two points would be helpful. Alan Schnitzer: Greg, good morning. Thanks for the question. I love that question. I will take you back to, I think, 2017 when we came out and we said innovation is going to be a strategy for The Travelers Companies, Inc. What we have done in the intervening years really is hone our innovation skills. We are referring to the last, essentially, ten years as innovation 1.0, positioning us for innovation 2.0. But when you talk about the culture, that is a culture that, fortunately, we have developed and honed over a decade. That is everything from how you pick the right initiatives, how you assess performance along the way, how you measure results, how you prepare an organization to manage change, how you communicate to an organization in the middle of change. That has been a constant for us, and I do not think you can wake up on Monday morning and say, okay, we are going to be innovative today. It is a skill set, and we have a lot of hard-won know-how in doing it. I think that has shaped our culture, which is prepared for it. Gregory Peters: Okay. I guess related to looking at the Personal Lines results, again, Michael, just balancing profitability with possibly adjusted pricing to drive new business and growth. Just curious about how you are looking at that equation. Michael Klein: Sure, Greg. Thanks for the question. That is absolutely what we are trying to accomplish: balance growth with returns and generate profitable growth over time. Given the strong profit position, we have taken a number of actions across pricing, eligibility, and distribution management to drive growth. Importantly, we are doing that from a position of strength. The segment combined ratio and underlying combined ratio in Personal Insurance is the lowest first-quarter segment combined ratio in the last ten years. That gives us some flexibility to look at pricing segmentation. That gives us the opportunity to look at base rate levels in certain states to ensure that pricing is consistent with loss costs. Then, as I mentioned in the prepared remarks, we are executing a range of initiatives across distribution management, expanding eligibility, relaxing limitations, to support that growth. We are encouraged by the momentum we are starting to see. Gregory Peters: Got it. Thank you, everyone, for the answers. Alan Schnitzer: Thanks, Greg. Operator: Next question is from David Motemaden with Evercore. David Motemaden: Hey. Thanks. Good morning. I had a question just on the RPC within the Select business. I was a little surprised at the deceleration there. I was hoping you could unpack that a little bit and sort of what lines were driving that deceleration. Greg Toczydlowski: Hey, David. If you are referencing the RPC, first of all, let me point out that is a real strong number for Select, just under 9%. You can see that drove a real strong retention number also. Rate came in at 4% and down from the fourth quarter, but that really is a reflection of how we feel about the portfolio, the rate adequacy, and the very deliberate execution by our field organization. Alan Schnitzer: David, I would add to that. When you are looking at that pricing metric—any pricing metric—and I would say this for Select or, frankly, anywhere else, you really have to look at it as a package of what is the pricing, where are the returns, and where is the retention. When you look at that trio together and you look at Select, it is an excellent outcome. David Motemaden: Got it. And then maybe just for my follow-up. I thought the underlying loss ratio in BI was definitely better than I was looking for. Could you just talk through the moving pieces there? I think last year, you had talked about increased IBNR on liability lines. Any update there? And also, you had talked about some light non-cat property losses the first couple of quarters last year, and there were some questions if that is durable or not. Was wondering if you have any updated thoughts there that you might be reflecting in loss picks. Dan Frey: Yeah, David, it is Dan. Look, overall, we feel really terrific about the underlying profitability in Business Insurance. As Greg called out in his prepared remarks, that has been sustained for quite a while. I think we are in a really sweet spot, to the point Alan was just making about retention, pricing, and returns. Nothing really unusual in the quarter—sort of the normal suspects that you would expect, a little bit of mix impact—but nothing that we would call out as being particularly unusual, including non-cat weather or anything else. David Motemaden: You also talked about our comment last year on the casualty lines and putting a little bit of what we called, I think, an uncertainty provision— Dan Frey: —in both 2024 and 2025. I think we said that at the end of the 2025 year-end call, but I will repeat it here. We did again carry that into the 2026 loss pick. The losses have not performed poorly. We like the margins in this line, but, again, it is a pretty long-tail line. There is still a lot of uncertainty. There is still a lot of attorney representation. We are going to have a healthy respect for that uncertainty, and so we did include that provision again in the 2026 loss picks. David Motemaden: Got it. Thanks. That makes sense. Operator: Your next question is from Robert Cox with Goldman Sachs. Robert Cox: Just a question for you around AI exclusions from policy terms. We are hearing brokers talk about increasing inbounds around AI-related exclusions from policy terms. So I am just curious how The Travelers Companies, Inc. is thinking about underwriting exclusions for AI-related risks and if you are seeing this play out in the market at all? Greg Toczydlowski: Hey, Rob. Clearly, we review our policy language all the time when there are new perils or dynamics in the marketplace, and that is evolving right now. We have not had any material changes, but it is something we are watching very closely. Robert Cox: Okay. Great. Thank you. Then maybe I just wanted to check in on tort reform. I know we have talked in the past—Florida is kind of viewed as a success story there. There are a number of other states that have recently passed some fairly comprehensive actions. I am just curious if you think that these other states could have similar outcomes as Florida and if The Travelers Companies, Inc. would plan to proactively change strategy in those states with regards to underwriting and pricing, or would you wait to see an improvement before changing strategy? Alan Schnitzer: Rob, we have been very encouraged by what we saw in Florida, and we have seen other encouraging actions in some other states, as you have mentioned—Georgia, Texas, Louisiana, South Carolina, and so forth. It has been terrific to see, and I think in part attributable to a really strong ground game that we and the rest of the industry have put on—state by state—making sure that we are pounding the pavement together with other industries, just making the case for the impact of litigation abuse on affordability. We are really pleased to see early gains, and we hope to continue the momentum. It is hard to answer your question on how we are going to execute with a broad brush, but we will look at the dynamics in each state. We will look at the actions that states take and, either at the outset or over time, that will impact how we think about the opportunity there and how we execute. But we are hopeful that this is the beginning of some momentum. Robert Cox: Thank you. Alan Schnitzer: Thank you. Operator: Your next question comes from Andrew Anderson with Jefferies. Andrew Anderson: Hey, good morning. Within BI, as some of these lines continue to see firm pricing other than property, how do you think about the relative attractiveness of workers’ comp from either a growth or a margin perspective? Alan Schnitzer: The workers’ comp business is a fantastic business for us, and it continues to perform very well. You can look at the calendar year returns, and we are open—more than open—for business in workers’ comp. Andrew Anderson: Got it. And within surety, growth accelerated again. How would you frame the demand conditions relative to credit quality? Jeffrey Klenk: Hey, this is Jeff Klenk responding, Andrew. I would tell you that our growth in the quarter for surety was really broad-based. As I mentioned in the prepared remarks, it was new and existing customers. It was from several different segments within our surety business. We are really proud of the high credit quality of our book of business. We continue to look at that as we take new customers into that portfolio. We feel really good that our portfolio will continue to benefit from the broad-based infrastructure spending that is out there as we look ahead. Andrew Anderson: Thanks for the question. Alan Schnitzer: Thank you. Operator: Your next question comes from Josh Shanker with Bank of America. Josh Shanker: Yeah. Thank you for putting me in. I was curious about the expense ratio. It is a little higher than it has been in the past, on both the acquisition costs and the other expense ratio. Can you talk about the drivers and how we should think about that as the year progresses? Dan Frey: Sure, Josh. We are not at all surprised with the expense ratio. If you look at our results over the last five or six years, if you look at the quarters within any given full year, it is not at all unusual to see the expense ratio vary by a point or more from quarter to quarter. 2025 really did not, but 2025 was more of an outlier and just sort of happenstance. You mentioned compensation, commission—so things like at what point do you evaluate the level of accrual that you think you are going to need for profit sharing or contingent commission? In the first quarter last year, we were sitting here coming out of one of the largest cat events in the history of the industry with California wildfires and saying, look, at this rate, we probably do not need a whole lot of accrual for contingent commissions and profit sharing. That is a different situation this year given the profitability of the book in the first quarter. But as I said in my prepared remarks, first quarter came out pretty much where we expected it to be when we gave the guidance last year that we expected 28.5% for this year’s full year. Josh Shanker: And on Personal Lines, is there a difference in the complexion of the business that is churning out of your portfolio versus business that you are winning currently? Michael Klein: Thanks, Josh. I would say absolutely. The business that is churning out of the portfolio is not as high quality as the business that is coming in. When we look at the profile of the business lost versus the profile of the business added new, the profile of the business we are adding new is superior to the profile of the business that we are losing. Josh Shanker: And what are the qualitative features that make business better? Is it bundled? Is it higher-value homes? Is it more cars per home? Or what is the difference between those two cohorts? Michael Klein: The elements that we look at when we look at profile include all those things—credit quality, limit, bundling, number of vehicles, age of vehicle, age of home—really pretty much across the board. The profile characteristics of the business we are adding are better than the profile characteristics of the business we are losing. Josh Shanker: So can we say that you are churning the business you are losing with some intentionality, that that is actually a business you do not want anymore? Michael Klein: I would say we are very happy with the trade-off between what we are writing new and what we are losing. Remember, in Personal Insurance, the business is mostly systematized. There is certainly an element of business we are nonrenewing or declining to offer renewal for based on risk quality, risk characteristics, and our estimate of what the loss ratio relativity on that business is. But really, I think what you are seeing is the successful outcome of a pricing and segmentation strategy that is tuned to attract the business that we want. Josh Shanker: Thank you very much. Operator: Your next question comes from Yaron Kinar with Mizuho. Yaron Kinar: Good morning, everybody. I had two questions on Business Insurance. The first one: It seems like renewal pricing change is below loss trend for the first time in a while, at least based on the last long-term loss trend that the company provided a few years ago. Assuming that persists, how does that change the company’s approach to writing and retaining business? As an example, I think the last time we saw RPC in this range, retention rates were a bit lower than where they are today. Alan Schnitzer: Yaron, I am not going to respond to whether it is in fact expanding or shrinking on a written basis. But what I will say is we are thrilled with the book of business we have, and we are very happy about the business we are putting on the books. The way we think about the execution is not looking at retention as a headline number. It is executing at a very granular, account-by-account basis. When you are looking at the business we want to retain, you want to keep your quality business, you want to get the right price on it, and through a lot of hustle and franchise value, write new business. Given the quality of the book and the returns in this business, the retention and the fact that it ticked up is fantastic. Yaron Kinar: Okay. Got it. And then my follow-up, again in BI, more focused on Select accounts. I am trying to think about the impact of AI here, where on the one hand it probably offers an opportunity to increase TAM—you can drive scale and efficiency benefits. But at the same time, it could also mean that we see more of a shift of small commercial to larger brokers with more data and analytics capabilities, maybe greater negotiating power. How do you think about those dynamics, whether I am thinking about this correctly, and how you see the business develop over the coming years with the advent of AI? Alan Schnitzer: I honestly think it is a little too early to know how that is going to happen. We have acquired three digital agencies/brokers over the years—Simply Business, InsuraMatch, and others—expecting the digitization of small commercial to move up in size, and it really has not. For Simply Business, for example, the small commercial it writes is—I would describe it as micro. For whatever reason, we just have not had the take-up there the way we would have expected eight or ten years ago. Before we see how this business is going to transition from one size of distributor to another, you are going to have to see customers adopt digital distribution for research and purchasing. We just have not seen it. Greg Toczydlowski: And, Yaron, one thing I would throw out in addition—we are really excited about Gen AI within the independent agents channel and particularly in Select and in Middle Market. In Select, we have executed some Gen AI that helps us process the business, endorsements, and changes, and just remove the friction and allow it to be much smoother for our independent agent channel. I do not think it has applicability of just changing distribution channels. We think it can be a great facilitator in helping us be more efficient in our existing distribution channels. Just to go back to your question, to the extent small commercial does gravitate to the larger brokers, that is probably a good thing for us. We have those relationships, and it is probably a plus for The Travelers Companies, Inc. Yaron Kinar: Thanks so much. Operator: Your next question is from Elyse Greenspan from Wells Fargo. One moment for that last question. We can go to the next, and if Elyse jumps back in, we will take her later. Okay. One moment. Your next question is from Tracey Banque with Wolfe Research. Thank you. Good morning. Tracey Banque: Hey, a follow-up on AI and commercial lines distribution. I appreciate your comments on Simply Business and the lower take-up rate. But if I could take that in a different angle, rather than brokers being disintermediated, I am wondering over time, can commission structures change due to the advancement of AI? Alan Schnitzer: It is pretty early, I think, in the evolution of AI and the distribution of insurance to get into that, and it is probably a broader conversation for a different time, different day. Tracey Banque: Okay. Also have a big picture casualty reserving question. Are claim patterns normalizing post-COVID catch-up period? If so, does that inform your loss development factor selection? Dan Frey: Hey, Tracey. Compared to what we saw in COVID, I would say COVID probably disrupted payout patterns as much as we have seen. Normalized relative to that, yes. But the trend in payout patterns in the casualty lines, particularly the long-tail liability lines, has still been increased frequency of attorney representation and a general lengthening of the tail. The things that we talked about in 2024, when we made some adjustments to our loss picks for accident years 2021 through 2023 and then started to factor in that uncertainty provision I talked about in a question earlier today, are still relevant because we have not seen attorney representation rates slow down. We have not seen severity increases slow down. We have not seen payout patterns return to their pre-COVID patterns. It is an extended payout pattern that has, if anything, continued to slightly extend. Operator: Thank you. Your next question is from Elyse Greenspan with Wells Fargo. Elyse Greenspan: Hi, thanks. Sorry about that earlier. My first question, I wanted to ask just about M&A and capital, Alan. Given that things are starting to soften from a market and premium perspective, or continuing to soften, was hoping to get your current views on M&A—things that you might consider and how that fits into your capital priorities right now. Alan Schnitzer: Elyse, I will give you the same answer that I think I have given you for ten years consistently on that, which is we are always interested in M&A of potentially all shapes and sizes, and we are very active in looking at things. I think our shareholders should demand that we are active in looking at things. Whether that is larger transactions, bolt-ons, or acquiring capabilities, that is all within our thought process and within our regular activity. We do not need to do anything at all to continue to be successful. We have all the tools and capabilities that we need to be successful. But if we find the right opportunity that meets our objectives—and I have shared many times our objectives—obviously we are going to assess a transaction in a million different dimensions, but we are looking for transactions that either improve our return profile, lower volatility, or provide us with some strategic capability. We are actively looking for those. When we find them and can get them done at the right terms and conditions, we will do it. Elyse Greenspan: Thanks. And then my follow-up on Personal Lines: as we start to think about gas prices being elevated, given what is going on overseas—and I guess the offset could be potential supply chain issues, which would impact severity—gas prices are potentially helpful to frequency. Can you give some color on the outlook for margins within Personal Lines given some of the things going on in the market right now? Michael Klein: Sure, Elyse. The gas price dynamic really depends on duration. Short- to even medium-term increases in gas prices do not materially change commuting patterns and driving levels, so it does have to be a sustained elevation in gas prices to really impact miles driven. To be clear, if gas prices stay high for an extended period of time, that puts downward pressure on miles driven and is a benefit to frequency. That is the most straightforward dynamic that we could see. But, again, gas prices would need to stay high for an extended period of time to drive that. From a supply chain standpoint, it is a fast-moving, fast-changing situation. There are lots of different things that could happen. There are scenarios where elevated costs actually put downward pressure on consumers and reduce used car prices because there is not as much demand—as just one example of the type of scenario we could see. At this point, it would be speculative to go beyond that and pick a path. Operator: Your next question is from Michael Zaremski with BMO. Michael Zaremski: Hey. Thanks. A question on the home insurance side. Michael, I believe you said that pricing would start to move to mid-single digits. If we look at The Travelers Companies, Inc. historical loss trend in home, it looks like it is well into the double digits. Are you signaling that the loss cost trend is better after the changes you have made, or you are letting margins deteriorate a bit to accelerate growth, or a little bit of both? Especially if you look at the cat load increased guide over the last few years, it has been a bigger part of the equation. Thanks. Michael Klein: Sure, Mike. Taking those pieces and putting them together, the guidance for property pricing moving down towards mid-single digits really just reflects the fact that we have rate adequacy broadly in virtually every state across the country as we sit here today, and we are pleased with the profitability of the portfolio. Importantly, that has been driven by pricing but also by changes in appetite, terms and conditions, and business mix, including state distribution. What you saw between fourth quarter of last year and first quarter of this year was that we had caught up on insurance-to-value. We had gotten coverage limits where they needed to be on property policies, and so we have gone to a lower inflation factor on those property policies renewing in 2026. That explains most of the quarter-to-quarter drop in RPC. What I am signaling going forward is that rate will also start to moderate in response to that improved profitability. Underneath that is an assumption—based on what we have been seeing—that the elevated inflation you are referring to has returned to a more normal level, and that is aligned with that pricing expectation. Michael Zaremski: That is helpful. My follow-up, pivoting to Commercial Lines loss cost trend. If we look at your commentary about loss cost trend being mid-single digits plus in the past, and your reserve releases over the last year or more, it kind of implies that loss trend has been a bit below the historical stated trend. Would you agree with that? Or is loss trend maybe improving slightly versus your historical view? Thanks. Dan Frey: Yeah, Mike. If you look at Business Insurance in particular, a large part of the favorable reserve development we have seen over the last several years in general has been comp related. We have said on comp, each time that it has come up, there has been favorability both in frequency and in severity, particularly in medical cost trend severity. That does not really bleed over into the way we think about loss trend in Commercial Auto or Commercial Property or the General Liability lines as an example. I do not think that we have seen a sea change in the way we think about loss trend to the positive. There is still a lot of pressure on the liability lines, which is why we continue to talk about things like double-digit pricing in them—in umbrella. Fair question, but I do not think we have seen any big changes there. Alan Schnitzer: Mike, I would add that one of the reasons that we have gotten away from talking about loss trends is because it is a pretty narrow concept of frequency and severity. It is a very blunt instrument to think about what is happening across billions of dollars of premium. Each line has its own dynamic, and there are other things that impact margins. There are base year changes, exposure changes, mix changes, changes in our large loss assumptions, and other adjustments that we make for one reason or another. There is a lot of estimation in that number. We try to get away from it, but holistically speaking, what I would say is the loss picks we have reflect what we think is going on with loss trend and, on the whole, it behaved about as we expected. Michael Zaremski: Thanks. Operator: We have time for one more question, and that question comes from Pablo Zuan with JPMorgan. Pablo Zuan: Hi. Thanks for speaking with me. First, just a quick modeling question. You talked about the impact of the Canada sale on earned and written premiums. I think you had mentioned two points. Should there be a similar proportionate impact on the dollar run rate acquisition and G&A expenses? Dan Frey: I think the way we think about it, Pablo, is just think about combined ratio in general. There is a little bit of a mix difference between the way Canada performed relative to the other lines, but not so significant that we think we should call it out and tell you that you need to adjust the run-rate loss ratio. If you asked the same question about whether it is acquisition cost or G&A or loss ratio or claim and claim adjustment expense—sort of up and down the income statement—we do not think it is going to significantly change the profile of the profitability related to those dollars. Pablo Zuan: Understood. My second one, just a follow-up to Rob’s questions about AI and not entirely related to the quarter. The Travelers Companies, Inc. is one of the largest cyber writers in the U.S., and the question is, how are you thinking about your exposures there and risk management given recent developments with AI? Thanks. Jeffrey Klenk: Thanks for the question, Pablo. Absolutely, it is an underwriting consideration. We are thinking about artificial intelligence, and with some of the more recent announcements in the last few days about the strength of the LLM models and what that could mean. It is not just on the negative side—it also has the potential to be on the positive side from an investment in resilience and capability to actually address the threat. We are heavily invested and have continued to invest in our risk control capabilities to address the cyber risk issue. Ultimately, we will have to make sure we are staying on top of it in partnership with broader government entities, as we already are. The investments we have made in our cyber risk control team for the benefit of our customers—the really good news for them is that as this technology continues to expand and change, we are going to be in an even better position to help them identify and remediate vulnerabilities as they come about. Alan Schnitzer: Thanks for the question. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back over to Ms. Goldstein for any closing remarks. Abbe Goldstein: Thanks so much. We appreciate you tuning in. We know we left some questions in queue, so as always, please feel free to follow up with Investor Relations. We appreciate your time. Have a good day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome, everyone. Welcome to the Insteel Industries, Inc. Second Quarter 2026 Earnings Call. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. I will now turn the call over to your host, H.O. Woltz III, to begin. Please go ahead. H.O. Woltz III: Good morning, and thank you for your interest in Insteel Industries, Inc. Welcome to our second quarter 2026 conference call, which will be conducted by Scot R. Jafroodi, our Vice President, CFO, and Treasurer. Before we begin, let me remind you that some of the comments made in our call are considered to be forward-looking statements that are subject to various risks and uncertainties which could cause results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. Despite falling well short of our expected financial performance in Q2, we believe the upturn in business activity we reported previously is still intact. Winter weather is a fact of life in our business; it happens that during Q2, conditions were severe and prolonged in many geographies, particularly compared to recent years. Project delays, while undesirable, are common in the industry. We are confident that short-term weather conditions and project delays do not create or destroy demand, and that postponed demand will be realized during the balance of fiscal 2026. I will now turn the call over to Scot to comment on our financial results, and then following his comments, I will return to discuss our business outlook. Scot R. Jafroodi: Thank you, H. Good morning to everyone joining us on the call. As we reported earlier this morning, our second quarter results were weaker than expected, reflecting the combined impact of winter weather disruptions, lower spreads, and higher unit conversion costs. Net earnings for the quarter were $5.2 million, or $0.27 per diluted share, compared with $10.2 million, or $0.52 per diluted share, in the same period last year. Shipments for the quarter declined 5.9% year-over-year but increased 6.9% sequentially from the first quarter. While the second quarter typically reflects some seasonal softness, conditions this year were significantly more severe. Following a solid start in January, we experienced extended periods of winter weather across most of our markets, which reduced construction activity and disrupted operating schedules for both customers and Insteel Industries, Inc., weighing on order flow and shipments. In addition, certain projects originally scheduled for delivery during the quarter were deferred to later in the year for reasons unrelated to weather. Although we are still early in the third quarter, recent order activity has been solid, with April shipments trending above forecasted levels. With that backdrop on volumes, let me turn to pricing. Average selling prices were up 14.2% year-over-year, driven by the pricing actions we put in place throughout fiscal 2025 and into the current year to offset raw material cost increases, Section 232 tariffs, and rising operating expenses. Sequentially, average selling prices were up 1% from the first quarter even as wire rod costs continued to move higher. For context, published prices for steel wire rod, our primary raw material, rose $90 per ton during the quarter. Although we implemented additional price increases during Q2, limited sequential improvement in average selling prices was influenced by product mix, existing contractual pricing, and softer volumes. We expect these recent pricing actions, along with the additional price increase implemented in April, to provide further benefit in the coming periods as they are more fully reflected in our realized pricing. Gross profit declined $8 million year-over-year to $16.5 million, and gross margin narrowed to 9.6%. The decline primarily reflects lower shipment volumes, reduced spreads between selling prices and raw material costs, and higher unit conversion costs resulting from lower production levels and weather-related operational inefficiencies. Sequentially, gross profit declined $1.6 million and gross margin contracted by 170 basis points as the slowdown in shipments delayed the tailwinds of recent price increases and extended the lag between raw material cost increases and realized pricing. As we enter the third quarter, we expect several factors to support a recovery in gross margin. Demand is improving as we move into the seasonally stronger portion of the year. Recent price increases are beginning to gain traction, and our current raw material carrying values are more favorable. In addition, higher operating rates across our facilities should enhance fixed cost absorption. Taken together, these factors are expected to support a gradual improvement in margin performance as the quarter progresses. SG&A expense for the quarter decreased to $9.7 million, or 5.6% of net sales, compared to $10.8 million, or 6.7% of net sales, in the prior-year period. The decline was primarily driven by a $1.1 million reduction in compensation costs tied to our return-on-capital-based incentive plan, reflecting weaker financial performance this year. SG&A expense was also affected by a $203,000 unfavorable year-over-year change in the cash surrender value of life insurance policies, reflecting the downturn in financial markets and its effect on the underlying investments. Our effective tax rate for the quarter was 23.3%, which is up slightly from 23.2% last year. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, subject to the level of pretax earnings, book-to-tax differences, and the other assumptions and estimates underlying our tax provision calculation. Turning to the cash flow statement and balance sheet, operating cash flow provided $4.8 million in the current quarter, compared with using $3.3 million of cash in the prior-year period, driven primarily by the change in net working capital. Working capital used $1.4 million of cash in the second quarter, reflecting a $6.8 million increase in receivables resulting from higher sales and average selling prices, partially offset by a $13.3 million reduction in inventory as we scaled back raw material purchases. Our quarter-end inventory position represented approximately 3.4 months of shipments on a forward-looking basis, calculated off of our third quarter forecast, down from 3.9 months at the end of the first quarter. As we mentioned on our Q1 call, we increased inventory levels early in the year as we supplemented domestic bar rod with offshore material, and that build naturally eased as we moved through the second quarter. Looking ahead, we expect a modest increase in inventory as we move into the seasonal busy period, positioning us to support higher shipment volumes. Additionally, our inventories at the end of the second quarter were valued at an average unit cost that approximates our second quarter cost of sales and remains favorable relative to current replacement cost, which will have a positive impact on spreads and margins as we move through the third quarter. We incurred $4.4 million in capital expenditures in the quarter for a total of $5.9 million through the first half of our fiscal year, and we remain committed to our full-year target of $20 million. Finally, from a liquidity perspective, we ended the quarter with $15.1 million of cash on hand and no borrowings outstanding on our $100 million revolving credit facility, providing us ample liquidity and financial flexibility going forward. Turning to the macroeconomic indicators for our construction end markets, the latest readings from our two leading measures—the Architectural Billing Index and the Dodge Momentum Index—point to an environment that remains uneven but generally stable. The Architectural Billing Index, which typically leads nonresidential construction activity by approximately 9 to 12 months, improved to 49.4 in February from 43.8 in January. While the index remained below the breakeven level of 50, the improvement indicates that the rate of contraction moderated, with fewer firms reporting declining billings compared with the prior month. Additionally, the Dodge Momentum Index, which tracks nonresidential building projects entering the planning phase, increased 1.8% in March. The gain was driven by a 7% improvement in commercial planning activity, which continues to be supported by strong data center construction. Monthly construction spending from the U.S. Department of Commerce suggests only modest growth in overall activity. In January, total construction spending on a seasonally adjusted annualized basis increased approximately 1% year-over-year. Nonresidential spending was essentially flat during the period, with public highway and street construction—one of our key end-use markets—remaining comparatively stronger, increasing around 4% from the prior year. As we close out the second quarter, we remain encouraged by the demand trends we are seeing across our core end markets, while the broader macroeconomic backdrop continues to evolve, including the risk of renewed inflation, uncertainty around the timing of interest rate cuts, potential changes in tariff policy, and geopolitical developments affecting energy and shipping costs. Our customers remain engaged, and projects continue to move forward. Our ongoing dialogue with customers, combined with recent improvements in several leading indicators, supports our confidence in the direction of the business. At the same time, we recognize that these external factors could influence the pace of activity in the near term. Even so, underlying demand conditions remain healthy, and we believe we are well positioned as we move through the second half of the fiscal year. That concludes my prepared remarks. I will now turn the call back over to H. H.O. Woltz III: Thank you, Scot. As I noted in my opening comments, we were affected during Q2 by weather-related and non-weather-related circumstances that resulted in our operating rate, shipments, and financial performance falling short of expectations. Making matters worse, we had staffed up at certain facilities ahead of the seasonally more active part of our year in anticipation of expanding operating hours, which would reduce lead times and result in increased shipments. We carried the cost of ramping up through the quarter but were unable to operate at expected levels. While we continue to believe that demand will be solid during 2026, we will reduce costs if this forecast fails to materialize. At this point, however, we do not expect to be in a cost-reduction mode driven by demand-related concerns. Turning to another subject, the steel industry may have been more affected by the administration's tariff policy than any other industry. The Section 232 tariff of 50% on imports of steel has caused market prices in the U.S. for hot-rolled wire rod, our primary raw material, to rise to a level that is 50% to 100% over the global market price. While last summer we questioned the effect of the derivative products tariff strategy implemented by the administration, we are glad to report a significant decline in the volume of imported PC strand that has entered the U.S. since the tariff was increased to 50% and derivative products, including PC strand, were covered. From August to December, the five-month period following the changes the administration made to the Section 232 tariff regime, PC strand imports fell by more than 50%. The application of the Section 232 tariff to PC strand, together with global uncertainty and higher transportation and insurance costs related to the conflict with Iran, clearly works in favor of domestic industry. Turning to the raw material environment, investors should understand that Insteel Industries, Inc. operates in a small segment of the domestic hot-rolled carbon steel market. Domestic production of steel wire rod, our primary raw material, is approximately 3.5 million tons per year, while U.S. production of all hot-rolled carbon steel is roughly 100 million tons per year. Difficult economic conditions in recent years for producers of hot-rolled wire rod resulted in the permanent closure of two producing mills and financial struggles together with significantly diminished output for a third producer. Altogether, these curtailments reduced actual domestic production of wire rod by more than 800,000 tons per year and reduced domestic capacity to produce wire rod by nearly 1.2 million tons per year relative to apparent domestic consumption of wire rod of approximately 5 million tons per year. By our calculation, capacity equal to nearly 20% of apparent domestic consumption is offline, most of it permanently. These capacity curtailments, together with changes to the Section 232 tariff, caused the U.S. market for wire rod to tighten significantly and created serious questions about the adequacy of domestic supply. Insteel Industries, Inc. therefore was forced to turn to the offshore market for a portion of its supply. The economics of offshore transactions, which include substantial freight costs, require the purchase of large quantities, with resulting impact on inventories and net working capital requirements as reflected on our balance sheet. Net working capital rose approximately $45 million over the last twelve months. We will continue to import a portion of our raw material requirements until such time as domestic availability improves, and we will incur excess net working capital requirements as compared to purchasing domestically, although we have some options to mitigate this adverse impact. Finally, turning to CapEx, as mentioned in the release, we expect to invest approximately $20 million in our plants and information systems infrastructure during 2026. Our investments will support the growth of our engineered structural mesh business, reduce our cash production costs, and enhance the robustness of our information systems. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses. Looking ahead, we are aware of the substantial risks related to the state of the economy and the administration's tariff policies. Regardless of developments in these areas, we are well positioned to pursue growth-related activities, both organic and through acquisition, and to pursue actions to optimize our costs. We will now open the call for questions. Becky, would you please explain the procedure for asking questions? Operator: Of course. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star followed by two. When asking your question, ensure your device is unmuted locally. Our first question comes from Julio Alberto Romero from Sidoti. Julio Alberto Romero: Thanks. Hey, good morning, H and Scot. Good morning. Could we start on volumes a bit and talk about the projects originally scheduled for the quarter that were delayed into later quarters? Any way you can help us better understand how much of this may have weighed on your shipments? And secondly, could you expand on the drivers of the project delays? I think you mentioned they were unrelated to weather. Just hoping you could elaborate a little. H.O. Woltz III: If you can envision a construction project, the owner and contractor would like to start the project and operate continuously until the finish of the project or a portion of the project, but they do not want to open up the site months ahead of having all of their other needed materials and suppliers in line. Therefore, the project that we are involved in was delayed, and we should begin shipping it in the current quarter. The delays are unfortunate, but they are not surprising at all. As we have emphasized, this is a delay of business; it is not a cancellation. We will sit tight and see that come to fruition in the current quarter, and this project will go through our fiscal year and end in 2027. Julio Alberto Romero: Okay, great. Very helpful. You talked about April shipments trending above forecasted levels. How much are those shipments related to project delays pushed to the right—maybe some catch-up from the February weather delays—or any other underlying demand trends at play? H.O. Woltz III: I do not think any of it is related to the project delay because it is still delayed, and we should see some benefits later in the quarter from that. The current shipping performance is solid relative to our expectations, and our pricing actions are taking effect as we expected them to. Julio Alberto Romero: Last one for me: you talked about project mix impacting the average selling price and maybe the spread. Can you talk about whether engineered structural mesh is playing a factor in that at all and, broadly, where ESM mix stands at the moment? Scot R. Jafroodi: Please ask that question again, Julio. Julio Alberto Romero: Sure. You have noted project mix impacting ASP and spreads. Is engineered structural mesh affecting that, and where does ESM mix stand now? H.O. Woltz III: Let me start at the beginning so you understand the difficulty we have in trying to quantify some of these things and why we do not spend a lot of time dissecting the reality of the market. In February, the adverse winter weather began in Texas and ended up in New England. It affected 9 of our 11 facilities, which is unfortunate, but that is how it happened. We had issues in various geographies of various types. In some cases, roads were not passable or stayed hazardous for extended periods. Setting aside road conditions, when it is very cold, you cannot pour concrete. People have various opinions about the temperature at which hydration becomes a concern, but at low temperatures, pouring concrete becomes not feasible. In North Carolina, for instance, we had multiple weeks of cold weather where the temperature did not break freezing. While roads were unpassable for a period, the sustained low temperature was probably of more significance. We did not go through every customer and every plant and try to quantify the impact; we are more concerned about getting our plants operating and covering the eventual demand that comes back as weather conditions improve. Operator: Our next question comes from Tyson Lee Bauer from KC Capital. H.O. Woltz III: Good morning, Tyson. Tyson Lee Bauer: Good morning. When you talk about freight expenses, are there two considerations? Increased freight costs to get your imported supplies in on the inbound side that you have to absorb, as opposed to making shipments from your facilities where you can do surcharges and recoup those freight costs, even if it may be at zero margin but recovered on the revenue line? In other words, is there one bucket you must absorb and another you can pass along? H.O. Woltz III: I would not look at it that way, Tyson. In terms of the raw materials we are importing, we are very well located for inbound freight cost purposes compared to our locations relative to domestic supplies, so I do not think we incur excess inbound freight cost because we are importing. Freight costs, whether inbound or outbound, have risen substantially following the conflict with Iran, and it happened extremely quickly. It coincided with other factors that reduced driver availability. The practical impact is much higher diesel costs and fewer drivers, which means our costs have gone up, and many of our loads have been rejected by carriers who can find loads that pay more. We are working through those issues. I was reading that in the flatbed sector, more than 40% of loads tendered to carriers have been rejected across the economy. We are dealing with something out of our control, but it is our responsibility to manage it from a cost point of view. We debated surcharges versus price increases, and we have elected to increase our prices. Tyson Lee Bauer: So you are recovering those now? H.O. Woltz III: I would not say we have recovered them retroactively. We absorb some of those costs until the effective date of price increases that will, among other things, serve to recover those higher costs. Tyson Lee Bauer: Regarding price increases, you did some early in Q1 and announced another in April. Any idea of the magnitude, and are we expecting additional price increases to get you whole? H.O. Woltz III: Our price increases are implemented to reflect what is happening in our marketplace, both with our raw material costs and with other operating costs. While official inflation statistics may look modest, the impact on our operations has been much more significant. Everything we consume—labor, chemicals, electricity, natural gas—has gone up substantially. Wire rod has continued to increase substantially as well. We are primarily looking to recover our costs by implementing price increases, and we have implemented three since the first of the year. When volume falls, as it did in Q2, we honor the commitments we have made to customers; we are not operating on the basis of price in effect at time of shipment. The next orders are affected by price increases. That is the way the business is done, and that is how Insteel Industries, Inc. is operating. Tyson Lee Bauer: On April 2, there was clarification on Section 232 for steel and aluminum. Would you provide your view on whether that provided clarity regarding foreign content, U.S. content, and different baskets that imports fall into at different rates? H.O. Woltz III: We are affected by two different types of tariffs. Section 232 is the primary effect on our business. There was confusion created by the administration's inclusion of derivative products last summer, and that confusion related to how you calculate the tariff on the product. To know for sure how the tariffs were being calculated, we went back to the entry documents and confirmed that in practically all cases, PC strand that was entering was being assessed a 50% tariff rate. We did not pick up that many importers of record were minimizing their tariff exposure, so the recent clarifications do not have much impact on us because we do not believe we were being under-assessed to begin with. So now any questions about how the values are calculated have been put to rest; we were not really a victim of that. On the other side, over the AIBA tariffs, the AIBA tariffs would have affected any capital equipment that we purchased as well as, primarily, our purchases of spare parts. Purchases of spare parts are not discretionary; we have to do it. The importer of record declares the value of that part and applies the tariff rate to it. In most cases, the tariff was a line item on our invoices. We are studying now the implications of the Supreme Court’s action on AIBA tariffs and the Court of International Trade requirement that those tariffs are rebated to the importers of record. That is not Insteel Industries, Inc., so we will be talking with our vendors about, first, their obligation to recover those tariffs, and second, what to do with any refunds that they obtain, because we actually paid those tariffs but will not be rebated by the government; that goes to the importer of record. All of that is overlaid by the question of where the money will come from. I understand that they have collected $160 billion of AIBA tariffs, and ostensibly all that has to go back to the people who paid it. I would bet a lot that it will not happen that simply. We will not be booking any receivables for tariff collections because it is highly improbable that it will happen in a simplistic way. Tyson Lee Bauer: Understood. Last question: data centers are a headline catalyst for nonres, but they seem prone to delays due to transformers, switches, and power-related components. There are a lot of announcements and expectations, but many have been pushed to the right for permitting and supply issues. Is this a great opportunity that may still be ripe for ongoing delays? H.O. Woltz III: I would look at it from a broader perspective. The good news is that we do not think the data center phenomenon goes away in 2026 or 2027. I think you have five solid years of data center activity. As we pointed out in our last earnings release and conference call, it is really good that it is here because the rest of the private nonres market seems to be weak. A delay is a delay. My guess is that, when we look back at it, it will be reasonably insignificant. The better news is that this will be a solid marketplace for a while. While we are doing business on-site with some of these projects, it is hard to tell how much data center business is included in our legacy business. We sell reinforcing products to customers who make wall panels or double tees, but we do not always know where those are going. There are more references in call reports to data centers that are consuming products out of our legacy business as well as from our cast-in-place business. Tyson Lee Bauer: That sounds good. Thanks a lot, gentlemen. H.O. Woltz III: Thank you, Tyson. Operator: Just as a reminder, if you would like to ask a question, please press star followed by one. We currently have no further questions, so I will hand back over to H for closing remarks. H.O. Woltz III: Thank you. We appreciate your interest in Insteel Industries, Inc. We look forward to talking to you next quarter and encourage you to call us if you have questions in the meantime. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Welcome to ManpowerGroup's First Quarter Earnings Results Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. If you care to drop off now, please do so. I would now like to turn the call over to ManpowerGroup's Chair and CEO, Mr. Jonas Prising. Sir, you may begin. Jonas Prising: Good morning, and thank you for joining us for our first quarter 2026 conference call. our Chief Financial Officer, Jack McGinnis; and our President and Chief Strategy Officer, Becky Frankiewicz, are both with me today. For your convenience, our prepared remarks are available in the Investor Relations section of our website at manpowergroup.com. I'll begin with a brief overview of the quarter, including how we're seeing conditions evolve across our markets, and then I'll share a few updates on how we're positioning Manpower Group to win in any environment. Becky will then provide an update on how we are driving commercial excellence and the opportunities for capturing with the eye, followed by Jack who will walk through the detailed financial results and our guidance for the second quarter of 2026. I'll close with a few comments before we open the line for Q&A. And Jack will now cover the safe harbor language. John McGinnis: Good morning, everyone. This conference call includes forward-looking statements, including statements concerning economic and geopolitical uncertainty, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures. Jonas Prising: Thanks, Jack. Our Q1 results reflect disciplined execution and continued stabilization of revenue trends across key markets. In the first quarter, we delivered reported revenues of $4.5 billion representing an organic constant currency growth of 3%. System-wide revenue, which includes our expanding franchise revenue base, was $5 billion. Adjusted EBITDA margin of 1.4% reflects improving demand trends as well as P&L leverage. We're also encouraged that top line growth exceeded our expectations, reflecting strong execution of our commercial initiatives. We are expanding our new business pipeline, increasing client engagement and continue to win in the areas where growth is strongest and most resilient. At the same time, the manufacturing environment is strengthening, particularly across Europe. Taken together, this is enabling us to drive continued momentum across the portfolio with strong manpower performance among key markets, including France, U.S. and Italy. We're also seeing stable underlying trends in Experis and solid performance in talent solutions, Papin MSP and Right Management, even as RPO remains more challenged. Our diversified portfolio, global scale and specialized brand expertise continue to position us well to win in the marketplace. As we move down the P&L, we have continued our relentless focus on driving operating leverage. During Q1, we reduced SG&A as adjusted by 4% in constant currency, while delivering continued top line growth reflecting the impact of our ongoing efficiency efforts, something I'll share more detail on shortly. Finally, we're closely monitoring developments related to the conflict in the Middle East. While it is still too early to assess if there will be a broader impact, like many global companies, we have become accustomed to navigating a fast-changing environment that includes geopolitical developments, alongside economic and labor market shifts. In the meantime, we have been focused on staying close to our clients and their evolving needs while managing the business with discipline. Against this backdrop, we're encouraged by the developing short-term momentum and equally excited by the long-term market opportunity. This is supported by improving business confidence in the U.S. as evidenced by the increase in CEO confidence reported by the conference board, rising manufacturing PMLA in the U.S. and Europe and strong business resilience. As conditions improve, we expect sustainable organic revenue growth to build progressively. Our intent is to be the architects of our own future and to proactively take actions that will position Manpower Group to lead the industry, win in any environment and drive long-term value creation. We are transforming our business model to drive growth and expand margins over time. As part of this commitment, we are announcing a transformation initiative that will reimagine how we operate and deliver value to our clients and candidates and provide significant cost optimization. Over the past year, we have been doing significant planning to launch this work, and we are pleased to share more details with you today. We have made targeted investments in automation and AI and build a modern global technology infrastructure, including our PowerSuite platform, which now serves as the backbone of our digitization strategy. With nearly 90% of our global business operating on this platform, we have created a unified technology stack with access to global data across all of our global businesses, enabling us to operate at the unique data scale, strengthen our insights and be better partners to our clients. As a result of these investments, we are launching a strategic global transformation program that we expect will deliver in permanent cost savings in 2028. There are 2 major components to our plan. The first, which I've talked about before, is the complete redesign of our back office operation, which is progressing well. The second is taking best practices and key learnings from our back-office transformation and executing a similar program for the front office. These redesign processes will be industry-leading and enable us to execute more effectively and move faster to fill roles. In addition to reducing our cost structure, this transformation will improve both client and candidate experience, positioning our brands to win in market share and better serve clients in a highly fragmented marketplace. We have begun this work in North America, redesigning end-to-end processes, embedding automation and AI where it simplifies work, creating best-in-class local world blueprints before extending globally. The goal is clear: Connect more people to work by selling more orders to drive growth while structurally lowering our cost to serve. I am also pleased to announce that we have recently hired a dedicated Chief Enterprise Transformation Officer who has joined our executive leadership team to drive the execution of this plan across the enterprise. At the same time, we continue to thoughtfully review our global portfolio to ensure that we have the right mix of businesses and brands across key markets. Prioritizing investments in core, higher return opportunities while evaluating opportunities to divest noncore assets to strengthen our financial position and support our long-term growth and margin ambitions. Ultimately, these actions will accelerate our path back to our historical margin profile and create a structural cost basis to expand margins further over time. Now before I hand it over to Becky, let me just say one more time how excited we are about the transformation underway to improve efficiency, reduce costs and create capacity to invest in growth. Core elements of this transformation is building new capabilities that align with where the market is heading. And this includes evolving how we bring innovative service to market, particularly with AI. We're also encouraged by the immense opportunities AI is creating as it enables us to shape the future of our industry, including how it is influencing client behavior and how they buy more for solutions. This shift creates a meaningful opportunity for us to evolve our business model so that AI becomes a sustainable tailwind by operating in new ways and developing new products for our clients. And with that context, let me turn it over to Becky to go deeper into our commercial initiatives and how we are leveraging AI. Becky Frankiewicz: Thank you, Jonas. Last quarter, I shared that my remit is focused on driving commercial excellence strengthening and expanding our core capabilities and accelerating AI across the business. Today, I am pleased to share more on how we are embedding AI as a growth multiplier and we'll highlight where AI is already driving measurable value in 3 areas: unlocking effective commercial scale, creating new ways to deliver a best-in-class talent experience and finally, monetizing new human plus agentic solutions for our clients through strategic AI partnerships. Let me start with how we are embedding AI into our processes to unlock effective commercial scale. The teams can focus on coverage where sales conversion and revenue impact are the highest. We expect this incremental revenue to increase significantly as we scale. Second, let me share how we are creating a differentiated talent experience. One that is critical to attracting and retaining the skilled associates and consultants our clients value most. To strengthen our talent experience, we recently announced an expansion of our PowerSuite technology platform to include our partnership with hubert.ai to deliver AI-powered screening and interview experiences. In the past 6 months, we've completed over 25,000 AI-led interviews and reduced screening time by 67%. The Automating early-stage interviews helps improve fill rates and time to hire and freeze our recruiters and talent agents to focus on higher-value relationship-driven work. At the same time, we are achieving 87% candidate satisfaction as more than half of this activity takes place outside of traditional working hours, meeting talent when and where works for them. These responsible, transparent AI capabilities now support markets, representing 40% of our global revenue with plans to scale to 70% by year-end. And third, monetization. I am delighted to share how we are bringing AI capabilities to market and creating a future where people can build more impactful careers and where companies can achieve greater profitable growth. Human plus agentic workforces are not a future concept. They are already here. In March, we announced a breakthrough partnership with Sound hold AI, a global leader in voice and conversational AI. Our Experis U.S. business is already helping companies across industries to review and redesign workflows and accelerate the adoption of AI and intelligent automation. This is the lead offering in our Accelerate AI services suite built on a simple and powerful premise that humans and agents can deliver more when working side by side. This partnership expands our presence in the human plus AI space, which is central to our strategy. We are starting in the U.S. to drive scale and market leadership and plans expand globally. Finally, we know we capture the impact of AI by ensuring that our teams are equipped to use it. We are pleased that tens of thousands of our employees around the world. have completed AI fundamentals training and over 80% of our workforce is already using AI in their workflows. Our approach is simple. Automate which should be automated, augment what should stay human and create entirely new ways to deliver workforce solutions to our clients. We are in progress to capture the full value of these initiatives and we expect AI to become an increasingly meaningful driver of growth, productivity and differentiation over time. We look forward to continuing to update you on our strategic progress and how we will move at pace. I will now turn it back over to Jack. John McGinnis: Thanks, Becky. I'll quickly first touch on the headline quarterly results, and I'm excited to give more details on our expanded transformation savings, Jonas announced at the beginning of the call. In the first quarter, we delivered reported revenues of $4.5 billion. System-wide revenue, including franchises was $5 billion. Our first quarter revenue results represented constant currency growth of 3%. The U.S. dollar reported revenues after adjusting for currency impacts, came in at the top of our constant currency guidance range. I will talk more about the revenue trend drivers in the business and geographic segment summaries. Gross profit margin came in below the low end of our guidance range, driven by lower bench utilization in Europe and mix shifts impacting staffing margin, while permanent recruitment came in as expected with sequential improvement. As adjusted, EBITDA was $61 million, representing a 5% increase in constant currency compared to the prior year period. As adjusted, EBITDA margin was 1.4%, up 10 basis points year-over-year and came in at the midpoint of our guidance range. Organic days adjusted constant currency revenue increased 3% in the quarter, which was favorable to our midpoint guidance range of 1% growth. Coming back to our transformation programs that Jonas referenced, we are excited to announce our path to expected savings of $200 million in 2028. We have previously discussed the implementation of our leading cloud-enabled power suite front and back-office technology platforms. These platforms are now being complemented with best-in-class end-to-end processes. We started with back office processes and are flipping to run rate savings in IT and finance costs during 2026, which build through 2028, representing 25% of the total cost savings. The strategic transformation will expand to the rest of the world in 2027 to drive expected net savings in 2028. The front office transformation, like the back office will include standardized processes, infused with leading automation and Agentic AI across all major businesses driving significant structural savings. We will continue to break out restructuring and strategic transformation program charges as we progress the program. We expect the ongoing 2026 run rate of these charges to be lower than the first quarter amount and estimate a range of $10 million to $15 million on average per quarter through the end of the year. Moving to the EPS bridge. Reported earnings per share for the quarter was $0.05. Adjusted EPS was $0.51 and came in just above our guidance midpoint. Walking from our guidance midpoint of $0.50. Our results included a slightly lower operational performance of $0.02 and a slightly lower tax rate, which had a positive $0.01 impact. A foreign currency impact, it was $0.01 worse and improved interest and other expenses, which was $0.03 better than our guidance. Restructuring costs and strategic transformation program costs represented $0.46. Next, let's review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand had strong growth of 6% in the quarter, up sequentially from the 5% growth in the fourth quarter. The Experis brand declined by 9%, an expected decrease from the 6% decline in the fourth quarter, largely driven by the timing of health care IT projects in the U.S. The Talent Solutions brand declined by 1%, an improvement from the fourth quarter decline of 4%. Within Talent Solutions, our RPO business continues to experience a sluggish permanent hiring environment, but did see sequential revenue trend improvement. Our MSP business saw continued revenue growth and Right Management also grew during the quarter. Looking at our gross profit margin in detail, our gross margin came in at 16% for the quarter. Staffing margin contributed a 70 basis point reduction due to mix shifts in bench utilization in the first quarter. Permanent recruitment activity resulted in a 20 basis point decline. Other services resulted in a 20 basis point margin decrease. Moving on to our gross profit by business line. During the quarter, the Manpower brand comprised 62% of gross profit. Our Experis Professional business comprised 21%, and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit decreased by 3% on an organic constant currency basis year-over-year, stable from the 3% decline in the fourth quarter. Our Manpower brand was flat in organic constant currency gross profit year-over-year relatively stable considering rounding from the 1% growth in the fourth quarter year-over-year trend. Gross profit in our Experis brand decreased 11% in organic constant currency year-over-year a decline from the 5% decrease in the fourth quarter, largely driven by the timing of health care IT projects in the U.S. Gross profit in Talent Solutions declined 5% in organic constant currency year-over-year, which was an improvement from the 12% decrease in the fourth quarter. The improvement in trend was driven by RPO as the rate of decline narrowed significantly. MSP rends also improved from the fourth quarter and Right Management had solid gross profit growth in the quarter on increased outplacement activity. Reported SG&A expense in the quarter was $695 million. as adjusted, was down 4% on a constant currency basis. The year-over-year constant currency SG&A decreases largely consisted of reductions in operational costs of $23 million. Dispositions were very minor and represented a decrease of $1 million, while currency changes contributed to a $38 million increase. Adjusted SG&A expenses as a percentage of revenue represented 15% in constant currency in the first quarter. Adjustments representing restructuring and strategic transformation program charges were $26 million. Balancing gross profit trends with strong cost actions while funding ongoing transformation to enhance EBITDA margin in both the short and long term remains one of our highest priorities. The Americas segment comprised 25% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing an increase of 4% year-over-year on a constant currency basis. As adjusted, OUP was $26 million and OUP margin was 2.3%. Restructuring charges of $7 million largely represented actions in the U.S. The U.S. is the largest country in the Americas segment, comprising 59% of segment revenues. Revenue in the U.S. was $655 million during the quarter, representing a 5% days adjusted decrease compared to the prior year. as adjusted for our U.S. business was $9 million in the quarter. OUP margin as adjusted was 1.3%. Within the U.S., the Manpower brand comprised 26% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 5% on a days adjusted basis during the quarter, which represented strong market performance with 7 consecutive quarters of growth and a slight change from the 7% increase in the fourth quarter as we anniversary strong growth in the prior year. The Experis brand in the U.S. comprised 39% of gross profit in the quarter. Within Experis in the U.S., IT skills comprise approximately 90% of revenues. Experis U.S. revenue decreased 15% on a days adjusted basis during the quarter, down from the 10% decline in the fourth quarter as the business anniversaried strong health care IT projects in the prior year. Excluding the impact of health care IT project volumes in the prior year, Experis U.S. revenue decreased 9% on a days adjusted basis during the quarter, largely in line with the fourth quarter trend. Talent Solutions in the U.S. contributed 35% of gross profit and saw a 2% decrease in revenue year-over-year in the quarter compared to a 2% increase in the fourth quarter, driven by lower sequential MSP activity. This was partially offset by strong growth in Right Management outplacement activity and improving RPO year-over-year trends. We expect the U.S. business to flip to low single-digit percentage revenue growth in the second quarter on an improved Experis revenue trend. Southern Europe revenue comprised 47% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.1 billion, representing 3% growth in constant currency during the first quarter. As adjusted OUP for our Southern Europe business was $58 million in the quarter, and OUP margin was 2.8%. Restructuring charges of $4 million represented actions in France. France revenue equaled $1.1 billion and comprised 51% of the Southern Europe segment in the quarter and was flat on a constant currency basis. As adjusted, OUP for our France business was $21 million in the quarter. Adjusted OUP margin was 2%. France revenue trends improved during the first quarter, and we expect a similar rate of revenue trend of flat to slight growth in the second quarter. Revenue in Italy equaled $475 million in the first quarter, reflecting an increase of 8% on a days adjusted constant currency basis. OUP as adjusted equaled $29 million and OUP margin was 6%. Our Italy business is executing well, and we estimate mid-single-digit percentage revenue growth in the second quarter. Our Northern Europe segment comprised 17% of consolidated revenue in the quarter. Revenue up $790 million represented a 1% decline in organic constant currency. As adjusted, OUP was negative $3 million in the quarter. This represents year-over-year OUP improvement during the last 2 quarters reflecting cost actions taken to date. The restructuring charges of $5 million primarily represent actions in the Nordics and the U.K. Our largest market in the Northern Europe segment is the U.K. which represents 34% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 2% on a days adjusted constant currency basis, representing ongoing stabilization. The remaining countries in the region progressed as expected with largely stable to improving revenue trends. The Asia Pacific Middle East segment comprises 11% of total company revenue. In the quarter, revenues equaled $510 million, representing an increase of 8% in constant currency. As adjusted, OUP was $22 million and OUP margin was 4.3%. Our largest market in the APME segment is Japan, which represented 57% of segment revenues in the quarter. Revenue in Japan grew 4% on a days adjusted constant currency basis. We remain pleased with the consistent performance of our Japan business, and we expect continued solid revenue growth in the second quarter. I'll now turn to cash flow and balance sheet. In the first quarter, free cash flow represented an outflow of $135 million compared to an outflow of $167 million in the prior year. The cash outflow was negatively impacted by the end of the first quarter payment timing involving our MSP business and to a lesser extent, some isolated working capital utilization, and we expect these items to reverse in the second quarter. We expect free cash flow to be negative in the first half of 2026, which will be offset by strong free cash flow during the second half. At quarter end, days sales outstanding was 59 days, up 4 days from the prior year reflecting enterprise mix shifts and isolated quarter end timing on certain receivables. During the first quarter, capital expenditures represented $9 million, and we did not repurchase any shares. Our balance sheet ended the quarter with cash of $225 million and total debt of $1.1 billion. Net debt equaled $922 million at quarter end, an increase from year-end, reflecting first quarter seasonality. Our adjusted debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of $2.86 and total debt to total capitalization at 36%. Detail of our debt and credit facility arrangements are included in the appendix of the presentation. Next, I'll review our outlook for the second quarter of 2026. Our forecast anticipates a continuation of existing trends, with that said, we are forecasting earnings per share for the second quarter to be in the range of $0.91 to $1.01. Guidance range also includes favorable foreign currency impact of $0.05 per share and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide. Our constant currency revenue guidance range is between a 1% increase and a 5% increase, and at the midpoint is a 3% increase. Considering business days are equal year-over-year and the impact of dispositions is very small. Our organic days adjusted constant currency revenue increase also represents 3% growth at the midpoint. EBITDA margin for the second quarter is projected to be up 10 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the second quarter will be 43%. I will continue to carve out any restructuring and global strategic transformation program costs incurred, and they are not included in the underlying guidance. In addition, we estimate our weighted average shares to be 47.7 million. I will now turn it back to Jonas. Jonas Prising: Thanks, Jack. In closing, as the market continues to stabilize, we're operating well, staying focused and executing with discipline. Our team remains hyper-focused on delivering for the now while a dedicated group advances our transformation initiatives to position us for future opportunities. I look forward to keeping you updated on our continued execution as we build on the progress we've made and capture the momentum ahead. As always, thank you to our talented team for their relentless focus and to our candidates and clients for your continued trust. Operator, please open the line for questions. Operator: [Operator Instructions]. Our first question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: So it's good to be back to growth here and thinking about the guide of organic constant currency, same-day basis of 3%, it's pretty similar to the first quarter. So would you call Manpower business in a recovery mode, like leaning towards acceleration here? Would you more call it at a point of a stable growth? Jonas Prising: Good morning, Andrew. Yes. No, I think we're very pleased with the improving momentum in the Manpower business. You saw an acceleration between Q4 into Q1. We're now anniversary-ing strong growth again. And as Jack said, we've had 7 quarters of growth in manpower in the U.S., 4 quarters globally. So it's really nice to see the manpower business performing better and with momentum. And it's great to notice that despite all of the uncertainty and the volatility in the markets, the underlying economic activity is resilient, yet uncertain, and that is, as we know, a good opportunity for us to provide our services and workforce solutions to our clients under the Manpower brand. Andrew Steinerman: Can I just ask a follow-up to that unit. So obviously, moving forward in the still uncertain environment leans towards flexible labor solutions. One of the things I heard about when I presented at the Staffing Industry Analyst Conference is that companies are unsure of their medium-term plans for their workforce because of AI. And that might lean currently towards more flexible solutions as that's figured out. Do you think that's just a theory -- or do you think that's happening in the marketplace and kind of part of the growth leaning forward for manpower? Jonas Prising: From Manpower, that would not really be a factor because it's very resilient to any AI impact, and I'm sure we'll talk later on around the impact in other areas and the opportunities above all that we see with AI. I think it's basically an uncertainty related to the economic environment and outlook. Employers are getting buffeted by geopolitical events, tariffs, wars that are ongoing or started, and that clearly drives employer hesitation. So in our mind, the client hesitation is more related to those events than any particular concerns or possible impact of AI into their workforce. Operator: Our next question comes from Jeff Silber with BMO. Jeffrey Silber: Wanted to shift gears and focus on some of the transformation savings that you talked about. Is it possible to give us a bit more color either by geographic regions where we might see more of those transformation services and also the timing by geographic regions? Are there certain regions we're going to see it ahead of others. Jonas Prising: Thanks, Jeff. Yes, let me just before I hand it over to Jack to provide some more of the details, maybe take a step back and provide a bit of context around this global strategic transformation program. As we've talked about over a number of quarters, we've been investing very heavily in a digitization strategy that impacts all of our operations. So we're deploying global applications across our operations. We have also engaged in a significant back office transformation program and based on those investments and the experience and capabilities that we're accumulating, and as Becky mentioned in the prepared remarks, the increased confidence that we see in the role that AI can play in improving our operations and delivering better services and solutions to our clients and candidates we have been planning for a year now to really broaden this transformation program to also include our front office and really redesign our processes in a way that leads the industry and enables us to do things and drive our business in a very different way in the future. But so maybe, Jack, you could now give a little bit more detail around the announcement we made this morning. John McGinnis: Yes. And specific to your question, Jeff, on geography impact. So I think the way I talk about it, as you see, this is both the back office program, which we progressed nicely and as Jonas said, building on that, moving that to the front office processes. So you see in the chart that we provided on Slide 7 that the initial savings are coming through the back office. So that majority of the savings is coming from the European region, where we started a lot of our back office processes first. And that's both finance and IT coming through in terms of the standardization and centralization we've seen there on the technology, of course, that we've been talking about for quite some time. And as we move forward now with the front office, we're actually starting in North America. And so as you see the geography impact and you see the green in that bar chart, moving to front office savings, you'll see North America come through first in 2027. We're doing all that work now in 2026, and it's launched very well, and we're very excited about the progress so far. And then as we go to the rest of the world in 2027 following that blueprint from North America, you'll see more broader savings in the rest of the regions coming through in 2028. So and that's on the front office side. On the back office side, as I mentioned, starting in Europe, we're actually in the process of doing North America and wrapping up North America on the back office process now. And so that will contribute to some of those additional savings on the blue component of that bar chart into 2027. Operator: Our next question comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Jack, if you just look at the gross margin trends, you talked about maybe the impact staffing it's having on it. And I'm wondering how much of that is just mix? Is it just enterprise demand versus SMB demand that you've seen in the past? Or is pricing having an impact now? John McGinnis: Yes. Thanks, Kartik. So let me talk to that. I guess what I'd take you back to is the second half of 2025. And at that time, we were seeing enterprise mix shift continue to have an average and have an impact on the overall staffing margin. And when we show the staffing margin walk, year-over-year, you can see that having an impact. And as we went from the third quarter to the fourth quarter, we actually saw that stabilize the level of staffing margin decrease from the enterprise mix kind of held steady and the issue at that time was more perm. Perm was coming in softer and was driving a bit of that GP margin decrease -- further decrease year-over-year. And so as we walk into the first quarter here, I think the story is perm actually has stabilized. Perm actually came in a little bit better sequentially than the fourth quarter. So that really wasn't the driver getting back to the staffing, really what happened in the first quarter. And the first quarter is traditionally when you will start to see maybe some of the bench impacts from the bench countries, and that's where absenteeism and sickness has a bit of a role. And we saw an outsized impact on that in the first quarter. So that went against us on the staffing line that drove roughly somewhere 10 to 20 bps of additional headwind. And as Jonas said, our growth was very strong. So that growth is predominantly enterprise. And so that growth came in a bit stronger and drove a little bit more pressure on just the averaging of the mix shift. But I'd say that's really what's happening, and that's what we're seeing right now. Enterprise continues to be the strongest part of the demand. And that's how I'd characterize what we're seeing. I do -- as you do see in my guide going from Q1 to Q2, we do see it strengthening. And that is after we removed the drag associated with the bench issues in the first quarter, which are traditionally more of a winter phenomenon as we move into the second quarter. Kartik Mehta: So Jack, just to make sure. So you don't think it's a structural issue right now. It's just more of a timing issue and maybe seasonality issue because of the bench countries.. John McGinnis: That's correct. That's correct, Kartik. At this point, pricing is always very competitive. But at this point, we continue to think pricing is rational. It's predominantly a mix shift with enterprise being the strongest demand at the current time. Operator: Our next question comes from Mark Marcon with Baird. Mark Marcon: Early in your remarks, you talked about the strengthening that you're seeing in Europe. I'm wondering if you could just provide a little bit more color and also what you're hearing from your European colleagues with regards to any concerns around the impact of the war and whether you think that continued that strengthening can continue? And then I've got a follow-up on the restructuring. Jonas Prising: Good morning Mark, yes. No, we've been very encouraged with the improvement that we've seen in a number of or countries in Europe. And largely, you could say that Southern Europe continues to be very strong in a number of markets. You've seen our results in Italy, again, the market-leading very strong growth. It's our third biggest market globally. So we're very pleased with that, but also other countries and very pleased also to see France come back to flat. And Northern Europe continued to improve. Still a lot of work to do for us in Northern Europe, but we're encouraged with the progress that we're making. And I think as you see our guide into the second quarter, you see we expect that improvement to continue. And a lot of that is underpinned by what we briefly mentioned earlier, which is this economic resilience, the labor market resilience, the improvement in PMIs in all of our major markets today, PMI is above the expansionary levels, so above 50%, which has been a long time coming, and we can see that. So despite the uncertainty that despite the volatility that companies are experiencing, they have become adapt to be agile in this environment. They are interested and believe that this volatility and these uncertainties will subside and they need to continue to move their business forward. And we're very pleased to see that they're doing that with us to a greater degree in the first quarter as well and looking good also into the second quarter. As it relates to the events in the Middle East this time, it's really too early to assess if there will be a broader impact. Today, we don't see an effect on customers, and we've been really encouraged by the resilience and adaptation to the rapidly changing environment more broadly. So companies have gotten used to a volatile environment, and they are looking past the noise to the signals, what they need to achieve as a business and they are moving forward. So, so far, as you can tell from our guide, we're not seeing and including any other effects, which, of course, we're monitoring. And should anything happen, of course, we will take the actions that you've seen us take in the past. We have an experienced management team. We are used to managing in this environment. And as you can see from our results, we're executing with discipline and adjusting to any changes that we see happen. But you had a follow-up question for Jack. Mark Marcon: Yes, over for you. In terms of just the restructuring, you mentioned the charges that you're anticipating through the end of this year. Would those do you foresee further restructuring charges going into '27 and '28. How should investors think about the cash flow impacts of those restructuring charges and the timing of those. And then as it relates to the savings, from a timing perspective, would -- when we talk about the $200 million, would that basically be kind of a run rate savings toward the end of '28? Or could we expect all of those savings to actually hit in '28? And what percentage of that would you actually expect to drop down to the EBITA line as opposed to being, potentially being redeployed for other uses? Jonas Prising: Mark, that is definitely a Jack question. You managed to work in 5 questions into that swap. So Jack... John McGinnis: No, thanks for the question, Mark. And so obviously, this is a big program for us. So I understand the questions on the charges. So the way I would answer it is, if you look at that split that I provided for 2026, yes, there is severance in the restructuring in the mix. A part of it and a big part of it is the program transformation costs, right, as well. So as we look at the rest of 2026, it's basically 1/3 restructuring and 2/3 program. And as I mentioned, that's lower than the run rate in the first quarter. The first quarter, we had a bit more restructuring that included Europe, of course, and some other things. As you think ahead to 2027 I would say, in terms of the program costs, that will continue, maybe even be a bit slightly higher restructuring at this stage is a little too early to tell. And I'll give further guidance on that as we get through 2026. There's a couple of different variables there. So if the environment stays very static and stable as it is today, then you should expect restructuring will increase. If we start to see some good recovery trends, then it could be very different as we redeploy people into higher growth processes, so that will -- that could reduce restructuring as we go to the rest of the world after 2026. So a bit too early, but with all of that kind of getting at the heart of your question, we're managing this very carefully based on cash and resources and we will continue to do that. So we continue to be very focused on improved free cash flow for the full year, and we're going to balance that, as I said in the prepared remarks, the ongoing cost reduction savings are going a long way to fund these activities, and that's going to continue to be our playbook as we go forward. So a very careful balance. Mark Marcon: I guess, getting to the heart of the question, like we would -- let's say we're in a constant run rate by the end of 28 with these programs being put in place, how should investors think about like what's a reasonable EBITDA margin target for Obviously, you're not giving guidance. But just if we're just taking a look at this program, how -- theoretically, how should we think about it? John McGinnis: Yes. And good point. I meant to answer that part of the question as well, Mark. So thanks for the reminder. So to answer your question, we anticipate the full $200 million coming in, in 2028. So not run rate in the fourth quarter of 28% for the full year based on the work we're doing this year and next year. That will flip to a $200 million run rate savings in 2028. And as I mentioned, a little too early to anticipate if there's additional restructuring that runs into 2028. We'll give updates on that in the future. But as we think about the impact of the program, that is what we anticipate to be the benefit to the cost structure. So in terms of the guide on, I guess, the financial target that we continue to be firmly committed to the 4.5% to 5%. As we've said in the past, you can do the math on this, but if you just apply the $200 million to where we've been in the last 4 quarters on a run rate basis, basically, that adds 110 basis points to our EBITDA margin in isolation. So right away, running -- if I look at last year, we're running at about 2% adjusted EBITDA margin at 110 basis points. So that, just in this environment, in this current environment, if we get operational leverage on a stronger recovery, our track record shows that if we start to get a strong recovery, we get very, very good additional operational leverage and we saw that going from '20 to '21 where our EBITDA margin expanded 90 basis points and then expanded another 40 basis points the year after as the recovery to coal. So that is -- that's the operational leverage additional part of it. But in isolation, this will go a long way into accelerating our path towards that EBITDA margin commitment. Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: I wanted to touch on the manufacturing environment specifically. You highlighted how manufacturing is strengthening, particularly across Europe. Can you provide country-specific details on the manufacturing landscape and drivers of the improvement in those countries? Jonas Prising: Thanks, George. Yes, as you heard me say earlier, you can see the manufacturing environment improving across both the U.S. and Europe by looking at the PMI, and we've really seen that be a positive evolution over the last 3 months or so. So I think that gives you an idea that there are different sectors, of course, that are stronger than others, one sector that we feel very good about is the aerospace and defense where we have a very strong position in Europe, and we expect that this is going to grow in terms of the share of our business with the increased spending on defense. So you can see a number of areas that are doing better. There are a number of industries that are struggling a bit, like automotive, logistics has been a bit weak in some of the markets across Europe. But more broadly speaking, the economy is resilient. The labor markets are resilient, and PMI from a manufacturing perspective is improving both in Europe and in the United States. John McGinnis: George, you asked about it at a little bit so maybe -- I'll give really take some color on the geography. So if I just look at our manpower business, which obviously, is very tied to manufacturing. As we talked about, the U.S. was up 5% and in the quarter, actually a bit impacted by weather, extreme weather in the quarter, probably was about a 1% drag, so it would have been about 6%. So the punch line, there's continued strong progress, momentum on manufacturing sector. France, as we mentioned, moved this predominantly Manpower business moved to flat Italy, very strong manufacturing concentration, up 8%. And Spain, very, very strong growth. You see the double-digit growth that we had in Spain as well. So I'd say pretty broad-based, as Jonas said, from a geography standpoint as well. And that's what's really contributing to that global Manpower business, 6% growth in the quarter overall. Operator: Our next question comes from Manav Patnaik with Barclays. John Ronan Kennedy: This is Ronan Kennedy on for Manav. If not mistaken, you referenced $200 million of incremental revenue in France from AI-powered sales -- how scalable is this globally and which markets represent the next largest opportunity? And then beyond that top line contribution, how is AI changing win rates, pricing discipline customer lifetime values. And when can we expect to see this reflected in margins? Becky Frankiewicz: Thanks, Ronan, this is Becky, and I'll take that for you. First, to France specifically, -- so we launched an AI-powered sales targeting engine that basically says what's happening in the market in real time, where do we have strength and our capabilities. We match the 2, and that's what has demonstrated our revenue growth there. We will scale to 50% roughly of our markets by year-end. So you'll see that sequence come out as we have future earnings calls. To your next question around how AI overall, as you heard in my prepared remarks, we are very active in that space in 2 parts. One, internally applying it to our processes, as you heard me talk about with very new strategic partnerships in the AI space with Hubert.AI embedded in our power suite and our recruiting processes, sales targeting, but also how we apply AI externally to create net new products. And so the SoundHound partnership I talked about that's focused on Experis in the U.S. is really breakthrough in our industry. So we're leveraging the fact I mentioned on the last earnings call that we have limited exposure to coders, which is a place that has been impacted. We are shifting that limited exposure to a tailwind for AI in our business by bringing agents and humans together to deliver value for our clients. And so we're active on a 2-part view with AI in our business and for our clients for new products. John Ronan Kennedy: That's very helpful, Becky. And then may I confirm the element of question on expectations for margin implications. Becky Frankiewicz: Yes. Thank you, Ronan, I mean to answer that for you. Yes, it's early, Ronan, and so early days for us. We're very encouraged, one, by our capabilities to bring these tools in quickly to form strategic partnerships in the AI space. We're encouraged by the margin potential that our early deals have shown, but early days, and we expect us to be able to scale, and I'll keep you updated as it does. Operator: Our next question comes from Tobey Sommer with Truist. Tobey Sommer: I wanted to ask you a relative question on your AI targeting tool as well as your systems investments and reimagining. Where do you think this puts you in terms of market share and, let's say, the lead on reimagining versus others after 3 or 4 years of declining market there are probably a lot of boards and management teams in front of a whiteboard trying to reimagine and where do you think you are relative to their visions of the future and actions? Jonas Prising: Well, thanks, Tobey. So as we talked about, we started this journey of creating a global data infrastructure really clearing our technological debt and replacing it with modern cloud-based SaaS platforms that we have now deployed globally, covering 90% of our revenues and 80% of our back office transformation. That is unique in our industry at our scale because we're doing this on single platforms. We have a global data lake that is covering 100 billion data points, and all of our applications are putting the data into the same data lake. And that has opened up this opportunity for us to really think about our business and how we run our business in a very different way. We have built experience and capability, of course, going through the back office transformation and reengineering processes there. as Becky will talk more about in a minute, how we're now starting to see AI has a bigger impact, both in terms of how we interact with clients, how we interact with the talent the kind of insights that we can now bring to our clients that provides added value is what's really, really exciting to us. And that's what's given us the confidence to say that this is something that we think can really reshape our industry can drive faster and higher fill rates and also drive further efficiencies. So Becky, if you take it from there. Becky Frankiewicz: Yes. Thanks, Tobey. So I lasted a little bit on how you asked the question about white boards because I spent a lot of time on whiteboards lately. Reimagining how this business can run in a totally different way. So the question is, how do we do what we do in a totally different way and add more value to our candidates and our talent and our clients. And so we are looking at AI as a growth and productivity multiplier. Like we need that 2-party equation, we're looking to automate what we can and should and keep human what we know our clients and our candidates want to keep human with a very heavy dose of governance on top of it to make sure that we meet the needs and demands of our clients and our candidates. And so we're encouraged. You asked about where we are in leadership. Obviously, we're not privy to what everyone is doing, but we feel very good that we are moving with speed in months versus years, and we've been doing this for a horizon. Tobey Sommer: And then if I could ask, if you feel like you're in a good spot relative to speed and sort of the pace in which you're executing against your own vision, who's losing if you, in fact, are winning? Becky Frankiewicz: Yes. So I would say, again, I don't quite know how to answer that question directly because what we focus on is our winning versus other people losing and winning to us is actually delivering more value to our clients and keeping our candidates central to our efforts. At the same time, making sure our employees are prepared for this new horizon. So you heard me say in our prepared remarks, we've invested significantly internally in time and of our people to make sure they're trained on using AI tools you've not heard a number from us on 80% of our workforce is now using AI on a regular basis. And so I would say to us, that feels like winning. Operator: Our next question comes from Trevor Romeo with William Blair. Trevor Romeo: Just one quick one for me. I was wondering if you could talk about whether you're seeing erosion get overall... Jonas Prising: Trevor, sorry, we could not hear any of that question. Could you please repeat the question? You were breaking up. No, we can't hear you. Trevor Romeo: Sorry -- is that here? Becky Frankiewicz: A little better. Trevor Romeo: Hopefully, this is better. I was trying to ask about the overall environment for Experis in the U.S., it sounds like you're expecting things to get that really professional.... Becky Frankiewicz: Yes. So Trevor, this is Becky. Unfortunately, you dropped out again after a very strong few words. But I believe you're asking about the environment for Experis in the U.S., and so I'll answer that, and you might try to move to a better place that we can hear you better. For Experis in the U.S., first, let me take a step back on the question that's top of mind, which is impact of AI on that business. So overall, for AI, we feel continued encouragement by the resilience of our manpower business, as you heard both Jack and Jonas refer to in the face of a lot of AI conversations. -- for our tech clients, they are cautious on AI spend. They're being careful about where -- are on their project spend. They're being careful about where they're investing their money and thoughtful and cautious and a little slow to say yes. But for Experis specifically to your question, we've been very encouraged. We have seen our pipeline grow specifically in health care, in life sciences over the quarter. So we exit the quarter with a robust pipeline we have seen our clients turn to us for advisory. And again, as mentioned, when we talked about the partnership with SoundHound, we're turning AI into a tailwind for us. So we are actually in a product now. We are selling a product that is agents plus humans. And so that is the future that we see for experience here in the U.S. Trevor Romeo: Right. I think that was basically the spirit of my question. Hopefully, you can hear me better now. Maybe just -- maybe just a very quickly follow-up. It sounds like you're expecting the U.S. to go back to positive year-over-year. Are you also expecting experience to go back to positive year-over-year? Or would that still be slightly down in Q2? John McGinnis: Trevor, great question. So you're right. In the guide, I have the U.S. I said, going to positive growth. And so that is definitely part of the Americas revenue growth that we're seeing. Experis, we see getting very close to flattish, so revenue trend in Q2 overall. And as I mentioned, what's really happening there is you see the health care project work, those go-lives. I've created a lot of bumpiness year-over-year, that pretty much works its way through as we go into the second quarter. And as I mentioned, on an underlying basis, the business actually has been quite stable. So we start to anniversary some of that and move closer to a flattish type result in Q2. So we have seen some good stability in the business. Looking at the weeklies, we're encouraged by some of the consultant headcount increases and we're taking that into Q2. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: So on the savings, could you just give more color in terms of what is actually being saved to result in the dollar savings? And then relatedly, kind of conceptually, why would the savings be higher in the front office and the back office. John McGinnis: Yes. So happy to talk about that. I think if you think about the savings, it's going to really follow a lot of what we've already done on the back office. So -- what -- the way to think about it, Josh, is if we had separate streams and workflow activities in every major business in terms of some of the historical back-office processes, and then we move into global business service centers, like we've talked about with our Porto center in Europe for our European locations. What we're able to do is centralize a lot of work into those hubs, and that is reducing a lot of the infrastructure that we need in country. And that's going to continue to be that model on the back office applied to the front office processes. So on the back office, it's been the finance and IT related functions that have improved their efficiency as a result of this centralization and standardization. And on the front office side, it's going to be recruiting. It's going to be sales. It's going to be service delivery. And when you look at the size of those functions, they're bigger. I mean it's 1 of the biggest parts of the business, right, as we think about the front office opportunity. So that's what's going to drive it. And so you're going to hear us talk a lot more about, you've heard us talk a lot about our back office, global business service centers. You're going to hear us talk more and more. That's going to be a really critical important part of our centralization of the standardization going forward, and that's going to benefit our efficiency in our major businesses going forward. So -- that's the way to think about it. It's continuing what we've already done on the back office through similar themes and applying that to big populations of the front office. And then of course, underlying all of that, as you heard from Jonas and Becky will be automation. Automation is a key element to all of this. and the opportunity of genic AI being infused in that is going to be a real efficiency driver on top of that. So all of that is how we get to those significant front office costs that you've seen broken out. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Jonas Prising, for closing remarks. Jonas Prising: Thanks, Michelle, and thanks, everyone, for participating in our earnings call this morning. We look forward to speaking with you again at our Q2 earnings call in July. And until then, thanks very much. Look forward to speaking with all of you again soon. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Greetings. Welcome to MIND Technology, Inc. Fiscal Fourth Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, Zach. You may begin. Zach Vaughan: Thank you, operator. Good morning, and welcome to the MIND Technology, Inc. 2026 Fourth Quarter Earnings Conference Call. We appreciate all of you joining us today. With me are Robert P. Capps, President and Chief Executive Officer, and Mark Alan Cox, Vice President and Chief Financial Officer. Before I turn the call over to Robert P. Capps, I have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website at mine-technology.com or via recorded instant replay until April 23. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Thursday, 04/16/2026, and therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties, and other factors, many of which the company is unable to predict or control, that may cause the company's actual future results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk disclosed by the company from time to time in its filings with the SEC, including in its Annual Report on Form 10-K for the year ended 01/31/2026. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. Now I would like to turn the call over to Robert P. Capps. Robert P. Capps: Hey. Thanks, Zach, and thank you all for joining us today. Today, I will touch on our results for the fourth quarter and the full year and discuss the current market environment. Mark will then provide a more detailed update on our financials and I will return to wrap things up with some remarks about our outlook. A lot has transpired since our last earnings call. As you all know, we are a global company. Our customers work all around the world. We have not experienced any material impact to our operations or prospects due to the current conflict in the Middle East. However, this is a situation that we are following closely. Overall, our performance in fiscal 2026 reflects our ability to deliver resilient results despite the evolving and highly turbulent macro environment. All things considered, I am pleased to report another year of meaningful cash flow from operations and positive earnings and adjusted EBITDA. We are capitalizing on pockets of demand, maintaining our consistent execution, and benefiting from production efficiencies. There has been a good bit of uncertainty in the market for some time now, but our CMAP revenues remain elevated compared to historical levels and were essentially flat in the fourth quarter compared to the third quarter. As we discussed last quarter, overall interest and engagement remains positive, but we have seen some customers defer new order commitments given commodity price volatility and the current state of geopolitical affairs. This is not uncommon in periods of broad economic uncertainty. However, as the password indicate, we continue to view this as a short-term disruption and expect that customers will resume normal activities once conditions stabilize. Our long-term growth trajectory and operational momentum are still intact, and our large pipeline of opportunities supports our optimism for the future. Our backlog of firm orders as of 01/31/2026 was approximately $13.9 million compared to $727.2 million as of 10/31/2025 and approximately $16.2 million as of 01/31/2025. As a reminder, during the fourth quarter, we received long-anticipated orders totaling about $9.5 million. We were able to deliver roughly half of these orders during the fourth quarter and expect to make the remaining deliveries early in fiscal 2027. Our backlog is only down slightly year over year. We are finding that many customers, regardless of industry or end use, are taking a wait-and-see approach to larger system orders given the current climate. For the reasons I mentioned, this is not unexpected. However, there are signs of recovery, and the long-term outlook for exploration and survey work is trending in the right direction. We believe this bodes well for additional orders in future periods as the geopolitical instability in the Middle East may well drive exploration activity in other parts of the world. We have yet to see any immediate impacts from the dramatic increase in oil prices. That is something our customers are monitoring closely and has the potential to drive incremental activity. As a reminder, aside from the protracted customer decision-making process stemming from macro uncertainty and geopolitical turmoil, it is also not uncommon to see pauses in order activity throughout the year in a normal environment. We continue to monitor various external factors that might impact our business, but we maintain our belief that the long-term outlook in the marine exploration and survey industry is very positive and an uptick in activity is inevitable. Outside of our backlog, which is defined as orders for which we have a purchase order or a signed contract in hand, the pipeline of potential orders remains solid and is several times greater than our firm backlog. We are pursuing certain significant projects. Some of these opportunities involve new vessels for governmental organizations. These projects are often relatively large, $10 million or more to us, and require that successful bidders provide security bonds. You may have noted that we recently entered into a trade finance facility with HSBC. This facility provides flexibility to help pursue these more significant projects. We remain cautiously optimistic in our ability to convert opportunities into firm orders in coming periods. Our backlog and pipeline of potential orders consist primarily of our three main product lines: FinLink source controllers, BuoyLink positioning systems, and CLINX streamer systems. However, our backlog also contains some aftermarket orders. Together, these services are the foundation for our business. As a whole, our CMAT business continues to enjoy a strong market position. We have worked hard to carve out a niche within the marine technology industry and have established strong relationships with our customers. We also pride ourselves in finding innovative ways to capture demand. Growing contributions from our aftermarket activities are also providing a stable and recurring revenue stream that is supporting our overall results. This component of our business has become increasingly important. This aftermarket activity consists of spare parts, repairs, service, and other support activities. While this business is influenced to some degree by general activity level within the industry, it is more recurring in nature than orders for new systems. Customers might be slow to purchase new systems, but their existing equipment will need maintenance to keep operating. This benefits MIND Technology, Inc. We have established ourselves as a company that can do this kind of service and repair work quickly, efficiently, and reliably. Additionally, expenditures for aftermarket activity are generally operating costs, as opposed to capital expenditures. Therefore, customers will allocate funds for these activities differently than they might for a new system. Contribution of this activity as a percentage of revenue fluctuates from quarter to quarter based on product mix and the timing of larger system deliveries. However, in fiscal 2026, aftermarket business accounted for about 60% of our total revenues. Margins for this business also tend to be better than large system sales that might attract discounts. The installed base of CMAP products continues to expand, and with it comes the prospect for increased aftermarket activity. Additionally, we continue to ramp up activity at our newly expanded Hessville facility. Additional floor space at this facility enables us to efficiently take on larger manufacturing and product repair projects. This increased capacity will be used to further support our existing CMAT products, newly developed products, and services to third parties. Turning to our results, marine technology product revenues for the fourth quarter and full year 2026 were $9.8 million and $40.9 million, respectively. Quarterly revenue was flat sequentially and slightly lower than our internal expectations due to delivery of a few orders being pushed into fiscal 2027. But we continue to find ways to generate resilient results. I am pleased with our ability to navigate uncertainty within the market. We believe MIND Technology, Inc. remains well positioned to capitalize on opportunities in future periods to stimulate order flow and generate sustainable results. We have a differentiated approach, a best-in-class suite of products, and a unique aftermarket business that will continue to give us a competitive advantage and support our financial results for years to come. Now I will let Mark walk you through our fourth quarter and full year financial results in a bit more detail. Mark Alan Cox: Thanks, Rob, and good morning, everyone. Revenues from marine technology product sales totaled approximately $9.8 million for the quarter. Full year revenue amounted to approximately $40.9 million. As Rob mentioned, the delivery of about half of the orders that we received in December were pushed into fiscal 2027, and this had an impact on our results for the quarter and full year. Despite this, and the general uncertainty that persists in the market, customer interest and engagement remain strong, and our aftermarket business continues to provide significant recurring revenue that is supporting our results. Full year gross profit was approximately $18.7 million. This represents a gross profit margin of 46% for the year compared to 45% for fiscal 2025. The year-over-year margin improvement was primarily attributable to product mix, which included a greater proportion of spare parts and other aftermarket activity. We also continue to benefit from our cost structure optimization, which includes greater production efficiencies, and we expect these efforts to help maintain favorable gross profit and margins in future quarters. Our general and administrative expenses were $3.3 million for 2026. This was up both sequentially and when compared to the same quarter a year ago. The sequential and year-over-year increases are due primarily to higher stock-based compensation. Our research and development expense for the fourth quarter was approximately $389 thousand, which was down both sequentially and compared to 2025. Consistent with prior periods, these costs were largely directed toward the development and enhancement of our streamer systems and source controller offerings. Operating income for the fourth quarter and full year 2026 was approximately $78.0029 billion, respectively. Fourth quarter adjusted EBITDA was $1.1 million and full year adjusted EBITDA was $5.3 million. Net loss for the fourth quarter was approximately $271 thousand after income tax expense of $471 thousand. This resulted in net income for fiscal 2026 of approximately $750 thousand after income tax expense of $2.2 million. Our income tax expense results primarily from our operations in Singapore. As of January 31, 2026, we had significant working capital of approximately $37 million, including $19.1 million of cash on hand. The company continues to maintain a clean, debt-free balance sheet with a simplified capital structure. We believe our solid footing, significant liquidity, and operational flexibility will allow us to make moves in the coming quarters that will enhance stockholder value in future periods. I will now pass it back over to Rob for some concluding comments. Robert P. Capps: Thanks, Mark. We are operating in a complicated market environment that has fostered uncertainty. In some ways, that uncertainty creates opportunity for us going forward, but for now, it has slowed customer decision-making and delayed order commitments for larger systems. Despite this temporary pause in order activity, the underlying fundamentals for the marine technology industry remain intact. The long-term pipeline of opportunities continues to be very positive. Our prospects are plentiful; this presents compelling opportunities for MIND Technology, Inc. to address demand, capitalize on new areas of focus within the market, and deliver improved financial results. We remain very well positioned for the future, and I am optimistic that any near-term softness will abate in coming months. We remain focused on controlling what we can. In recent years, we have strategically structured the company so that we are operating lean and efficiently. This allows us to be more responsive to changing market conditions. As a reminder, it really does not take much to move our needle in a positive direction. As one or two large orders materialize, we can have a very different outlook. We continue to drive technological innovation and expand our capabilities to address new opportunities. We are also constantly evaluating ways to repurpose our existing technology for new applications. Given our current visibility, we expect our results for fiscal 2027 to be down when compared to fiscal 2026. Despite this view, we believe this will still be a positive year for MIND Technology, Inc. We may grow in other ways that may not immediately present themselves in our financial results. We recognize it will be difficult to replicate the systems order volume that we have enjoyed over the past two years given our recent customer discussions and their prevalent uncertainty. However, I believe we will be cash flow positive for the year even with lower revenue. We have built a better, more resilient business with a solid foundation and simplified capital structure that is equipped to weather periods of reduced order activity. We have also meaningfully grown our installed base over the last few years, which lends itself to our aftermarket activity and provides a substantial stream of recurring revenue. We will use our enhanced liquidity to position the business for improved financial results as activity across our end market returns. For the last year or so, you have heard me talk about the need for MIND Technology, Inc. to add scale. We recognize that we are a small company and that this presents challenges. I firmly believe that we need to be bigger to realize our full potential and enhance shareholder value. That being said, there are different ways we can achieve this growth. We can execute identified organic growth opportunities. We can acquire assets or businesses that are similar to our existing business. We can combine with other organizations. These are all options that we are considering and actively pursuing. While we are motivated to add scale and we have ample ability to act quickly and efficiently should an opportunity arise, we will not jeopardize the immense progress that we have made at MIND Technology, Inc. to chase an opportunity that does not fit with what we do. Our significant liquidity has broadened our opportunity set. However, we intend to be very disciplined in our approach to our capital allocation, weighing the expected return with the cost of capital. That brings me to our capital allocation strategy. The goal of this strategy is to add accretive scale and expand our offerings in order to enhance our value to our shareholders. I have outlined the various levers for growth that we have at our disposal. These include mergers and acquisitions, investments in organic growth opportunities such as the expansion of existing product lines, and strategic alliances with other industry partners. These levers are intended to be tools that we can use to create or enhance value. We can lean on any of these or a combination thereof as market conditions permit and the return on investment meets our threshold for value creation. Our view is that the marine technology industry is highly fragmented. This creates an opportunity for us to add products and services that fit MIND Technology, Inc.’s strategic capabilities and scale our business. We have a robust manufacturing footprint that is capable of producing sophisticated, technologically diverse products. This makes MIND Technology, Inc. a natural production partner or buyer for innovative technologies that can be sold alongside our existing suite of products. We continue to evaluate a number of such opportunities. We believe we are unique for a small public company. We have positive earnings and cash flow. We have no debt, and a simple streamlined capital structure and no material contingent liabilities. And we have liquidity. We think this positions us well to weather any storm and take advantage of the opportunities ahead of us. In closing, we remain committed to positioning MIND Technology, Inc. for future success, taking steps to strengthen the company and build a resilient platform with a solid foundation and a growing opportunity set. Our differentiated and market-leading suite of products gives us a competitive advantage as we partner with our customers to address various demand trends, such as power generation, energy transition, and subsea exploration. Going forward, we intend to use our liquidity to augment our business through additional investments with a focus on developing the next generation of marine technology products to meet the evolving needs of our customers. We also plan to be active participants in the industry consolidation, whether that be adding product lines or something more transformative. These efforts will help us realize meaningful financial improvement as market conditions normalize, which we expect to drive enhanced stockholder value. With that, operator, I think we can now open the call up for some questions. Operator: Thank you. To ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, it is 1 on your telephone keypad to ask a question. Our first question is from Ross Taylor with ARS Investment Partners. Please proceed. Ross Taylor: Talk to us about what you see, where the financing is coming from for your customers. You said you have seen kind of a push off, a delay. What do you think is really driving this? We are seeing a lot more interest in subsea mining. We are obviously seeing, with the Strait of Hormuz, the need for being able to detect mines and other items underwater and things like that. I read somewhere the Chinese have aggressively mapped around Guam, around Taiwan, around the Philippines, and the like, and I would assume the US Navy probably needs to do something similar. Where is the capital coming from? And you said you are seeing a pullback on your buyers and it seems like the demand should be growing meaningfully given what is happening around the world right now. Robert P. Capps: I think that is right, Ross, in that what our customers have been doing—the people who have been buying from us recently—they have certainly been impacted. The pause last year in the energy markets or the uncertainty in the energy markets had an impact. And therefore, there was some M&A activity in the market as well. So some companies were consolidating and, frankly, looking to conserve cash just from a fiscally conservative basis. In talking to them now, they are seeing improvements in activity. For a while, they saw their customers were not placing orders. They were not entering new projects—just being more cautious. Some of the uncertainty in the wind markets caused some of that. That seems to be returning a bit, especially outside of North America. So I think it was, again, a pause for them trying to be fiscally conservative and fiscally responsible. But they see that on a longer-term basis, there is that need. That is the reason we think that as they see their pricing improve, they see their prospects improve, they are going to be coming back to us for the fixed-vane capacity. We see new entrants into the market, some new vessels as we alluded to earlier, which is a bit unusual for these past few years. So, again, I think longer term it looks pretty darn positive. But, again, if you go back to the energy side of it, ironically, the situation in the Middle East is probably a positive in that a lot of people think this is going to drive increased exploration activity outside of the Middle East, which is a positive for our customers and for us. As it goes into the military and maritime security side, that has less direct impact on us today, but I think that is also starting to expand the opportunities for our technology being used more and more for ocean-bottom survey and not just for exploration activity. It is tough to say when this hits, but I think if you look from a macro standpoint, it has got to turn around. Does that happen in two months or six months or nine months? I do not know the answer to that for sure. I do not think anyone does. Everyone I talk to in the industry is pretty bullish long term, but cautious in the near term. Ross Taylor: A couple different things. Looking at—you talk about having a year that is going to be somewhat under what you saw last year. I assume that is assuming that you do not see any of the improvements in any of the things that are kind of prospects become backlog. Robert P. Capps: Correct. That is right. Ross Taylor: You are talking about being able to generate free cash flow during the course of the year. Am I correct in that assumption that you said you will obviously be able to have EBITDA, but we should expect cash flow to be positive in the year? Robert P. Capps: We do expect that, yes. Ross Taylor: With your acquisition or your strategy to enhance value, it strikes me as one of the natural things is finding a division of a public company or something, and in essence, almost them using the MIND Technology, Inc. platform as a way to get public to gain value out of it—an acquisition that would effectively be able to pay for itself given its economics. Is that the type of thing that we should be looking to see out of you as we look ahead? And then also comment on, because you mentioned, some of what you are thinking about doing is building for others. What are the economics when you build for someone else as opposed to for yourself? Robert P. Capps: Sure. Let me take those in reverse order. Being a contract manufacturer—those margins are not very good historically. But if we can partner with someone and have more of an impact and more of an input into the technology itself, so we are bringing more to the table, that is the sort of thing we are looking for from a partnership standpoint—where we can sell to our customer base, produce out of our facilities, things like that. We are also looking at whether we can acquire technology or product lines from someone. That might entail actually acquiring an entity—the company—maybe a one- or two-product company, or it might entail acquiring just the technology from someone. So we are looking at all of those. But the key there is things that are close to what we do now that we can lever our existing capabilities and get those economies of scale and really drive the return on that. That is really important to us. We do not want to do something where we have to do a step-out and replicate production facilities somewhere else. That is not the sort of thing we are looking for. To the first point you raised, we are a bit of a unicorn for small public companies. As I said in my comments, we forecast positive results. We have no debt. We have a pristine capital structure and balance sheet. That enables us to do some things that I think make us an attractive vehicle for some entities to monetize what they have. Maybe there is a venture capital firm who has an investment they would like to monetize and this is a way they could do that. So I think there are some opportunities there. That is the sort of thing that we are looking to do. Ross Taylor: That would fit with how I would think—a big part of what I would be thinking—an acquisition that basically pays for itself and you allow an exit strategy, but also a way of that entity perhaps going public. Robert P. Capps: Exactly right. Ross Taylor: Obviously, at this stage, difficult outlook as we push ahead. Can you talk about—you have talked about having a number of these very large prospects. Could you talk a little bit more? Give us what is for you a very large prospect, and how long lead time do you need to fill it? Robert P. Capps: Call it $10 million-plus as a large prospect. We have done several $5 million to $6 million orders, but $10 million is large for us. From receipt of order to delivery, call it 16 to 24 weeks, something like that. Frankly, the process from when the bid is let until actually getting the award can be a longer process. You can very well chase these things for a year and a half before you actually make delivery. I would not expect that we would win and deliver a project of that size in this fiscal year. Possible, but it would have to happen pretty quickly. Ross Taylor: So you could win it this year, but given the other factors, it is unlikely that you would be able to fulfill it fully this year. Robert P. Capps: Right. Not impossible, but unlikely at this stage. Ross Taylor: And at what price in the stock do you actually consider the company itself to be a worthy investment? Robert P. Capps: I am not going to touch that. That is something we think about, and certainly we have said publicly, if our stock is the best use of capital, that will be our use of capital. But I do not think I want to touch that point. Ross Taylor: Okay. I will pass it on to others. Thank you. Good luck. Operator: Our next question is from Tyson Lee Bauer with Casey Capital. Please proceed. Tyson Lee Bauer: Good morning, gentlemen. Interesting that you had talked about new vessels possibly for government entities that could be up to $10 million. Would that be more scientific, or what portion of a government structure would that be geared toward? And that $10 million number seems rather large given that 40% of your overall revenues in fiscal 2026—$16 million of that—was system sales. One order could account for 60% of what you did the prior fiscal year. Were you hopeful that you may have something in place before this call? Did you expect it? Is there something in the hopper that may or may not materialize? Robert P. Capps: That is right. To answer your direct question, this is more scientific research-type institutes that we are looking at. That is the type of vessel and entity that is involved. They are multipurpose vessels and do lots of different things, so we are delivering lots of different stuff beyond just standard streamer systems and gun control systems for these things. You are exactly right—those are large—and as I said in my comments, it does not take a lot to move our needle. I am always hopeful, Tyson. I did not expect it, though. These things do take some time. They happen when they happen. There are more than one opportunities active right now that may or may not materialize. Tyson Lee Bauer: On the deals or potential deals, how important is your tax-loss carryforward asset in consideration as far as the payback of doing a deal or somebody with a related business being able to utilize that? Is the fact that you are US-domiciled a benefit in some of these assets that may want to have that location as opposed to maybe a foreign entity that may want to enter the US market? Robert P. Capps: It really depends on the nature of the counterparty and the structure of the deal, but it could be meaningful, and you could have a tax-neutral transaction fairly easily, I think. But, as you will appreciate, that is a complex situation which may or may not work out, but it potentially could have significant value. I would say being US-domiciled is probably a net positive for a couple of reasons. Number one, the US capital markets are available to us, so that is attractive to people as opposed to other capital markets. From an export or control standpoint, it is probably a positive overall. So I think it is a net positive for sure. Tyson Lee Bauer: In the quarter, of that $9.8 million, what percentage was parts, services, and repair versus system delivery? You are trending around that $6.0–$6.5 million per quarter—obviously can have some lumpiness—but is that recurring base revenue as we go forward? And given your comments before the Q&A, it sounds like $4 million or $5 million may have gotten pushed into fiscal 2027. Is the current backlog that you disclose made up entirely of systems? Robert P. Capps: Off the top of my head, it would have been probably 55%–60% aftermarket. I do not have the exact number in front of me, but it is in that ballpark. We have seen over the last year—really the last five quarters—that trend pick up, so I think that is right. Of course, the caveat is that can always switch a bit. Spares orders can be lumpy too, so that can switch, but it has definitely been trending up, and it makes sense as the installed base has been going up. On the push, yes, that is about right—about half of that large order we got in the fourth quarter did not get out the door. We had hoped at one point that we would be able to, but it did not come in soon enough, and there were lots of factors as to when the customer could pick it up and things like that. So we just did not get it out the door. The current backlog is not entirely systems—there is some aftermarket stuff in there too. Again, I do not have the breakdown in front of me, but it is a combination. Tyson Lee Bauer: SG&A—obviously we had stock comp of $714 thousand a quarter. You typically have some additional professional fees to start the year. Is a level closer to $2.08 million going to be a good modeling number as we go forward? Robert P. Capps: Probably ballpark, again, with some variations from quarter to quarter. The stock-based comp is going to continue for a while and then start to trend off over the coming quarters. We did have some unusual things last year early in the year which skewed the full-year amounts—some tax analysis, some franchise tax adjustments—things like that, which will not be recurring. So I think if you factor out the stock-based comp, you will see things stabilize and maybe trend down just a bit. Tyson Lee Bauer: Order timing—typically, capital budgets are set at the end of calendar years and then are gradually released the following year. Are those what give you cause for concern, or is it that the capital budgets have been allocated or they are not appropriated and you do not know if they will get fully appropriated as we go through this fiscal year? Robert P. Capps: I would caution that the budgets are not set in stone and then done. In this environment, you see things change during the course of a year. Capital budgets can go up or down. We certainly saw them go down last year during the year, so they can go both directions. Also, as we are dealing with some of these governmental agencies, they work on a different calendar than we do—often not the natural calendar year—so I would be cautious to put too much into that. Having said that, the general trend I am seeing is an uptick in inquiries and interest in additional equipment. What is uncertain to us right now—we have tried to emphasize—is how quickly those opportunities materialize. Does it happen next month, or is that nine months down the road? Hard to say right now. I think everyone is being cautious still, but I think they are making some preparations to maybe turn things loose a bit when things are a bit more certain. Tyson Lee Bauer: One thing I find interesting when you talked about the possibility of new vessels is, given your competitive dominance in certain niches of the industry, new vessels require long lead times and dry dock space. If you are the only game in town for some of these technologies or systems for those vessels, to procure it is almost a function of when, not if, for those orders. Am I framing that scenario correctly? Robert P. Capps: To a point, you are correct that there are certain aspects of the technology that are unique to us, so we are going to get that business almost certainly. There are other parts of those projects that we pursue that we do have some competition on, so those are not a foregone conclusion. Also, especially with foreign governmental entities, there sometimes are contractual requirements that we may not find palatable, so we may walk away from an opportunity because we just do not like the terms—they are too onerous. So you are right in that to some degree, if a project happens, we are going to get it, but not necessarily to the same magnitude of a $10 million order. Tyson Lee Bauer: Are you able to work directly with Chinese customers, or do you have to work with intermediaries such that the ultimate end does not really impact where your product ultimately ends up? Robert P. Capps: There are some things we cannot sell to the Chinese. There are some things where we have to limit the capabilities of what we sell to the Chinese. Other things, there are no limits at all. But yes, we deal directly with Chinese customers. Tyson Lee Bauer: The last question—probably the most important question for shareholders—is, how do we keep 2027 from becoming a lost year for shareholders? You may have expectations as of today of a lower fiscal 2027 compared to fiscal 2026 on financials, but if you grow the backlog throughout the year or if you do other activities that are favorable for shareholder value, obviously the investor community will look forward, which would give us a return and a reason to basically wait out this pause that you are seeing currently. Are you seeing that scenario where you are not saying that fiscal 2027 is a lost year for shareholders? You are, at this point, saying that financials look like they will be down, but as we progress through the year, we are going to see that your value proposition is actually growing as we traverse fiscal 2027? Robert P. Capps: Tyson, that is absolutely correct. We tried to allude to that—that there may be some things that happen that just do not reflect themselves in the financials right away. But I think there are lots of opportunities for us to create value, and that is what we are all about. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Robert P. Capps: I would like to thank everyone for joining us today and look forward to talking to you again at the end of our first quarter in a few weeks. Thanks very much. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corporation Fourth Quarter 2026 Earnings Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead. Earl Armstrong: Thank you, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 fourth quarter and full year. Our 2026 fiscal year began on 02/03/2025, and the fourth quarter began on 11/03/2025, both periods ending on 02/01/2026. Joining me today is Jeremy Hoff, our chief executive officer. We appreciate your participation today. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from our expectations is contained in our press release and SEC filing announcing our fiscal 2026 results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. During the fourth quarter, we completed the previously announced sale of the Pulaski Furniture and Samuel Lawrence Furniture Casegoods brands, part of our former Home Meridian segment. Consolidated net sales from continuing operations were $67 million, a decrease of $17.2 million, or 21%, compared to the prior-year period. The decline was partially attributable to the current fourth quarter being one week shorter than the prior-year period, which reduced net sales by approximately $5.5 million based on average daily sales. The decrease also reflects lower sales in our Hospitality business due to its project-based nature, as several large projects shipped in the prior year did not recur in the current year. Additionally, we estimate severe winter weather experienced in January 2026 in a significant part of the United States and in most of our largest markets reduced net sales for the quarter by $3 million to $4 million. Despite lower net sales, we reported operating income of $629,000 for the quarter. This was driven by operating income of $1.2 million in Hooker Branded and $617,000 in All Other, partially offset by an operating loss of $1.2 million in Domestic Upholstery. Notably, despite one week less of sales and severe winter weather, Domestic Upholstery reduced its operating loss by more than half compared to a $2.5 million loss in the prior-year fourth quarter. Hooker Branded operating income was consistent with the prior-year period despite fewer selling days and the weather disruptions. Net income from continuing operations for the fourth quarter was $874,000, or $0.08 per diluted share. Following the divestiture of Pulaski and Samuel Lawrence on 12/12/2025, results of these businesses are reported through that date. Discontinued operations incurred a net loss of $330,000 in the quarter. Consolidated net income for the fourth quarter was $536,000, or $0.05 per diluted share. For the full fiscal year of 2026, net sales from continuing operations were $278.1 million, a decrease of $39.2 million, or 12.4%, compared to the prior year. This decline was primarily driven by lower sales in the Hospitality business within All Other and, to a lesser extent, a shorter fiscal year and the severe winter weather we mentioned earlier. Gross profit declined in absolute dollars due to lower sales; however, gross margin improved by 180 basis points, reflecting margin improvements in the Hooker Branded and Domestic Upholstery segments. Continuing operations reported an operating loss of $16.5 million for fiscal 2026, primarily due to $15.6 million in noncash intangible asset impairment charges reported in the third quarter triggered by our stock price as of the end of the third quarter. These included $14.5 million related to goodwill in the Sunset West division and $556,000 related to the Braddington-Young trade name, both within Domestic Upholstery, as well as $558,000 related to the remaining HMI business in All Other. Additionally, continuing operations incurred approximately $2 million in restructuring costs primarily related to severance and, to a lesser extent, warehouse consolidation, all as part of our completed cost reduction initiatives. Net loss from continuing operations was $12.8 million, or $1.20 per diluted share. Discontinued operations included approximately ten months of activity in fiscal 2026. Sales declined due to ongoing macro pressures and tariff-related purchasing hesitancy among its customers, particularly large furniture retailers. Discontinued operations incurred a pretax loss of $19 million, including $3.9 million in restructuring costs, of which $2.4 million related to the Savannah warehouse exit, a $6.9 million loss from classification as held for sale, which included $2.6 million of trade name impairment, $3.5 million in fair value write-downs, and $735,000 in selling costs. Discontinued operations also incurred $1 million in bad debt expense related to a customer bankruptcy. Consolidated net loss for fiscal 2026 was $27 million, or $2.54 per diluted share. Now I will turn the call over to Jeremy for his comments on our fiscal 2026 fourth quarter and full year results. Jeremy Hoff: Thank you, Earl, and good morning, everyone. We are encouraged to report net income of $536,000 for the quarter. Fiscal 2026 was incredibly transformative as we navigated significant disruptive tariffs on our imports, opened a successful fulfillment warehouse in Asia, and exited two unprofitable divisions, all while reducing fixed costs by about $26.3 million, or 25%, of which approximately $17.5 million in fixed cost savings is related to continuing operations. At the same time, we delivered slight market share growth overall with key strength in key businesses offsetting isolated softness and launched our Margaritaville line, which is delivering on our expectations to be the most impactful product launch in company history. Today, we move forward as a leaner, higher margin business with a much lower breakeven point and the potential for significant profitability as demand returns. We believe we are positioned for a significant improvement in earnings in fiscal 2027, with our expectations bolstered by the early indications of strength within our Margaritaville product line, and we see a clear path to sustain profitable growth by focusing on our core expertise of better-to-best home furnishings. Despite significant headwinds, we are encouraged to report that the Hooker Branded segment reported $1.9 million in operating income for the year compared to a prior-year operating loss of $433,000. Additionally, despite a significant charge in the third quarter, the Domestic Upholstery segment showed improvements in the fourth quarter, reducing its operating loss by more than 50% as compared to the prior-year quarter due to cost reduction initiatives and operational improvements. I would like to also comment on import tariffs, which were a significant disruptor for Hooker and the industry in fiscal 2026. After our fiscal year-end in February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act were not authorized by statute. In March 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection to implement a refund process for previously collected duties. We are evaluating the potential recovery of these amounts. Additionally, the administration appears poised to pivot to new tariffs under different legal authority within the next few months. We continue to monitor developments in this area. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments along with our cash, debt, inventory, and capital allocation strategies. Earl Armstrong: Thank you, Jeremy. At Hooker Branded, net sales decreased 2.9% for fiscal 2026, with the decline entirely driven by a $5.5 million decrease in the fourth quarter, primarily due to one fewer selling week as well as supplier delays and weather-related shipping disruptions. Unit volume declined, partially offset by a 5.7% increase in average selling price implemented to mitigate higher costs and tariffs. Despite lower sales, full-year gross margin expanded by 200 basis points, driven primarily by lower freight costs and pricing actions. Operating income improved to $1.9 million for the year compared to an operating loss in the prior year. Our fourth quarter operating income of $1.2 million was consistent with the prior year despite reduced selling days. Incoming orders were flat year over year, while backlog increased nearly 26%. Domestic Upholstery net sales decreased 2.7% for fiscal 2026, reflecting lower unit volumes in certain divisions, partially offset by growth in contract, private label, and outdoor channels. Gross margin improved by 230 basis points for the full year, driven by lower material costs, reduced labor and overhead expenses, and benefits from cost reduction initiatives. The segment reported an operating loss of $16.9 million for the year, largely due to $15 million in noncash impairment charges, compared to an operating loss of $5.4 million in the prior year. In the fourth quarter, operating loss was $1.2 million, reduced by more than half from the prior year, reflecting cost reduction actions despite lower sales. Incoming orders decreased slightly by about 2%, while backlog increased about 8% year over year. Regarding cash, debt, and inventory, as of the fiscal year-end, cash and cash equivalents stood at $1.1 million, a decrease of $5.2 million from prior year-end. However, amounts due under our revolver decreased by $18 million to $3.6 million at year-end. Cash generated from operations was used to repay $18.5 million of our former term loan, distribute $8.8 million in cash dividends, and fund $3.2 million in capital expenditures. Inventory levels decreased by $17.5 million from $66.2 million at prior year-end to $48.7 million at fiscal year-end. We received approximately $5.5 million in cash proceeds from the sale of the discontinued operations. Despite these outflows, we have maintained financial flexibility with $62.8 million available in borrowing capacity under our amended and restated loan agreement as of fiscal year-end; this is net of standby letters of credit. As of yesterday, we had over $12 million in cash on hand with over $64 million in available borrowing capacity, net of standby letters of credit, with $0 outstanding on our credit facility. Regarding capital allocation, late last year, we announced that our board authorized a new share repurchase program under which the company intends to repurchase up to $5 million of our outstanding common shares beginning in fiscal 2027. In connection with the repurchase authorization, the board recalibrated the annual dividend to $0.46 per share, which began with the company's 12/31/2025 dividend payment. As Hooker Furnishings Corporation transitions to a more focused growth-oriented company, the new share repurchase program together with the adjusted dividend enables us to return capital to shareholders while maintaining the balance sheet flexibility needed to invest in the business. We believe these actions appropriately balance capital returns with liquidity while supporting long-term shareholder value. I will turn the discussion back to Jeremy for his outlook. Jeremy Hoff: In the Hooker Branded and Domestic Upholstery segments, incoming orders have increased year over year for three consecutive quarters, adjusted for the extra week in last year's fourth quarter. Housing activity and consumer confidence remain weak, and the Department of Commerce's February advanced monthly estimates reflect that reality, showing that retail sales for furniture and home furnishings decreased by 5.6% as compared to the prior year and were lower than January 2026. We do not anticipate near-term meaningful improvement in conditions; however, with a more efficient cost structure and a streamlined portfolio, we believe we are positioned to report improved results even if current market conditions persist. Our advantage is a clear focus on our core businesses with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time. Margaritaville product and gallery commitments continue to scale, with shipments expected to begin in 2027. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator for questions. Operator: We will now open the call for questions. Certainly. Press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. And our first question will come from the line of Anthony Lebiedzinski of Sidoti. Your line is open. Anthony Lebiedzinski: Thank you, and good morning, everyone. Thanks for taking the questions. It is certainly nice to see the return to profitability in the fourth quarter. So first, looking at the Hooker Branded segment, you had a gross margin of over 39%, which was certainly much better than what we had expected. Was there anything unusual that helped the quarter in terms of the gross margin, and how should we think about the sustainability of your gross margin at Hooker Branded? Earl Armstrong: On sustainability, I believe we said in the call just now gross margin was 200 basis points better year over year. So your question was how do we look at it going forward? Anthony Lebiedzinski: You are saying the 39% was—was there anything unusual in the fourth quarter, 39% versus 32% a year ago for the quarter? Earl Armstrong: No. We cannot think of anything unusual for the quarter that would be driving that, other than the things we have mentioned. Anthony Lebiedzinski: And then going forward, it sounds like you expect continued strong margins at Hooker Branded, right? Earl Armstrong: Yes. Anthony Lebiedzinski: Okay. Sounds good. Switching gears to the Domestic Upholstery segment, you had a nice year-over-year improvement there, though it was lower than what it was in the third quarter. Maybe if you could talk about the various puts and takes impacting the gross margin in Domestic Upholstery, and are you seeing any increases in cost there? There has been some talk of foam prices going up. Please touch on what you are seeing as it relates to foam and other raw material costs. Jeremy Hoff: On the foam—when we talk about Domestic Upholstery, I am going to talk about Bedford and Hickory, which has been Sam Moore and Braddington-Young. Shenandoah is a different part of that, of course, and then you get Sunset West, which is under that same reporting name. Regarding Braddington-Young and Sam Moore, we announced recently that we are combining both of those to become Hooker Custom Upholstery, which is part of a larger strategic initiative that is part of collective living, which means putting everything together and showing all of our strengths in one collection, for example. We believe we have figured out this is a much more powerful stance moving forward. As we have done that, we are combining things like frames that can cross over from fabric to leather across different factories. So factories have become a capability that can be utilized for the strength of the Hooker Custom line versus a silo here that makes leather and another that makes fabric. It is a very powerful unified message. In doing that, we have changed such a big part of that strategic direction that, with the timing of revenue and what is going on macro, revenue is really our only challenge in those divisions. The efficiencies of those factories are significantly improved, which is why you are seeing the improvements in the profit. We are not there yet, and we need more revenue, which we are working on, and that is why we are executing the entire strategy I just described. We feel really good about the direction, and we feel as good as we have felt about that part of our Domestic Upholstery since we purchased them. The additional costs are definitely coming at the industry. Foam, specifically, has seen some disruption. There was a fire in a major Texas facility that affected much of the industry supplied by that provider. There are things driving costs up in that way. And then, of course, the Middle East war has driven different chemicals and oil up, which flow through to raw materials, and that affects not just foam but overseas as well. There are a lot of moving parts with different costs that are rising, but we do not have enough data right now to tell you exactly what that could be, though it is definitely a factor. Anthony Lebiedzinski: Understood. With respect to Margaritaville, it sounds like you are still on track to start shipments in the back half of the year. Can you expand on the interest level you are seeing from retailers since your last call? Has it increased or been as expected, and could placements be even better than originally expected? Earl Armstrong: I believe we reported that we had over 50 committed galleries last call, and that number has grown, so we feel even better than we did about where it is positioned and how it is going to impact our organic growth in the second half and beyond of this year. When you think about the fact that at High Point Market not all dealers come to every market—it is probably a little over half who come to each market—a good number have not even seen Margaritaville yet in our showroom. We continue to be even more optimistic about where that is going to go and how it is going to help our growth. Anthony Lebiedzinski: Sounds good. Best of luck, and thank you very much. Jeremy Hoff: We appreciate it, Anthony. Thank you. Operator: And our next question will come from the line of Dave Storms of Stonegate. Your line is open, Dave. Dave Storms: Good morning, and thank you for taking my questions. I want to start with the weather disruptions that you mentioned. How much of that is recoverable, or does it just change the timing and maybe make Q1 look a little stronger than it normally would seasonally? Earl Armstrong: We had the same experience in Q1, unfortunately, in early February with a storm that was a little more severe than this. I would expect by the end of Q1 that backlog should be mostly caught up—the shipping backlog at least. Dave Storms: Great, thank you. And with shipping, given all the conflicts, are you seeing any second-order impacts to your shipping lanes, and any commentary around the general supply chain environment? Jeremy Hoff: We really are not. Dave Storms: Thank you. Lastly, on tariffs—you touched on this in your prepared remarks. With some of these Section 301/IEEPA-related tariffs, my understanding is they only have a 150-day runway. Are you seeing participants in the industry look through this, or did you see a bunch of ordering ahead? Any thoughts on what you saw on the ground regarding this change in the tariff environment? Jeremy Hoff: Due to the somewhat obvious nature of what has happened, people unfortunately have become used to the up and down. Our industry is somewhat used to disruption, if that makes sense. It is what it is, so we are managing through it as an industry, and none of us pretend to know what is going to happen next. We think something is brewing for how they will replace the tariffs that the Supreme Court shot down, but obviously no one knows what that is. Dave Storms: Understood. Thank you for taking my questions. Jeremy Hoff: Thank you. Operator: As a reminder, if you would like to ask a question, please press *11. Our next question will come from the line of Analyst from Pinnacle. Your line is open. Analyst: Good morning. Thanks for taking my questions. It seems like a lot of heavy lifting was done over the past year or so. Is there any other potential divestiture, plant closure, or warehouse closure that might be forthcoming in the future? Jeremy Hoff: Thank you. No. We feel very good about our position and the companies that we have at this point and the capabilities that we have. When you look at our overall strategic focus on better-to-best in the home furnishings industry, the companies we have are exactly that. We feel good about where we are. We do not feel like we have anything that is not eventually sustainably profitable and a great part of our strategic direction. Analyst: Regarding the tariffs, some companies have disclosed the amount of the rebate they are seeking. Could you put a number on the rebate that you might be attempting to recoup? Jeremy Hoff: It is material. We are not going to disclose that at this point. Analyst: Finally, what was the backlog at the end of the year, and what was the total number of orders for the year versus a year ago? Earl Armstrong: Order backlog at the end of the year was roughly $36 million. What was the second question? Analyst: Total orders for the year versus a year ago. Earl Armstrong: I do not have that in front of me. Analyst: Do you have orders for this order? Earl Armstrong: Actually, yes. Total orders in 2026 were $256 million, just slightly lower than the prior year at approximately $257 million. Analyst: Great. Thank you, and good luck. Earl Armstrong: Thank you. Operator: I am showing no further questions at this time. I would now like to turn the conference back over to Jeremy Hoff for closing remarks. Jeremy Hoff: I would like to thank everyone on the call for their interest in Hooker Furnishings Corporation. We look forward to sharing our fiscal 2027 first quarter results in June. Take care. Operator: This concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to Abbott Laboratories' First Quarter 2026 Earnings Conference Call. During the question-and-answer session, you will be able to ask your question by pressing the star, one, one keys on your touch-tone phone. This call is being recorded by Abbott Laboratories. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott Laboratories. It cannot be recorded or rebroadcast without Abbott Laboratories' express written permission. I would now like to introduce Mr. Michael Comilla, Vice President, Investor Relations. Michael Comilla: Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Philip Boudreau, Executive Vice President, Finance and Chief Financial Officer. Robert and Philip will provide opening remarks. Following their comments, we will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2026. Abbott Laboratories cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott Laboratories' operations are discussed in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the year ended 12/31/2025. Abbott Laboratories undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott Laboratories' ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott Laboratories has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which it is providing guidance because the company is unable to predict, with reasonable certainty and without unreasonable effort, the timing and impact of certain items, which could significantly impact Abbott Laboratories' results in accordance with GAAP. Unless otherwise noted, our commentary on sales growth refers to comparable sales growth, which includes the prior and current year sales of Exact Sciences, a cancer diagnostics company that Abbott Laboratories acquired on 03/23/2026. Our definition of comparable sales growth can be found on Page 2 of our press release issued earlier today, and a reconciliation table that contains data needed to calculate comparable sales growth can be found on Page 13. With that, I will now turn the call over to Robert. Robert Ford: Thanks, Michael. Good morning, everyone, and thank you for joining us. Our results in the first quarter were aligned with our expectations for the start of the year. That included delivering adjusted earnings per share of $1.15, consistent with our guidance despite absorbing the impact of earlier-than-planned financing costs related to our acquisition of Exact Sciences and a weaker-than-expected respiratory season. This quarter also marked an important strategic milestone for Abbott Laboratories with the completion of our acquisition of Exact Sciences. This acquisition adds a new high-growth business to the Abbott Laboratories portfolio, further strengthening our leadership position in diagnostics and expanding our presence into one of the fastest growing areas of health care, cancer diagnostics. As we communicated at the time of the acquisition announcement, we forecast the addition of Exact Sciences to add approximately $3 billion of incremental sales in 2026 and accelerate Abbott Laboratories' long-term sales growth rate. Before I summarize our first quarter results, I wanted to highlight a few pipeline achievements in our medical device business. Those include an earlier-than-planned approval and launch of two new PFA catheters, completion of patient enrollment in our Catalyst left atrial appendage device trial, initiation of development activities to bring an implantable extravascular ICD product to market, and the announcement of positive results from our randomized controlled trial which demonstrated that people with type 2 diabetes on basal insulin therapy benefited from using Libre, including seeing reductions in HbA1c and increased time spent in healthy glucose range. In addition to these achievements, our teams are preparing to initiate patient enrollment in several important clinical trials in the second half of this year. These trials represent a unique opportunity to position Abbott Laboratories to bring a new wave of highly differentiated technologies to the market. This pipeline of new technologies includes a balloon-expandable TAVR valve, a leadless conduction system pacing device that utilizes our revolutionary AVEIR leadless pacemaker, a mitral replacement valve developed following our acquisition of Cephea Valve Technologies, a peripheral IVL device developed following our acquisition of CSI, and a wearable continuous lactate monitoring sensor that will monitor for sepsis following discharge from a hospital. I will now summarize our first quarter results before I turn the call over to Philip, and I will start with Diagnostics, where sales increased 2% on a comparable basis. Core Lab Diagnostics growth of 3% was driven by growth in the U.S., Europe, and Latin America. Sales of Core Lab diagnostic tests, which exclude capital equipment and digital health solutions, increased on both a year-over-year and sequential basis, and this is a trend that we expect to continue and drive higher growth in the second half of the year compared to the first half. In our Rapid and Molecular Diagnostics business, sales declined 10%, reflecting lower demand for respiratory virus testing due to a much weaker respiratory season compared to last year. And in Cancer Diagnostics, sales grew 13% on a comparable basis, driven by mid-teens growth of Cologuard and high-teens growth in international markets. Moving to Nutrition, where sales finished slightly ahead of our expectations for the quarter. As discussed on our January earnings call, results in the quarter reflect the impact of lower sales volumes compared to the prior year and the effect of strategic pricing actions implemented in 2025 with an objective of reaccelerating volume growth. While we are still early in the transition back toward a more sustainable balance between price- and volume-driven growth, I am encouraged by the progress we are making. Early data indicates we are seeing the intended effect, with volume growth beginning to follow our pricing actions. We continue to expect that these pricing actions, combined with the launch of several new products, will result in growth improving over the course of the year. Turning to EPD, which grew 9% in the quarter. Growth was broad-based across the markets we serve, which included double-digit growth in several countries across Latin America and Asia Pacific regions. Demand in these markets continues to be supported by favorable long-term health care, economic, and demographic trends. With a broad product offering across five therapeutic areas, and an expanding biosimilars portfolio, which includes several market-leading oncology therapies, we are well positioned to serve the growing customer base in these markets. I will wrap up with Medical Devices, where sales grew 8.5%. Growth was led by strong performance in our cardiovascular device businesses. This included double-digit growth in Electrophysiology, Heart Failure, and Rhythm Management. In Electrophysiology, growth of 13% included contributions from two pulsed field ablation catheter launches in the quarter. The launch of our Volt PFA catheter contributed to growth of 14% in the U.S., and the launch of our TactiFlex Duo catheter helped drive mid-teens growth in Europe. As we broaden the launch of both catheters, we expect growth in our Electrophysiology business to accelerate. In Rhythm Management, sales grew 13%, marking the third consecutive quarter that we have delivered double-digit growth and continued our track record of significantly outperforming the market. In Heart Failure, growth of 12% was driven by our market-leading portfolio of Heart Assist devices, which offer treatment for chronic and temporary conditions. In Diabetes Care, continuous glucose monitoring sales were $2 billion and grew 7.5%. Growth in the quarter reflects an impact from a delay in the renewal process related to an international tender. We also saw the expected impact from a challenging comparison to last year. This comparison relates to shelf restocking dynamics that occurred in 2025, a topic that we discussed on an earnings call last year. As we look forward to the second quarter, we expect CGM to return to double-digit growth. So, in summary, our results in the quarter were in line with our expectations to start the year. We remain confident in our expectations for an acceleration in growth in the second half of the year, and we have clear visibility to the key drivers of that acceleration and are highly focused on executing on them. Those drivers include, first, executing our growth strategy in Nutrition, which is underway and on track with our expectations. Second, we see a clear path to accelerating growth in both Electrophysiology and Core Lab Diagnostics, supported by best-in-class portfolios, new product launches, and improving market conditions. Third, we will continue our proven track record of delivering strong EPD and across our Medical Devices portfolio. And finally, we are successfully integrating Exact Sciences, which adds a compelling high-growth business to the Abbott Laboratories portfolio, further strengthening our ability to deliver long-term sustainable growth. I will now turn the call over to Philip. Philip Boudreau: Thanks, Robert. As a result of the March 23 close of our acquisition of Exact Sciences, our first quarter financial results include the results of the Exact Sciences business from the close date through the end of the quarter. As Michael mentioned, our press release issued this morning provides sales growth in the quarter on a comparable basis, which includes the full-quarter sales of Exact Sciences in both the prior and current year. To align with our reporting of comparable sales growth, our full-year 2026 sales growth outlook of 6.5% to 7.5% is now on a comparable basis as well. The sales growth outlook includes the full-year sales of Exact Sciences in both the prior and current year. Compared to our previous full-year adjusted earnings per share guidance range midpoint of $5.68, our new guidance range midpoint of $5.48 reflects $0.20 of dilution related to the Exact Sciences acquisition, consistent with our assumption at the time of the announced transaction. Turning to our first quarter results, sales increased 3.7% on a comparable basis, and adjusted earnings per share of $1.15 grew 6% compared to the prior year. Foreign exchange had a favorable year-over-year impact of 4% on first quarter sales. Earlier in the quarter, we saw the U.S. dollar weaken, which resulted in a favorable impact on sales compared to exchange rates at the time of our earnings call in January. Regarding other aspects of the P&L, adjusted gross margin was 56.3% of sales, adjusted R&D was 6.7% of sales, and adjusted SG&A was 29.3% of sales. Based on current rates, we expect exchange to have a favorable impact of approximately 1% on full-year reported sales. For the second quarter, we expect exchange to have a relatively neutral impact on sales. And for the second quarter, we forecast adjusted earnings per share of $1.25 to $1.31. We will now open the call for questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press 1-1 again. For optimal sound quality, we kindly ask that you use your handset instead of your speakerphone when asking your question. Again, that is 1-1 to ask a question. Please stand by while we compile our roster. Our first question will come from David Roman from Goldman Sachs. Your line is open. David Roman: Thank you, and good morning, everyone. Thanks for taking the question. Maybe I will start with the updated guidance. I know you touched on some of this during the call, but could you go into further detail on your guidance philosophy and your thought process in establishing the revised outlook? And then the extent to which the outlook is, in your mind, fully de-risked and captures upside potential but also contemplates any downside unforeseen risks? Robert Ford: Yes, sure. I think the philosophy here, David, is that we have included Exact Sciences into the history, and our philosophy has always been to ensure that our investors have clear, transparent, detailed breakdowns of our performance. We did that during COVID. If you remember, we always split out the COVID sales. We got feedback that investors really wanted to understand the underlying part of the business and the COVID part of the business. When we did the acquisition of St. Jude, the acquisition closed in the first quarter, and we did the same approach there, to fold in St. Jude into a more comparable basis. We think it provides investors the most relevant growth rate, a growth rate that reflects the new asset portfolio on a very clean apples-to-apples basis. As it relates to the guidance, we made a little bit of a conservative choice on some aspects that we felt in the first quarter. For example, if you look at the respiratory season, we forecast Q1 to be a relatively weak season compared to other seasons that we had seen in the past, and it was even weaker than what we had forecasted. As we looked at other comparable health care businesses that we look at—for example, OTC meds, which is a very good triangulation—we are seeing those types of businesses also have this year-over-year effect. One of the ways to think about it is that you have parts in the year where you are going to have this effect; you have it at the start of the year and you have it at the end of the year. One of the ways to think about it is, if we were to make up that lower respiratory season at the back end of the year, then we would have to assume an above-average respiratory season, at least from a testing perspective, and I am only going to find that out just before Thanksgiving. So I thought it prudent not to forecast that we are going to make it up in Q4, this respiratory aspect. That does not mean we will not be ready. We have the portfolio, the manufacturing capabilities, and the distribution to be able to do that. We just decided that it was not prudent to bake that into the forecast. The rest of the areas of the business, the sales growth outlook, is very much in line with our January outlook. If I go back to how I described our year and the year progression, there are a couple of key blocks that really drive our growth throughout the year. The first block is sustaining the growth of our MedTech business and our pharma business—MedTech business low double digits, our pharma business above 7%. These are businesses that have consistently and reliably delivered this type of performance. Whether it is market conditions or new product launches in these businesses, we feel very good about our ability to sustain that kind of performance. The second bucket would be more of trajectory-changing businesses, and I would put Core Lab and Nutrition into those buckets. They are a little bit different, though, David. On our Core Lab business, we talked about the impact of China and the VBP, and obviously COVID. That was about a $1 billion headwind that we faced last year. Other parts of the business—geographies and platforms—are doing very well, and we continue to see that. What I have seen over the last six months really gives me confidence that we are very much on track, or slightly ahead, of that recovery in Diagnostics and that growth trajectory change. The teams there have done an incredible job in China and especially here in the U.S., too. I think the teams have done really well in terms of being able to gain market share. The Nutrition transition is a little bit earlier in that stage, but I still feel that what we are seeing right now, the timely decisions we took in the middle of Q4, are starting to show activity in terms of driving volume growth. It is still early; I cannot declare it done, but we are seeing really good indications that the actions we took, combined with the new product launches, are going to drive that recovery. The third bucket is the integration of Exact Sciences, which adds a high-growth business to the portfolio. It has been performing very well. I would say those are the three big drivers of our sales forecast, and those have not changed. I am not going to try and call what type of flu season we are going to have starting before Thanksgiving. But if the flu season is as aggressive as we have seen in other years, then we have the manufacturing, distribution, and sales force in place to be able to support that. Hopefully that answers your question. David Roman: Thanks so much. Robert Ford: Thank you. Operator: Our next question will come from Robbie Marcus from JPMorgan. Your line is open. Robbie Marcus: Maybe to follow up on David's question. I appreciate that comparable growth is a much more helpful metric, especially if we are looking out to the future and what the new Abbott Laboratories will be doing on an underlying basis. But when I look at organic growth, which I think is what a lot of people pay attention to in the health of the Abbott Laboratories business coming into the year before the acquisition, it looks to me like growth is moving from the 6.5% to 7.5% guide on the fourth-quarter call to something more like 5.75% to 6.75% if we adjust out Exact Sciences and the lost royalty revenue. So it does look like there is a bit of a deceleration in the prior organic Abbott Laboratories business. How are you thinking about managing that? How much is one-time versus sustainable? And where do you see the biggest pressure points and how are you addressing them? Robert Ford: I am not sure I follow those numbers, Robbie, but I think what you are trying to get to is, by putting Exact Sciences into a comparable basis, are there parts of the non-Exact business that are underperforming? I would say, as I said to David, if the acquisition had closed after this call—sometime in Q2—we probably would have done what you in the MedTech space would usually expect, which is to keep it separate and then lap it a year. But then you would need me to reconcile every quarter between what the acquisition did and the organic growth rate. Because it closed early in Q1 before this call, we could roll it in on a comparable basis and give our investors full visibility to the new Abbott Laboratories with the addition of Exact Sciences. I know that might involve a little more work for some of you in terms of modeling, but we tried to make it very easy for you as part of our disclosures. Parts of the business we are focusing on, I went through in detail. The device portfolio and the pharma portfolio—we still feel very strong about those growth rates. We are not backing off those. There are opportunities to outperform in some of them, and there are more challenging areas in others, whether it is market or competition, but overall we feel very good about sustaining that. Then there are the trajectory-changing businesses, like we have discussed in Diagnostics and Nutrition—we know what the issues were, we know what we are working on, and we are focused on executing. Taking a step back, we are a very diversified company. We lay out all of the different businesses, and even within sectors, we break them out and show performance. It would be great to have every single business beating all street expectations. Sometimes that does not happen. The important thing is to have a collection of businesses that we feel are very attractive, and that the combination, the sum of them, are able to hit our commitments and deliver on our financial commitment. I look at each business individually, and we also look at the whole. As a whole, the company is well set up for this year. Robbie Marcus: Thanks, Robert. Appreciate it. Robert Ford: Sure. Operator: Thank you. Our next question will come from Larry Biegelsen from Wells Fargo. Your line is open. Larry Biegelsen: Good morning. Thanks for taking the question. Robert, I wanted to ask about CGM. We heard your comments about the CGM market in Q1 and the expected acceleration in Q2. The CGM prescription trends in the U.S. look weak. Could you talk about what is happening in the CGM market? There is a concern that the current indications are saturated. How are you thinking about Libre growth for the rest of the year and longer term? And lastly, remind us of the timing for type 2 non-insulin and the dual ketone sensor and the lactate sensor you mentioned. Thank you. Robert Ford: Sure. I think it is always important not to look only at weekly prescription data in one country. It is an important country, and the weekly prescription data is a great early indicator for the market, even though that auditing channel does not capture the entire market. It is very different from pharma, where you have a lot of other segments of the market performing. Using TRx data to ultimately look at how the market is evolving—and only using that—is a little bit myopic. Let me take a bigger view. I am very bullish on the CGM market—I always have been and I continue to be. Our assessment of the number of people who should be on a CGM on a global basis is between 70 million and 80 million people. There are different types of patients in that number, but overall 70 to 80 million people. The market today is around 10 to 12 million people. There are about half a billion people with diabetes, so I have already narrowed it down quite a bit, and even in that narrowed-down world, we are still very underpenetrated. If you look back at our growth trajectory, going back fifteen years at quarterly revenue, it is never always up and to the right on a perfect 45-degree line. There are periods of modest growth—call it 8% to 10%—followed by very long periods of strong acceleration in the teens to 20% growth. Those acceleration periods are typically driven by different catalysts: reimbursement, geographic expansion, and new product launches. I see a lot of catalysts still ahead. On reimbursement, you mentioned CMS type 2 non-insulin coverage. I expect proposed language for that coming soon. I cannot tell you the exact month, but I know it is going to happen, and it is going to add close to 10 million people that do not have coverage now and will be able to have coverage, which will accelerate commercial coverage too. I have not included that in my guidance, but it is a sweet spot for us in terms of our channel strength, promotional strength, and reimbursement coverage. Internationally, out of the top 10 markets in the world, only four have gone full-blown basal coverage, so there are another six very large markets still in process. We have built evidence to support that movement, not only from a physician side but also from patient advocacy. We showed in an RCT, which I talked about earlier, that patients on basal do better with Libre. There is so much opportunity still internationally and in the U.S. I do not think the patient TAM is tapped. You will have moments where growth modulates a little bit, and then the next catalysts come in and drive growth. You have to look at the bigger picture: you have 70 to 80 million people who can be on this product. Even if you look at a yearly revenue number that is lower than what we are seeing today because you have different types of patient groups, you are looking at a $3.035 trillion opportunity here that is available to us, and we are focused on that—focused on building competitive advantage, whether product technology advantage, cost advantage, or scale advantage. On innovation as another catalyst, we are still committed to and expect approval of our dual-analyte system. On the pump side, you have about 1 million patients that previously had very little access. You are going to have about 5 million SGLT2 users that are not using the product who will now benefit from having continuous ketone monitoring. We are working on Libre 5. Our view is always about sustaining our competitive advantage through cost advantage and product innovation. I still feel very good about this market. We look at weekly TRxs too, and we see the trends. There are areas we can do better, and we are working on that, but the bigger picture is that we are very well positioned for a very large market. Larry Biegelsen: Alright. Thanks so much. Operator: Thank you. Our next question will come from Vijay Kumar from Evercore ISI. Your line is open. Vijay Kumar: Hi, Robert. Good morning, and thank you for taking my question. I will stick to Exact. Given that the deal is closed—this is an asset which has done phenomenally well over the years, doing mid-teens growth—talk about your plans for sustaining strong growth of Cologuard. Is there an international angle here for Cologuard? And related to that, comparable growth is now 6.5% to 7.5%, and we know Exact is growing faster. Is there some conservatism baked into the guidance? Could there be upside given Exact is growing faster? Thank you. Robert Ford: Sure. The integration is going very well. We have named Jake Orville as our new leader in that business. He previously led the screening business—the Cologuard business—and he is reporting directly to me. It is reported in our Diagnostics queue, but it is operating standalone and reports straight to me. We are very excited. I have traveled with reps and talked to physicians. I am very bullish about accelerating this business. Sustaining Cologuard growth—when we looked at this strategically, we wanted to think about it not as a one-product deal, but as an opportunity to enter an extremely exciting and high-growth space: not just screening with Cologuard, but therapy selection and MRD testing. These are great opportunities. Our goal in doing this is to be across the entire cancer diagnostics span, and we believed that Exact was a beachhead building block for us to do that. Within that, Cologuard is the key growth driver, and it is a very sustainable growth opportunity. Demand is high and continues to increase. It is very underpenetrated right now. About 50 million Americans are not up to date with CRC screening, so there is an opportunity in the U.S. and internationally. Internationally, it is very underpenetrated. One of the things that we bring is established regulatory, KOL, health care system, and distribution relationships across many markets. We have already set aside a group focused on developing the screening and cancer testing market in international markets. On screening guidelines, the age in 2021 was lowered from 50 to 45, adding a lot of new patients. We are seeing people at 30 and 35 being diagnosed with stage 3, which is not good. Could I eventually see the age lowered from 45 to 40? I think I can, because there is a medical need for that, and that would add another 20 million people in the U.S. The value proposition of Cologuard is incredible. With increasing demand for screening, there is a fixed amount of colonoscopy capacity—about 6 million per year pretty consistently. If you look at gastroenterologists and enrollment rates in medical schools, they are coming down. You can see a world with increased demand for screening and less supply to do colonoscopies. Cologuard does really well here. Not only is it convenient at home, but its sensitivity at 95% is equivalent to colonoscopy. The combination of increased demand and this bottleneck supports strong growth. The average wait time for colonoscopy is between three to nine months depending on the state, so there is already a backlog. Another unique aspect is the commercial model: a 1,000-person salesforce calling on primary care. It takes time to build that. About 200 thousand health care professionals prescribe Cologuard every quarter, and everything is integrated into health records and your phone—a very seamless experience. Rescreens are becoming a strong growth contributor. Twenty-five percent of our tests today are rescreens, and you are eligible every three years. With all the data, you can interact with customers to remind them. We are seeing very high rescreen rates that get even higher as rescreens progress—about 500,000 patients per year just for rescreens. Care gap programs are also unique. CRC screening is one of the quality metrics CMS uses for star ratings, and payers and providers get three times the quality score for Cologuard versus a FIT test. We are seeing a lot of interest from healthcare systems and providers to stay ahead and ensure they are scoring their quality metric points. Internationally, will it be Cologuard? It could be in some markets; it could be other tests in other markets, but there is clearly a need. I traveled to Asia and Europe in the first quarter and spoke to health ministers. Top three priorities included getting cancer screening up and going in their countries. They see it as a problem and see Abbott Laboratories as one of the solutions. I feel very good about this business, and the integration is going very well. Culturally, both companies are very compatible and very focused on the patient, innovation, and driving growth. Vijay Kumar: Thank you. Operator: Our next question will come from Matt Taylor from Jefferies. Your line is open. Matt Taylor: Good morning. Thanks for taking my question. Could you talk a little bit about the trends in Structural Heart and, within that, address what is going on in left atrial appendage closure? Not only do you have programs including the next-gen 360, which I think people are excited about, but could you comment on what you think the impact could be from the CHAMPION study from your competitor? You have a similar study, Catalyst, that will read out here in a year or two. We would love an overview of Structural Heart and LAAC. Robert Ford: That is an interesting question because historically we had our left atrial appendage closure device within our Structural Heart business, and we decided to move it outside of Structural Heart and put it into our Electrophysiology business. We did that at the end of last year, starting January 1, where we moved the salesforce, clinical teams, and eventually manufacturing. We did that because we felt it would be beneficial for Electrophysiology and, quite frankly, would be more beneficial for our Structural Heart business. I will focus on Structural Heart trends. We have been doing pretty well. In our queue, we have a reconciliation of the impact of moving those sales out of Structural Heart into EP—that is a big contributor to the disconnection between the street model and what we delivered. On top of that, we have seen some competitive intensity increase in the mitral space as one of our main competitors expanded their portfolio. My team can do a better job there; they know that. We need to improve our execution in the U.S. We have made some changes to leadership, and I am expecting our U.S. commercial team to respond to the challenge. Internationally, growth continues to be very strong across the entire portfolio, and we are delivering double-digit growth in Mitral, TriClip, and our Structural Interventions business. While there will be some geographic differences, I continue to expect our Structural Heart growth to be high single digits for the full year. We have a couple of trial readouts. We have completed enrollment in our Catalyst trial. I do not have a big reaction to my competitor's trial; I will wait until ours comes out and then comment. It is a high-growth, attractive business. Our next-generation product is very exciting, and moving it to our EP business should provide better acceleration for that product and allow our Structural Heart team to stay focused on valvular products. Matt Taylor: Thank you very much. Operator: Our next question will come from Travis Steed from BofA Securities. Your line is open. Travis Steed: Hey, everybody. I wanted to ask on the Nutrition business. I heard you mention that volume is starting to recover a bit. Any other color you can give on getting confidence in that business returning to growth in the back half and volume picking up? And how you are thinking about ongoing portfolio management and value creation, and how Nutrition fits in that strategic thinking? Robert Ford: As I said, we are starting to see the impact. We did a comprehensive price assessment at a product and geographic level. We evaluated our gaps versus competition. We did not reduce price uniformly; we kept it focused on products that, based on our experience, would demonstrate a positive volume response to reduced price. When the price is passed on to the consumer, we are seeing an immediate effect, but it takes time for some of that price to get passed on, because of channel inventory. That is why we wanted to get ahead of it quickly in Q4 of last year. When you see the lower prices get passed through to the consumer, you see the intended effect. For example, in our U.S. Adult Nutrition business, specifically Ensure, that was a product we knew had some elasticity in its price. We have seen volume grow across all the retailers that have passed that on in the U.S. We are tracking this on a monthly basis, using the first half of 2025 as the baseline, and my team looks at this weekly with available data. I feel good about where we are. I am not going to say it is all done—there is still work to do. Product launches allow us to gain distribution, and we need to expand distribution into the channel. The team is incredibly focused and resilient. As it relates to the portfolio, I like the diversity of our business model—across business segments, products, geographies, customer bases, payer types, and innovation cycles. We do not want to be heavily weighted on one or two products. That diversity provides us a unique perspective on the global health care system. We constantly evaluate our portfolio: Is the market still attractive? How is our competitive position? Do we expand, maintain, or potentially reduce? We do this on an ongoing basis with management and with our board at least once a year, sometimes twice. Evaluating our portfolio for value creation is not a once-every-five-year exercise. If we see an opportunity, we have demonstrated we can act upon it. I am never going to make a long-term strategic decision based on near-term challenges. Nutrition is going through some near-term challenges and a transition and recovery phase, and my focus is on getting our business back to the growth rate we had seen over the last four or five years. Travis Steed: Great. Thanks a lot. Operator: Thank you. Our next question will come from Joanne Wuensch from Citi. Your line is open. Joanne Wuensch: Good morning, and thank you for taking the question. I am surprised we are fifteen minutes into this and no one has asked about macro issues, so I am going to go there. What are you seeing in terms of potential impacts from the conflict in the Middle East on your business—on oil and resin costs—and big picture, what you are seeing in terms of patient volumes and reimbursement, outside of your comments on respiratory snow days and things like that? Thank you. Robert Ford: The way Abbott Laboratories has been built, it has been built to withstand these kinds of events. Our discipline is to ensure that we try to get ahead of it. As it relates to oil costs, it is too early to tell. We are not seeing any of that in our costs right now. We are not seeing freight rates increase from our suppliers right now, but we are monitoring it. We have a whole team that monitors and stays close to it. One of the things we do to stay ahead is that each of our businesses has dedicated teams—Monday through Friday, 8 AM to 6 PM—working on gross margin improvement: anticipating cost shocks, becoming more efficient and effective, and negotiating with suppliers. It is too early to tell, but I do not think there is a big impact because we have teams in place working to mitigate. The impact we saw in Q1 was very minimal. I would not call it a demand impact. It was more about getting product into the region. Shipping lanes became constrained; everyone wanted spots on planes and different types of transport. We need to stay ahead of that. We run pretty efficiently with our inventory, so now we need to make sure we have more inventory in our affiliates and warehouses in the areas, so we have enough product and do not have back orders. I did not see a drop-off in demand or reimbursement challenges as a result of the conflict. It was more ensuring that we could get product into the area. The teams that Abbott Laboratories has in the region have unfortunately been through a lot and seen a lot, and I give them a lot of credit. They have to grow and drive the business under very tough challenges. Operator: Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is open. Josh Jennings: Robert, hoping to get more details on the EP franchise and the Volt launch internationally and now in the U.S. Internationally, any quantification of how Volt is impacting share recapture in the ablation catheter segment? For the U.S., with the early approval of Volt 2.0, any updates in terms of timing or how your team is going to move forward into a full launch this year? And overall, can you help us think about Abbott Laboratories' updated views on EP market growth—volumes and pricing? Robert Ford: That is fifty-five minutes with the first EP question. The team has done an incredible job over the past years of driving double-digit growth during a window where we did not have PFA. That window is now closed, so our expectations and outlooks are on the rise. The U.S. launch of Volt and the European launch of TactiFlex Duo are underway. Both launches are in what we call a limited market release phase. We do that with all of our products across devices and diagnostics. Before we go full-blown, we believe there is an intermediate step between a controlled environment or clinical trial and full commercial launch. That helps us understand resourcing, positioning, and uncover insights you might not get during a clinical trial. The feedback from both products is extremely favorable and aligned with our expectations when we were building this portfolio two years ago. We realized we were not first, but we wanted to take advantage of our mapping systems and develop what we believed would be an upgrade to the first generations. We are seeing that with Volt. The conscious sedation aspect of Volt is extremely valuable in the U.S. and internationally, and it is specific to Volt by design. At the European Heart Rhythm meeting last week, albeit preliminary and small, we saw data suggesting the lesions that Volt creates are more durable. That balances the discussion on the EP market to be not only about efficiency and speed—because there are many patients to treat—but also better outcomes. We believe Volt can deliver speed and efficiency and better outcomes. The TactiFlex Duo feedback is very positive as well—easy to use, very fast lesion creation. This is on the TactiFlex chassis, so there is a lot of experience with that catheter, and there is a seamless switch between RF and PFA. We are now moving to broaden the launches, which gives us confidence that growth will accelerate, including growing faster than the market by the exit of this year. On market growth, there is debate—is it 15% or 20%? We think the market will be mid- to high-teens, and we are aiming to do better than that. The near-term outlook for the business looks really strong. More importantly, I like our long-term position. We have two new PFA catheters, a new ICE catheter, a new introducer, and we are constantly making annual upgrades to our mapping system. We have mapping infrastructure in place with clinical specialists—highly valuable to our customers. We will add a second-generation LAA device to this group. No company in this space has the kind of portfolio, completeness, experience, and field teams that we have. While not all of these products fall into EP as a reportable segment, many EPs also use our devices—pacemakers, ICDs—and our leadless technology is very fast-growing. We have a very differentiated EP product portfolio, and there are a lot of exciting times ahead for our EP business. Michael Comilla: Crystal, we will take one more question, please. Operator: Thank you. Our final question will come from Marie Thibault from BTIG. Your line is open. Marie Thibault: Good morning. Thanks for squeezing me in. I want to get a little bit closer to understanding what is going on in the Core Lab business. You called out strengths in the U.S., Europe, and Latin America. I think we are moving past some of the China VBP headwinds. Could you characterize the Core Lab trajectory by geography during Q1? Any share gains? Any notable product launches to call out? Robert Ford: You characterized it well. Our sales in China for Core Lab were flat in Q1. Last year, we were down between 15% and 30% every quarter. The teams are making good progress. We are lapping some of the price and volume headwinds, which also contributes. The market dynamics we faced have improved. I am cautious to say it is all lapped because in VBPs you have different phases—regionals, nationals, etc.—but we have China modeled at a single-digit decline for the year. Could we do better than that? It seems like the team has done better in the first quarter, and I hope they will continue. In the U.S., the team has done a fantastic job. Growth rates are high single digits and have been like that for some time. We are renewing contracts at a very high renewal rate—call it 90% plus—and share gains are accelerating. Our win rates are 55% plus; in new business, we are able to win one out of two. Europe is difficult to characterize as one region because of north-south differences, but in general, the business has been mid- to high-single digits pretty reliably. We feel very good about Diagnostics. It has been performing well, with the exception of the impact of VBP in China, and that seems to be lapping. I expect full-year Core Lab growth to be mid-single digits. I was talking to the leader of that business yesterday—they have strategies to do better than that, with the second half higher than the first, consistent with what we have historically done. The team has done a very good job navigating VBP in China and continuing to drive growth in other parts of the business. In China, about 80% of our portfolio has gone through VBP. You will probably hear about new waves of VBP like a fertility VBP or a cancer VBP, and we have very little share in those segments. I do not want to say we are past the eye of the hurricane, but it seems like the teams have stabilized China, and the other businesses continue to perform the way they have historically performed. Just before we end the call, I would like to reiterate my comments at the end of my prepared remarks. I remain very confident in our expectation for an acceleration in growth in the second half. We know what the drivers are, we know where the accelerations are, we know where we need to improve execution, and we are laser focused on executing on them. Thank you all for joining us today. Michael Comilla: Thank you, operator. Thank you all for your questions. This now concludes Abbott Laboratories' conference call. A webcast replay of this call will be available after 11 AM Central Time today on our website at abbott.com. Thank you for joining us today. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Jeff Edwards: Good morning, everyone. Thank you for joining us for Schwab's 2026 Spring business update. This is Jeff Edwards, Head of Investor Relations, and I'm joined in Westlake this morning by our President and CEO, Rick Wurster as well as our CFO, Mike Verdeschi. Let's jump on in today, and hopefully, everyone had a chance to review our earnings release that crossed the wires earlier this morning and per the usual, slides for today's business update will be posted to the IR website at the conclusion of today's prepared remarks. Please adhere to our one-question policy during Q&A. And as always, the IR team is available to assist with any questions following today's update. And finally, the [indiscernible] wall of words or perhaps more widely known as the forward-looking statements page, which reminds us that outcomes may differ from expectations, so please stay up-to-date with our disclosures. And with that, I'll turn it over to Rick. Richard Wurster: Thank you, Jeff, and good morning. Thank you for joining us for our spring business update. I hope you walk away from the call this morning with three overarching messages. One, our Through Clients' Eyes strategy drove record client growth and financial results in the first quarter. Two, Schwab is delivering for clients and is uniquely capable of meeting client needs across investor types and investment environments. And three, we are innovating at a rapid pace with tangible progress in AI, digital assets and client capabilities and experiences. Our Through Clients' Eyes strategy continues to drive results with strong growth across all fronts in the first quarter. Clients remain highly engaged, and they continue to turn to Schwab through volatile and uncertain markets. Clients opened 1.3 million brokerage accounts up 10% over last year. Excluding a onetime mutual fund clearing outflow, we attracted $158 billion in core net new assets, a first quarter record that brings total client assets to $11.8 trillion. March was our second highest month of NNA ever behind only December of 2021. Clients continue to turn to us for more of their financial lives with strong engagement in our wealth and lending solutions. Managed investing net flows were up 46%, reaching an all-time record. Bank lending was up 29% year-over-year with bank product balances and pledged asset line balances reaching all-time records. We supported a record 9.9 million daily average trades. This engagement led to record financial results with revenues up 16% [indiscernible] $1.43, up nearly 40% over last year. Behind those numbers are people of all life stages who are turning to Schwab to invest and trade through a period of heightened market volatility. In the first quarter, we continued to execute across our key strategic focus areas and deliver innovations at a fast pace to help clients grow and protect their wealth. I'll highlight just a few, starting with growth. We're continuing to hire financial consultants and wealth advisers while expanding our branch footprint with about a dozen new branches planned for 2026. When clients have a direct relationship with a financial consultant, their Client Promoter Scores increase 10 points and they trust Schwab with 2.4x more net new assets. We launched the Schwab Team Investor account, giving young people ages 13 to 17, an engaging way to get started on their lifelong investing journey. Our differentiated joint account structure allows parents to monitor and engage as needed as their teams trade and invest. We are still in the early days, but have seen great interest and enthusiasm so far. We believe it is important for teenagers to learn the benefits of saving and investing. The merits of compounding over messaging from the more gambling oriented messaging from some competitors. We completed the acquisition of Forge, which will allow us to provide clients with direct and indirect access to shares of pre-IPO companies through direct private share purchases, single company funds and multicompany funds. We'll roll these capabilities out to clients over time and look forward to sharing more details in the months ahead. We are building a healthy pipeline in our recently launched private issuer equity services service which offers capital people management solutions for pre-IPO companies that combines the expertise and capabilities of our workplace business with Qapita's flexible technology and offers a seamless transition to our public stock plan services capability. With the Forge transaction now closed, we continue to see upside in engaging the private market ecosystem with a solution that offers them pre-IPO stock plan services, liquidity solutions for their employees and equity holders and lending solutions for their employees. This win-win opportunity creates value for the issuer while creating a pipeline of stock plan services clients and greater access to private company shares to grow Forge. We also increased our strategic investment in Wealth.com which we are already using to bring AI-powered estate planning tools to our clients. We're also working to launch their AI-powered tax planning capability in the near future. We successfully began the rollout of our structured asset line offer to adviser clients, expanding the type of securities they can use as collateral, including alternative investments. We'll talk more about our AI progress in a moment, which is helping us drive both growth in scale and efficiency. When it comes to brilliant basics, we were there for our clients in the first quarter. We supported over 600 million trades, more than 7.8 million calls to our service centers and about 570 million digital log-ins up about 12% from the first quarter of last year. Clients reaching out to our service centers had their calls entered in less than 30 seconds on average. We're also making it easier for our clients to do business at Schwab. In Advisory Services, we're continuing to enhance our digital experiences across RIA workflows like move money, account open and account maintenance while also modernizing tools on our adviser platform. Taken together, these enhancements help RIAs get routine work done faster and with fewer errors. We're also continuing to enhance our digital experience across the retail and workplace ecosystem, including expanding our digital experiences and bringing workplace on to Schwab Mobile. Most importantly, we continue to delight our clients. Client Promoter Scores are up 9 points over last year in Investor Services nearing all-time highs. Our [ ASCG ] score also remains near an all-time high. Our capabilities are differentiated and aligned to support clients in all markets, including the more volatile environment that we experienced in Q1. Our formula for driving earnings growth over the long term is straightforward, and you see it here on the screen. I want to spend a few minutes highlighting just a few of the ways we are accelerating our pace of innovation to deliver for clients and drive our strategy as we look ahead. We have a diverse set of opportunities to deepen relationships with our 47 million client accounts while also diversifying our revenue streams. I'll spotlight two areas where we are helping clients conduct more of their financial lives at Schwab, wealth and digital assets. Flows into our managed investing solutions reached all-time highs. This was driven by strong engagement with our flagship Wealth offer Schwab Wealth Advisory where net flows reached a record $10 billion, up 90% over last year. Approximately 30% of the flows into our managed investing solutions came from legacy Ameritrade clients. Clients in our managed investing solutions have the highest client promoter scores at the firm and bring in approximately 2x the revenue on client assets, and we still have runway to grow this business as our clients' financial lives become more complex, and we continue to add to our capabilities to help clients grow, protect and pass along their wealth. Another way we will deepen relationships with clients is with Schwab Crypto, our new spot crypto offer. I'm excited to share that the employee pilot is underway, and we expect the phased client rollout will begin in the coming weeks. We are starting with the two most popular coins, bitcoin and ether which together represent approximately 3/4 of the crypto market. Pricing will be competitive at 75 basis points on the dollar value of each trade. We plan to add additional cryptocurrencies to the platform over time as well as transfer capabilities for both deposits and withdrawals, allowing clients with existing digital assets that bring them to Schwab alongside their other investments. Most importantly, we are launching our spot crypto offer the Schwab way with a powerful combination of education, research, risk management and service all at great value. Finally, I want to spend a few minutes diving into how artificial intelligence is accelerating our strategy and the fast pace at which we are launching impactful AI capabilities. I want to start by highlighting three points. One, Schwab is already an AI-enabled company. We have been using machine learning and AI capabilities for years and have made recent progress launching new AI capabilities. Just as we have embraced and flourished during other periods of seismic technology change, we are doing the same now benefiting from our massive scale, data and technological prowess. Two, AI will accelerate our strategy. On the growth front, AI opens up new distribution channels and allows us to create personalized relationships with clients we have not been able to serve with a person-to-person relationship. AI is already having significant impact in driving scale and efficiency, both in our technology and operations and in the way we serve clients. Three, we are harnessing the power of AI in the Schwab way, bringing the best of people and to engage the way they prefer. AI is accelerating our strategy in several ways. First, AI will help fuel our ability to serve more clients. As prospects and clients increasingly use consumer AI tools for research, we are making sure Schwab will be there providing the trusted education and expertise that we already bring to clients on other digital channels today. We're already reaching a growing number of clients through the answer engine optimization work that our marketing team is doing to ensure we show up on the AI platforms where investors are turning. We are working with these platforms now, and you'll see us do even more. AI will help us with our second growth lever, deepening existing client relationships. AI can help us create personalized and deeper relationships with the clients we can't currently serve at scale with one-to-one relationships. We know investors are using AI today, 77% of U.S. investors use AI today, though more than 90% still prefer human involvement in addition to AI. Next month, we will begin the rollout of portfolio insights and AI-enabled experience that will deliver tailored insights to our clients about their investment portfolios, how they are performing relative to indices, the news about their holdings and the relevant proprietary research from Schwab. We have already tested this capability with employees. We will expand these capabilities throughout 2026, providing clients with insights on topics like concentration risk, asset allocation and technical indicators. We will also be launching a generative search capability for clients looking for information on schwab.com. The first iteration will launch this year. Starting over the summer, we will introduce the first of several AI assistants that will enable our clients to interact with chat and voice to address their most frequent service and support needs. Our first iteration of the investor AI assistant will launch in June. This capability will be able to answer general questions and we will start to test a set of actions the agent can take on behalf of clients. For example, clients will be able to interact with the voice agent to set beneficiaries. We are ensuring clear handoffs to human agents and strict guardrails. This agent and others like it will get smarter with each release as we introduce new skills. We are working with a leading AI agent firm on this build-out and look forward to sharing more details soon. We are also now able to meet our clients' trust needs with an AI-powered capability from wealth.com. We will do the same with tax. Over time, these efforts will create opportunities for enhanced experiences and new fee-based offers that will create value, we believe our clients will be willing to pay for. According to research, more than half of our clients are willing to pay for AI financial tools. AI is already driving scale and efficiency in two ways. First, it is helping us drive productivity across the firm. Every one of our sales, service and advice professionals is using AI every day to elevate every interaction they have with clients. A few examples. Schwab Knowledge Assistant gives our phone professionals answers to complex client questions in seconds. And Schwab Research Assistant synthesizes market insights from the Schwab Center for Financial Research. Schwab AI Service Assistant, which we've rolled out in retail and will follow in Advisor Services instantly transcribes approximately 60,000 live interactions a day, captures notes and assist client-facing professionals with next steps. Within Advisor Services, we've introduced large language learning models to analyze millions of calls to provide better coaching to our service professionals. In our branches, we are launching a relationship management assistant. If an FC has a client meeting coming up, this capability quickly summarizes past client interactions using AI, shares a view on actions that would help the client, records the client meeting and prepares an action-based summary of the meeting for the client. We believe this tool will make our financial consultants more productive and able to serve more clients more deeply and more effectively. Second, AI is helping us transform how employees work. We have equipped every one of our 33,000 employees with AI tools and are seeing tremendous creativity as they are developing fluency in AI and embracing the ways it can transform how we work. We are accelerating the pace at which our Schwab engineers build technology. More than 8,000 of our technologists are using AI to design, code, test and fix bugs, all of which increases our speed. And we are streamlining back-office processes and operations, risk and across the firm to save time and resources. We are confident that we are incredibly well positioned to continue unlocking the benefits AI can bring to our clients and our business, including, one, enhancing the client experience by bringing personalized insights to more clients at scale and serving more clients more efficiently; two, increasing productivity and efficiency, which will lower our cost to serve while enabling us to continue to reinvest in our growth; and three, create future monetization opportunities with AI-powered capabilities that clients value. The outcome is AI is accelerating our Through Clients' Eyes strategy to help us drive profitable growth through the cycle. I look forward to sharing more detail with all of you at our Institutional Investor Day on May 14, including demos of some of the AI capabilities that we'll launch soon. To summarize, we have strong momentum as we head into the second quarter, and we're well positioned to deliver earnings growth through the cycle. With that, I'll turn it to Mike to speak more in detail on our financial picture. Michael Verdeschi: Thank you, Rick, and good morning, everyone. During today's call, I will discuss our strong start to 2026, where our sustained business momentum drove record financial results for the first quarter. In addition, I'll cover our disciplined approach to managing the balance sheet, which allows us to support the evolving needs of our clients across different environments. And lastly, highlight how by doing more for our clients across our platform, including the continued deployment of AI, enables Schwab's model to become even stronger and more diversified allowing us to provide individual investors and RIAs with an industry-leading value proposition. Starting with 1Q. Revenue increased 16% year-over-year to a record $6.5 billion for 1Q, including another quarter of double-digit year-over-year growth across all major line items. The reduction of higher cost borrowings at the banks increased utilization of our lending solutions by clients and interest in long-short strategies helped drive a 16% increase in net interest revenue versus 1Q '25. While equity markets were increasingly volatile over the course of the quarter, strong asset gathering and client interest in Schwab's wealth and asset management offerings drove 15% year-over-year growth in asset management and administration fees to a record $1.8 billion. Trading revenue for the quarter was up 20% versus 1Q '25 as our best-in-class retail trading platform supported record levels of engagement, including 9.9 million daily average trades. Bank deposit account fees also increased 20% year-over-year due to an improved net yield as lower-yielding fixed-rate obligations continue to mature and convert into higher yields across both the floating and fixed rate buckets. Moving on to expenses. Adjusted expenses for 1Q grew 5% year-over-year reflecting first quarter seasonality and strong client engagement across our trading, wealth and banking solutions. We also continue to invest to support our key strategic initiatives, including organic growth, new products, AI opportunities and ongoing scale and efficiency efforts. Record quarterly revenue combined with balanced expense management, resulted in an adjusted pretax profit margin of 51.4% and first quarter adjusted earnings per share reached a record $1.43, a year-over-year increase of 38%. Transitioning to the balance sheet. We continue support of our clients' evolving needs as they navigated a challenging environment in 1Q '26. Demand for our bank lending solutions remained strong as total bank loan balances grew to $61 billion, up 29% from 1Q '25 and 5% versus the prior year-end. Client margin loan balances ended the quarter at nearly $127 billion, up 13% from year-end 2025 levels, reflecting continued interest in certain long short strategies as well as increased trading related margin balances despite a pullback in activity during the month of March. We also continue to utilize the combination of our interest rate hedge programs and investment portfolio to match off our assets and liabilities enabling us to efficiently maintain a more modest asset-sensitive position. Client cash followed typical seasonal trends to begin the year. However, as volatility increased during the back half of the quarter, clients took a slightly more defensive posture, which in conjunction with the cash build from organic growth and the long short strategies contributed to $25 billion of cash inflows during the month of March resulting in an $8 billion sequential quarter increase in client transactional sweep cash. For the second quarter, we still anticipate the typical drawdown in client cash due to tax payments in April. And similar to past years, we expect this activity to impact both transactional sweep cash as well as other liquid cash alternatives such as money market funds. Beyond seasonal considerations, continued market volatility could influence client cash allocations. And lastly, in line with our stated principles, we continue to prioritize flexibility in managing the balance sheet to remain well positioned to navigate a wide range of environments. Capital levels remained strong with our adjusted Tier 1 leverage ratio, finishing the quarter within our 6.75% to 7% objective range. Our adjusted ratio of 6.8% reflects a 19% increase in our common stock dividend, the repurchase of common shares for $2.4 billion during the first quarter and sequential growth in the balance sheet. 1Q '26 represented a strong start to the year with growth on all fronts, including healthy organic growth, record client trading activity, as well as robust engagement across our broader suite of modern wealth solutions, which we converted into record revenue and earnings. Given our strong performance in 1Q and based on what we see today in terms of the expected path of rates and strong client engagement, we are tracking higher than the $5.70 to $5.80 EPS range implied by the scenario we shared back at the winter business update in January, which excluded the impact of buybacks and Forge. We'll provide a more comprehensive update on our full 2026 financial scenario at the next business update in July. Finally, before we move on to Q&A, I wanted to take a moment to build on Rick's AI comments, specifically the conversation relating to cash. There are three key points to remember. One, Schwab provides an industry-leading value proposition to individual investors and RIAs. Two, with help from Schwab, our clients are actively managing their cash allocations. And three, Schwab's ability to help clients with more of their financial lives enhances the flexibility of our client-driven model. So first, the overall value of Schwab's platform. We have created an exceptional offering in the marketplace that is highly trusted and valued by individual investors and RIAs, which has led to approximately 47 million total accounts and investors entrusting us with approximately $12 trillion in total client assets. Clients value our firm's focus on helping them build and manage their wealth while providing all of these services at highly attractive all-in costs for them. Second, we provide a broad suite of cash management solutions that offer clients a range of products with different features to help meet their diverse needs. We also proactively seek to raise awareness around the cash options available on the platform and efficiently enable them to move between the various options with as little as one click of a button. At the same time, independent RIAs continue to help their end clients manage their portfolio allocations, including cash to help meet their individual financial goals. Today, this has resulted in total cash levels running around 10% of client assets were transactional cash allocated at about a 4% level or approximately $10,000 per account. And as we see demand for new products or capabilities for cash, you would expect us to deliver those to our clients. Importantly, given how easy we have made it for clients to move their cash between different solutions and based on the trends observed over the past few years, client cash is actively allocated today. To the extent additional efficiencies are enabled down the line, the broader evolution of the platform enables continued flexibility in managing our economics. Finally, as Rick noted, we view the emergence of artificial intelligence as a tailwind to Schwab's strategy. So by continuing to put clients first, Schwab's platform has built up immense flexibility. Our motto is informed by investors' preferences for lower explicit fees without sacrificing product access, convenience or service. To the extent those preferences change at some point in the future, Schwab has a lot of flexibility to continue supporting investors and RIAs in the way they have come to expect from us while still delivering strong returns for stockholders. And with that, Jeff, let's move on to Q&A. Jeff Edwards: Operator, Could you please remind everyone how to ask a question? Operator: [Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research. Steven Chubak: I wanted to ask on the outlook for NIM and cash growth, just recognizing the backdrop in March is anything but normal. Entering the year, you spoke to a low 2.90s exit rate on the NIM. It also contemplated modest IEA growth. And at the time you laid out the guidance of forward curve had multiple cuts, we're anchoring to a lower 10-year. So given the evolving rate backdrop, how does that inform both the NIM outlook exiting this year as well as expectations for IEA growth in a higher for longer backdrop? Michael Verdeschi: Steven, thank you for the question. Certainly, it's been a favorable environment in terms of that client engagement in the first quarter. And as you highlighted during the winter business update, when we laid out our financial scenario, that included two rate cuts. I think there was a June and September rate cut there. And looking at the forward curve now, perhaps the market is anticipating no cuts. So that is more favorable for us. And at the same time, when you look at cash, we had a good first quarter for cash and typically, over the course of the year, you will see that seasonality play a factor certainly in 2Q. But stepping back, we're expecting the continued upward trajectory of cash being driven by organic growth. So we think over the course of the year, certainly favorable, where the lack of rate cuts perhaps as well as the strong client engagement, both bringing us new assets in cash with that but also on the asset side as lending has remained robust, that will provide continued upward momentum. And I feel good about the NIM growth, both what we had laid out in that scenario, but also perhaps some upside to that when we come back in July with a refresh of our financial scenario, we'll provide more details. Thanks for the question, Steven. Operator: Our next question comes from Ken Worthington with JPMorgan. Kenneth Worthington: ETFs have been an area of strong asset growth for Schwab, and it seems like the economics of the value chain are shifting in favor of intermediaries. When we think about Schwab's approach to charging where value is provided in win-win monetization, how is Schwab thinking about its value as an ETF distribution platform? And is there a distinction that you'd make for that value when considering active ETFs versus passive ETFs? Richard Wurster: Ken, thanks for the question. We think there is value for us to be earned as it relates to ETFs, and we are actively working on that. We've been in negotiation with the 400-plus asset managers or so that are on our platform, and those are going well. We've started with the big firms and knock those out. So we feel really good about by the end of the year, having an ETF monetization strategy in place and live. And that's our current plan. I think timing can always shift, but we're taking all the steps to make that happen. In terms of active versus passive, I think I would draw the distinction mainly on fees. The way we're thinking about it is as a percentage of the ETF fees. And so active strategies tend to have more higher fees versus passive. And so there'll be more of an economic opportunity there. Operator: Our next question comes from Bill Katz with TD Cowen. William Katz: So a bit of a complicated question, but it looks to me, right, you're doing a better job of managing the interplay between balance sheet growth and capital return. And with the adjusted Tier 1 leverage ratio sitting at 6.8%, sort of nicely nestled between your range that you sort of look to keep the firm at. So as you look ahead, I guess the question is, how are you thinking about maybe the growth of earning assets, the remixing of that between lending and other higher-yielding opportunities versus capital return, certainly given a very strong now 3 quarters in a row of buyback. Michael Verdeschi: Bill, thank you for the question. So as we look out on horizon, we feel good about the client engagement and as we said this morning, we've seen that across the board. As it pertains to some of that lending activity, we've seen good continued momentum in both that bank lending product, certainly driven by the pledged asset line. And that, of course, comes at a very healthy spread over above what we could earn on just leaving it in cash or allocating it to securities. So that's been a good boost as well as margin lending. And so I think with the continued volatility in markets, we're seeing engagement across the board, but we feel good about that lending space as well. And of course, as clients bring us more cash and as they keep cash on the sidelines, that is used to fund those lending activities very efficiently. So we see that expansion of the balance sheet. It was modest in the quarter but continue to be fueled by that client activity, which has certainly been accretive to the firm in terms of earnings and certainly accretive relative to capital. Now with that, we continue to look at capital, and we prioritize capital for the growth of the franchise, and it's going to be there to support our clients and their evolving needs. But with strong earnings growth, it's given us flexibility as well to return capital across our framework. We increased the dividend in the first quarter. Of course, over the course of the year, we'll have a look at those preferred securities that will become redeemable. And if we decide we wish to keep that form of capital in our capital stack, we'll evaluate the economics around leaving those preferreds outstanding or perhaps redeeming them and replacing them or some portion. And then, of course, that leaves you then with buybacks. And again, given the ability to continue to have capital to support the growth of the franchise as well as the strong earnings, we've had a lot of flexibility on capital. So we feel good about how the client growth has been evolving and how we've been able to support that in quite an accretive way. Operator: Our next question comes from Brennan Hawken with BMO Capital. Brennan Hawken: So investors have been rather focused on an announcement that JPMorgan has made in rolling out a product to reduce the friction around brokerage cash. Are you considering similar tools you spoke a lot in your prepared remarks about cash and continuing to innovate? And how should investors be thinking about your flexibility in adjustment both to the competitive environment and the realities of the economics of the business. Richard Wurster: Brennan, thanks for the question. We've been trying to make it easy for clients to allocate their cash in the appropriate way forever, really. And we do lots to support that, whether it's our FCs proactively reaching out to clients and letting them know they have cash balances in sweep cash and understanding what their intention is for that cash and explaining other options than when someone logs in, a high proportion of the time, their first screen is earn more on your cash at Schwab. And certainly, our advisers as part of their fiduciary responsibility are managing cash tightly. So we've done everything we think to make it as easy as possible optimize and be intentional about where your cash sits today. And so we feel good about that. The second thing I would say is there's a lot of reasons why when given the choice between cash options, clients are choosing to be in our sweep cash program. Number one, they needed to be able to move money around to pay their bills to afford their life. We've got a couple of hundred billion that move in and out of the firm every month in terms of cash. They needed to be able to trade. And over a 2-day period, we trade roughly $300 billion of equities. And so there's cash needed to move, to support that trading level. So there are lots of reasons why we think clients have their cash intentionally allocated and why a big portion of it is on the balance sheet. In terms of an agentic capability, we are launching an agentic capability this summer. It will have basic agentic capabilities to start with and take on a few tests. Over time, I expect that everything you can do at Schwab today by going and pointing and clicking to move around the website or through a mobile app, will be able to done -- or most of it will be able to be done through an agentic experience over time. And our launches will incrementally add to that over time. And so the one click it takes to move cash today may become an agentic experience over time. Now if clients want their cash managed as part of a broader asset allocation, we think that would be a fee-based solution, and that's something that we're -- that we will be prepared to offer as well. The final -- I mean I'd make on cash in addition to the fact that we think clients have optimized and been intentional about their cash is that we believe we have many ways to charge clients for the value we add. Our Client Promoter Scores are at all-time highs. Clients love working with us. We offer no trade-offs experience in periods like we've just been through this last quarter, the clients really see the value of what we do. how we have charged our clients over time for that value proposition has changed. It used to be heavily reliant on commissions. And certainly, we've adapted our business to deal with a declining commissions environment. So my views on this are really fold. One, we think clients have been intentional about their cash, and we've tried to make it really easy. Two, [indiscernible] agentic capabilities that will make everything at Schwab very easy. And three, we've got lots of flexibility in how we monetize at Schwab for the value that we provide. So we feel we're on a strong footing and are incredibly excited about AI as an accelerant to our strategy, not as a headwind. Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe you could just zoom in on March a little bit more. I mean very strong metrics in both NNA and transactional cash build. Any color around -- first on the NNA, we've seen the adviser side grow faster than the retail side drop for a while now. Any contribution from RIA conversions, bringing in new RIAs from wirehouses that would be sort of elevated in the month. And then on the deposit side, is it your sense that deposit build is more due to risk off or potentially more due to cash build ahead of tax payment season? Richard Wurster: March was an exceptional month of NNA. It was our second highest month of NNA ever behind only December, which December is always seasonally strong. So outside of one December, it's the strongest month of growth we've seen in net new assets, which is really exciting to see. And you mentioned the consistent strength we've had in adviser services. What's even more reassuring about March and more exciting is in investor services reached an all-time monthly high of net new assets and actually had higher net new assets in March than Advisor Services did. So we saw strength really across the board, both in Investor Services and in advisory services. I think it's a reflection of our value proposition. In Advisory Services, we continue to have the leading custodial offer. We say it's one of the Schwabiest choice. And I think that's becoming more and more true because we continue to invest in this business, make it easier for advisers to do business with us. We've rounded out our offering to them in terms of adding more lending capabilities, which they wanted and now they're getting. We were launching -- and just recently launched a structured asset lending program, which has opened up advisers' ability to have their clients borrow against alternative investments, borrow against their restricted shares, private shares things along those nature. And our advisers love that because, historically, they've had to introduce a big bank to do that lending and now they can keep that wealth relationship and do the lending through us. And so our value proposition to advisers has never been stronger. And importantly, the advisers continue to win in the marketplace because the fiduciary model works because there's a bull market for advice and convenience and the independent advisers have a great model. And so as they win and we're successful in supporting their growth, we win as well. On the retail side, I think -- or on the Investor Services side, our growth is a combination of our value proposition, some engaging market that has clients interested in bringing assets to Schwab and how we stand apart from others in the industry. It's -- we're going through a period of heightened market volatility where what we do and the way we do it and the way we see through client size really stands out. And so I think that's helped with our NNA. Mike, do you want to talk about cash? Michael Verdeschi: Yes. Thanks, Rick. In terms of the cash, yes, Brian, we did see that good pickup in the month of March, and there were a few factors that caused that. As you highlighted, if you look at the quarter, it was really March where you began to see that decline in equity markets and that shift in sentiment. So that certainly was a contribution to that pickup in cash that we saw late in the quarter. But then in addition, other activities such as that long short strategy brought in some cash as well but also with the strong net new assets over the course of the quarter and in particular, in the month of March, that also served to bring us cash as well. Now I don't know how much of that may have been related to the tax. I think the drivers that I described were more of the primary drivers, but it may mean that, that cash was not put back into the market too quickly. If clients were selling then that cash may have just remained on the sidelines, and we'll go out for tax reasons in the month of April. And as I said, in April, where we're expecting and everything we're seeing so far is that normal tax season or it's the combination of that transactional cash as well as money market funds contributing to those tax statements. But thank you for the question. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: I just wanted to circle back to your comments around the cash sweep monetization and customers choosing to pay for services in part through a lower yield on cash. I was just curious how you monitor and assess the scope for changes in customer behavior and preferences around that? And how might the competitive landscape? And technology advances maybe impact that. And I was hoping you could maybe elaborate a bit more on if monetization evolves away from cash sweep. What might future monetization and potential lever to look like at Schwab? Richard Wurster: Thanks for the question, Michael. And I want to be clear, before we get into how we would change our economics, we do not see this currently as a big risk. We believe our clients have intentionally allocated their cash, and we go out of our way to make it incredibly easy to make sure clients land in the right cash solution for them. And there's lots of reasons, as I mentioned, like clients choose sweep cash in both our advisory business and our Investor Services business. So that's point one. Point two, in terms of how it evolves, I think we have lots of levers to pursue. We make money in lots of different ways. And whether it's trade or trading or wealth or lending, potentially fee-based solutions that leverage these agentic AI capabilities, there's lots we can do. If someone is going to want us to proactively move cash for them without their -- without them being involved in that movement, that is likely an advisory offer, and we charge for advisory offers and would for an Agentic advisory offer. So there are numerous ways and Listen, when I look at our company and where we stand and the value that we have, the 47 million clients that we have on our platform, I'm incredibly bullish about our ability to grow our revenue in any environment. We have built long-standing deep relationship with clients that highly value what we do. And just as we figured it out, as commissions went down, we'll figure it out if the economics changed in this environment, but we're also very confident that we've gone out of our way to make sure our clients' cash is intentionally allocated and that we'll support them in any way they can with all of their business. And it's important to remember that client cash is, I believe, less than 4% or so of overall relationships that clients have here. We're helping them on 100% of their financial life. There's lots of ways we're going to be able to monetize those relationships as if things were to change. Operator: Our next question comes from Mike Brown with UBS. Michael Brown: I wanted to ask about the digital asset offering here. So it's imminently coming. And I guess when you think about the strategic objective here, is it mainly retention? Is it focus on new asset gathering, higher engagement or just kind of building a broader financial ecosystem. And when you talked about maybe some assets coming over to Schwab, is there any way to kind of catalyze that movement to bring assets over and help individuals consolidate the digital assets on to Schwab? Richard Wurster: Thanks for the question. In terms of why launch crypto, number one, we've always have stood for client choice. And we have many clients that want to invest in crypto and are investing in crypto through Schwab today, whether it's an ETP or future or closed-end fund. And they want exposure to crypto and they've wanted spot exposure, and now we'll be able to give it to them, and I couldn't be more excited about that. And we're doing it in the swab way at a great value with lots of research and education around it. In terms of how to catalyze clients moving their crypto from their current provider to us, they are -- they've been begging us to launch this so they can move their crypto assets to us. So I think they will proactively do that. Certainly, our financial consultants will have conversations with clients and encourage them to consolidate their financial life in one place. They've been asking us for it. And the reason they ask us for it is there's a couple of reasons. One is they trust us. They view us as a safe institution. And second, the more they can consolidate their financial life, the more we can help them guide them through the financial life provide the resources and capabilities they need to live their best financial life. And they know we offer the service the pricing, the capabilities that can't be matched. And so they proactively wanted to move. So I don't think we're going to have to catalyze it. I think it will happen but we certainly will have many conversations with clients to our financial consultants. The last point I'd make is you asked about the strategic importance of this. The other point I would highlight is that we have gone about this in a way where we are building our own books and records in our own custody capabilities. That is a prelude to being able to offer clients choice in how they want to hold their equity someday with the potential for some -- or in fixed income, some wanting to tokenize those securities. And we're building optionality through this launch that allows us to support the future of tokenization should that be of interest to clients. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: So in terms of trading, obviously, a very active quarter, but the [ RPT ] came in a lot and understanding mix always plays a role here, but curious if there are other inputs in terms of pricing? And then also just on the digital asset offering, I was hoping you could talk about the -- what informs your pricing strategy with the rollout of that offer. Richard Wurster: Absolutely. Let me start with trading and then digital pricing, and I'm just jotting these down. Sorry, what was the first part on trading? Revenue per trade Yes. So let me describe how our traders are feeling. Our traders are feeling more uncertain about the geopolitics, about potentially the economy. As a result, and I talked to a group of traders two weeks ago and what they shared with me is they are taking smaller positions, holding them for less duration because they have less conviction. And so they are trading more frequently as a result. But because they're smaller trades, they're generating less revenue per trade. And so that's what sort of lines the high level of daily average trades you're seeing with the revenue per trade that we're experiencing. In terms of crypto pricing, our crypto pricing, I believe, among the major terms, we will have the lowest price for the first dollar traded and we wanted to be competitive and at the same time, we know launching crypto is expensive. There's risk with launching crypto. And so we wanted to make sure that there was a healthy fee. And we thought -- we think we've hit the mark in terms of having a very competitive fee while still generating attractive economics. Operator: Our next question comes from Devin Ryan with Citizens. Devin Ryan: Question on prediction markets. It sounds like something you'll potentially look at. It doesn't sound like sports or gambling related are interesting. But how do you see the markets evolving more broadly, particularly the areas that are maybe closer to Schwab's core, like corporate events or economic events? How significant could those areas be over time? And then is there a time line that you can share just around how you are thinking about potentially entering or signposts that we can look at for Schwab potentially entering there. Richard Wurster: Devin, I think you hit the nail on the head in terms of how we think about it, which is we do differentiate between financial related events and supports politics, pop culture. Where even the power of ownership and the power of compounding over time and owning equities, owning fixed income assets, being an investor over time and having that ownership leads to higher levels of wealth. And our goal as a company is to help our clients live their best financial lives. And so prediction markets that are not aligned to that, are not something that we want to pursue. And if you look at the stats on the success of gamblers, they're not strong and people generally lose money. And so as a company that is in business to help people live the best financial lives, we have kept sports and other things off to the side. In terms of a time line, I think this quarter was a quarter in which we accelerated our innovation at one of the fastest spaces that I've ever seen with the company in terms of -- we launched crypto to employees. We made significant progress in AI. We opened up a new lending capability that our advisers love, we launched [ keen ] accounts sending a really strong message to parents and teenagers about what we stand for and the way we think clients should engage in markets. So we closed the deal on Forge to be able to provide private shares to our clients. So we had a significant number of launches. And when we ask clients what they're looking for, prediction markets is very low on the list. I spent time with a large group of clients a few weeks ago, and I asked every one of them, "Hey, what do you think of prediction markets", and it wasn't a tremendous interest to our clients. That said, I think at some point, we likely will have production markets. And I also think that there will be intermediaries that bring these to market. And so if you look at some of the announcements by folks like CBOE and others, they're coming up, I believe Nasdaq might be also doing something. They're coming up with binary options on different financial events and contracts that I think will act and behave very much like prediction markets, and that's something certainly we will take a hard look at and then will be quite straightforward for us to offer. So more to follow on production markets. It's not at the top of our clients' list. We're ready to move when and if needed and when we do, we'll stay away from gambling. Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: There's been clearly a lot of turbulence in retail channel for alternative products. Schwab's been fairly committed to that as a strategy. So I was hoping to get your perspective on what you're hearing on the ground from advisers with respect to their reception to Evergreen private alts in the RIA channel, but obviously also with respect to your own launch and how those products are being onboarded. And slightly separately, but within the alts category, I was hoping you could also comment on balance sheet capacity for the long short tax advantage strategies within that. Richard Wurster: I'll start with [ ops ] and then I'll have -- Mike will talk to the balance sheet. So on all its -- you asked about the advisers specifically. If you look at the proportion of alternatives that our advisers have as their broader asset allocation, it's relatively small. I expect when you take a 5- or 10-year view, that will grow. As we look at our platform today, we think we could do more to curate and help advisers along the way choose the right alternative investments for their clients and create a platform that is very helpful to them. In doing so, we believe there will be opportunities for us to monetize the provision of those alternatives to our advisers as that develops. It's also critical that we make investing in alternative investments easy for our advisers, and that's something we've leaned into heavily this year, and we'll make lots of progress on by the end of the year. So lots of opportunity there. And with that, Mike, do you want to talk about the long short program? Michael Verdeschi: Sure. Thank you, Rick. And in terms of that long short program, we've certainly seen that become of greater interest. And it's an activity where, of course, there's a long position offset with a short. From a balance sheet perspective, there's a netting aspect to that. And then, of course, a fee that we earn on that activity. So it's not a balance sheet capital-intensive type of activity. But that being said, we work closely with those fund managers. We understand the different strategies and perhaps how those strategies evolve in different environments and making sure we have the resources on hand to as needed if we see some of those strategies evolve over time. But we feel good about supporting the client need for that strategy, and we could continue to see some growth and it will depend on how the market evolves over time. But we certainly have the resources to support it. Jeff Edwards: Operator, looks like we have time for one final question. Operator: Our last question comes from Ben Budish with Barclays. Benjamin Budish: Maybe just a follow-up on the earlier commentary on training activity. Rick, I think you mentioned that traders are taking smaller positions, holding them for less duration. Just curious if there's any other color you can share the sort of breadth of engagement. The trading mix, I know can have an impact on revenue per trade. Just thinking -- trying to think through how we might think about some of those KPIs into April over the course of the rest of the year would be helpful. Michael Verdeschi: Ben, it's Mike. Thanks for the question. So yes, in the quarter, we did see strong engagement from clients. We did see that spike in daily average trades to a record $9.9 million. It's those types of environments where you see that volatility and high engagement. You tend to see that more weighted towards equities as opposed to derivatives. And that's what we did see. I think Rick brought in those other important factors, while weighted towards more equities, you did see smaller trade size, less shares per trade, less option contracts per trade. And I think that is an indication of the environment that we were operating in, highly volatile, but also less conviction. So we'll have to see how the macro backdrop evolves over the course of the year, but you see this dynamic where you see these spikes in daily average trades quite accretive, of course, to earnings but having that pressure on that revenue per trade, if you perhaps see a more moderate set of volatility impacting the market, if you saw that reduction in volume of trades you could see a little bit of a lift in that revenue per trade. But again, it's really going to be dependent on how the environment evolves. Overall, we're very happy to support the client engagement. It's been a highly accretive activity. Jeff Edwards: Thank you for your questions and engagement. We've covered a lot of ground today, but I want to leave you where we started. First, our Through Clients' Eyes strategy continues to drive strong client growth and financial results. Second, we are continuing to deliver for clients and are uniquely positioned to meet client needs across investor types and market environments. And finally, we are innovating at speed, making tangible progress in helping our clients conduct more of their financial lives at Schwab so they can grow and protect their wealth over the long term. Thanks for your time today. Take care.
Operator: Good morning, and welcome to PepsiCo's 2026 First Quarter Earnings Question-and-Answer session. [Operator Instructions] Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin. Ravi Pamnani: Thank you, Kevin. Good morning, everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 16, 2026, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our first quarter 2026 earnings release and first quarter 2026 Form 10-Q available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's CFO, Steve Schmitt. [Operator Instructions] And with that, I will turn it back over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: You guys are first up in large staples, so I thought it was appropriate to start with just an update on any impacts from the Iran conflict that are now contemplated in guidance and how that ties to your full year earnings visibility. So first, maybe, Steve, on the cost side, just can you highlight what's changed in terms of your cost assumptions? Any sizable pressure points individually as you think about the cost situation? And also if you're more locked into this point on cost with hedging and contracts or a bit more open ended for the full year? And I'm presuming costs have gone up. So what are the offsets internally as you think about 2026 earnings visibility? And do you think you still have that visibility even with the external volatility? And then, Ramon, if I can slip a second one in, maybe you can just touch on international demand. Obviously, another solid quarter, continuation of momentum there. But in theory, there's also some macro risk to demand post Iran. So if you can touch on the international regions if you're seeing any impact from the conflict later in March or April so far, that would be helpful. And again, the juxtaposition of sort of internal momentum versus the external volatility and if you think you can drive continued momentum going forward? Stephen Schmitt: Dara, it's Steve. Thanks for the question, and good morning, everyone. Obviously, we've been spending a lot of time here. A few things maybe. The -- we've had no major issues from a supply chain standpoint. We're seeing really nice continuity there. The teams are managing it well. I think in times like these, the scale of PepsiCo is really an advantage. I really want to thank our supply chain and procurement teams for the work they're doing. I know they're working around the clock to manage this, and they're doing a really nice job making sure that we continue to service our customers. We do have some systemic hedging programs in place. That does give us some near-term visibility here. We typically have about 6- to 12-month hedges in place. Now our assumption is that inflation will come. The order of magnitude, we're still working through, and I think a lot of that is still to be determined. And the way I think about it from my experience on how you manage inflation would be kind of 3 ways over time. One, you grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price pack architecture. We'd like to do the majority of it through the first 2. But I think the reality is, depending on the magnitude and time that we have inflation will likely play in all 3 areas to combat the inflation that we'll see. From a visibility and guidance standpoint, our assumption is that we can mitigate what comes our way this year, and that's really reflected in our assumptions on guidance. And as you might expect, we've started to begin our work on 2027 scenarios, but we're still working through that, and we don't have anything more to share on that today. But Ramon, maybe you take the second part. Ramon Laguarta: Yes. Dara, so I would emphasize Steve's point that at this point, in the play, the scale of PepsiCo and the resilience we've built over the last few years, especially after COVID, on our supply chain. We built a lot of redundancy in terms of our key materials and multiple supply points for our key materials. So that's giving us an advantage. Obviously, our hedge program. And as Steve mentioned, the seniority and experience of our leaders on the ground make a big difference because they provide agility, they provide good, good common sense on how to deal with situations, protecting our people, but also driving for growth in moments of complexity. Now with regards to the international business, as you saw, is very strategic to our long-term growth strategy is one of the key pillars. It's been accelerating. And actually, to your question, it continues to accelerate. So we haven't seen an impact on demand in the last -- since the war started. We have very strong commercial programs. Actually, I would say in some markets, we're seeing benefit because we have better supply chain than some of our competitors, especially in the food business. So nothing to -- remarkable at this point. We're executing our very strong commercial programs for the summer. The World Cup is a big driver of execution and innovation during the summer, and the teams are full speed executing that, along with some other transformation of the portfolio. So the international business is very solid, continues to accelerate. And in our guidance, we haven't assumed any impact because we're not seeing any at this point. Operator: [Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was hoping to see if you can talk about PFNA a bit more in detail, and congrats on the volume inflection. Can you talk to us about like how the programs have been progressing as we go through the quarter? And how sustainable do you see this performance if you had -- I mean some of the investors may have asked if you had some benefit from shipping ahead of the shelf resets and then the winter storms as well? And if you can comment on that? And how has the repeat rates been in your view for the refilling of those orders? Ramon Laguarta: That's good, Andrea. So if you step back for a minute, early last year, in the spring time, we define the new strategy for the company, focused on growth and very strong productivity to fund the growth. The company has been executed across all the different sectors, this strategy with rigor and a sense of urgency. And we've seen results in Q4 and continued sequential improvement in Q1, as you saw. Now, when you go down to the North America Foods business, this was a holistic commercial study focused on growth. There was some additional value to the consumer. There was more space. There was a restage of some of the key brands like Lays and Tostitos. There was a lot of innovation to accelerate our, what we call permissible and functional. And there was a repurpose of funds towards away from home to accelerate away from home. All of that is delivering for us. So when you see the 2% volume growth is a combination of all these elements, more value in some of the core brands, multipacks and multiserve is one lever, but it's a much more holistic. We feel good about where we are at this point in the journey, still in the process of all the shelf resets and launching the innovation I would say. By the end of Q2, we'll probably be almost completed in that process. But the early reads are quite exciting. Now if you think about 2% volume growth, about 4% unit growth we have increased 300 million occasions in Q1 in the food business, 300 million new occasions to our business compared to Q1 of last year. The away from home business is growing 3x the average of the company. The permissible portfolio is growing double digit in some of the brands. So clearly, all the structural things that we're trying to do are working. And most importantly, we don't talk so much about it, the productivity decisions that we took early last year are giving us that flexibility and optionality to invest in the food business in a way that we couldn't do earlier. So -- and actually, the cost for North America Foods went down in Q1, which is a remarkable achievement by the team. So we're good. We're feeling encouraged also by the results in the last few weeks, where we got positive share. Not only in volume, we've had for quite some periods already, but now we have positive share in value as well, which is one of the KPIs that we set for ourselves early on. So good progress. We'll continue to update, but the execution is -- we're in the middle of this reset execution, but feeling very good about how the brands are reacting, how the customers are supporting and how the teams are executing in the marketplace. Operator: [Operator Instructions] Our next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a quick follow-up on PFNA. I just wanted to verify that you still expect to deliver both organic revenue growth and core operating margin expansion this year for the business. And then I do have a question, I guess, on the volume pressures you're seeing at PBNA. I assume your volumes have been pressured as you continue to roll out smaller pack sizes for affordability and then you're leaning in on your price pack architecture initiatives. But I guess, hoping for some color on what's continuing to pressure volumes and maybe your strategy to drive better volume growth this year. I guess, should we assume PBNA volumes will be negative this year, but declines will moderate and improve for the next few quarters? Stephen Schmitt: Thanks, Bonnie. This is Steve. Let me talk about the PFNA, I guess, margin question, I think you asked. If I take a step back, if I look at the total company, core operating margin increased about 10 basis points. We did have a property sale gain from last year in the PFNA business that negatively impacted that. So it would have grown, expanded a little bit more without that. We had organic revenue increase, 2.6%, core EPS increased 9%. So we're pleased with how the total company performed. For PFNA specifically, we're going to continue to play offense. We're investing in value. We have exciting innovation. We're supporting that with additional advertising and marketing, and we're growing volume and sales. So we affirmed our guidance today. We'll manage margin as a total company, but we want to give ourselves as much flexibility as possible within the segments to do what's necessary to hit our guidance overall. Ramon Laguarta: Yes. And Bonnie, on the North America Beverages business, we've been -- we're talking about this case pack water transition to a third party. That's still part of the numbers in Q1. It will -- I think it lasts at -- in. So we only have 1 more month to lap. If you excluded that transition, the volume is actually almost flat. And we expect that, that acceleration will continue in the coming periods. Now what's exciting about PBNA at this point is the business grew 9%, right, 9%. Now it's a combination of organic growth, revenue growth of 2 plus 7 points of additional platforms that are now in our distribution system. Some of that is business that we acquired like poppi, some of that is an increased portfolio of energy brands that are generating growth to our business. So we feel good about the 9%. We feel good about the acceleration, the 2% inorganic, and we feel good about the fact that we have flat volume as case by water and that, that progress will -- that acceleration will continue in the coming quarters. Our expectation is to have positive volume growth case pack water in the coming quarters. Operator: [Operator Instructions] Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to maybe get a little bit more granular, if we can on some of the trends in the PFNA business, knowing that Nielsen scanner doesn't capture everything. One thing that stood out to us is Lays. Lays is one of the businesses where I think you moved earliest, you had the Great Super Bowl commercial, refreshing the visual imagery, emphasizing simple ingredients, price adjustments and so on. And that business well is improving, it still looks pretty weak in aggregate, volumes bumpy, but still generally down and organic down pretty significantly. So I just wanted to talk -- hear your response to that kind of next steps. I would think that's the business that's the toughest in terms of kind of mainstream competition and less differentiation. But you're the furthest along there. So just maybe your perspective, what I might be missing on how that turnaround has been progressing from your perspective. Ramon Laguarta: Yes, Lauren, it's good. The Lays brand is part of, as I said, a more holistic restage of the full business. We're well under -- this is a global brand restage, so Lays is being restaged globally. Is performing very well globally. It is performing well in the U.S. We grew volume this quarter in Lays in particular. But if you step back and say, okay, what's happening at PFNA, we grew volume 2%. We grew occasions units 4%, and we grew 300 million occasions in the quarter versus Q1 last year. That, for us, some of the success metrics that we're looking at. The other set of KPIs we're looking is household penetration, and we see household penetration gains across all our core brands. And on top of that, we see our permissible portfolio growing, in some cases, double digit, brands like SunChips, Smartfood, and some others. So holistically, we think we're in a very good place. The fact that we're back to gaining share in the last 3 weeks, we use IRI. We don't use Nielsen internally. That's the data point that we have. In IRI, we're gaining share of in value terms, in the last few weeks, and we've been gaining volume share now for, I think, 3 or 4 periods. So overall, we think that the consumer is back in our brands. The consumer is coming back multiple times to our brand responding to our holistic value plus execution plus advertising plus innovation strategy. And there will be more -- as we execute the full space transformation and innovation execution, we'll see -- we're very optimistic about the sequential improvement of that business. And we think we're on track -- actually a little bit ahead of where we thought we would be by now. Operator: [Operator Instructions] Our next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Congrats on the progress in the quarter. Wanted to ask you both on the organic sales guidance and your expectations for the back half of the year. So I think the existing commentary was that is successful with North America Foods and International continues to progress well, et cetera, you could deliver toward the higher end of the 2% to 4% in the back half of the year. You sounded good on international to me, maybe even a little bit better despite the conflict promising with the return to volumes in North America Foods and same on with beverages. So I just want to see if that is still the expectation that the exit rate for the year is going to be closer to the lower end of your long-term guidance of the 4% to 6%. So your comments there would be helpful. Stephen Robert Powers: Sure. Kevin, this is Steve. Maybe I'll start. Really no change in the guidance from the top line standpoint. We guided 2% to 4% and the upper end of that in the towards the back half of the year, and that is a good estimate as we can give you at this point in time. In terms of the progress of the financial performance over the year, I think in the last call, we talked a little bit about the year being balanced between the first half and second half. And I still think that's as good of an estimate as we can give you at this point in time. Ramon Laguarta: Yes, Kevin, I think the if you look at all the execution of the hungry and thirsty for growth strategy across the company is very positive. So we see an acceleration, international continue that. We've seen momentum in PBNA, both organic and reported. So that is good as well. And sequential growth in PFNA. As I said, probably a little bit ahead of what we thought at this time. So nothing has changed for us to give you guys a different guidance on how we see the business evolving and where we plan to be by the end of the year. . Operator: [Operator Instructions] Our next question comes from Filippo Falorni with Citi. Filippo Falorni: I wanted to ask a follow-up on PFNA, especially on the innovation and the distribution gains that you're expecting. Ramon, you mentioned you should be mostly done by the end of Q2. So how should we think about the relative size of distribution gains and the contribution from innovation in Q2 versus Q1. You have a lot of products shipping in Q2, like the protein, Good Warrior, Smartfood, good fiber. So I was just curious like your plans into Q2 in terms of innovation contribution and then the distribution gain, should we see an acceleration into late April and May? If you can comment on that would be great. Ramon Laguarta: Yes, Filippo, I think we are obviously different launches, different stages of ACV that we have. But if you think about the majority of our innovation is, let's say, 40%, 50% ACV at this point. So we should expect that we accelerate that in the balance of the quarter and into the summer. The same with the planogram resets were probably 50% more or less in the process of transformation of the space for the year. The space gains that we are getting from our retail partners are pretty much as we expected. Some customers a bit more, some customers, a bit less, and we continue to work with them in a win-win programs for the summer where this category is very relevant to consumers. So that's more or less the journey that we're in and why we think that we would be accelerating the business in the summer. I mean, towards the summer. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: Can you just maybe unpack some of the top line in PFNA a little bit more? And maybe elaborate on the timing of some of the price adjustments. Obviously, we see the segment price down, but just modestly in the first quarter. How much more is in place versus maybe still to come? And then just on some of the category assumptions looking ahead, some of the SNAP revisions and cuts are still quite early. Anything you're seeing or how you're factoring that into guidance and just maybe some thoughts on your expectations for GLP-1 impact. Stephen Schmitt: Maybe I'll -- this is Steve. Maybe I'll take the SNAP question. We did have 8 states. They were 8 states that began restriction in the first quarter. It's mainly beverages and candy. I think it's too early to come to any definitive conclusions right now in terms of impact. It's obviously something we'll watch closely, see how customers balance that funds with other discretionary income for purchases over time. I think the LRB category overall remains robust, and we'll continue to monitor it. Ramon Laguarta: Yes. And on the -- to complement what Steve said. On the food side, we're seeing the Sabra snacks category accelerating with -- part of that is our efforts, obviously, to bring more consumers into the category. Our retail partners are working with us in that journey is a very relevant category to everybody. We're seeing that category accelerating. In many parts of the world, snacks, Sabra snacks is growing ahead of food in the U.S., some weeks is already growing ahead of food, which is a good sign, and we're gaining share of that category. So overall, we see LRB consistently growing above food and beverages, and we've seen Sabra snacks continuing to accelerate and eventually stabilizing and growing ahead of food and beverages, which has been the historic norm in the past. That is one of the -- we've always thought that as, as leaders of the, Sabra is a category, one of our key objectives, make sure that the category is healthy, and we continue to bring consumers into the category. Some of them had lapsed. They're coming back, innovating to bring more families, more consumers into the category. So that's the assumption for balance of the year. And so far, so good. As I said, we've brought in a lot of consumption occasions into the category in Q1, and we see the same trends in Q2. . Operator: Our next question comes from Robert Moskow with TD Cowen . Robert Moskow: You talked about your market shares in PFNA. I want to know if you could talk about it in PBNA also. Is it fair to say that on a value basis, those shares are still in decline. And is that part of your strategic review? Will you be evaluating how to improve market share as well as what I think we're all focused on the bottler network? Ramon Laguarta: For sure. I mean, obviously, market share is a key. -- let's step back for a minute. PBNA is growing 9% total business, right? So we're growing at an accelerated way, including energy. So we see ourselves participating in the energy portfolio through our CELSIUS investment and our distribution of CELSIUS, that's gaining share. We see ourselves, obviously, very statistically leading the functional hydration category and that category is accelerating. For the first time in several years, we see functional hydration, including sports and the rest of functional hydration growing ahead of LRB. That's a key objective for us as well. . We see Gatorade and Propel gaining share there. We still have some work to do on accelerating the coffee business and accelerating the tea business, where we're also leaders. Some of the innovation that we have in the Starbucks portfolio is intended to do that. And then in CSDs, we continue to have good growth in modern soda, which is a segment that keeps accelerating. Our poppi business is starting to accelerate now, and then obviously, we have opportunities with Mountain Dew that we have highlighted for quite some time. Now some of the innovation that we've put on the market early innings, but both the Dirty Mountain Dew and Baja and cabo, different flavors on the Mountain Dew are starting to grow the brand, which is very encouraging for us. And then on the Pepsi business, we're lapping some of the events that happened last year. We continue to see no sugar Pepsi growing ahead of competitors, and we are optimizing pricing sizing on the rest of the business to participate in a better way in the -- during the summer period. So overall business, we feel good about the 9% top line growth and how we're participating in different segments of the category to drive the growth for PBNA. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: I wanted to ask a follow-up on PFNA. You mentioned in the prepared remarks that you expect sequential improvement for the division in '26. So I just wanted to clarify if that was a broad-based comment, or should we expect organic sales to continue to show improvement relative to the 1% growth that you delivered this past quarter? And I guess, if it's the latter, can you maybe provide some guardrails around what to expect as we think about the balance of the year? Ramon Laguarta: Yes. I mean our current assumptions is we continue to accelerate organic -- I mean first volume, we'll continue to grow volume, which is consumption units into the brands, Consumption Act. We'll continue to accelerate organic and reported revenue growth. becomes organic as of next quarter, I think. And then we'll -- our intentions and how we're thinking about the balance of the year is growing our profit growth in North America Foods again. That's how we're thinking about the business sequentially. Now Steve mentioned that we're going to manage the business as part of the broader portfolio, we're going to continue to be on the attack trying to make sure that we stabilize the top line, and we continue to make this category the Sabra snacks category growing ahead of foods and making this a place where both us and the retailers want to invest and continue to grow for the future. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Ramon, recognizing that it's still early in the PFNA momentum rebuild. I guess, have you seen any meaningful change at all in competitive intensity, whether pricing promotions or on shelf behavior? And I guess, given the incrementality of your building cost inflation. How do you think the food industry broadly will balance? What are clear consumer affordability concerns with -- the producer needs to offset costs. Is there a chance that, that could interrupt your own affordability investments? Or I guess, conversely, does that -- are you looking at that as a potential natural limitation on the risk or more aggressive competitive pricing response to your own actions as we build through the year? How are you thinking about those dynamics? Ramon Laguarta: Yes, I'm sure there will be -- as we enter the high season for the category in the summer with all the big holidays, I'm sure there will be more competitiveness in the category. And -- but we have our plans for this. It's not only price. It's trying to provide that. The growth strategy for Frito is not only price. Price is one element, obviously, that is very relevant for many consumers to get back to our category, but its innovation, its execution is making sure that all the elements in retail and away from home continue to be successful. Now with regards to the productivity story that we have, I don't know if our competitors have the same productivity story, but we've been focused on reducing cost, cost per unit and overall cost for the food business and all the North America business and across the company, actually. And that has been a very successful strategy for us. We still have a lot of non-executed drivers of productivity in the coming quarters and years that would help us continue to give consumers the right value and compete probably in a better way against the other food manufacturers. So that's how we're thinking about the next innings in the journey. And we'll see how inflation behaves as Steve said earlier, we're going to play a full portfolio and want to make sure that we win in the marketplace with PFNA, whilst we continue to deliver the overall profit growth targets for the full organization. Operator: Our next question comes from Robert Ottenstein with Evercore. Robert Ottenstein: So most of the focus today has been on the top line. I'm wondering if we could kind of dive into and you just started to touch on it a little bit the productivity programs. I think you mentioned that you're on track to having perhaps a record year on productivity. So can you talk about maybe the major buckets for productivity what you're doing maybe differently this year than in prior years because you've obviously been focused on productivity for a number of years. And then how you see that productivity gain scaling up through this year and into next year? . Stephen Schmitt: Sure. Thanks for the question. This is Steve. Well, productivity is one of these never-ending battles that we're going to have. We are benefiting from some of the moves from last year, the reduced headcount, plant closures, reduction in SKU count. It's encouraging to see key metrics like cases per hour and our supply chain continue to improve. So we've got some things that are really working in our favor that allow us to play offense as much as we have to grow volume. We're going to continue to remain very focused on customer service measures while we do this and reduce expenses. I think overall, we have more work to do on the total company cost structure. It's little things that we'll look at like just different things in the supply chain. It's like whether overtime hours are trending the way we want. The little details of how we're operating to make sure that we get the operating metrics really in line with where we need them to be to drive the productivity overall in the company. But we have good progress there. We have lots of work to do, and it's a big part of our strategy to make sure we continue to play offense. Ramon Laguarta: Yes. And also, I would add some of the big drivers that we've been talking about in the past, we continue to execute. So global shared services, deploying technology across the company and AI, both in our supply chain, but also how we do transportation, how we optimize routes. If you think about in many countries around the world, we're moving to digital ordering systems where we reduced the number and the time that our salesman expect to take an order. And so we're leveraging technology in a very holistic way and AI and data to drive efficiency and transformation of cost. Not only efficiency across the system, both supply chain and go to market, the 2 big buckets. We're also optimizing our advertising and marketing. We're getting better at the multiyear journey on return on investment on marketing and trade. So those are big -- 2 big demand budgets that we're optimizing. So if you think about where we are in the journey, we're in the multiyear journey, and we're executing all these strategies across all of our anchor markets, obviously including the U.S. And we're tested on learning, the idea of can we create more value, both growth and cost by integrating more of the supply chain in the U.S., and we're live in some tests in Texas, and we're going to deploy that in some other states. That is another vector of cost transformation going forward that we're going to learn more in the next few quarters and update you guys later in the year, early next year. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: Ramon, you had mentioned the very substantial increase in the number of occasions. Can you maybe dig into that a little bit more? Who are these consumers? Or what are those occasions? Are they different from the core? It sounds like it was obviously quite a success so far. I just like to learn more about what's behind it. Ramon Laguarta: I'll give you a couple of examples, Kaumil, and so you can get a sense. Obviously, by optimizing the value in some of our multi-serve and multipacks, both in Lays, Doritos, RUFFLES, et cetera, and also in Gatorade, we are bringing lapsed consumers into the brand. So these are consumers that had left the brand, either moved to stop buying the category or moving somewhere else. So that is kind of growth in the core. At the same time, if you think about the consumers that are coming into the category because of innovations like Naked or we're seeing already some in some of the innovation from Gatorade with no artificial, low sugar. We're seeing consumers that were not in the category, but because they love our favorite. Now we're offering solutions with no colors, no artificial colors, no artificial flavors and they're coming back to the category. So 2 types of consumers coming into the category because both of a stronger core and also innovation that drives incrementality to the category. And I think we're going to continue to play both levers. The other -- obviously, that applies to both foods and beverages, and we will continue to do this not only in the U.S., but also in our international markets where we're starting to deploy some of the innovation from the U.S., and we're seeing also an acceleration of the category, especially developed markets in Europe. Operator: Our last question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Just back to PFNA way back to the beginning of the call on Bonnie's question, did you change your investment targets or goals for the business this year? And if so, where are you seeing greater opportunity to invest? And Ramon, you flagged the World Cup as an activation event. What does a World Cup activation look like for PepsiCo, perhaps specifically for Frito, how is it different versus past events? And are you embedding any of that uplift in your outlook? Stephen Schmitt: Chris, it's Steve. Thanks for the question. The comments I was making earlier, I think to Bonnie's question, is that we just want to give ourselves as much flexibility as possible to manage all of the sectors and all of our businesses to hit the numbers that we've given you with our guidance. So that's what I was just trying to illustrate is that we want as much flexibility. There's a lot happening in the world that we need to manage and navigate through. And so we're going to give ourselves as much flexibility within the business to make the decisions that are right for the total company. Ramon Laguarta: No, listen, and World Cup is -- obviously, we're sponsors on the food side across the world. And this is obviously a very big opportunity to engage consumers. This is a real passion point for many consumers. I mean, I'm a big fan of soccer and I see how we feel at that moment. Now it's very holistic. If you think about innovation, we're going to have flavors from around the world, being executed in every market. Obviously, there's space gains, there's activations. But most importantly, from the consumer occasions point of view, we are working on no Lays no game, which is kind of an activity that -- or a campaign that we've been executing globally for quite some time, we'll double down on that with some of our global football players. And the idea is link Lays to the occasion of sports watching and making sure that when there is gatherings of consumers watching the game, this is activated. We're going to personalize, obviously, for different -- we know, more or less, who supports what team and then we're going to be able to personalize the communication to consumers. We're going to have fun of the match. So we're going to have different activations in every game where our Lays brand will nominate funds of the match. We're going to have Quaker participating as well in the event as the players walk into the stadium, the children will have Quaker brand, and that's going to be part of the restage of Quaker globally. And then obviously, we have partnerships with our retailers and quick delivery partners around the world to make sure that we capture those occasions in the moment and the consumers have the opportunity to order Lays and to order some of our drink combinations to enjoy the game with friends. A lot of occasion development, a lot of brand awareness, a lot of personalization and some innovation to drive excitement across the world, obviously, space gains and retail partnerships. So it's a very holistic activation across the world. I think especially for countries where per capita low. This is a huge idea for us to bring new consumers into the brand and also to develop frequency and some new occasions. So we're excited, and we can already see the some of the acceleration in some of the international markets because of this activation. So thank you very much for your questions and your support and thank you for the confidence you've placed in us in PepsiCo and look forward to further conversations in coming quarters. Thank you very much. Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Hays plc Trading Update for the quarter ending 31st of March 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kean Marden, Head of Investor Relations and M&A. Please go ahead. Kean Marden: Good morning, everyone, and thank you for joining us on a busy reporting day for the sector. I'm Kean Marden, Head of Investor Relations, and I'm joined here today by James Hilton, Chief Financial Officer, to present Hays' Q3 '26 results. Before we begin, please be aware that this call is being recorded, and the replay is accessible using the number and code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call regardless of whether these statements are affected by new information, future events or otherwise. I'll now hand you over to James. James Hilton: Thank you, Kean. Good morning, everyone, and thanks for joining us today. I'll present the key points and regional details of today's trading update before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year unless stated otherwise, and consequently exclude our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. Group net fees decreased by 8% with Temp & Contracting down 6% and Perm down 12%. I'm pleased to confirm that strong consultant net fee productivity growth and cost discipline continues to offset lower net fees. Although near-term market conditions are likely to remain challenging, and we remain mindful of heightened global economic -- macroeconomic uncertainty, we currently expect FY '26 pre-exceptional operating profit will be in line with consensus. I would like to highlight the following key items from the results. Temp & Contracting net fees decreased by 6% as we saw a modestly stronger return to work in the U.K. and Ireland and ANZ and the year-on-year decline in volumes and average hours worked in Germany was in line with our expectations during the quarter. Group Temp & Contracting volumes decreased by 5% year-on-year, including Germany, down 9%, UK&I down 8%, ANZ down 6%, and Rest of the World up 2%. Perm net fees decreased by 12%, driven by a 15% decline in volumes as conversion of activity in UK&I and ANZ reduced modestly versus Q2. This was partially offset by a 3% increase in the group average Perm fee supported by our actions to target higher salary roles. We continue to manage our consultant capacity on a business line basis. And despite challenging markets, our actions delivered 7% year-on-year growth in average consultant net fee productivity in Q3, including notable increases in the UK&I and our Rest of the World businesses. On a seasonally adjusted basis, productivity has now increased for a sector-leading 10 consecutive quarters. Consultant headcount reduced by 3% in the quarter and by 14% versus prior year. We've continued to make strong progress towards our structural cost saving program with a further GBP 15 million per annum savings delivered in Q3. We've now achieved GBP 30 million annualized savings in FY '26, making excellent progress towards our target of GBP 45 million by FY '29. In total, we've now delivered GBP 95 million annualized cumulative structural savings since the start of FY '24. Our non-consultant headcount exited the quarter down 7% year-on-year. And the group's net debt position was circa GBP 15 million, which is in line with our expectations and reflects normal seasonal cash flows. I will now comment on the performance by each division in more detail. Our largest market of Germany saw fees down 11% year-on-year. Temp & Contracting fees decreased by 11% with volumes down 9% and a further 2% impact from negative hours and mix. Temp & Contracting volumes remained solid overall with return to work in line with prior year and the year-on-year decline in average hours were during the quarter predominantly in our public sector and enterprise clients was in line with our expectations. These sectors hired in anticipation of fiscal stimulus, hence, our placement volumes have remained resilient, but hours work remained softer in the quarter after federal budget approval was delayed. Perm was sequentially stable through the quarter and the year-on-year decline in net fees eased to 10%. At the specialism level, Technology and Engineering, our 2 largest specialisms, were flat year-on-year and down 27%, respectively, the latter impacted by ongoing subdued performance of the automotive sector. Accounting & Finance was down 22%, but Construction & Property performed strongly once again with 37% net fee growth, driven by our focus on infrastructure and the energy sector, and it now contributes 9% of our net fees in Germany. Consultant headcount decreased by 6% in the quarter and by 15% year-on-year. Net fee productivity increased by 5%, driven by our ongoing focus on resource allocation, and we made strong progress with our structural cost-saving initiatives. In U.K. and Ireland, fees decreased by 10% with a modestly stronger return to work in Temp & Contracting down 6%, but Perm remained subdued and was down 15%. Fees in the private sector declined by 8%, while the public sector was tougher, down 13%. At the specialism level, Technology was flat versus prior year, while Construction & Property and Accountancy & Finance decreased by 8% and 6%, respectively. Enterprise fees declined by 4%, while office support was flat as our actions just to target higher salary roles offset lower volumes in our junior roles. Consultant headcount decreased by 4% in the quarter and 16% year-on-year. Consultant net fee productivity increased by 11%, and we made further good progress in improving operational efficiency. Once again, a key driver has been our greater focus from our consultants on high skilled roles, consistent with our Five Levers strategy. As a result, year-on-year growth in average candidate salary remained at 8% for Perm in Q3 and accelerated to 9% in Temp & Contracting. As expected, our sustained focus on cost discipline, including ongoing initiatives to optimize our office portfolio and delayer management has driven a further structural improvement in costs. We've made good progress towards building a higher quality focused business and consequently anticipate improved profitability in the second half. In ANZ, fees decreased by 2% year-on-year with modestly improved momentum in Temp & Contracting, but Perm was more subdued. Temp & Contracting decreased by 1% year-on-year with a Return to Work modestly ahead of previous years. Perm net fees down 6% slipped back into modest year-on-year decline as conversion of activity to placement became more challenging. The private sector decreased slightly by 1% with the public sector down 6%. At the specialism level, Construction & Property, our largest specialism at 21% of ANZ net fees increased by 6% with office support and Accountancy & Finance up by 7% and 5%, respectively. Technology declined by 11%. Australia net fees were down 2% with New Zealand at minus 11%. ANZ consultant headcount was up 2% through the quarter but decreased by 4% year-on-year. Driven by our focus on resource allocation, consultant net fee productivity grew by 7%. As with U.K. and Ireland, the key driver of our profit recovery has been greater focus from our consultants on higher-skilled roles. As a result, year-on-year growth in our average salary of our Perm placements was maintained at 5% in Q3. In our Rest of World division, comprising 24 countries, like-for-like fees decreased by 6%. Temp moved back into positive year-on-year growth and fees were up 3%, but Perm declined by 12%. As a reminder, our total actual growth rate includes the impact of our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. In EMEA ex Germany, fees decreased by 8%. France, our largest Rest of the World country, remained tough and loss-making with fees down 17%, but our actions to address productivity and costs are being delivered on plan, and we continue to expect an improved performance in H2. Southern Europe performed strongly with Spain and Portugal again achieving record quarterly net fees, up 17% and 6%, respectively, and Poland grew by 2%. In the Americas, fees decreased by 7%. The U.S. and Canada were down 8% and 2%, respectively. We have previously highlighted a substantial bid pipeline with large enterprise clients in North America, and I'm pleased to share that several contracts have now reached final close with mobilization anticipated over the coming quarters. Brazil, down 12%, was again challenging. Asia fees increased by 8% with activity -- improved activity overall through the quarter. Japan grew by 33%, driven by strong growth in our Temp & Contracting business and an easier comparable. Mainland China grew by 16% and Hong Kong by 9%. For the Rest of the World as a whole, consultant headcount increased by 3% in the quarter and by 14% year-on-year. Before moving to the current trading, I wanted to take a few moments to update you on our strong strategic progress during the quarter. As we've previously shared with you, our initiatives to improve consultant net fee productivity in real terms through our Five Levers and structurally improve our cost base will be key drivers of profit recovery. Amidst challenging markets we are executing well and continue to make significant operational progress. We continue to invest in high potential and high-performing business lines and scale back or exit those with low performance and potential. As previously communicated, we have exited 4 countries over the last year, and we'll continue to review our country portfolio in the medium term. Consultant fee productivity up 7% in the quarter has increased for a sector-leading 10 consecutive quarters, driven by careful allocation of consultants to business lines with the most attractive productivity and long-term structural growth opportunities. Greater focus from our consultants on high skilled roles and our investments to provide them with the best tools. Within Temp & Contracting net fee growth was positive in 3 of our 8 focus countries in Q3. And at the group level, Temp & Contracting now contributes 65% of net fees. In Enterprise Solutions, we've recently signed several new contracts which we expect to contribute to fees over the coming quarter. And our programs to structurally reduce our cost base performing well with GBP 95 million per annum aggregate structural savings now secured since the start of FY '24. We continue to make strong progress with our initiatives and expect the full financial benefits to build over time. Moving on to current trading and guidance. To date, we have observed minimal impact from developments in the Middle East, but we remain vigilant. Although we have limited forward visibility given the heightened levels of global macroeconomic uncertainty, we expect near-term Perm market conditions to remain challenging but expect greater resilience in Temp & Contracting to continue. We were pleased once again with our net fee productivity through Q3 and believe our consultant headcount capacity is appropriate for current market conditions and therefore, expect it to remain broadly stable in Q4 as we balance focused investment in high-performing and high-potential business lines with improving productivity in more challenging areas. We will continue to structurally reduce our cost base to position Hays strongly for when end markets recover and expect to make further substantial progress in Q4. As a result of the acceleration of our cost program, we have incurred around GBP 20 million of exceptional restructuring costs to date in fiscal 2026. But finally, there are no material working day impacts anticipated in Q4 '26. I'll now hand you back to the administrator, and we're happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Rory McKenzie from UBS. Rory Mckenzie: It's Rory here. Two questions, please. Firstly, I'm sure you've scrutinized all the forward indicators all the ways that you can. So have you seen any signs of client activity changing at all since the start of the Middle East conflict? Then secondly, within enterprise clients, can you say what the net fee trend here was excluding those 2 large RPO contracts you lost? And you referenced a growing pipeline and improving win rates. Can you just talk more about any sectors or countries that are driving that and what your hopes are for that fee pile going forward? James Hilton: Thanks, Rory. I'll start off with the first one around the impact in the Middle East. And look, standing back from this the first an immediate priority for us has been the safety and the well-being of our 70 or so colleagues over in the region, specifically in the UAE I mean as I put in the statement and in the script, we have seen to date little to no impact at all in our -- either our fees or in our forward indicators. But clearly, we remain highly vigilant given the level of uncertainty that's building around the world. And as you would expect, we'll watch every piece of data like a hawk. And if and when we see any change, we'll react accordingly. But as we stand here today it's business as usual. We're continuing to focus on our priorities, which is optimizing our resource allocation for the best long-term opportunities versus -- and managing it versus the current level of demand and activity. We're fully focused on our cost programs, and we expect to make good progress through the next quarter, and we're continuing to invest in our technology and our people and position ourselves for the long term. So as a team, Rory, you know us well, we've been through choppy times in the past, whether that's GFCs, whether it's pandemics. This is the next thing to come along to the world of geopolitics, but we'll manage it accordingly, and we'll stay very, very close to it. And as and when we see anything, we'll let you know. Second question was around Enterprise and really the trends in that business. I think if we just look through the impact of 2 large losses that we had in Q4 last year, actually, excluding those, we were about flat year-on-year in the Enterprise business. I mean, bearing in mind this time last year, it was an all-time record performance for our Enterprise business. So we're up against a relatively tough comp. We were down 5% in the quarter. But if I adjust for those 2 contracts, it's about flat. In terms of the pipeline, it's been encouraging, actually. We've been talking a little while now around the efforts we've had to sharpen our focus on the bid pipeline and what we've had is some really successful conversions of that and now getting those deals over the line in the last quarter have been -- should be beneficial for us in the coming quarters ahead. In terms of where those are concentrated, we've had several wins in the North America and in the U.S., in particular in the tech sector as well. So that's where a lot of our focus has been, as you know, in terms of investment and really pleasing to see some of those efforts coming through. And I think that will help that business going forward over the next 6 to 12 months. Rory Mckenzie: Great. Maybe just one more to follow up on the kind of the business repositioning in these tricky markets. You're having to manage some areas that are up strong double digits right now and other areas that are still down strong double digits. So I know you've closed 4 country operations, and there's lots of kind of repositioning in the group. But can you talk about how you -- are you still in a process of a very active portfolio management? Could there be other countries or practices you might be closing to redeploy? Or how far through the evaluation of all the mix do you think you are right now? James Hilton: I mean the way we run the business, Rory, is not just at a country level. We -- as you know, we run it at a business line level. So whether that's a specialism or the contract form within that specialism. So we may be investing in tech contracting in a country while we're disinvesting in Perm because we see deeper levels of demand and activity, and we have to make appropriate decisions. And you're absolutely right. If you look at our consultant headcount at a macro level in the last quarter, we were down 3%. But actually, several of our countries, we were strongly investing in, and I'd highlight Japan, Spain has been 2 good examples there where we're seeing relatively benign macroeconomic conditions, we see really good long-term opportunities to structurally grow our businesses there, particularly in the Temp & Contracting area, and we really made some investments in both of those markets, which are really coming through quite nicely. So the way we run our business, as you know, is really to map our resource allocation to both the long-term opportunities for us to grow, but also we have to manage it within the markets we're in and have to respond to current levels of demand and activity. So that's how we do that at an overall group level, Rory. In terms of the portfolio, clearly, we've had 4 countries we've withdrawn from over the last 12 months or so. There's a couple more that we're looking at. I expect us to think about that more strategically going forward and think about the long-term opportunities and the major markets that we need to focus on. But we'll update on that in due course. I mean -- but as today, business as usual, we're very much focused on making sure we've got the right consultants on the right desks in the right markets. Operator: We will now take the next question from the line of James Rowland Clark from Barclays. James Clark: My first question is just in France. You commented it's loss-making at the moment. Are you able to update us on a potential time line for turning profitable at this level of activity in the market? And then my second question is on Australia and New Zealand. It slipped a little bit in this quarter to mind, the private sector was down 1%, it was up 2% last quarter. Just interested to know what's happened there? And a similar comment on Germany and Technology, which has done the opposite. It's materially improved to flat from down 10%. I just wondered if that was complicated or anything else to draw out. James Hilton: Great. Thanks, James. I'll kick off with France. And clearly, it's been a challenging market for us and for the sector overall to be fair, over the last couple of years. Clearly, we've not been happy with the performance there. And as you know, we were loss-making in the first half of the year. We're very much focused on turning that business around, both in terms of the markets that we're focused on increasing our exposure to Temp & Contracting away from junior clerical roles and moving further up the food chain and at the same time, bringing some of the structural costs down in that business. We're well on with our plan. Our current plan at the levels of demand that we've got today would see us back into a breakeven position or even slightly profitable in our Q4. So we're very much focused on that. But clearly, as all our markets is subject to current levels of demand. But other things being equal, I'd expect to be back into a positive position there. As we exit the financial year, which is important for us because France is an important market for us. Not so long ago, we were making GBP 15 million plus of profit there. Let's not forget. So it is an important market for us. It's been through an incredibly challenging time, talk about instability and the broader impacts on business confidence, that's right in the heart of that. The team have had a real battle on their hands, but I think we're coming through that now, and I expect to be in a better position as we exit the year. Question on Australia is a fair one. And actually, we talked last quarter about some positive momentum. As you mentioned, the private sector was up slightly. We were back in growth in the Perm business. And we've seen that slightly inflect actually whereas our Temp & Contracting business has continued to move forward. And I think overall, I look at Australia and we're pretty consistent with where we were 6 months ago. But I would say that the Temp & Contracting business has probably been slightly ahead of where we expected to be and have good momentum and good trends through the quarter as we've highlighted in the returns to work. But on the other hand, Perm has been a little bit softer. And it's interesting because we -- the top of funnel activity is actually pretty good. And I look at the number of job registrations, interview numbers, it's consistent with where we were in September and October. We just haven't seen that conversion come through at quite the same level. As we had 6 months ago. And hence, the Perm fees have come in just slightly short, but it's relatively small deltas both ways, but just a subtle shift there. But overall, it's a pretty stable trend in Australia and actually a pretty similar picture in the U.K. actually, not dissimilar in the trends that we've seen there. Germany tech is predominantly underpinned by our contracted business. So if you think about the weightings of our businesses, the Temp business is heavily weighted to the Engineering sector and the Automotive sector more broadly, whereas the contracting business is the largest business there is in technology. And that's been pretty stable. We've had reasonably pretty solid performance in terms of the number of starters there over the last 3 months post-Christmas. The hours has been stable, which is helpful. The team are doing a really good job of pivoting that business and finding growth within our clients, not everywhere is difficult in Germany. There are pockets of opportunity, and I think the team are doing a good job of finding that. So Technology being flat was a pretty decent result overall for the German business. Hopefully, that covered everything, I think, and please forgive me if I missed anything. Operator: We will now take the next question from the line of Karl Green from RBC Capital Markets. Karl Green: Just a quick question to see if you've got anything incrementally, you say, around a permanent CEO appointment in terms of how the process is unfolding there? And secondly, just technically, an update on what you'd expect exceptional restructuring charges to look like in the second half. You said that you expect to incur increased charges in H2. I just want to check how that compares to previous comments, please. James Hilton: I think I got it, Karl. You were a little bit faint. So if I miss anything in your questions, just please just shout. I think the first question was around the permanent CEO appointment -- clearly, Mark stepped into the role in February on an interim basis. And it's very much BAU. As you can imagine, we're focused on driving performance on making sure we've got the right business line allocation. As you're aware, we've cracked on hard with the structural cost program and better positioning ourselves from that perspective, and we expect to make good progress through Q4 as well. So very much making sure that we deliver and best position the business as strongly as possible. While the Board are clearly running their process, evaluating both external and internal candidates. So that's their process to run and they'll update in due course. But working with Mark, it's very much business as usual, and we're very clear on what we're doing, and we're cracking on with that. The second question was around the restructuring work that we're doing and any update on restructuring costs in the second half. We had about GBP 10 million or so of restructuring charges in H1. And I expect a similar level in Q3, bearing in mind, we've accelerated the delivery of the cost program, but I expect similar levels in this quarter. Clearly, we've got another quarter to go, and as I mentioned, we expect to make good progress. So there's highly likely to be some further costs coming through. in Q4. But clearly, we'll update, Karl, in due course when we're closer to the time, and we know what the actual numbers are. Operator: We will now take the next question from the line of Steve Woolf from Deutsche Bank. Steven Woolf: Just one for me. On the Enterprise Solutions business, down overall, mentioning the contracts you previously flagged on North America and Switzerland. And also down in the U.K. So I was just wondering whether there was any sort of knock on those contracts were global contracts that were lost or whether this was anything specific to the U.K. James Hilton: Yes. Thanks, Steve. Yes. No, it's a fair question. And what we've seen in the last quarter is a little bit of a drop in some of the Perm contracts that we have in the Enterprise Solutions business in the U.K., notably in the construction sector. We've seen a little bit less demand coming through, which has been the driver of that being slightly down year-on-year. But as I said before, I'd highlight that this time last year was an all-time record quarter for that business. So pretty tough comp to go up against. But the Temp & Contracting side with the MSP has been pretty solid overall, but we have seen a little bit of a drop in demand in some of the Perm RPO parts of the business. Operator: [Operator Instructions] We will now take the next question from the line of Tom Burlton from BNP Paribas. Thomas Burlton: Sorry, my line did cut out, so apologies if any of these have been covered, but 2 for me. First one is on Asia, which was particularly strong, and I guess, especially Japan. Just wondering if you could dig a bit more into exactly what the drivers of that were? And then on -- second one is on headcount plans for Q4. I know you touched on the Middle East and limited impact there, but you did mention sort of heightened vigilance. I'm just curious if any of that heightened sort of awareness of what's going on there is feeding into headcount decisions as we think about Q4? James Hilton: Thanks, Tom. I'll kick off with Asia. So 8% growth in the region was pleasing. And as you highlighted, Japan, was the standout performance in that region. Underpinning that, has been really quite rewarding is the return on investment that we've made over the last couple of years in our contracting business, that's now a good -- about 25% of our business, actually probably close to 30% of our business is in the contracting space in Japan. And the investments we've made both in Engineering and in Technology contracting have really started to come through and that business was growing at north of 40% year-on-year, which is really pleasing. So the team are cracking on there and doing a really good job. I'm really pleased with that. We see it as a priority business for us. We think we can grow a big business there, and we're making good headway. So congratulations to the team over in Japan. It's been a really, really good quarter, and I expect to see another one in Q4. Moving on to the headcount question. And again, looking out to next quarter, we put the guidance in the statement as we expect it to be pretty flat overall. I think there was an earlier question that talked around resource allocation and how we manage that. So it doesn't mean that we won't be investing in some parts of the business and maybe scaling back in other parts. But I think net-net, we expect it to be broadly flat over the next quarter based on where we are today. And look, that's as I said at the outset, we haven't seen any significant impact on our forward KPIs and then trading in the business. But we remain vigilant and we'll react to that if we see it. So as we stand here today, we look forward to the next quarter, we think it will be pretty stable overall. But as I said before, there'll be lots and lots of moving parts under the covers where we're scaling back or we're doubling down. Operator: There are no further questions at this time. I would now like to turn the conference back to James Hilton for closing remarks. James Hilton: Thank you. That's all for questions. Thanks again for joining the call today. I look forward to speaking to you at our next Q4 results on the 10th of July. And should anyone have any follow-up questions Kean, Prash and myself will be available to take calls for the rest of the day. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Jeff Su: Good afternoon, everyone, and welcome to TSMC's First Quarter 2026 Earnings Conference Call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. [Operator Instructions]. The format for today's event will be as follows: First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the first quarter 2026, followed by our guidance for the second quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open the line for the Q&A session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. So please refer to the safe harbor notice that appears in our press release. And now I would like to turn the call over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Jen-Chau Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the first quarter 2026. After that, I will provide the guidance for the second quarter 2026. First quarter revenue increased 8.4% sequentially in NT supported by strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 6.4% sequentially to USD 35.9 billion, slightly ahead of our first quarter guidance. Gross margin increased 3.9 percentage points sequentially to 66.2%, primarily due to cost improvement efforts, a high capacity utilization rate and a more favorable foreign exchange rate. Operating margin improved 4.1 percentage points sequentially to 58.1% due to operating leverage. Overall, our first quarter EPS was TWD 22.08 and ROE was 40.5%. Now let's move on to revenue by technology. 3-nanometer process technology contributed 25% of wafer revenue in the first quarter, while 5-nanometer and 7-nanometer accounted for 36% and 13%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 74% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 20% quarter-over-quarter to account for 61% of our first quarter revenue. Smartphone decreased 11% to account for 26%. IoT increased 12% to account for 6%. Automotive decreased 7% and accounted for 4%, and DCE increased 28% to account for 1%. Moving on to the balance sheet. We ended the first quarter with cash and marketable securities of TWD 3.4 trillion or USD 106 billion. On the liability side, current liabilities increased by TWD 256 billion quarter-over-quarter, mainly due to the increase of TWD 129 billion in accrued liabilities and others and the increase of TWD 82 billion in accounts payable. On financial ratios, accounts receivable turnover days was flat at 26 days. Days of inventory increased 6 days to 80 days, reflecting the ramp-up of our 2-nanometer technology and strong demand for our 3-nanometer technology. Regarding cash flow and CapEx. During the first quarter, we generated about TWD 699 billion in cash from operations, spent TWD 351 billion in CapEx and distributed TWD 130 billion for second quarter 2025 cash dividend. Overall, our cash balance increased TWD 268 billion to TWD 3 trillion at the end of the quarter. In U.S. dollar terms, our first quarter capital expenditures totaled USD 11.1 billion. I have finished my financial summary. Now let's turn to our current quarter guidance. Based on the current business outlook, we expect our second quarter revenue to be between USD 39.0 billion and USD 40.2 billion, which represents a 10% sequential increase or a 32% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 31.7, gross margin is expected to be between 65.5% and 67.5%, operating margin between 56.5% and 58.5% Also, in the second quarter, we will need to accrue the tax on the undistributed retained earnings. As a result, our second quarter tax rate will be around 20%. We continue to expect the full year tax rate to be between 17% and 18%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our first quarter 2026 and second quarter 2026 profitability. Compared to fourth quarter, our first quarter gross margin increased by 390 basis points sequentially to 66.2%, primarily due to cost improvement efforts, a higher overall capacity utilization rate and a more favorable foreign exchange rate. Compared to our first quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 120 basis points, mainly due to a higher-than-expected overall capacity utilization rate and better cost improvement efforts. We have just guided our second quarter gross margin to increase by 30 basis points to 66.5% at the midpoint, primarily driven by a higher overall utilization rate and continued cost improvement efforts, including productivity gains, partially offset by dilution from our overseas fab. Looking ahead to the second half of the year, given the 6 factors that determine our profitability, there are a few puts and takes I would like to share. As we have said before, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of this year, and we expect between 2% and 3% dilution for the full year of 2026. Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. In addition, given the recent situation in the Middle East, prices for certain chemicals and gases are likely to increase. Based on our current assessment, there may be impact to our profitability, but it is too early to quantify the impact. On the other hand, we will continue to leverage our manufacturing excellence to generate more wafer output and drive greater cross node capacity optimization in our fab operations to support our profitability. Also, N3 gross margin is expected to cross over to the corporate average in second half 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about the materials and energy supply update given the recent situation in the Middle East. TSMC operates a well-established enterprise risk management system to identify and assess all relevant risks and proactively implement risk mitigation strategies. In terms of material supply, TSMC's strategy is to continuously develop multi-source supply solutions to build a well-diversified global supplier base and to improve the local supply chain. For specialty chemicals and gases, including helium and hydrogen, we source from multiple suppliers in different regions, and we have prepared safety stock inventory on hand. We are also working closely with our suppliers to further strengthen the resiliency and sustainability of our supply chain. Thus, we do not expect any near-term impact on our operations for material supply. In terms of energy, TSMC worked closely with Taipower and the Taiwan government to ensure a stable and sufficient energy supply. With the recent situation in the Middle East, the Taiwan government has announced it has secured sufficient LNG supply through at least May. The government has also said it is actively working on securing further LNG supply, diversifying sourcing to other regions and other power backup plants. Therefore, we do not expect any near-term disruption or impact to our operations. Finally, let me talk about our 2026 capital budget. At TSMC, higher level of capital expenditures is always correlated with higher growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structure demand from the industry megatrends of 5G, AI and HPC. We now expect our 2026 capital budget to be towards the high end of our range of between USD 52 billion and USD 56 billion as we continue to invest heavily to support our customers' growth. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both annual and quarterly basis. Now let me turn the microphone over to C.C. C.C. Wei: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our first quarter with revenue of USD 35.9 billion, slightly above our guidance in U.S. dollar terms, driven by strong demand for our leading -edge process technologies. Moving into second quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies. Looking ahead, we are very mindful of the impact of rising component prices, especially in consumer and price-sensitive end market segment. In addition, the recent situation in the Middle East also brings further macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust. The shift from generative AI and the query mode to agentic AI and command and action mode is leading to another step-up in the amount of tokens being consumed. This is driving the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers and customers' customers, who are mainly the cloud service providers, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multiyear AI megatrend remains high, and we believe the demand for semiconductors will continue to be very fundamental. Supported by our robust technology differentiation and broad customer base, we maintain strong confidence for our full year 2026 revenue to now grow by above 30% in U.S. dollar terms. Next, let me talk about our N2 capacity expansion plan. Our practice is to prioritize the land in Taiwan to support the fast ramp of our newest node due to the need for tight integration with R&D operations. Today, our new node, N2, has already entered high-volume manufacturing in the fourth quarter of 2025 with good yield. N2 is ramping successfully in multi phases at both Hsinchu and Kaohsiung site, supported by strong demand from both smartphone and HPC AI applications. With our strategy of continuous enhancement such as N2P and A16, we expect our N2 family to be another large and long-lasting node for TSMC. Now let me talk about TSMC's global N3 capacity expansion plan. Historically, we do not add additional capacity to a node once it has reached its target capacity. However, as a foundry, our first responsibility is to provide our customers with the most advanced technologies and necessary capacity to unleash their innovations. Based on our assessment, to meet the strong demand in AI application, we are stepping up our CapEx investment to increase our N3 capacity. Thus, we are now executing a global capacity plan to support the robust multiyear pipeline of demand for 3-nanometer technologies, which are used by smartphone, HPC AI, including HBM-based dies, automotive and IoT customers. In Taiwan, we are adding a new 3-nanometer fab to our GIGAFAB cluster in Tainan Science Park. Volume production is scheduled for the first half of 2027. In Arizona, our second fab will also utilize 3-nanometer technologies. Construction is already complete and volume production will begin in the second half of 2027. In Japan, we now plan to utilize 3-nanometer technology in our second fab and volume production is scheduled in 2028. In addition to all the new fabs, we continue to convert 5-nanometer tool to support 3-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fab in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, including flexible capacity support among N7, N5 and N3 nodes. Thus, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers across all platforms. Also, let me emphasize that while the capacity is tight, we do not pick and choose or play favorites among our customers. Next, let me talk about our mature node strategy. TSMC's strategy in mature node has not changed. Our focus is to build high-yield capacity for specialized technologies rather than just normal capacity. For example, we are increasing our mature node capacity such as in JASM Fab 1 in Japan for CMOS image sensor application and ESMC in Germany for automotive and industrial applications. Meanwhile, we have a plan to wind down our Fab 2, which is 6-inch fab; and Fab 5, which is 8-inch fab; focus on gallium nitride and use available space to optimize the support for leading-edge applications. Even with our Fab 2 and Fab 5, we still have enough capacity to fully support our existing customers. In summary, our strategy will be to continue to optimize our capacity mix within mature nodes and focus on the higher value-added and strategic segment, while ensuring we have a necessary capacity to support our customers' growth. Finally, let me talk about our A14 status. Featuring our second-generation nanosheet transistor structure, A14 will deliver another full-node stride for N2 with performance and power benefit to address the sensible need for high-performance and energy-efficient computing. Compared with N2, A14 will provide 10 to 15 speed improvement at the same power or 25 to 30 power improvement at the same speed and close to 20% chip density gain. Our A14 technology development is on track and progressing well. We are observing a high level of customer interest and engagement from both smartphone and HPC applications. Volume production is scheduled for 2028. Our A14 technology and its derivative will further extend our technology leadership position and enable TSMC to capture the growth opportunities well into the future. This concludes our key message, and thank you for your attention. Jeff Su: Thank you, C.C. This concludes our prepared statements. [Operator Instructions]. Now let's begin the Q&A session. Operator, can we proceed with the first participant on the line, please? Thank you. Operator: First one to ask questions, Haas Liu from Bank of America. Haas Liu: Congrats on the solid results and guidance. I would like to start with your 3-nanometer gross margin outlook. You just mentioned the node is going to cross the corporate average gross margin in second half this year, which is now at mid-60 percentage levels. And we understand the technology is in severe undersupply backed by strong AI demand, and you already forecasted the capacity expansion through conversion and greenfield through 2028. Would you be able to discuss more in detail on what kind of applications are driving such strong business for you and convince you to expand more? And the other thing on 3-nanometer as well is just, the node started to ramp from fourth quarter 2022, which means some of your equipment will be fully depreciated by 2027. Should we expect the node margins to be trending even higher with very solid utilization and also pricing trend? Jeff Su: Okay. So the first question from Haas Liu of Bank of America, it's 2 parts on 3-nanometer. First, as C.C. described, we are executing a plan for expanding 3-nanometer capacity. So he wants to understand what are the applications to drive such a strong multiyear looking ahead pipeline of demand for 3-nanometer since it's already been around in volume production since late '22. That's the first part of his question. C.C. Wei: Let me answer that. I think the application is simple. It's still the HPC AI applications. Does that answer your question? Haas Liu: Okay. Yes. That is the first part. And the second part is... Jeff Su: And the second part of this question is on the gross margin for 3-nanometer. His question is really, what is the gross margin outlook for 3-nanometer? Will it crossover in the second half of this year? To what level? And then once it becomes fully depreciated, what happens to the margin? Jen-Chau Huang: Okay. This is Wendell. We expect the N3 gross margin to reach and cross the corporate gross margin level in the second half of this year. And we don't have a number to share with you, but after the full depreciation as our previous notes, the gross margins are generally very high. Jeff Su: Okay. Haas, I'll take that as a 1.5 questions. So if you have a quick follow-up for your second question? Haas Liu: Yes. And the other, I think, just a 0.5 follow-up is probably just on the CapEx. You revised up to the high end of your guidance for USD 52 billion to USD 56 billion for this year. Compared to 3 months ago, what gives you the incremental confidence when you discuss with your customers and also customers' customers regarding the demand outlook to support your stronger or the upper half of your guidance for the CapEx this year? Jeff Su: Okay. Thank you, Haas. So his second question is he notes that indeed, we have this time guided to the high end of our CapEx range versus January. So what incrementally is driving this revision to the CapEx? What gives us the confidence to go to the high end of the USD 52 billion to USD 56 billion range? C.C. Wei: Well, again, this is C.C. Wei. Let me answer this question. A very simple answer is, the demand are very robust, especially from the HPC and AI applications. And also, we try very hard to speed it up and pull in all the equipment as we can. Still, our supply is very tight. Demand is continuing to increase. And so we continue to work with our suppliers to speed it up. And that's why we are towards our high end of CapEx forecast. Jeff Su: Okay, Haas, does that answer your question? Haas Liu: Yes. Operator: Next one to ask question, Gokul Hariharan, JPMorgan. Gokul Hariharan: My first question on your comments on demand. Clearly, demand is even better than what you predicted back in January, C.C., and you also raised the CapEx. Now all your customers seem to be telling everybody they can tell that wafers still remain the biggest constraint. So given your expanded 3-nanometer capacity plan and faster CapEx, C.C., what is your expectation that how long this supply constraint is likely to last? Do you have any visibility of when you can kind of bring some kind of balance here based on what you hear from customers? And as a strategy, do you also plan to build out a more clean room space, because that seems to be a little bit of a constraint right now to bring on the capacity quickly. That's my first question. Jeff Su: Okay. Gokul, please allow me to summarize your first question. So his question is directed for C.C. He notes that the demand seems to be even stronger than our forecast in January. We have also raised the CapEx, and customers continue to say they need more chip supply. So with our capacity plan, do we have a forecast or expectation of how long the constraint can last? And will we have a strategy to build up clean room space first? Is that correct, Gokul? Gokul Hariharan: That's right. Yes. C.C. Wei: Okay. Gokul, let me answer the question. Again, it's very simple, because demand continues to be robust and the number continues to be increased, and we double check with our customers, customers' customers, or those CSPs. They gave us a very positive outlook, right? And so we have to speed it up with our buildup of clean room and buying the tools. And so we are working with construction and we are working with our equipment suppliers. And so we want the pulling forward of our forecast schedule. That's a simple answer. Because of AI, it's so strong. Gokul Hariharan: Any read, C.C., on when we can kind of meet this demand? Or do you think the next couple of years is still going to be very challenging to meet -- that supply is still going to be running below demand, let's say, into '27 also? Jeff Su: So Gokul would like to know when the supply can meet the demand? Do we have a forecast or a time frame? C.C. Wei: Gokul, you know we are -- it takes 2 to 3 years to build a new fab. And with the current schedule, we believe that '27, we will announce it anyway when we enter '27, but let me say that, it takes time to build a new fab, it takes time to ramp it up. And so we expect this to continue to be very tight. So that's why we just announced that we try to build 3 new N3 fab to meet the demand. Gokul Hariharan: Okay. That's very clear. So '27 is also very tight. My second question on competition. So obviously, you have the traditional competitors, Samsung, Intel. But one of your customers, Elon Musk, also announced Terafab Initiative recently. What is TSMC's perspective on this initiative? They have also been a customer of yours, and they recently signed a deal with Samsung a few months back. So what is TSMC's response here now that they are also trying to kind of build chips on their own? How are you trying to win back this customer? Like, C.C., what is your perspective here? Jeff Su: Okay. So Gokul's second question is on competition. He notes that we have competition and then recently, a competitor, or he notes that this Terafab. So he wants to know what is our perspective on this initiative. This customer has also been a customer of TSMC, but has also signed a deal with one of our other competitors, Samsung. So Gokul would also like to know what is our perspective on the Terafab? And what is our view on winning back this customer's business? C.C. Wei: Well, Gokul, actually, both Intel and Tesla, they are TSMC's customers. But again, they are our competitors, and we view Intel as our formidable competitor and do not underestimate them. But having said that, there are no shortcuts. The fundamental rules of the foundry game never change. They need the technology leadership, manufacturing excellence and customer trust, and most of all, the service, which has been mentioned by Jensen; thank you for his wording. Again, let me say that it takes 2 to 3 years to build a new fab, no shortcuts. And it takes another 1 to 2 years to ramp it up. Again, that's the fundamental of foundry industry. And whether we try to win them back, actually, they are still our customer. And we are very confident in our technology position, and we work very hard to capture every piece of business possible. Gokul, did I answer your question? Gokul Hariharan: Okay. That is very clear. So do you think your faster ramp-up of capacity can kind of win some of these customers back, because the reason seems to be mostly about capacity tightness rather than any other kind of big reasons, right? So is that your evaluation that this is probably the most important thing to win some of these customers back? Jeff Su: Okay. So Gokul's final question is then in winning customers back, his concern is because our capacity is tight. Is that the reason we are losing customers? And so can we win customers back? C.C. Wei: Well, again, let me emphasize, it takes 2 to 3 years to build a new fab. So in this time, we are also building a new fab to meet our customers' strong demand. No shortcuts. So anyway, the capacity is very tight, as I said, but we are working hard to make sure that we can meet customers' demand. Operator: Next one, we have Charlie Chan from Morgan Stanley. Charlie Chan: Congratulations for very, very strong results again. So I think I would also address the competition topic from a little bit different angle. So as you can see that those AI customers, they are developing a much larger reticle size chips, right? And some customers are considering to use eMIPs because it's a kind of substrate base, more suitable for circular larger size of chip design. So I'm not sure what's the TSMC's strategy to address this competition. And more strategically, is TSMC comfortable to open up your compute die to your competitors, for example, Intel to do the package? What's the kind of thought process behind? Jeff Su: All right, Charlie, thank you. So Charlie's first question is also related to competition. He notes that AI customers are seeking for larger and larger reticle sizes. So he wants to know what is our assessment of the competitive threat from solutions such as like eMIP? And what's our strategy to address this competition? Will we be willing to open up our front-end wafer and let someone else do the packaging basically? C.C. Wei: Well, Charlie, today, TSMC is supplying the largest reticle size packaging. And yes, we understand that our competitors also offer very attractive technology, but we welcome that so our customers can have more choices and then we can do more business with our customers. That's our attitude. But saying that, we don't leave any business on the table. We are working very hard to meet all our customers' demand. We also are developing very large reticle size packaging technologies. We are working with all the customers. And so far, so good. Charlie Chan: C.C., I have a follow-up on this. When you mentioned about larger size packaging technology, are you referring to CoPoS or CoWoS-L 3.5D? Or do you think 3D stacking can resolve this kind of panel expansion problem? Jeff Su: So Charlie is asking a follow-up. So he wants us to comment on, for larger reticle size, is it CoWoS-L, is it panel level? What exact detailed solutions are we doing? C.C. Wei: Charlie, so far today, we have very large reticle sized CoWoS. Of course, we are also working on CoPoS. And together, we try to make sure that we give enough capacity to support our customer with a reasonable cost. So that's why we build a CoPoS pilot line right now and expect production a couple of years later. But today, the main approach or the main supplier is still a large-sized CoWoS. And together with System on Wafer technology, we think TSMC gives our customers the best options for their product in the market. Charlie Chan: Got it. So yes, I would take, we don't need to worry too much about this [indiscernible] competition. So my second question is actually about your long-term CapEx plan. C.C., as you said that it takes 2 to 3 years to build a new fab. So you definitely have that visibility, right? So I remember back in 2021, management also provided 3-year CapEx guidance as USD 100 billion given very strong demand. I'm not sure if TSMC can provide a little bit longer-term CapEx guidance? Because as you said, right, the equipment supply is also pretty tight. Yesterday, ASML reported very, very strong results. So you said the EUV supply is an issue. And secondly, would the management provide kind of a long-term CapEx guidance to investors? Jeff Su: All right, Charlie, that's a lot of questions. But the second one then on CapEx and building capacity. Again, Charlie notes C.C.'s comment, capacity is not born overnight, it takes time. So he would like to know, besides this year's CapEx, which we have already said at the high end, can we provide a guidance for the next 3 years CapEx like we did back in 2021 in terms of the dollar amount? Jen-Chau Huang: Okay. Charlie, we don't have a number to share with you. But look at it this way. In the past 3 years, our total CapEx was USD 101 billion. This year, we're already saying CapEx is towards the high end, which is USD 56 billion, which is already over 50% of the past 3 years in total. So we have a strong conviction in the AI megatrend. So we expect the CapEx in the next few years, in the next 3 years, will be significantly higher than the past 3 years. Jeff Su: And then the final part of Charlie's question, with such a long lead time, are we concerned about securing tools or bottlenecks and such? C.C. Wei: Well, Charlie, in TSMC's culture, we're always working with our suppliers, because we view them as our partners. So we continue to work with them, especially for those ASML, Applied Materials, Lam Research, et cetera. So, so far, we are very happy with their supportive. That's all I can tell you. Operator: Next one, we have Sunny Lin from UBS. Sunny Lin: Congrats on the steady results. So my first question is, again, to follow up on CapEx. So if you look at from 2024 to 2026, so in this, call it, AI cycle, TSMC has been able to keep capital intensity at a healthy level of 30% plus, given very strong technology leadership and operating leverage. I understand the company doesn't really have a specific target on capital intensity. But for the coming few years, given the very strong revenue ramp of leading edge, how should we think about the revenue growth compared with CapEx growth? Should we think top line will remain steady and therefore, CapEx could grow in line or even below? What's the best way for us to think about it? Jeff Su: Okay. Sunny, thank you for your question. So please allow me to summarize. Sunny's first question is on, well, I think CapEx and really capital intensity. She notes, in the past few years, we've been able to keep capital intensity around the 30-something percent level. She notes that we don't have a specific capital intensity target per se, but her specific question, looking ahead the next several years, how do we see revenue growth versus CapEx growth? Is it likely to be higher, flat, lower? And therefore, what type of intensity does that imply? Is that correct, Sunny? Sunny Lin: Yes. Thank you very much, Jeff. Jen-Chau Huang: Okay, Sunny. So in the past few years, as you correctly pointed out, the revenue growth outpaced the CapEx growth. That's because if we do our job right, then we will continue to see that happen in the next several years. The revenue growth outpaced the CapEx growth, okay? Now therefore, we do not expect, in the next several years, a sudden surge in capital intensity. Sunny Lin: I see. Maybe a very quick follow-up. A lot of questions on competitions already. But also from a competition point of view, given a very tight supply at TSMC's side in recent years, would TSMC actually consider maybe spending CapEx a bit more, so that clients won't need to diversify given the tight supply? Jeff Su: All right. So Sunny's 1.5 question is, in terms of the CapEx, will we consider accelerating or spending more given the competitive threat from the competitors? If there's not enough capacity, then our customers will go to competitors. That's your question, correct? Sunny Lin: Yes. Thank you, Jeff. C.C. Wei: Well, Sunny, we're repeatedly saying that we prepare the capacity to meet customers' demand, not because of our competitor or not because of other considerations. The most important one is our customers' demand and they work with TSMC and so we plan our capacity and so our capital expense. Sunny, did I answer your question? Sunny Lin: Yes. Yes, very clear. So maybe my 0.5 question. And so if we look at this year, earlier, you just guided a bit higher than 30% growth for top line. But indeed, there's ongoing supply tightness. And so for 2026, how much upside could you realize for top line? And at this point, have you started to see some impact of consumer end demand and therefore, on your demand coming from smartphone and PC? Jeff Su: Okay. So Sunny's second question is regarding 2026 full year outlook. She notes now that we have increased the guidance to above 30%, how much more upside can there be? Well, maybe the first part also, how do we see the impact from the memory price hike to the end market? And how do we see, with above 30%, is there more upside? C.C. Wei: Well, Sunny, memory price hike definitely has some impact to price sensitive end market, especially in PC and smartphone market. We did see a little bit softer market. But to share with you, all the high-end smartphones continue to do better, and this is to TSMC's advantage. And as you're asking about how much higher than above 30% year-over-year growth, we will share with you in July, how about that, that we will have a more accurate or a more precise number to share with everybody. Sunny Lin: No problem. Operator: Next one, Jim Fontanelli at Arete. Jim Fontanelli: So my first question is to do with demand. So you commented earlier in the call that demand continues to outstrip supply for leading edge capacity. And obviously, you just delivered a very strong print and guide for gross margins. So against this backdrop, has management's thinking changed about the sustainable margin structure and what appropriate longer-term returns might be for the business? Jeff Su: Okay. So Jim's first question is asking on the margin structure. He notes, as we said that demand continues to be extremely robust and very strong. So how does this change? I think your question is our view on the long-term margin profile and the return profile. Is that correct? Jim Fontanelli: That's correct. Jen-Chau Huang: Okay, Jim. As we said in the last earnings calls, we've revised up our long-term margin target and ROE target. From 2024 to 2029, we're now saying the gross margins will be 56% and higher through the cycle, and we're looking at ROE of high 20% through the cycle. That's what we're currently looking at, and that's already higher than before. Jim Fontanelli: And that thinking is not changing against the backdrop where other parts of the AI supply chain are clearly starting to print super normal returns? That doesn't impact how you think about margin structure for the next 2 or 3 years? Jen-Chau Huang: Yes, Jim, the long-term planning is an ongoing and continuous process. So we do that all the time, and we will update you when there is a change. Jim Fontanelli: Okay. And my second question is, it looks like the Arizona site is becoming more strategic in terms of leading edge commitment for TSMC, particularly with the recently added second parcel of land. Could you talk about how you see mid- to long-term capacity opportunity and also how confident you are that the U.S. fab economics will match Taiwanese produced wafers? Jeff Su: Okay. So Jim's second question is on our Arizona fab expansion plans. He notes that it is becoming more and more strategic. We have recently, as we said, acquired a second large piece of land. So what is the plan or the purpose behind this? And then what is the profitability or margin outlook as well? C.C. Wei: Well, Jim, let me answer the question. We acquired the second land because we need it. We want to build more fabs in Arizona. And this is actually to meet the multiyear demand from our leading edge U.S. customers. And again, let me emphasize again that we are working very hard to speed it up. We already gained a lot of experience in Arizona. And so now we are much more confident than last year that we can make it a good progress and moving aggressively forward. And we expect we can improve the cost structure, of course. Operator: Next one, Bruce Lu from Goldman Sachs. Zheng Lu: I think I want to follow up on Jim's question for the profitability. I think earlier last year, when I asked why TSMC did not raise the profitable target when TSMC continued to sell the value. I think C.C. told me that to focus on the above version of 53% and above. I think last quarter, we raised it to 56% and above. So the question is that do you believe the current profitability fully reflects TSMC's value? So I'm guessing C.C. might ask me to focus on the higher portion of the profitability target again. So the real question is that given the uniqueness of the dominant position for TSMC, it's not easy to find a perfect benchmark for TSMC's profitability. So can you tell us how we should think the profitability benchmark for TSMC? Or what is the best way to see TSMC value to be fully reflected into the gross margin and operating margins? Jeff Su: Okay. Bruce's first question is, he wants to know what profitability benchmark he should be looking at, and whether we believe our current profitability level fully reflects TSMC's true value. C.C. Wei: Well, Bruce, actually, you asked about our pricing strategy. Let me say that we always view our customers as our partners. Of course, we know our value; of course, we know our position, but we also view our partners as very important business partners, so that we don't change our pricing dramatically or something like that. We just try to make sure that our customers can be successful in their market. And at the same time, we grow together, and we also earn our value, so that we can continue to expand our capacity to support them. That fundamentally is, number one, our customer got to be successful. That's our consideration, number one, and we grow together. And again, there's a keyword please pay attention to. Customer is our partner. Zheng Lu: Okay. So if your customers continue to be successful, maybe in a couple of quarters, we can see the higher profitability target again. Jeff Su: Bruce, what's your second question? Zheng Lu: Okay. My second question is that management has been guiding that AI accelerator revenue to grow about like mid- to high 50s CAGR in (sic) between 2024 and '29. So how does TSMC plan and forecast AI-related demand? I mean, does TSMC incorporate metrics such as total consumption growth in your assumption? Because the recent consumption in the first quarter is definitely accelerated and faster than earlier expectation. Do we see the changes for the AI accelerated revenue growth in the coming years? Jeff Su: Okay. So Bruce's second question is on our AI accelerator long-term CAGR guidance, which, yes, we have guided mid- to high 50s. He notes with the strong token growth and demand for tokens, do we have any changes to this long-term guidance? C.C. Wei: Bruce, actually, I think I say now that it's a very strong demand, and we continue to receive a very positive signal from our customers and customers' customers. And so what you say is whether we change our CAGR on AI accelerator? Actually, we continue to see strong demand, but again, let me say that it is toward higher 50s of CAGR that we observe. Operator: Next one to ask question, Laura Chen from Citi. Chia Yi Chen: May I take more details on TSMC's strategy in advanced packaging? And what will be the business model working with your OSAT partners, as we see that there are various different solutions provided by your peers and also the OSAT makers, yet TSMC is also expanding more in the advanced packaging. So how would TSMC work with your customers' planning on their advanced node wafer demand, but also align with their advanced packaging demand at TSMC? Jeff Su: Okay. So thank you. Laura's first question is on advanced packaging. She would like to know, we work with customers, collaborate with customers to plan our front-end wafer capacity. How do we work with the customers to plan the advanced packaging capacity is what she would like to understand, and also in the context of working with our OSAT partners on the advanced packaging businesses. C.C. Wei: Well, Laura, our priority actually, again, is to support our customers, right? And whenever we can or wherever we can, we want to make sure that their product can be -- the demand of their product can be met by TSMC's front-end and high-end packaging. So we certainly, let me say that our advanced packaging capacity is very tight also. So we have to work with our OSAT partners. We hope that we can increase the capacity to support our customers. Let me emphasize again, we support our customers. So we try very hard to increase our own capacity also. But certainly, it just has been very tight. And so that's what's our situation today. Chia Yi Chen: Sure, sure. Understood. My second question is also about advanced packaging. As C.C. highlighted before many times that AI chips are going into super chips with very large die size and TSMC now working at the biggest reticle in the world. But at the same time, there's potential technical challenges such as warpage. So do you think that the following road map like SoIC or like CoPoS can solve this kind of technical issue? And based on TSMC's technology road map, do we see any technology like SoIC or CoPoS will be a bigger ramp in a couple of years, can solve this problem? Jeff Su: Okay. So Laura's second question is also related to advanced packaging, AI and larger reticle sizes post potential technical challenges such as warpage. So she would like to know how do we see SoIC or panel-level packaging? What's the key to solving these issues? And what is the outlook in the next several years? C.C. Wei: Well, Laura, you are good. Actually, that's all the challenges that we have in advanced packaging technology. Mechanical stress, which is very top challenge to the electrical engineering, like I am. However, we accumulated a lot of experience already today because we have supplied most of the leading edge and in packaging area. And we continue to increase the die size and continue to meet all the challenges from the mechanical stress, like you said, actually the warpage or the thermal limitation. A good challenge. And we like it. The harder the better, because of TSMC's strength in technical engineering, and we have confidence that we can work with our customers to solve all the issues and continue to move on. Chia Yi Chen: So should we expect that SoICs, TSMC may introduce that earlier to solve this kind of a challenge, because we already have the learning curve and already have the products in production. So that should go faster than other technologies, I suggest. Jeff Su: So Laura's question is very specific. Yes, on SoIC, how do we see that developing, I guess? C.C. Wei: Well, we work with our customers, and we meet their demand, and that's all I can tell you. Speed it up or slow down? No, no, no, no. We work with our customers to meet their demand. Jeff Su: Operator, in the interest of time, can we take the questions from the last participant, please? Operator: Next one to ask question, Charles Shi from Needham. Yu Shi: TSMC's definition of AI revenue includes data center GPU, AI accelerator, HBM-based stack. Maybe I left out a few others, but it specifically excludes data center CPU. I think you made that definition very clear for a couple of years now. But with the CPU, there's more and more conversation about CPU now becoming part of the AI infrastructure, especially for agentic workloads. Any chance for TSMC to maybe provide us revised numbers for AI revenue and maybe AI revenue growth, CAGR projection going into 2029, 2030. And maybe hopefully give us some sense of how the historical AI revenue numbers would have been if some of the data center CPU numbers, especially for agentic AI workloads are included there. That's my first question. Jeff Su: Okay. Thank you, Charles. So Charles' first question, please let me summarize, is regarding our definition of AI accelerator, which is, of course, we have said GPU, ASIC and HBM controllers for training inference in the data center. He notes now with the agentic AI, he wants to know, will we start to include CPUs in this definition? If so, can we provide the historical data with CPU included? And what would the AI accelerator guidance be if it includes CPU? C.C. Wei: Charles, certainly, CPUs become more and more important in today's AI data center. But actually, let me share with you -- this is a good question, by the way. Let me share with you that we are not able to identify which CPU goes where, right? It's PC or desktop or it's AI data center. So today, we still not include the CPUs in our AI HPCs calculation. Someday later, we might consider. Jeff Su: Charles, do you have a second question? Yu Shi: Thanks, C.C. Yes. Maybe it's kind of also tied to the recent development in overall AI infrastructure, how things have been evolving. So NVIDIA, of course, they recently added more CPU content to the overall Vera Rubin SuperPOD, but I think that most people are focusing on that brand-new LPU. They recently added -- we understand and appreciate that the TSMC is very strong in CPU and we will definitely participate in that upside in CPU, but the LPU business, the acquired business, well, for historical reasons, it's still at your competitors, Samsung Foundry. And I think Investors are looking at that and seeing that maybe looks like Samsung Foundry finally made the first 2 inroads into AI. So any thoughts from TSMC side, how should we think about whether and how TSMC will win back that LPU business or any future difference chip business coming from your customers? Yes, give us some thoughts there, we would appreciate that. Jeff Su: Okay. Charles' second question is a very specific question about a very specific customer and very specific product, which is we typically do not comment on, but he wants to know for this customer's LPU product, which he notes is made at one of our competitors. How do we see this business going to the competitor? Do we have plans to win this LPU business back in the future? C.C. Wei: Charles, I think Jeff already gave me enough warning, very specific and very specific customer, very specific area. Let me answer your question. We are working with our customer for their next-generation LPU anyway. And we are very confident in our technology position, and we will work hard to capture every piece of business possible. How about that? Yu Shi: Very good. Thank you, C.C. That's very good color. Jeff Su: Okay. Thank you, Charles. Thank you, C.C. Thank you, Wendell. This concludes our prepared statements -- sorry, I should say this concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now, and the transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com. So again, thank you, everyone, for taking the time to join us today. We hope you continue to stay well, and we hope you join us again next quarter. Goodbye, and have a good day.
Sarah Matthews-DeMers: Welcome to the AB Dynamics 2026 Half Year Results Presentation. I'm Sarah Matthews-DeMers, the CEO, and I'm joined today by our Interim CFO, Andrew Lewis. I'm going to be taking you through the highlights before Andrew takes you through the detailed financial performance. Following this, I'll provide my initial observations from my first few months as CEO and an update on our progress against our medium-term growth strategy before wrapping up with a summary of FY '26 to date and the outlook for the remainder of the year. We set out our medium-term growth ambitions in November 2024, and I remain committed to delivering these. We have continued to make strategic progress in shaping the group to take advantage of the structural market drivers that underpin the significant medium-term growth opportunity. As we had already signposted, revenue was softer in the first half due to the order intake delays in the second half of last year caused by tariff disruption, with only GBP 44 million of orders received. In half 1 of FY '26, it is pleasing to see positive customer activity and order intake recovering to more positive levels with GBP 64 million of orders received. Our closing order book of GBP 47 million, together with revenue delivered in half 1, provides approximately 70% coverage of expected full year revenue. Combined with our confidence in operational execution, this leaves us well positioned to deliver in the second half of the year. We have enhanced our focus on innovation to drive future growth, an area I will cover in more detail later in the presentation. Our second value creation pillar is margin expansion. Our operating margin was maintained at 18.6% as the impact of lower volume was offset by operational improvements, management of discretionary spend and a positive revenue mix. This shows the benefits of the investment made over the last 5 years to make the business more agile and responsive to dynamic market conditions. Our full year margin is expected to show year-on-year progression given the expected half 2 revenue bias. In addition, the lower-margin Chinese testing services business, VadoTech, will now become a smaller proportion of the group, which will also benefit margin. In the operations function, we have a further program of continuous improvement underway to drive our incremental margin growth. And I am confident of achieving our sustainable margin target of greater than 20%. We have a promising pipeline of value-enhancing and strategically compelling acquisition opportunities that we are continuing to develop. Our significant net cash balance of GBP 39.3 million supports further organic and inorganic investment opportunities. I'll now hand over to Andrew to take you through our financial performance. Andrew Lewis: Thanks, Sarah, and good morning, everyone. It's been a privilege to join the group with AB Dynamics pedigree and to work with Sarah and the team over the last 2 months. I found a business with talented people, great products and excellent long-term high-quality customer relationships. On to the business of the day and the results for the first half of 2026. Revenue and profit in the first half were consistent with the previously guided second half bias for the full year in 2026. We expect this to result in a trading performance weighted approximately 55% to 60% towards the second half of the year, set against the context of a greater first half bias in 2025 than typically expected. Order intake in the first half strengthened, showing that the market and customer activity is returning to a more positive level after a more subdued third quarter of FY '25, which was heavily impacted by global trade tariff issues. Looking at the numbers in more detail. Revenue was down 16%, reflecting the previously communicated delays in the timing of order intake and customer delivery requirements, including the weaker-than-anticipated volumes at our Chinese testing services business, VadoTech, which I'll cover in more detail later in the presentation. Operating profit decreased by 16% to GBP 9.1 million. Operating margin was maintained at 18.6% with a negative impact of operational gearing offset by the full year effect of operational improvements, management cost actions and a positive revenue mix. The effective tax rate remained flat at 20% and earnings per share decreased by 15% to 31.3p. On a rolling 12-month basis, cash conversion of 102% and our rolling 3-year average cash conversion of 105% demonstrates that we're consistently able to turn our profits into cash. We are increasing the interim dividend by 10%, reflecting our strong financial position and confidence in the business. The order book at the end of the period was GBP 47 million, of which GBP 29 million is for delivery in the second half. This, combined with first half revenue, provides approximately 70% cover of full year 2026 expected revenue. Moving on and looking at the year-on-year operating profit bridge. The negative impact of operational gearing was offset by a combination of the full year effect of operational improvements, primarily in testing products, Management implemented cost mitigation actions, largely around the timing of discretionary spend and revenue mix, which contained a number of components. In Testing Services, growth in the high-margin U.S. mileage accumulation business, together with lower revenue in the low-margin Chinese testing services business and in simulation, a higher proportion of high-margin RF Pro software. This delivered an operating margin, which was maintained at 18.6%. Looking into the second half, we expect the volume to be higher and thus will benefit from operational gearing. Operational improvements are embedded into the business. Revenue mix is harder to forecast as it is often dependent on the timing of some large individual deliveries. And overheads will be managed carefully to balance financial performance with investment in innovation and our people. Now looking at cash. While in the period, working capital increased due to the timing of customer deliveries falling later in the period than usual, driving an increase in receivables, our rolling 12-month cash conversion of 102% demonstrates a continuation of our track record of turning profits into cash. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 2 million invested in capital projects, including on new product development in line with our technology road map. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 39.3 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products. This segment includes driving robots, ADAS platforms and soft targets and laboratory-based test equipment. Revenue was down 17% as a material delivery of robots to a North American OEM made in the first half of 2025 did not recur in the period. Underlying demand drivers remain strong and order intake was encouraging during the first half of 2026, particularly in Asia Pacific and North America. The increase in margin was driven by operational efficiencies, together with cost control measures focused on the timing of discretionary spend. Testing services includes our proving ground in California, powertrain and environmental testing in Michigan and on-road testing in China. Revenue decreased by 29%, which is very much a tale of 2 geographies. Performance has been positive for our U.S. businesses, where new customer wins for our mileage accumulation business and increased track testing activity on behalf of the U.S. regulator drove good revenue growth. However, our business in China, VadoTech, has seen significantly weaker-than-anticipated volumes under the new contract with a European OEM awarded at the end of last year. The customer has faced challenging local market conditions as its market share as a premium European brand has been replaced by domestic brands such as Geely and BYD and the lower consequent on-road testing activity has resulted in a reduction in our revenue. The VadoTech Testing Services business remains in continuing activities in the half year numbers as a strategic review commenced shortly after period end. This slide illustrates the financial impact of the VadoTech business on the Testing Services segment in the first half of this year with comparatives for last year's half and full year. In light of the performance of the VadoTech business in the first half of this year and customer intelligence about their revised expected volumes, the group recorded an impairment of the VadoTech business of GBP 16.8 million, the majority of which is noncash. The detail on the slide should provide sufficient information to allow modeling of the U.S.-based Testing Services segment, which as can be seen, is a higher-margin segment without the VadoTech results in it. It is important to stress that this is an isolated issue with a single European OEM who is facing challenging local market conditions in China. And has no bearing on the opportunities to sell testing products to Chinese OEMs for local use in China, which has been a strong market for our testing products in the first half of the year. Simulation includes our simulation software rFpro and driving simulator motion platforms. The slight decrease in revenue was driven by lower motion platform sales, where we expect revenue to be more heavily weighted to the second half, offset by higher software sales. Customer activity in this area was buoyant in the first half and included the EUR 9.7 million contract win to supply advanced driver in the loop simulation equipment to a major European OEM, which we announced in December. Margins were impacted by the mix of higher software and lower equipment sales in the period. As a reminder, high-value simulator sales are individually material and 2 further order wins are assumed in our second half revenue expectations. Our key financial enablers are unchanged and include our great people with over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations and finance. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that's been made in our people. Our cash conversion, which we aim to continue at 100% through the cycle, and our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million revolving credit facility. Whilst we prefer to remain debt-free, our debt capacity at approximately 2x EBITDA is now GBP 55 million, which for the right acquisition, we could use for a short period, then pay down from cash generation. Our capital allocation policy is unchanged, and we're pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and the CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for testing products is designed to address the opportunities of both regulation and NCAP testing over the next 5 years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. In simulation, new product development is targeted at addressing evolving customer requirements and ensuring our product range provides solutions for a range of use cases and budgets across the road and motorsport markets. We have well-invested facilities across the group, but where appropriate, we'll invest CapEx to increase production or service capacity. And we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest where we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit increases over the last 5 years. We will only consider returning further capital to shareholders if we are holding surplus cash and acquisition multiples ever become unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 21% in the first half of 2026. I'll now hand over to Sarah, who will provide an insight into the first few months in her new role and to recap on the progress against our medium-term growth strategy. Sarah Matthews-DeMers: Thanks, Andrew. Having been in the CEO role since the 1st of December, I'd like to share my initial observations. We have made a huge amount of progress at ABD over the last 5 years, and it's a very different business to the one I joined. We have great people, great products and a great market position, which underpin my confidence in the future of the business. There is no change to our overall strategy. And going forward, you should expect evolution, not revolution. We have reviewed the portfolio of prior acquisitions and taken early decisive action given the changes in market dynamics for our VadoTech business. I'm passionate about driving the group forward and will focus on innovation, continuous improvement and developing and growing our people. During the last few months, I have visited 9 out of 10 of our business units and personally met around 90% of the group's employees. I've really enjoyed my time visiting our sites and talking to some of our very talented people. We've run innovation workshops attended by all levels of the organization, designed to generate new ideas for innovation, continuous improvement and excellence and to promote a culture of respect. I was delighted that these workshops attracted full attendance and the engagement and enthusiasm of my colleagues reinforced my view that the group is a wash with talented and engaged people. Over 500 ideas have been generated and are currently being reviewed and actioned. A broad range of opportunities have been identified to drive both revenue growth and operational improvements. As a reminder, our medium-term ambition is to double revenue and triple operating profit from our FY '24 baseline, and I am fully committed to delivering the plan. The graph demonstrates how this will be achieved by the compounding effect of delivering average organic revenue growth of 10% each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. When we articulated the plan in November 2024, we clearly didn't have visibility of some of the geopolitical and macroeconomic issues and challenges that the second half of FY '25 brought or the more recent developments in the Middle East. And we have always said the medium-term progression was unlikely to be delivered in a perfectly linear fashion. As expected, half 1 '26 had a softer trading performance due to the macroeconomic disruption we experienced in the second half of last year, with revenue down 16%. And we expect FY '26 to have a greater weighting towards the second half. Despite the decrease in revenue, we have maintained the group operating margin at 18.6%. And in M&A, our pipeline continues to progress. I will give further detail on each of the 3 elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in 4 main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first 2 relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions and the increasing regulation and certification requirements in this area. These long-term tailwinds support the growth of the group's end markets across each of its 3 sectors, but have also led to volatility in the wider automotive market that can impact the timing of specific customer procurement activity over a short-term period. At a macro level, in the wider automotive markets, we note a continuation of the regional trends noted previously, whereby traditional European OEMs are losing market share to new entrants and are under pressure to innovate in response. Overall, in 2025, the global automotive market recovered to near pre-COVID highs with growth driven by APAC, where the group has a strong market position. A divergence internationally in terms of the rate of EV adoption following changes implemented by the U.S. administration, which will mean EVs and ICE vehicles are likely to coexist for longer, driving increased platform churn and therefore, testing demand. Rising investment in Level 2 ADAS systems, which provide partial driving automation such as lane keeping assist with premium technologies filtering into more affordable cars. Our product lineup is well suited to continue to capitalize in this area of development and testing. While the development of autonomous vehicles has been well publicized, we do not expect full-scale adoption of AVs until well into the future. With that said, the products and services we offer are critical to AV development, be that in high fidelity simulation or physical track testing scenarios. Our business is resilient against short-term market disruption, and our market drivers support sustainable double-digit revenue growth in the medium term and beyond. We are OEM and powertrain agnostic with over 150 different customers globally, including conventional manufacturers and Chinese EV makers. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. We have a number of organic growth opportunities. And on this slide, we have broken them down across each of our 3 segments to help illustrate how we expect to sustain increases in both volume and pricing going forward. The key takeaway is that across all segments and product or service offerings, we operate in growing end markets, which in the long term, we expect to drive incremental sales volumes. The timing of this is fluid across different geographies and OEM customers. But as technological advances in safety technology continue, the associated regulatory and certification environment is expected to follow, thus driving demand for our equipment. In addition to this overall market growth, there are further opportunities for growth in areas where the group can increase its market share. For example, in platforms and soft targets, where it competes with 2 other main competitors and has greater scope to win new customers. The group has a strong position in the market and a premium offering, which gives it strong pricing power and has enabled it to consistently increase prices above inflation in recent years. In areas where the group has strong niche positions such as robots and its simulation software, we will continue to maximize this opportunity. Finally, while replacement cycles underpin a level of steady-state revenue, our continued investment in new product development will help to stimulate demand and enhance growth prospects. While opportunities exist across each segment, there are particularly strong opportunities in robots and platforms as our equipment evolves to keep pace with ADAS technology and for driving simulators as we incorporate new customer requirements into new product launches. Operating margin expansion will be achieved through delivering operational gearing as we scale the business, simplifying the business and standardizing our processes and procedures. In our main manufacturing facility in the U.K., we delivered a net improvement of GBP 1.1 million in FY '25 with initiatives spanning supply chain efficiencies, planning and layout improvements and product rationalization. In half 1 '26, the full year effect of last year's initiatives delivered a further GBP 0.3 million. The innovation workshops I have conducted over the last few months will drive the next wave of incremental margin improvement opportunities, which we are working to monetize in FY '27. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we have built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. During the year, we have refocused our pipeline of opportunities and continue to develop relationships with a number of targets. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a potential transaction in the period. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. To summarize half 1 performance and the outlook for the remainder of the year, Revenue and profit in half 1 were consistent with the previously guided second half bias for FY '26. Order intake in the first half of GBP 64 million shows that the market and customer activity are returning to more positive levels after a more subdued third quarter of FY '25. Despite the lower revenue, we maintained margin at 18.6% from a combination of operational improvements, cost mitigation actions and positive revenue mix. We have proposed a 10% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 102% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM and powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group's geographic diversification and critical nature of its market-leading products and services have created a highly resilient platform that is well positioned to support customers navigating dynamic market conditions. We have good visibility into the second half of the year with an order book of GBP 47 million, of which GBP 29 million is for delivery in half 2, giving coverage of around 70% of expected revenue for the full year. We note the emerging situation in the Middle East. And whilst the group has no operating footprint in the region, we continue to monitor any potential impacts from broader risks to trade and cost inflation. The group has strong pricing power and a proven agile approach to managing the business through changing conditions. And so we remain confident in delivering on our key strategic and operational priorities. Whilst we are mindful of the current geopolitical uncertainty, absent an extended disruption, we expect adjusted operating profit for FY '26 to be in line with current expectations with an expected 55% to 60% revenue bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. That concludes the presentation. Thank you for joining us. Unknown Executive: So question number one is, how are you maximizing the use of AI in the business? Sarah Matthews-DeMers: In a number of different ways in our products, mainly in our software for AB Elevate. This enables our customers to train and test AV and ADAS using AI, using customizable training data that can generate hundreds of scenarios testing sensors. In our product development, we're using AI for software code debugging and also reducing engineering lead times. And then in the back office of the business, we're using it for efficiencies in terms of customer support, prepare training materials frequently asked questions and meeting minutes, et cetera. One of the things we are looking at is risk of using AI and allowing our IP to leak out into the wider Internet. So we're being very careful about the tools that we're using and ensuring that they are ring-fenced and safeguarding our IP. Unknown Executive: Great. Thank you. Question number two, what is the current state of OEM R&D budgets? And have they been cut in response to end market weakness? Sarah Matthews-DeMers: Well obviously, OEM R&D budgets are immune to falls in production volumes. Actually, what we're seeing in the market is that in the current environment, OEMs can't afford to cut their R&D budget significantly because of the competition from new Chinese entrants that are bringing models to market more quickly and efficiently and the more traditional OEMs having to fight hard to keep up in Europe and the U.S. So we're not seeing that as a significant movement. Unknown Executive: Okay. And following on from that, next question is, do you work with Chinese OEMs? Sarah Matthews-DeMers: We do absolutely work with domestic Chinese OEMs. And we sell testing products and simulators into China. While we sell direct to some of the larger OEMs, there are around 400 start-up OEMs in China who don't have the facilities to do their own testing. So we're selling into the testing providers that they're using to be able to do that testing. Unknown Executive: Great. And then finally, perhaps this is one for you, Andrew. How significant is the growth opportunity from here? Where could this business be in 5 to 10 years' time? Andrew Lewis: Yes. I think we set out the medium-term growth ambition is to double revenue and triple operating profit over the medium term. And Sarah explained the 3 component parts of how we believe we can deliver that. And I guess the growth drivers are structural and long term. And so we see a compounding effect from there that could take that out over the next decade. Unknown Executive: Sure. Okay. Well, that's all we've got time for. I'll hand back to Sarah to finish off. Sarah Matthews-DeMers: Great. Thank you. Thanks for listening, everyone, and we look forward to speaking to you again in Autumn.
Operator: Good morning. Thank you for standing by, and welcome to the Pluxee First Half Fiscal 2026 Results Presentation. [Operator Instructions] I advise you that this conference is being recorded today on Thursday, April 16, 2026. At this time, I would like to hand the conference over to Ms. Pauline Bireaud, Head of Investor Relations. Please go ahead, madam. Pauline Bireaud: Good morning, everyone, and thank you for joining us today for our fiscal 2026 H1 results. So I'm Pauline, I'm Head of Investor Relations for Pluxee and I'm joined by Aurelien Sonet, our CEO; and Stephane Lhopiteau, our CFO. Let me guide you through today's presentation agenda in the next slide. So Aurelien will start with the key highlights and figures for H1, followed by a focus on our commercial performance, and then Stephane will take you through our financial results. Finally, Aurelien will then conclude with our outlook, including an update on the regulatory situation in Brazil before we open the floor for the Q&A. And with that, I will hand over to Aurelien. Aurélien Sonet: Thank you, Pauline, and good morning, everyone. I'm pleased to be back with you today to present our first half fiscal 2026 results, starting with our key highlights. We are pleased to share that we delivered overall solid H1, which puts us well on track to meet our full year objectives. First, commercial momentum remains strong and resulted in sustained revenue growth driven by our core employee benefits activity. Again, profitability delivered ahead of plan. Recurring EBITDA margin expanded strongly, supported by the operating leverage embedded in our business model and the strong execution of our efficiency initiatives. Lastly, it translated into strong earnings growth and cash generation, reinforcing further our net financial cash position. Overall, H1 performance strengthens our confidence for the full year and allows us to enter H2 from a position of strength amid a more uncertain macro and geopolitical environment. Let's now focus on the key figures for the semester on Slide 5. Despite the increasingly challenging environment, we continue to deliver sustained top line growth with total revenues reaching EUR 655 million, up plus 5.6% organically. This was supported by the continued strength of our core business with Employee Benefits operating revenue reaching EUR 500 million at a 9.4% organically. And I'll come back on this in the incoming slides. At the same time, profitability delivered strongly. Recurring EBITDA reached EUR 242 million, up plus 12.9% organically, and recurring EBITDA margin expanded to 37%, up plus 229 basis points organically. And finally, recurring free cash flow reached EUR 210 million, corresponding to 86% cash conversion rate. In a world, we delivered a strong and well-balanced performance across growth, profitability and cash generation. And this is exactly what the next slide highlights over time. Beyond quality of execution, the performance delivered in one also reflects how our business model structurally convert top line growth into margin expansion and cash generation. At its core, Pluxee benefits from a resilient growth engine anchored in Employee Benefits. Combined with the operating leverage embedded in our platform, and the continued efficiency gains, this translates into higher profitability with EBITDA growing at twice the pace of top line growth. In turn, this profitability translates into strong cash generation, confirming the robust cash conversion capacity of our model. Let me now focus on our core growth engine, Employee Benefits in the next slide. As part of our growth engine is Employee Benefits. This core business represents the vast majority of our revenues and continue to deliver high single-digit organic growth across regions in H1. In Latin America, Employee Benefits grew by plus 11.5% organically, driven by particularly strong commercial dynamics across products and further supported by favorable face value trends underpinned by local inflation cost. In Continental Europe, growth reached plus 5.1% organically. In the current geopolitical and macroeconomic environment, this represents a solid performance and illustrates the resilience of our core offering across European markets. Finally, in Rest of the World, growth was particularly strong at 16.8% organically, illustrating the favorable dynamic that we observe in terms of market penetration in those countries. Overall, Employee Benefits once again demonstrated this semester the relevance of our pure-play positioning. I will now turn to other products and services in the next slide. Even if other products and services is facing temporary pressure in specific activities, the long-term value creation story remains unchanged. Looking first at Public Benefits in Continental Europe. Current performance mainly reflects the effects related to the contract cycle and order phasing, which are inherent in this business. At the same time, by leveraging our merchant network and payment capabilities, these large-scale programs structurally enhance group scalability. On top of that, our highly selective approach and close monitoring of contract performance ensures that Public Benefits remains sustainably accretive to growth and profitability overall beyond short-term phasing impact. As base effects unwind, performance is expected to progressively regain momentum from H2. Switching to the U.K. and the U.S., where we are strategically refocusing our activity towards employee engagement, a structurally growing segment in both countries. We now operate fully digital scalable platforms and are progressively exiting noncore, lower return activities. Together, these countries account for less than 5% of group revenues. And while they are expected to continue weighing on group's revenue growth in H2 2026, they should return to a positive contribution from fiscal 2027. More broadly, we continue to actively manage the portfolio and allocate capital and resources selectively toward activities and markets offering the most attractive long-term returns. Let's now look at the key drivers of the group's substantial margin expansion in the next slide. H1 marked another strong EBITDA margin increase with operating EBITDA margin expansion accelerating at plus 268 basis points compared to plus 235 basis points last year. It comes first from the operating leverage embedded in our model. Our one platform architecture allows us to absorb incremental volumes with limited additional costs, generating structural scale effects and synergies across the group. This sharp expansion also reflects the structural cost efficiency that we've been progressively delivering since the spin-off. It mainly comes from the streamlining of our product range and processes across countries. The accelerated automation, notably through the increasing use of AI as a key optimization enabler alongside technology and data and a clear prioritization of projects and initiatives based on rigorous value creation monitoring. Cost discipline has become an increasingly important margin driver for Pluxee, complementing volume growth and reinforcing our ability to sustainably improve profitability. Let's switch now to the commercial traction delivered in H1 on Slide 11. Our commercial trajectory remains solid in H1 and positions us well on track to deliver on our full year business targets. First, we achieved a record level of new client wins, generating EUR 0.9 billion of new annualized BVI across all client sizes and geographies. Second, net retention proved resilient despite a more challenging macro environment impacting end-user portfolios in some markets. Lastly, face value remains a structural growth driver of business volumes. In fiscal '24, we have generated EUR 2.9 billion of cumulative incremental BVI from increases in face value, bringing us very close to our 3-year target of more than EUR 3 billion. Let me now detail each of these levers, starting with new client development. New client development was particularly strong in H1. We generated a record EUR 0.9 billion of annualized BVI from new client acquisition with positive momentum across all 3 regions. It reflects our strong commercial execution tailored to the specific dynamics of each local market. Just as importantly, performance remained well balanced across client sizes with SMEs making a substantial contribution and accounting for more than 30% of new development over the semester. In addition, recent M&A contributed significantly, notably in Latin America, where the Santander partnership continued to perform at full speed. The acquisition of Beneficio Facil has also been a step change for our employee mobility business in Brazil, driving more than 50% volume growth year-on-year. This momentum is to be reinforced by the ongoing integration of Skipr in Belgium and in France. With a strong diversified and actionable pipeline, we are confident in our ability to deliver ahead of our full year development target, supported by disciplined execution in the second half. Now beyond new client acquisition, let's now look at net retention, another key driver of our commercial performance. Over the semester, client loyalty remains consistently at high level, underlining the strength of our value proposition to our clients. This provides a solid foundation to actively manage our revenue per client through 2 key levers: First, increase in sales values, which remain a key contributor, driven by inflation trends in Latin America and rest of the world as well as the progressive implementation of recent legal cap increases across Europe. This dynamic is expected to accelerate and continue to support BVI growth in H2 and beyond. Second, the cross-selling, which gained momentum, reflecting our strategy to stand up as a multi-benefit partner for our clients, illustrated as an example, by the accelerated deployment of our employee mobility solutions, as highlighted on the previous slide. At the same time, end user portfolio remained under pressure in some markets. A more challenging macroeconomic environment continued to weigh on labor market dynamics in some countries, leading to a temporary contraction in the covered employee base. As a result, net retention stood at 99% in H1, excluding the temporarily delayed large employee benefit program in Romania. It demonstrated solid resilience in the current environment, confirming the stickiness of our solutions and the effectiveness of our commercial and portfolio management strategy. And with that, I will now hand over to Stephane to take you through our financial performance in more detail. Stephane Lhopiteau: Thank you, Aurelien. Good morning, everyone. It is a pleasure to be with you today to present our financial performance for the first half of fiscal year 2026. Let's start this financial review with the business volumes issued on Page #15. Total business volumes issued or BVI reached EUR 12.9 billion in H1 '26. Employee Benefits remained the growth engine, reaching EUR 10.1 billion of BVI in H1, representing a plus 5.9% organic increase over the semester. It is worth noting that these figures include the deferred rollout to H2 of a large employee benefit program in Romania. Excluding this temporary phasing effect, Employee Benefit BVI grew plus 6.8% organically in H1. This performance reflects robust commercial execution driven by Latin America and Rest of the World as anticipated, which both delivered double-digit organic growth in Employee Benefits BVI over the first semester. Looking now at other products and services, business volume issued declined by minus 20.9% organically in H1. As already mentioned by Aurelien, this performance reflected temporary headwinds in Public Benefits due mostly to anticipated contract cycle and phasing effect of certain large Public Benefit programs across Continental Europe. Let's now see how such business volume issued translated into total revenues on Slide 16. Total revenues reached EUR 655 million in H1 '26, up plus 5.6% organically or plus 3% on a reported basis, including a minus 3.6% currency impact, mainly due to activities in Turkey, partly offset by a plus 1% scope effect. In Q2, total revenues increased by plus 2.8% organic. Operating revenue reached EUR 573 million in H1, up plus 5.7% organically and plus 3.9% on a reported basis, driven by Employee Benefits, which continued to deliver high single-digit organic growth as introduced by Aurelien earlier. Focusing on Q2 '26. Operating revenue reached EUR 306 million, delivering plus 2.8% organic growth. As expected, growth moderated, mainly reflecting nonrecurring effects in other products and services, which I will detail on the next slide. When stripping out these one-offs, we continue to see a strong and sustained momentum with operating revenue organic growth running at plus 6.1% in Q2 and plus 8.8% in H1, confirming the quality and resilience of our core business. Lastly, float revenue increased by plus 5.3% organically, reaching EUR 81 million in H1 '26. On a reported basis, it was slightly down by minus 2.5%, including a minus 7.9% currency impact. I will come back to the float revenue growth drivers in more detail later in the presentation. Before that, let's focus on the key drivers behind operating revenue performance over the semester as shown on Page 17. Employee Benefits operating revenue reached EUR 500 million in H1 '26, delivering a solid plus 9.4% organic growth or plus 7.8% on a reported basis. This high single-digit organic performance was fueled by strong commercial momentum, especially across Latin America and Rest of the World, and it was supported by a solid 5% take-up rate. Focusing on Q2 '26, Employee Benefits generated operating revenue of EUR 266 million, up plus 7.5% organic. Turning to Other Products and Services. Operating revenue reached EUR 73 million in H1, down minus 14.3% organically, of which minus 20.6% in Q2. As Aurelien explained it earlier, this decline mainly reflects first, temporary Public Benefit impact in Continental Europe, combined with the ongoing strategic repositioning of our activities in the U.K. and the U.S., including the exit from selected noncore and lower profitability contracts temporarily weighing on both countries' performance. Let's give a look at the geographical breakdown to see how these operating revenue trends were reflected across regions over the semester on Slide 18. Starting with Continental Europe. Operating revenue reached EUR 250 million in H1 '26, corresponding to a minus 0.7% organic contraction and a plus 0.8% reported growth. The trend, excluding one-off effects in Public Benefit remained solid, delivering plus 3.4% organic growth in H1. Growth continued to be driven by Southern Europe, especially Spain, which was up double digit organically, while France and Eastern Europe were more affected by the macroeconomic environment, notably with regards to end user portfolio trends. With the Public Benefit impact progressively fading, growth trend in Continental Europe should improve in Q3 versus Q2 in a still challenging macro context. Turning to Latin America. Operating revenue amounted to EUR 229 million in H1 '26, delivering a strong plus 12.1% organic growth. The region continued to benefit from strong commercial momentum, particularly in Brazil. Growth was driven by increasing penetration of Pluxee solution across both corporates and SME clients, combined with a continued increase in face values supported by local inflation dynamics. In addition, public benefit activity in Chile remains strong, further contributing to the region's strong performance. As the initial regulatory evolution in Brazil has been affecting the group since the beginning of March, operating revenue growth will turn negative in Q3 in the region as expected. Lastly, in Rest of the World, operating revenue reached EUR 94 million in H1, growing plus 8.4% organically or minus 5.3% on a reported basis, including a minus 13.9% currency impact, mainly related to the depreciation of the Turkish lira. Turkey remains a key growth driver for the group, supported by local hyperinflation environment driving higher face values across the client portfolio as well as by continued penetration through new contract wins. As already indicated, performance in the region also reflected the ongoing transformation of our activities in the U.K. and the U.S. Excluding this impact, operating revenue grew plus 16.9% organically, highlighting the strength of the momentum. Before contributing back to growth from fiscal 2027, this in-depth transformation is expecting to weigh more heavily on Q3 than on Q2 as the cleanup of legacy activities continues. I will now come back to the contribution of float revenue to the top line growth in H1 on Page 19. Float revenue reached EUR 81 million in H1 '26, still delivering a plus 5.3% organic growth, including plus 2.2% in Q2. On a reported basis, float revenue decreased slightly by minus 2.5% year-on-year, impacted by a minus 7.9% currency effect, mainly driven by the Turkish lira depreciation. Float revenue organic growth was mainly driven by higher business volumes issued, notably in countries where interest rates remained elevated such as Turkey or Brazil. This was partly offset by lower interest rates across most geographies, particularly in Europe, following successive interest rate cuts by the European Central Bank. Mitigate interest rate volatility and secure float revenue over time, the group continued to actively deploy a flexible investment strategy, increasing exposure to longer tenor and fixed rate instruments tailored to local financial market conditions. As a result, the average investment yield reached 6.1% in H1 '26, up plus 10 basis points year-on-year. Looking ahead for the full year, given, one, the current geopolitical environment and the implied volatility on interest rates; and two, the still uncertain impact from regulatory evolution on float balance sheet position in Brazil, visibility remains limited. As a consequence, our growth expectation for fiscal year '26 float revenue are now fluctuating from slight decrease to slight increase organically. After reviewing the top line performance, let me walk you through the significant profitability improvement delivered over the semester, starting with Slide #20. Once again, this semester's profitability performance clearly highlighted the strong value creation embedded in our business model and supported by our continued cost discipline. Recurring EBITDA reached EUR 242 million in H1 '26, up plus 12.9% organically and plus 7.7% on a reported basis. Recurring EBITDA margin stood at 37%, increasing by plus 229 basis points organically and plus 159 basis points on a reported basis. This strong margin expansion well spread across regions was largely driven by operating performance. Indeed, recurring operating EBITDA, I mean, here excluding float revenue contribution grew by plus 17.3% organically, translating into a plus 268 basis point organic uplift in the recurring operating EBITDA margin up to 28.1%. This performance reflects, as Aurelien already explained, strong operating leverage as well as strict cost monitoring discipline and continuous operational improvement implemented both locally and at group level, combined with top line and cost synergies from acquired businesses. This strong growth in recurring EBITDA contributed positively to the full income statement all the way down to net profit as disclosed on Page 21. Below EBITDA, first, depreciation and amortization stood at minus EUR 62 million in H1 '26, showing a slight increase year-on-year, consistent with the specific phasing of our CapEx in fiscal year '25 and the additional contribution from newly acquired companies. Second, other operating income and expenses decreased from minus EUR 13 million to minus EUR 8 million, reflecting limited one-off rationalization costs in H1 '26 compared with residual carve-out costs in H1 '25. For the full year, including Brazil restructuring, OIE are expected to remain broadly stable year-on-year at minus EUR 25 million. Operating profit or EBIT reached EUR 172 million, up plus 9% in H1 '26. Financial income and expenses came in at minus EUR 3 million, broadly stable versus H1 of last year. Borrowing costs remained unchanged and were largely offset by interest income generated from non-Float related cash. For the full year, we expect financial income and expenses to land between minus EUR 15 million and minus EUR 10 million. Finally, income tax expense reached minus EUR 53 million with an effective tax rate broadly stable year-on-year at 31.4%. As a consequence, net profit reached EUR 116 million in H1 '26, up plus 9.3% year-on-year, reflecting the strong expansion in recurring EBITDA, lower other operating items and disciplined financial expense management. Excluding OIE, adjusted EPS group share reached EUR 0.78, representing an increase of plus 6.8%, including the initial accretion from the execution of the share buyback program. Let's now take a look at how our solid operational and financial performance translated into a strong cash flow generation over H1 on Slide 20. Recurring free cash flow reached EUR 210 million in H1 '26, driven by the combination of a significant increase in recurring EBITDA, a disciplined monitoring of CapEx and a favorable evolution in working capital, excluding restricted cash. CapEx reached EUR 44 million in H1 '26 or 6.8% of total revenues, stable year-on-year, reflecting our disciplined capital allocation and the continued shift towards a more OpEx-driven model supported by cloud migration and IT service management. Change in working capital, excluding restricted cash, improved to EUR 85 million compared to EUR 43 million last year driven effective focus on cash collection and management. As a result, recurring cash conversion rates reached 86% in H1 '26, reflecting the quality of our recurring earnings. This performance keeps us well on track to meet our 3-year average objective of around 80% cash conversion despite expected regulatory headwinds in Brazil in the second half. This strong cash generation has also been a key driver supporting the further increase in the group net financial cash position as we see on Page 23. Net financial cash position, excluding restricted cash, reached EUR 1.270 billion as of end of February '26, representing an increase of plus EUR 107 million over the semester. This evolution reflected the strong recurring free cash flow, which more than covered the cash outflows for first, the deployment of our M&A strategy; second, the dividend payment; and third, the ongoing execution of the EUR 100 million share buyback program, of which around 64% had been completed by the end of H1. Gross financial debt remain quite unchanged over the semester at a bit less than EUR 1.3 billion, mainly composed of the 2 long-term bond tranches. During H1, we also entered into fixed floating interest rate swaps on part of this bond fixed rate debt, further optimizing the financial structure as part of our asset liability management strategy in connection with float revenue. And then this Pluxee's strong financial cash position and cash generation is also reflected in our unchanged BBB+ rating and stable outlook from Standard & Poor's. And with that, I will now hand it over back to Aurelien for the outlook. Aurélien Sonet: Thank you, Stephane. Let me now wrap up this presentation with our outlook, but starting with an update on recent developments in Brazil and the group's updated action plan. Since the revised framework was announced, we have consistently executed our action plan in Brazil, making tangible progress across our 3 work streams in line with regulatory milestones. So starting with operations. From early March, we have implemented the first measures set out in the decree. And in parallel, we've been preparing the rollout of our best-in-class open-loop solution, leveraging our existing [indiscernible] capabilities with the deployment starting in May. In addition, we've been deploying a multilevel efficiency plan to adapt our cost base and protect profitability, adjusted over time to reflect the different stages of the reform and our business needs. In parallel, we continue to maintain proactive and constructive discussion with Brazilian public authorities, focusing on feasibility, scope and implementation time lines to ensure a pragmatic and orderly transition. And finally, we continue to pursue our longer-term legal actions, keeping all options open to support the sustainable development and proper functioning of the PAT work in Brazil. Overall, we are executing our road map in line with the plan and teams both in Brazil and at group level remain fully mobilized. Combined with our strong H1 performance, this supports our confidence in confirming all our financial objectives for fiscal 2026. As a reminder, our fiscal 2026 objectives assume the full implementation of the Workers' Food program reform for the PAT from H2. It also incorporates the positive impact of our mitigating actions and the progressive adaptation of our operating model in Belgium. Within that framework, we continue to expect stable total revenues on an organic basis for the full year, slight organic expansion in recurring EBITDA margin. This is underpinned by the resilience of our model and by the actions we are taking across the group to protect profitability in a more challenging environment. And finally, recurring cash conversion of around 80% on average over fiscal 2024 to 2026. Overall, our strong H1 delivery, combined with our disciplined execution, reinforce our confidence on full year objectives while continuing to manage proactively in this complex geopolitical and macroeconomic context. To conclude, I would say that Pluxee once again delivered a strong H1 performance with solid revenue growth, margin expansion and robust cash generation. While we are facing a contained regulatory evolution in Brazil, it does not change the fundamentals of our business model, the strength of our commercial momentum nor our discipline on execution. And this is why we remain fully confident in meeting all our full year objectives and focused on long-term value creation for the group. Thank you for your attention. And now with Stephane, we will be happy to take your questions. Operator: The first question comes from Pravin Gondhale of Barclays. Pravin Gondhale: Firstly, on retention, it's sort of 99%, excluding Romania. Could you please give us a sense when do you expect it to sort of return to positive territory? And then secondly, on CapEx levels, H1 CapEx were broadly flat year-on-year, but I remember you chatting -- you talking about FY '25 CapEx being lower on temporary sort of delay in IT and tech CapEx. So given your shift to OpEx-driven model now, what's the right level of CapEx we should be thinking in medium term? And then finally, on Brazil, it's been sort of a few months since the announcement of decree. Since then, have you announced any incremental cost mitigation or renegotiation actions, which should help you to reduce the impact from the regulations? Aurélien Sonet: Thank you, Pravin. So I will start with your last question regarding Brazil. So indeed, as we said during our presentation, we started the implementation of our mitigation plan. And I'd like to highlight the strong commitment from our teams locally. And they've been working on 2 sets of measures. On one hand, the client renegotiation for all our clients who've been using the Workers' Food Program solution. So it has been a very deep work and it's a hard conversation that we've been having with clients, but positive overall. And the second set of measure is much more related to the cost. And as we said, we've been running ongoing cost reduction and optimization actions. And we are doing it in accordance with both our business needs and the evolution of our operating model. What I would mention among other items is that we already conducted a restructuring initiative in February to start streamlining the organization. Regarding the CapEx, maybe, Stephane, you want to take this? Stephane Lhopiteau: As you rightly noticed, this semester, we were consistently with last year for the first semester, a little bit lower compared to the 9% average of CapEx versus revenue that we expect and still expect for this full year. We are right now a bit lower compared to what we used to be 2 years ago with, as you said, this switch to a more OpEx-driven model. However, what happened this semester, there is nothing related to some specific events like what we faced last year with the carve-out. This is more just the pace of our internal project where the pace of activation of the project when they are fully completed was a bit behind. But overall, in the full year, we are fully on track with the more standard 9% over. And then in the medium term, it's likely that this percentage will be reduced by still switching to this OpEx-driven model and also with the higher scale of the group as the group will deliver more growth in the coming years. Aurélien Sonet: Thank you, Stephane. And regarding the net retention, look, we maintain our 100% objective for the full year. So we really aim at reaching at least 100% and we will be helped on that sense by the face value increase. We mentioned it. I mean, we still anticipate stronger contribution from the face value increase on H2. And on the end user portfolio growth, for the moment, for some specific country, we expect a positive inflection. But we also -- we have to remain a bit focused within this challenging macroeconomic and geopolitical environment. Operator: The next question is from Hannes Leitner of Jefferies. Hannes Leitner: A couple of questions from my side. Maybe you can comment on your reference to end user portfolio decline. Can you maybe double-click on that, talking also a little bit in terms of geographic dynamic, especially I would be interested to understand the European dynamic. And then thanks for talking about Turkey. Maybe you can also give us a little bit more detail on your current size of the business operating revenue contribution and how there is the dynamic in terms of market share, et cetera? And then just lastly on Brazil. There's one -- it sounds like the incumbent players are looking for kind of adopting the open loop, but also maintaining the closed loop. Can you just like talk a little bit about that, where -- in which case the closed loop just makes sense to maintain and what's led to the decision? Aurélien Sonet: Thanks a lot. I will start with your question regarding Brazil. So in Brazil, as we were sharing with you, we are still having constructive discussion with the Brazilian government clarifying whether there is an obligation even for the Workers' Food Program, is it a definitive decision to use only an open loop system. So we are currently having those, again, constructive discussion. But it's fair to say that if it's -- this obligation is confirmed, we still have other products in Brazil that will still take advantage of our closed-loop network, meaning a strong relationship with merchants. And on this topic, just to share with you, we still see some very good traction. I mean many -- and when I say many, it's thousands of merchants contacting us every month, close to 10,000 merchants to still onboard into the acceptance network of Pluxee. So that's for the -- regarding Brazil and the open loop and closed loop. Stephane maybe for Turkey. Stephane Lhopiteau: Turkey is as I think we already said, is one of our key countries. It's among our top 6, something like top 6 countries. It's a dynamic country for us where -- and this country contributes well to the organic growth of the group with double-digit organic growth, still strong double-digit organic growth from this country. And we don't share precise numbers by country. So I can't -- I'm not going to tell you -- you asked what is the level of operating revenue. We disclose it for France and Brazil as required by the accounting standard because this country represents more than 10% of group revenue. So you can conclude that Turkey is a big one among the top 6, but lower than 10% of the group revenue. Aurélien Sonet: And regarding the end user portfolio decline, so indeed, overall, at group level, we disclosed quite a negative impact. But it's fair to say that it's pretty different from a country to another, from sector, from industries to others as well. We are still penalized in Europe and mainly in countries such as France, Romania and Austria. And for example, in France, we see companies that are really cautious. Some are clearly putting critical projects and investments on hold, and they remain quite conservative in their approach to systems. And this impact is even more visible in the SME segment. And we saw it even during the Christmas campaign. And yes, after we -- I mean, previously, we are mentioning Mexico is still -- I mean, the situation is getting better, but it's not back to positive yet. And we have other countries where still the SME segment can show some weak signal, I would say. So that's why, again, I mean, we remain very, very cautious for H2 on this specific indicator. Hannes Leitner: I'd just like to explain that because they have been impacted by public social programs. So when you reference that kind of end user portfolio dynamic, is that also because of the expiry of those contracts? And if you now exclude those public contracts, just focusing on the core meal voucher, would you say that... Aurélien Sonet: No, no. I was not referring to those public benefits contract. I was really referring to the employee benefits business. Yes, there are some industries such as the IT, automotive industry that in Eastern Europe are under [indiscernible] at the moment. Operator: The next question is from Justin Forsythe of UBS. Justin Forsythe: Just a couple of questions, if I might. I wanted to come back on Brazil. I think we talked last quarter about some of the puts and takes between the revenue impact that you expect alongside the cost reductions. Just wondered if we could revisit that and confirm the progress there. And maybe talk about the different buckets of cost. I think there's a good portion of cost, which comes out relating to processing. So meaning when you remove some of the back-end processing, as you move to open loop, there is a big reduction in cost as a result of that. I wanted to focus on that other portion of cost, which is the OpEx side. Is there maybe more detail you can give on the specific actions you've taken? Aurélien Sonet: Okay. Thank you, Justin. Stephane, do you want to start? Stephane Lhopiteau: And you might complement? Aurélien Sonet: Yes. Stephane Lhopiteau: Justin, as Aurelien explained during the presentation and answering some of the previous question, in Brazil, I think we need to make a distinction between the potential endgame and the transition period. So the endgame and when I say endgame, there is a lot of uncertainty about this endgame, and we explained that right now, we took an assumption of a worst-case scenario with a full implementation of the reform as currently drafted in the decree. And this is this end game. And based on this endgame, we say that our business in Brazil might be reduced by something like twice. And then in this case, we will target to adapt significantly our business model in the countries by reducing our cost base. And we started to look at it because we are preparing for this situation. And it's almost all lines in the cost base that will be concerned, both processing costs as part of cost of sales or SG&A as well. And we said that, again, with this end game, we would target to keep our EBITDA margin in the country unchanged, meaning that if the top line was to be reduced in the end by twice, we will have to organize things to restructure things so as to be able to reduce our cost base by twice as well in order to keep this EBITDA margin unchanged. Now this is not where we are today. As Aurelien explained, we are in a transition phase. We are -- there are still a lot of uncertainties regarding the scope, the time line, the technical feasibility of this reform with some ongoing discussion with the government as well. So the industry has engaged with the government, and we'll see what will happen. So meaning for this fiscal year '26 and for the second half, we have started to reduce a little bit our cost base as we are going to face some preliminary headwinds, but we also need to protect the top line of the company in case in the end, the reform was to be implemented only partially or in a different way compared to what is currently contemplated. So therefore, there will be an impact in the second half of the year, but the potential 50% decrease in revenue and in the cost base, this is for a much later period in case, again, the full reform was to be implemented as currently started. Aurélien Sonet: And maybe just to complement on the revenue side because you remember that the growth in the business volume and the performance of Brazil remains very strong in terms of business volume growth. Our new sales in H1 were very high. We still benefited from the full impact of our partnership with Santander. We also enjoyed a strong performance in cross-selling, thanks to our new employee mobility benefit product. And talking about H2, we still anticipate similar dynamic in terms of business volume growth than in H1, i.e., double digit. And for us, this is extremely important and positive. Operator: The next question is from Andre Juillard of Deutsche Bank. Andre Juillard: Two questions, if I may. First one about the amortization. Could you give us some more color about the evolution of the amortization during H2 and the year after because you have -- correct me if I'm wrong, that you have 2 components. First one about the general evolution of the amortization regarding the CapEx and the OpEx. And secondly, the plan on M&A. And this is my second question. Your cash net position is even stronger than what it was at the end of last year. Do you have any new plan about the use of this cash or still not clear? Stephane Lhopiteau: Andre, regarding -- so this is Stephane speaking, but I guess you recognize my voice. Regarding your question about depreciation and amortization, no surprise for us. This is fully consistent with the pace of our CapEx in the last 2 years. If you look at it over the last 2 years, we capitalized in average, there are some differences year-on-year, but close to EUR 110 million per year. It was a little bit more than this in fiscal year '24. It was a little bit less in fiscal year '25. It will be a little bit more in this year, fiscal year '26. So this is the pace. And after a while, we are likely to reach the same level of depreciation year-on-year, and this is what we are seeing today with a little bit of contribution from the newly acquired company. If you think about companies like Pobi or Skipr, which have some tech assets, of course, we now consolidate the depreciation of the tech platform of these companies. And at the same time, in terms of amortization of intangible assets as identified as part of the business combination, no surprise, this is fully in line again with we were expecting. Regarding your question on the net cash position, I think it's worth differentiating 2 cash position. You have the overall net cash position. And we also disclosed clearly in our activity report, what we call this net excess cash position, making a clear distinction between the contribution of float related cash to cash and this excess cash. And if you look at this excess cash -- excess cash in the first half of the year with no surprise, we don't benefit from an improvement, but we faced a decrease of about EUR 140 million in the first half, which is fully related to the payment of dividend, the execution of the share buyback program, the cash out of program, interest cost, which is happening at the beginning of the year, in the beginning of September every year and all this kind of things. So therefore, the first half of the year for us is always and if you look at what happened in fiscal year '25 or fiscal year '24, it was the same. The first half of the year for us in terms of excess cash, this is a period where we burn some cash, a little bit more this year with the share buyback program, while in the second half of the year, we don't have the significant cash outflows and building again a strong excess cash position for the full year. So I just wanted to make it clear, this EUR 107 million improvement in the overall net cash position is the combination of EUR 140 million decrease in excess cash and EUR 240 million improvement overall on the float related tax position. Aurélien Sonet: And maybe even regarding the question, any new plan on the use of this cash. Just to confirm that M&A remains a key pillar of our growth strategy. We saw it the acquisition that we completed last year had a material impact on our first half [indiscernible] delivering 1% scope effect, delivering also some growth synergies and Beneficio Facil in Brazil has been a very good example with this plus 50% BV growth in 1 year. So we see the acceleration. And we -- the integration of the more recent acquisition is progressing well. So we -- now we have a good track record, and we believe that we are well positioned to continue executing on our M&A road map. And we have a solid pipeline and -- but we -- again, we want to execute this road map in a very rigorous and disciplined manner. So we'll come back to you when it will be. Operator: [Operator Instructions] The next question, gentleman, is from Mahir Bidani of UBS. Mahir Bidani: Just wanted to kind of confirm around the EBITDA guide. You reiterated it, but that's given -- that was reiteration despite a pretty strong beat in the first half. Is that just implying conservatism? Or do you expect perhaps the sort of downward trajectory in 2H in the EBITDA? And in terms of the macro environment, is there a bifurcation between, I guess, the sectors you're seeing the end user portfolio reduction? Is that more the automotive versus the tech? Have you -- the conversations that you've had with some of your clients are reducing the end user portfolio, is that because of AI fears and then stopping hiring for that reason? Or is it more because it's like concentrated towards blue-collar macro jobs? So can you just provide a little color there on that? Aurélien Sonet: Yes. So regarding your second question, so indeed, we start having -- and we are engaging even proactively with our clients because most of them are wondering what would be the future of their organization. Not many of them have very clear answers. But what makes Pluxee so resilient is the diversity of our clients portfolio because we are serving small but also very large clients in the private sector, in the public sector and all of this in 28 countries. So that does explain the resilience. And within this range of clients, we have also, let's say, the future giants, the one who will take advantage of AI, I mean, in order to grow with them. So this is what I can tell you. But I mean, if we look at industry by industry, it's fair to say that at the moment, indeed, the automotive industry, the IT industry and part of the interim industry are currently under pressure because their clients are reading some of their budgets that are related to their own activities. And concerning the EBITDA? Stephane Lhopiteau: Regarding your question about our guidance on the EBITDA. So this is not specifically conservative, the slight improvement in the EBITDA margin. Of course, all the teams are already focusing on doing their best in order to always do better, but this is what we currently have in mind. And if I have a bit more color, we expect all the regions to go on improving the EBITDA margin with a similar trend compared to what we delivered in H1 with one exception, one big exception, which is going to be Brazil. And as I explained, in Brazil, we are not engaging right now in a pool of restructuring. We are making sure that we are able to benefit from all potential scenarios. So there is a little bit of cost reduction, but the reform for the short term and for the second half of the year will weigh a lot on the EBITDA margin of the group. And this is because of Brazil that in the second half of the year, we will face a lower EBITDA margin compared to the previous year. So overall, -- but the improvement, the uplift we delivered in H1 is going to be offset by a deterioration of the EBITDA margin in the second half of the year, not as big as what we delivered in H1. So there will be, in the end, the remaining small improvement in the EBITDA margin for the full year. Operator: There are no more questions registered at this time. Back to you, Mr. Aurelien, for any closing remarks. Aurélien Sonet: Thank you, and thank you for your attention this morning. In closing, I would like to reiterate our confidence in the future, supported by a strong first half and reiterate as well our continued focus on disciplined execution and long-term value creation. And with that, I wish you all a very good day. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, and thank you for standing by. Welcome to the Hays plc Trading Update for the quarter ending 31st of March 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kean Marden, Head of Investor Relations and M&A. Please go ahead. Kean Marden: Good morning, everyone, and thank you for joining us on a busy reporting day for the sector. I'm Kean Marden, Head of Investor Relations, and I'm joined here today by James Hilton, Chief Financial Officer, to present Hays' Q3 '26 results. Before we begin, please be aware that this call is being recorded, and the replay is accessible using the number and code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call regardless of whether these statements are affected by new information, future events or otherwise. I'll now hand you over to James. James Hilton: Thank you, Kean. Good morning, everyone, and thanks for joining us today. I'll present the key points and regional details of today's trading update before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year unless stated otherwise, and consequently exclude our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. Group net fees decreased by 8% with Temp & Contracting down 6% and Perm down 12%. I'm pleased to confirm that strong consultant net fee productivity growth and cost discipline continues to offset lower net fees. Although near-term market conditions are likely to remain challenging, and we remain mindful of heightened global economic -- macroeconomic uncertainty, we currently expect FY '26 pre-exceptional operating profit will be in line with consensus. I would like to highlight the following key items from the results. Temp & Contracting net fees decreased by 6% as we saw a modestly stronger return to work in the U.K. and Ireland and ANZ and the year-on-year decline in volumes and average hours worked in Germany was in line with our expectations during the quarter. Group Temp & Contracting volumes decreased by 5% year-on-year, including Germany, down 9%, UK&I down 8%, ANZ down 6%, and Rest of the World up 2%. Perm net fees decreased by 12%, driven by a 15% decline in volumes as conversion of activity in UK&I and ANZ reduced modestly versus Q2. This was partially offset by a 3% increase in the group average Perm fee supported by our actions to target higher salary roles. We continue to manage our consultant capacity on a business line basis. And despite challenging markets, our actions delivered 7% year-on-year growth in average consultant net fee productivity in Q3, including notable increases in the UK&I and our Rest of the World businesses. On a seasonally adjusted basis, productivity has now increased for a sector-leading 10 consecutive quarters. Consultant headcount reduced by 3% in the quarter and by 14% versus prior year. We've continued to make strong progress towards our structural cost saving program with a further GBP 15 million per annum savings delivered in Q3. We've now achieved GBP 30 million annualized savings in FY '26, making excellent progress towards our target of GBP 45 million by FY '29. In total, we've now delivered GBP 95 million annualized cumulative structural savings since the start of FY '24. Our non-consultant headcount exited the quarter down 7% year-on-year. And the group's net debt position was circa GBP 15 million, which is in line with our expectations and reflects normal seasonal cash flows. I will now comment on the performance by each division in more detail. Our largest market of Germany saw fees down 11% year-on-year. Temp & Contracting fees decreased by 11% with volumes down 9% and a further 2% impact from negative hours and mix. Temp & Contracting volumes remained solid overall with return to work in line with prior year and the year-on-year decline in average hours were during the quarter predominantly in our public sector and enterprise clients was in line with our expectations. These sectors hired in anticipation of fiscal stimulus, hence, our placement volumes have remained resilient, but hours work remained softer in the quarter after federal budget approval was delayed. Perm was sequentially stable through the quarter and the year-on-year decline in net fees eased to 10%. At the specialism level, Technology and Engineering, our 2 largest specialisms, were flat year-on-year and down 27%, respectively, the latter impacted by ongoing subdued performance of the automotive sector. Accounting & Finance was down 22%, but Construction & Property performed strongly once again with 37% net fee growth, driven by our focus on infrastructure and the energy sector, and it now contributes 9% of our net fees in Germany. Consultant headcount decreased by 6% in the quarter and by 15% year-on-year. Net fee productivity increased by 5%, driven by our ongoing focus on resource allocation, and we made strong progress with our structural cost-saving initiatives. In U.K. and Ireland, fees decreased by 10% with a modestly stronger return to work in Temp & Contracting down 6%, but Perm remained subdued and was down 15%. Fees in the private sector declined by 8%, while the public sector was tougher, down 13%. At the specialism level, Technology was flat versus prior year, while Construction & Property and Accountancy & Finance decreased by 8% and 6%, respectively. Enterprise fees declined by 4%, while office support was flat as our actions just to target higher salary roles offset lower volumes in our junior roles. Consultant headcount decreased by 4% in the quarter and 16% year-on-year. Consultant net fee productivity increased by 11%, and we made further good progress in improving operational efficiency. Once again, a key driver has been our greater focus from our consultants on high skilled roles, consistent with our Five Levers strategy. As a result, year-on-year growth in average candidate salary remained at 8% for Perm in Q3 and accelerated to 9% in Temp & Contracting. As expected, our sustained focus on cost discipline, including ongoing initiatives to optimize our office portfolio and delayer management has driven a further structural improvement in costs. We've made good progress towards building a higher quality focused business and consequently anticipate improved profitability in the second half. In ANZ, fees decreased by 2% year-on-year with modestly improved momentum in Temp & Contracting, but Perm was more subdued. Temp & Contracting decreased by 1% year-on-year with a Return to Work modestly ahead of previous years. Perm net fees down 6% slipped back into modest year-on-year decline as conversion of activity to placement became more challenging. The private sector decreased slightly by 1% with the public sector down 6%. At the specialism level, Construction & Property, our largest specialism at 21% of ANZ net fees increased by 6% with office support and Accountancy & Finance up by 7% and 5%, respectively. Technology declined by 11%. Australia net fees were down 2% with New Zealand at minus 11%. ANZ consultant headcount was up 2% through the quarter but decreased by 4% year-on-year. Driven by our focus on resource allocation, consultant net fee productivity grew by 7%. As with U.K. and Ireland, the key driver of our profit recovery has been greater focus from our consultants on higher-skilled roles. As a result, year-on-year growth in our average salary of our Perm placements was maintained at 5% in Q3. In our Rest of World division, comprising 24 countries, like-for-like fees decreased by 6%. Temp moved back into positive year-on-year growth and fees were up 3%, but Perm declined by 12%. As a reminder, our total actual growth rate includes the impact of our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico. In EMEA ex Germany, fees decreased by 8%. France, our largest Rest of the World country, remained tough and loss-making with fees down 17%, but our actions to address productivity and costs are being delivered on plan, and we continue to expect an improved performance in H2. Southern Europe performed strongly with Spain and Portugal again achieving record quarterly net fees, up 17% and 6%, respectively, and Poland grew by 2%. In the Americas, fees decreased by 7%. The U.S. and Canada were down 8% and 2%, respectively. We have previously highlighted a substantial bid pipeline with large enterprise clients in North America, and I'm pleased to share that several contracts have now reached final close with mobilization anticipated over the coming quarters. Brazil, down 12%, was again challenging. Asia fees increased by 8% with activity -- improved activity overall through the quarter. Japan grew by 33%, driven by strong growth in our Temp & Contracting business and an easier comparable. Mainland China grew by 16% and Hong Kong by 9%. For the Rest of the World as a whole, consultant headcount increased by 3% in the quarter and by 14% year-on-year. Before moving to the current trading, I wanted to take a few moments to update you on our strong strategic progress during the quarter. As we've previously shared with you, our initiatives to improve consultant net fee productivity in real terms through our Five Levers and structurally improve our cost base will be key drivers of profit recovery. Amidst challenging markets we are executing well and continue to make significant operational progress. We continue to invest in high potential and high-performing business lines and scale back or exit those with low performance and potential. As previously communicated, we have exited 4 countries over the last year, and we'll continue to review our country portfolio in the medium term. Consultant fee productivity up 7% in the quarter has increased for a sector-leading 10 consecutive quarters, driven by careful allocation of consultants to business lines with the most attractive productivity and long-term structural growth opportunities. Greater focus from our consultants on high skilled roles and our investments to provide them with the best tools. Within Temp & Contracting net fee growth was positive in 3 of our 8 focus countries in Q3. And at the group level, Temp & Contracting now contributes 65% of net fees. In Enterprise Solutions, we've recently signed several new contracts which we expect to contribute to fees over the coming quarter. And our programs to structurally reduce our cost base performing well with GBP 95 million per annum aggregate structural savings now secured since the start of FY '24. We continue to make strong progress with our initiatives and expect the full financial benefits to build over time. Moving on to current trading and guidance. To date, we have observed minimal impact from developments in the Middle East, but we remain vigilant. Although we have limited forward visibility given the heightened levels of global macroeconomic uncertainty, we expect near-term Perm market conditions to remain challenging but expect greater resilience in Temp & Contracting to continue. We were pleased once again with our net fee productivity through Q3 and believe our consultant headcount capacity is appropriate for current market conditions and therefore, expect it to remain broadly stable in Q4 as we balance focused investment in high-performing and high-potential business lines with improving productivity in more challenging areas. We will continue to structurally reduce our cost base to position Hays strongly for when end markets recover and expect to make further substantial progress in Q4. As a result of the acceleration of our cost program, we have incurred around GBP 20 million of exceptional restructuring costs to date in fiscal 2026. But finally, there are no material working day impacts anticipated in Q4 '26. I'll now hand you back to the administrator, and we're happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Rory McKenzie from UBS. Rory Mckenzie: It's Rory here. Two questions, please. Firstly, I'm sure you've scrutinized all the forward indicators all the ways that you can. So have you seen any signs of client activity changing at all since the start of the Middle East conflict? Then secondly, within enterprise clients, can you say what the net fee trend here was excluding those 2 large RPO contracts you lost? And you referenced a growing pipeline and improving win rates. Can you just talk more about any sectors or countries that are driving that and what your hopes are for that fee pile going forward? James Hilton: Thanks, Rory. I'll start off with the first one around the impact in the Middle East. And look, standing back from this the first an immediate priority for us has been the safety and the well-being of our 70 or so colleagues over in the region, specifically in the UAE I mean as I put in the statement and in the script, we have seen to date little to no impact at all in our -- either our fees or in our forward indicators. But clearly, we remain highly vigilant given the level of uncertainty that's building around the world. And as you would expect, we'll watch every piece of data like a hawk. And if and when we see any change, we'll react accordingly. But as we stand here today it's business as usual. We're continuing to focus on our priorities, which is optimizing our resource allocation for the best long-term opportunities versus -- and managing it versus the current level of demand and activity. We're fully focused on our cost programs, and we expect to make good progress through the next quarter, and we're continuing to invest in our technology and our people and position ourselves for the long term. So as a team, Rory, you know us well, we've been through choppy times in the past, whether that's GFCs, whether it's pandemics. This is the next thing to come along to the world of geopolitics, but we'll manage it accordingly, and we'll stay very, very close to it. And as and when we see anything, we'll let you know. Second question was around Enterprise and really the trends in that business. I think if we just look through the impact of 2 large losses that we had in Q4 last year, actually, excluding those, we were about flat year-on-year in the Enterprise business. I mean, bearing in mind this time last year, it was an all-time record performance for our Enterprise business. So we're up against a relatively tough comp. We were down 5% in the quarter. But if I adjust for those 2 contracts, it's about flat. In terms of the pipeline, it's been encouraging, actually. We've been talking a little while now around the efforts we've had to sharpen our focus on the bid pipeline and what we've had is some really successful conversions of that and now getting those deals over the line in the last quarter have been -- should be beneficial for us in the coming quarters ahead. In terms of where those are concentrated, we've had several wins in the North America and in the U.S., in particular in the tech sector as well. So that's where a lot of our focus has been, as you know, in terms of investment and really pleasing to see some of those efforts coming through. And I think that will help that business going forward over the next 6 to 12 months. Rory Mckenzie: Great. Maybe just one more to follow up on the kind of the business repositioning in these tricky markets. You're having to manage some areas that are up strong double digits right now and other areas that are still down strong double digits. So I know you've closed 4 country operations, and there's lots of kind of repositioning in the group. But can you talk about how you -- are you still in a process of a very active portfolio management? Could there be other countries or practices you might be closing to redeploy? Or how far through the evaluation of all the mix do you think you are right now? James Hilton: I mean the way we run the business, Rory, is not just at a country level. We -- as you know, we run it at a business line level. So whether that's a specialism or the contract form within that specialism. So we may be investing in tech contracting in a country while we're disinvesting in Perm because we see deeper levels of demand and activity, and we have to make appropriate decisions. And you're absolutely right. If you look at our consultant headcount at a macro level in the last quarter, we were down 3%. But actually, several of our countries, we were strongly investing in, and I'd highlight Japan, Spain has been 2 good examples there where we're seeing relatively benign macroeconomic conditions, we see really good long-term opportunities to structurally grow our businesses there, particularly in the Temp & Contracting area, and we really made some investments in both of those markets, which are really coming through quite nicely. So the way we run our business, as you know, is really to map our resource allocation to both the long-term opportunities for us to grow, but also we have to manage it within the markets we're in and have to respond to current levels of demand and activity. So that's how we do that at an overall group level, Rory. In terms of the portfolio, clearly, we've had 4 countries we've withdrawn from over the last 12 months or so. There's a couple more that we're looking at. I expect us to think about that more strategically going forward and think about the long-term opportunities and the major markets that we need to focus on. But we'll update on that in due course. I mean -- but as today, business as usual, we're very much focused on making sure we've got the right consultants on the right desks in the right markets. Operator: We will now take the next question from the line of James Rowland Clark from Barclays. James Clark: My first question is just in France. You commented it's loss-making at the moment. Are you able to update us on a potential time line for turning profitable at this level of activity in the market? And then my second question is on Australia and New Zealand. It slipped a little bit in this quarter to mind, the private sector was down 1%, it was up 2% last quarter. Just interested to know what's happened there? And a similar comment on Germany and Technology, which has done the opposite. It's materially improved to flat from down 10%. I just wondered if that was complicated or anything else to draw out. James Hilton: Great. Thanks, James. I'll kick off with France. And clearly, it's been a challenging market for us and for the sector overall to be fair, over the last couple of years. Clearly, we've not been happy with the performance there. And as you know, we were loss-making in the first half of the year. We're very much focused on turning that business around, both in terms of the markets that we're focused on increasing our exposure to Temp & Contracting away from junior clerical roles and moving further up the food chain and at the same time, bringing some of the structural costs down in that business. We're well on with our plan. Our current plan at the levels of demand that we've got today would see us back into a breakeven position or even slightly profitable in our Q4. So we're very much focused on that. But clearly, as all our markets is subject to current levels of demand. But other things being equal, I'd expect to be back into a positive position there. As we exit the financial year, which is important for us because France is an important market for us. Not so long ago, we were making GBP 15 million plus of profit there. Let's not forget. So it is an important market for us. It's been through an incredibly challenging time, talk about instability and the broader impacts on business confidence, that's right in the heart of that. The team have had a real battle on their hands, but I think we're coming through that now, and I expect to be in a better position as we exit the year. Question on Australia is a fair one. And actually, we talked last quarter about some positive momentum. As you mentioned, the private sector was up slightly. We were back in growth in the Perm business. And we've seen that slightly inflect actually whereas our Temp & Contracting business has continued to move forward. And I think overall, I look at Australia and we're pretty consistent with where we were 6 months ago. But I would say that the Temp & Contracting business has probably been slightly ahead of where we expected to be and have good momentum and good trends through the quarter as we've highlighted in the returns to work. But on the other hand, Perm has been a little bit softer. And it's interesting because we -- the top of funnel activity is actually pretty good. And I look at the number of job registrations, interview numbers, it's consistent with where we were in September and October. We just haven't seen that conversion come through at quite the same level. As we had 6 months ago. And hence, the Perm fees have come in just slightly short, but it's relatively small deltas both ways, but just a subtle shift there. But overall, it's a pretty stable trend in Australia and actually a pretty similar picture in the U.K. actually, not dissimilar in the trends that we've seen there. Germany tech is predominantly underpinned by our contracted business. So if you think about the weightings of our businesses, the Temp business is heavily weighted to the Engineering sector and the Automotive sector more broadly, whereas the contracting business is the largest business there is in technology. And that's been pretty stable. We've had reasonably pretty solid performance in terms of the number of starters there over the last 3 months post-Christmas. The hours has been stable, which is helpful. The team are doing a really good job of pivoting that business and finding growth within our clients, not everywhere is difficult in Germany. There are pockets of opportunity, and I think the team are doing a good job of finding that. So Technology being flat was a pretty decent result overall for the German business. Hopefully, that covered everything, I think, and please forgive me if I missed anything. Operator: We will now take the next question from the line of Karl Green from RBC Capital Markets. Karl Green: Just a quick question to see if you've got anything incrementally, you say, around a permanent CEO appointment in terms of how the process is unfolding there? And secondly, just technically, an update on what you'd expect exceptional restructuring charges to look like in the second half. You said that you expect to incur increased charges in H2. I just want to check how that compares to previous comments, please. James Hilton: I think I got it, Karl. You were a little bit faint. So if I miss anything in your questions, just please just shout. I think the first question was around the permanent CEO appointment -- clearly, Mark stepped into the role in February on an interim basis. And it's very much BAU. As you can imagine, we're focused on driving performance on making sure we've got the right business line allocation. As you're aware, we've cracked on hard with the structural cost program and better positioning ourselves from that perspective, and we expect to make good progress through Q4 as well. So very much making sure that we deliver and best position the business as strongly as possible. While the Board are clearly running their process, evaluating both external and internal candidates. So that's their process to run and they'll update in due course. But working with Mark, it's very much business as usual, and we're very clear on what we're doing, and we're cracking on with that. The second question was around the restructuring work that we're doing and any update on restructuring costs in the second half. We had about GBP 10 million or so of restructuring charges in H1. And I expect a similar level in Q3, bearing in mind, we've accelerated the delivery of the cost program, but I expect similar levels in this quarter. Clearly, we've got another quarter to go, and as I mentioned, we expect to make good progress. So there's highly likely to be some further costs coming through. in Q4. But clearly, we'll update, Karl, in due course when we're closer to the time, and we know what the actual numbers are. Operator: We will now take the next question from the line of Steve Woolf from Deutsche Bank. Steven Woolf: Just one for me. On the Enterprise Solutions business, down overall, mentioning the contracts you previously flagged on North America and Switzerland. And also down in the U.K. So I was just wondering whether there was any sort of knock on those contracts were global contracts that were lost or whether this was anything specific to the U.K. James Hilton: Yes. Thanks, Steve. Yes. No, it's a fair question. And what we've seen in the last quarter is a little bit of a drop in some of the Perm contracts that we have in the Enterprise Solutions business in the U.K., notably in the construction sector. We've seen a little bit less demand coming through, which has been the driver of that being slightly down year-on-year. But as I said before, I'd highlight that this time last year was an all-time record quarter for that business. So pretty tough comp to go up against. But the Temp & Contracting side with the MSP has been pretty solid overall, but we have seen a little bit of a drop in demand in some of the Perm RPO parts of the business. Operator: [Operator Instructions] We will now take the next question from the line of Tom Burlton from BNP Paribas. Thomas Burlton: Sorry, my line did cut out, so apologies if any of these have been covered, but 2 for me. First one is on Asia, which was particularly strong, and I guess, especially Japan. Just wondering if you could dig a bit more into exactly what the drivers of that were? And then on -- second one is on headcount plans for Q4. I know you touched on the Middle East and limited impact there, but you did mention sort of heightened vigilance. I'm just curious if any of that heightened sort of awareness of what's going on there is feeding into headcount decisions as we think about Q4? James Hilton: Thanks, Tom. I'll kick off with Asia. So 8% growth in the region was pleasing. And as you highlighted, Japan, was the standout performance in that region. Underpinning that, has been really quite rewarding is the return on investment that we've made over the last couple of years in our contracting business, that's now a good -- about 25% of our business, actually probably close to 30% of our business is in the contracting space in Japan. And the investments we've made both in Engineering and in Technology contracting have really started to come through and that business was growing at north of 40% year-on-year, which is really pleasing. So the team are cracking on there and doing a really good job. I'm really pleased with that. We see it as a priority business for us. We think we can grow a big business there, and we're making good headway. So congratulations to the team over in Japan. It's been a really, really good quarter, and I expect to see another one in Q4. Moving on to the headcount question. And again, looking out to next quarter, we put the guidance in the statement as we expect it to be pretty flat overall. I think there was an earlier question that talked around resource allocation and how we manage that. So it doesn't mean that we won't be investing in some parts of the business and maybe scaling back in other parts. But I think net-net, we expect it to be broadly flat over the next quarter based on where we are today. And look, that's as I said at the outset, we haven't seen any significant impact on our forward KPIs and then trading in the business. But we remain vigilant and we'll react to that if we see it. So as we stand here today, we look forward to the next quarter, we think it will be pretty stable overall. But as I said before, there'll be lots and lots of moving parts under the covers where we're scaling back or we're doubling down. Operator: There are no further questions at this time. I would now like to turn the conference back to James Hilton for closing remarks. James Hilton: Thank you. That's all for questions. Thanks again for joining the call today. I look forward to speaking to you at our next Q4 results on the 10th of July. And should anyone have any follow-up questions Kean, Prash and myself will be available to take calls for the rest of the day. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Sarah Matthews-DeMers: Welcome to the AB Dynamics 2026 Half Year Results Presentation. I'm Sarah Matthews-DeMers, the CEO, and I'm joined today by our Interim CFO, Andrew Lewis. I'm going to be taking you through the highlights before Andrew takes you through the detailed financial performance. Following this, I'll provide my initial observations from my first few months as CEO and an update on our progress against our medium-term growth strategy before wrapping up with a summary of FY '26 to date and the outlook for the remainder of the year. We set out our medium-term growth ambitions in November 2024, and I remain committed to delivering these. We have continued to make strategic progress in shaping the group to take advantage of the structural market drivers that underpin the significant medium-term growth opportunity. As we had already signposted, revenue was softer in the first half due to the order intake delays in the second half of last year caused by tariff disruption, with only GBP 44 million of orders received. In half 1 of FY '26, it is pleasing to see positive customer activity and order intake recovering to more positive levels with GBP 64 million of orders received. Our closing order book of GBP 47 million, together with revenue delivered in half 1, provides approximately 70% coverage of expected full year revenue. Combined with our confidence in operational execution, this leaves us well positioned to deliver in the second half of the year. We have enhanced our focus on innovation to drive future growth, an area I will cover in more detail later in the presentation. Our second value creation pillar is margin expansion. Our operating margin was maintained at 18.6% as the impact of lower volume was offset by operational improvements, management of discretionary spend and a positive revenue mix. This shows the benefits of the investment made over the last 5 years to make the business more agile and responsive to dynamic market conditions. Our full year margin is expected to show year-on-year progression given the expected half 2 revenue bias. In addition, the lower-margin Chinese testing services business, VadoTech, will now become a smaller proportion of the group, which will also benefit margin. In the operations function, we have a further program of continuous improvement underway to drive our incremental margin growth. And I am confident of achieving our sustainable margin target of greater than 20%. We have a promising pipeline of value-enhancing and strategically compelling acquisition opportunities that we are continuing to develop. Our significant net cash balance of GBP 39.3 million supports further organic and inorganic investment opportunities. I'll now hand over to Andrew to take you through our financial performance. Andrew Lewis: Thanks, Sarah, and good morning, everyone. It's been a privilege to join the group with AB Dynamics pedigree and to work with Sarah and the team over the last 2 months. I found a business with talented people, great products and excellent long-term high-quality customer relationships. On to the business of the day and the results for the first half of 2026. Revenue and profit in the first half were consistent with the previously guided second half bias for the full year in 2026. We expect this to result in a trading performance weighted approximately 55% to 60% towards the second half of the year, set against the context of a greater first half bias in 2025 than typically expected. Order intake in the first half strengthened, showing that the market and customer activity is returning to a more positive level after a more subdued third quarter of FY '25, which was heavily impacted by global trade tariff issues. Looking at the numbers in more detail. Revenue was down 16%, reflecting the previously communicated delays in the timing of order intake and customer delivery requirements, including the weaker-than-anticipated volumes at our Chinese testing services business, VadoTech, which I'll cover in more detail later in the presentation. Operating profit decreased by 16% to GBP 9.1 million. Operating margin was maintained at 18.6% with a negative impact of operational gearing offset by the full year effect of operational improvements, management cost actions and a positive revenue mix. The effective tax rate remained flat at 20% and earnings per share decreased by 15% to 31.3p. On a rolling 12-month basis, cash conversion of 102% and our rolling 3-year average cash conversion of 105% demonstrates that we're consistently able to turn our profits into cash. We are increasing the interim dividend by 10%, reflecting our strong financial position and confidence in the business. The order book at the end of the period was GBP 47 million, of which GBP 29 million is for delivery in the second half. This, combined with first half revenue, provides approximately 70% cover of full year 2026 expected revenue. Moving on and looking at the year-on-year operating profit bridge. The negative impact of operational gearing was offset by a combination of the full year effect of operational improvements, primarily in testing products, Management implemented cost mitigation actions, largely around the timing of discretionary spend and revenue mix, which contained a number of components. In Testing Services, growth in the high-margin U.S. mileage accumulation business, together with lower revenue in the low-margin Chinese testing services business and in simulation, a higher proportion of high-margin RF Pro software. This delivered an operating margin, which was maintained at 18.6%. Looking into the second half, we expect the volume to be higher and thus will benefit from operational gearing. Operational improvements are embedded into the business. Revenue mix is harder to forecast as it is often dependent on the timing of some large individual deliveries. And overheads will be managed carefully to balance financial performance with investment in innovation and our people. Now looking at cash. While in the period, working capital increased due to the timing of customer deliveries falling later in the period than usual, driving an increase in receivables, our rolling 12-month cash conversion of 102% demonstrates a continuation of our track record of turning profits into cash. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 2 million invested in capital projects, including on new product development in line with our technology road map. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 39.3 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products. This segment includes driving robots, ADAS platforms and soft targets and laboratory-based test equipment. Revenue was down 17% as a material delivery of robots to a North American OEM made in the first half of 2025 did not recur in the period. Underlying demand drivers remain strong and order intake was encouraging during the first half of 2026, particularly in Asia Pacific and North America. The increase in margin was driven by operational efficiencies, together with cost control measures focused on the timing of discretionary spend. Testing services includes our proving ground in California, powertrain and environmental testing in Michigan and on-road testing in China. Revenue decreased by 29%, which is very much a tale of 2 geographies. Performance has been positive for our U.S. businesses, where new customer wins for our mileage accumulation business and increased track testing activity on behalf of the U.S. regulator drove good revenue growth. However, our business in China, VadoTech, has seen significantly weaker-than-anticipated volumes under the new contract with a European OEM awarded at the end of last year. The customer has faced challenging local market conditions as its market share as a premium European brand has been replaced by domestic brands such as Geely and BYD and the lower consequent on-road testing activity has resulted in a reduction in our revenue. The VadoTech Testing Services business remains in continuing activities in the half year numbers as a strategic review commenced shortly after period end. This slide illustrates the financial impact of the VadoTech business on the Testing Services segment in the first half of this year with comparatives for last year's half and full year. In light of the performance of the VadoTech business in the first half of this year and customer intelligence about their revised expected volumes, the group recorded an impairment of the VadoTech business of GBP 16.8 million, the majority of which is noncash. The detail on the slide should provide sufficient information to allow modeling of the U.S.-based Testing Services segment, which as can be seen, is a higher-margin segment without the VadoTech results in it. It is important to stress that this is an isolated issue with a single European OEM who is facing challenging local market conditions in China. And has no bearing on the opportunities to sell testing products to Chinese OEMs for local use in China, which has been a strong market for our testing products in the first half of the year. Simulation includes our simulation software rFpro and driving simulator motion platforms. The slight decrease in revenue was driven by lower motion platform sales, where we expect revenue to be more heavily weighted to the second half, offset by higher software sales. Customer activity in this area was buoyant in the first half and included the EUR 9.7 million contract win to supply advanced driver in the loop simulation equipment to a major European OEM, which we announced in December. Margins were impacted by the mix of higher software and lower equipment sales in the period. As a reminder, high-value simulator sales are individually material and 2 further order wins are assumed in our second half revenue expectations. Our key financial enablers are unchanged and include our great people with over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations and finance. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that's been made in our people. Our cash conversion, which we aim to continue at 100% through the cycle, and our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million revolving credit facility. Whilst we prefer to remain debt-free, our debt capacity at approximately 2x EBITDA is now GBP 55 million, which for the right acquisition, we could use for a short period, then pay down from cash generation. Our capital allocation policy is unchanged, and we're pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and the CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for testing products is designed to address the opportunities of both regulation and NCAP testing over the next 5 years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. In simulation, new product development is targeted at addressing evolving customer requirements and ensuring our product range provides solutions for a range of use cases and budgets across the road and motorsport markets. We have well-invested facilities across the group, but where appropriate, we'll invest CapEx to increase production or service capacity. And we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest where we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit increases over the last 5 years. We will only consider returning further capital to shareholders if we are holding surplus cash and acquisition multiples ever become unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 21% in the first half of 2026. I'll now hand over to Sarah, who will provide an insight into the first few months in her new role and to recap on the progress against our medium-term growth strategy. Sarah Matthews-DeMers: Thanks, Andrew. Having been in the CEO role since the 1st of December, I'd like to share my initial observations. We have made a huge amount of progress at ABD over the last 5 years, and it's a very different business to the one I joined. We have great people, great products and a great market position, which underpin my confidence in the future of the business. There is no change to our overall strategy. And going forward, you should expect evolution, not revolution. We have reviewed the portfolio of prior acquisitions and taken early decisive action given the changes in market dynamics for our VadoTech business. I'm passionate about driving the group forward and will focus on innovation, continuous improvement and developing and growing our people. During the last few months, I have visited 9 out of 10 of our business units and personally met around 90% of the group's employees. I've really enjoyed my time visiting our sites and talking to some of our very talented people. We've run innovation workshops attended by all levels of the organization, designed to generate new ideas for innovation, continuous improvement and excellence and to promote a culture of respect. I was delighted that these workshops attracted full attendance and the engagement and enthusiasm of my colleagues reinforced my view that the group is a wash with talented and engaged people. Over 500 ideas have been generated and are currently being reviewed and actioned. A broad range of opportunities have been identified to drive both revenue growth and operational improvements. As a reminder, our medium-term ambition is to double revenue and triple operating profit from our FY '24 baseline, and I am fully committed to delivering the plan. The graph demonstrates how this will be achieved by the compounding effect of delivering average organic revenue growth of 10% each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. When we articulated the plan in November 2024, we clearly didn't have visibility of some of the geopolitical and macroeconomic issues and challenges that the second half of FY '25 brought or the more recent developments in the Middle East. And we have always said the medium-term progression was unlikely to be delivered in a perfectly linear fashion. As expected, half 1 '26 had a softer trading performance due to the macroeconomic disruption we experienced in the second half of last year, with revenue down 16%. And we expect FY '26 to have a greater weighting towards the second half. Despite the decrease in revenue, we have maintained the group operating margin at 18.6%. And in M&A, our pipeline continues to progress. I will give further detail on each of the 3 elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in 4 main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first 2 relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions and the increasing regulation and certification requirements in this area. These long-term tailwinds support the growth of the group's end markets across each of its 3 sectors, but have also led to volatility in the wider automotive market that can impact the timing of specific customer procurement activity over a short-term period. At a macro level, in the wider automotive markets, we note a continuation of the regional trends noted previously, whereby traditional European OEMs are losing market share to new entrants and are under pressure to innovate in response. Overall, in 2025, the global automotive market recovered to near pre-COVID highs with growth driven by APAC, where the group has a strong market position. A divergence internationally in terms of the rate of EV adoption following changes implemented by the U.S. administration, which will mean EVs and ICE vehicles are likely to coexist for longer, driving increased platform churn and therefore, testing demand. Rising investment in Level 2 ADAS systems, which provide partial driving automation such as lane keeping assist with premium technologies filtering into more affordable cars. Our product lineup is well suited to continue to capitalize in this area of development and testing. While the development of autonomous vehicles has been well publicized, we do not expect full-scale adoption of AVs until well into the future. With that said, the products and services we offer are critical to AV development, be that in high fidelity simulation or physical track testing scenarios. Our business is resilient against short-term market disruption, and our market drivers support sustainable double-digit revenue growth in the medium term and beyond. We are OEM and powertrain agnostic with over 150 different customers globally, including conventional manufacturers and Chinese EV makers. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. We have a number of organic growth opportunities. And on this slide, we have broken them down across each of our 3 segments to help illustrate how we expect to sustain increases in both volume and pricing going forward. The key takeaway is that across all segments and product or service offerings, we operate in growing end markets, which in the long term, we expect to drive incremental sales volumes. The timing of this is fluid across different geographies and OEM customers. But as technological advances in safety technology continue, the associated regulatory and certification environment is expected to follow, thus driving demand for our equipment. In addition to this overall market growth, there are further opportunities for growth in areas where the group can increase its market share. For example, in platforms and soft targets, where it competes with 2 other main competitors and has greater scope to win new customers. The group has a strong position in the market and a premium offering, which gives it strong pricing power and has enabled it to consistently increase prices above inflation in recent years. In areas where the group has strong niche positions such as robots and its simulation software, we will continue to maximize this opportunity. Finally, while replacement cycles underpin a level of steady-state revenue, our continued investment in new product development will help to stimulate demand and enhance growth prospects. While opportunities exist across each segment, there are particularly strong opportunities in robots and platforms as our equipment evolves to keep pace with ADAS technology and for driving simulators as we incorporate new customer requirements into new product launches. Operating margin expansion will be achieved through delivering operational gearing as we scale the business, simplifying the business and standardizing our processes and procedures. In our main manufacturing facility in the U.K., we delivered a net improvement of GBP 1.1 million in FY '25 with initiatives spanning supply chain efficiencies, planning and layout improvements and product rationalization. In half 1 '26, the full year effect of last year's initiatives delivered a further GBP 0.3 million. The innovation workshops I have conducted over the last few months will drive the next wave of incremental margin improvement opportunities, which we are working to monetize in FY '27. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we have built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. During the year, we have refocused our pipeline of opportunities and continue to develop relationships with a number of targets. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a potential transaction in the period. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. To summarize half 1 performance and the outlook for the remainder of the year, Revenue and profit in half 1 were consistent with the previously guided second half bias for FY '26. Order intake in the first half of GBP 64 million shows that the market and customer activity are returning to more positive levels after a more subdued third quarter of FY '25. Despite the lower revenue, we maintained margin at 18.6% from a combination of operational improvements, cost mitigation actions and positive revenue mix. We have proposed a 10% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 102% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM and powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group's geographic diversification and critical nature of its market-leading products and services have created a highly resilient platform that is well positioned to support customers navigating dynamic market conditions. We have good visibility into the second half of the year with an order book of GBP 47 million, of which GBP 29 million is for delivery in half 2, giving coverage of around 70% of expected revenue for the full year. We note the emerging situation in the Middle East. And whilst the group has no operating footprint in the region, we continue to monitor any potential impacts from broader risks to trade and cost inflation. The group has strong pricing power and a proven agile approach to managing the business through changing conditions. And so we remain confident in delivering on our key strategic and operational priorities. Whilst we are mindful of the current geopolitical uncertainty, absent an extended disruption, we expect adjusted operating profit for FY '26 to be in line with current expectations with an expected 55% to 60% revenue bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. That concludes the presentation. Thank you for joining us. Unknown Executive: So question number one is, how are you maximizing the use of AI in the business? Sarah Matthews-DeMers: In a number of different ways in our products, mainly in our software for AB Elevate. This enables our customers to train and test AV and ADAS using AI, using customizable training data that can generate hundreds of scenarios testing sensors. In our product development, we're using AI for software code debugging and also reducing engineering lead times. And then in the back office of the business, we're using it for efficiencies in terms of customer support, prepare training materials frequently asked questions and meeting minutes, et cetera. One of the things we are looking at is risk of using AI and allowing our IP to leak out into the wider Internet. So we're being very careful about the tools that we're using and ensuring that they are ring-fenced and safeguarding our IP. Unknown Executive: Great. Thank you. Question number two, what is the current state of OEM R&D budgets? And have they been cut in response to end market weakness? Sarah Matthews-DeMers: Well obviously, OEM R&D budgets are immune to falls in production volumes. Actually, what we're seeing in the market is that in the current environment, OEMs can't afford to cut their R&D budget significantly because of the competition from new Chinese entrants that are bringing models to market more quickly and efficiently and the more traditional OEMs having to fight hard to keep up in Europe and the U.S. So we're not seeing that as a significant movement. Unknown Executive: Okay. And following on from that, next question is, do you work with Chinese OEMs? Sarah Matthews-DeMers: We do absolutely work with domestic Chinese OEMs. And we sell testing products and simulators into China. While we sell direct to some of the larger OEMs, there are around 400 start-up OEMs in China who don't have the facilities to do their own testing. So we're selling into the testing providers that they're using to be able to do that testing. Unknown Executive: Great. And then finally, perhaps this is one for you, Andrew. How significant is the growth opportunity from here? Where could this business be in 5 to 10 years' time? Andrew Lewis: Yes. I think we set out the medium-term growth ambition is to double revenue and triple operating profit over the medium term. And Sarah explained the 3 component parts of how we believe we can deliver that. And I guess the growth drivers are structural and long term. And so we see a compounding effect from there that could take that out over the next decade. Unknown Executive: Sure. Okay. Well, that's all we've got time for. I'll hand back to Sarah to finish off. Sarah Matthews-DeMers: Great. Thank you. Thanks for listening, everyone, and we look forward to speaking to you again in Autumn.
Jeff Su: Good afternoon, everyone, and welcome to TSMC's First Quarter 2026 Earnings Conference Call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. [Operator Instructions]. The format for today's event will be as follows: First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the first quarter 2026, followed by our guidance for the second quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open the line for the Q&A session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. So please refer to the safe harbor notice that appears in our press release. And now I would like to turn the call over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Jen-Chau Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the first quarter 2026. After that, I will provide the guidance for the second quarter 2026. First quarter revenue increased 8.4% sequentially in NT supported by strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 6.4% sequentially to USD 35.9 billion, slightly ahead of our first quarter guidance. Gross margin increased 3.9 percentage points sequentially to 66.2%, primarily due to cost improvement efforts, a high capacity utilization rate and a more favorable foreign exchange rate. Operating margin improved 4.1 percentage points sequentially to 58.1% due to operating leverage. Overall, our first quarter EPS was TWD 22.08 and ROE was 40.5%. Now let's move on to revenue by technology. 3-nanometer process technology contributed 25% of wafer revenue in the first quarter, while 5-nanometer and 7-nanometer accounted for 36% and 13%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 74% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 20% quarter-over-quarter to account for 61% of our first quarter revenue. Smartphone decreased 11% to account for 26%. IoT increased 12% to account for 6%. Automotive decreased 7% and accounted for 4%, and DCE increased 28% to account for 1%. Moving on to the balance sheet. We ended the first quarter with cash and marketable securities of TWD 3.4 trillion or USD 106 billion. On the liability side, current liabilities increased by TWD 256 billion quarter-over-quarter, mainly due to the increase of TWD 129 billion in accrued liabilities and others and the increase of TWD 82 billion in accounts payable. On financial ratios, accounts receivable turnover days was flat at 26 days. Days of inventory increased 6 days to 80 days, reflecting the ramp-up of our 2-nanometer technology and strong demand for our 3-nanometer technology. Regarding cash flow and CapEx. During the first quarter, we generated about TWD 699 billion in cash from operations, spent TWD 351 billion in CapEx and distributed TWD 130 billion for second quarter 2025 cash dividend. Overall, our cash balance increased TWD 268 billion to TWD 3 trillion at the end of the quarter. In U.S. dollar terms, our first quarter capital expenditures totaled USD 11.1 billion. I have finished my financial summary. Now let's turn to our current quarter guidance. Based on the current business outlook, we expect our second quarter revenue to be between USD 39.0 billion and USD 40.2 billion, which represents a 10% sequential increase or a 32% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 31.7, gross margin is expected to be between 65.5% and 67.5%, operating margin between 56.5% and 58.5% Also, in the second quarter, we will need to accrue the tax on the undistributed retained earnings. As a result, our second quarter tax rate will be around 20%. We continue to expect the full year tax rate to be between 17% and 18%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our first quarter 2026 and second quarter 2026 profitability. Compared to fourth quarter, our first quarter gross margin increased by 390 basis points sequentially to 66.2%, primarily due to cost improvement efforts, a higher overall capacity utilization rate and a more favorable foreign exchange rate. Compared to our first quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 120 basis points, mainly due to a higher-than-expected overall capacity utilization rate and better cost improvement efforts. We have just guided our second quarter gross margin to increase by 30 basis points to 66.5% at the midpoint, primarily driven by a higher overall utilization rate and continued cost improvement efforts, including productivity gains, partially offset by dilution from our overseas fab. Looking ahead to the second half of the year, given the 6 factors that determine our profitability, there are a few puts and takes I would like to share. As we have said before, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of this year, and we expect between 2% and 3% dilution for the full year of 2026. Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. In addition, given the recent situation in the Middle East, prices for certain chemicals and gases are likely to increase. Based on our current assessment, there may be impact to our profitability, but it is too early to quantify the impact. On the other hand, we will continue to leverage our manufacturing excellence to generate more wafer output and drive greater cross node capacity optimization in our fab operations to support our profitability. Also, N3 gross margin is expected to cross over to the corporate average in second half 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about the materials and energy supply update given the recent situation in the Middle East. TSMC operates a well-established enterprise risk management system to identify and assess all relevant risks and proactively implement risk mitigation strategies. In terms of material supply, TSMC's strategy is to continuously develop multi-source supply solutions to build a well-diversified global supplier base and to improve the local supply chain. For specialty chemicals and gases, including helium and hydrogen, we source from multiple suppliers in different regions, and we have prepared safety stock inventory on hand. We are also working closely with our suppliers to further strengthen the resiliency and sustainability of our supply chain. Thus, we do not expect any near-term impact on our operations for material supply. In terms of energy, TSMC worked closely with Taipower and the Taiwan government to ensure a stable and sufficient energy supply. With the recent situation in the Middle East, the Taiwan government has announced it has secured sufficient LNG supply through at least May. The government has also said it is actively working on securing further LNG supply, diversifying sourcing to other regions and other power backup plants. Therefore, we do not expect any near-term disruption or impact to our operations. Finally, let me talk about our 2026 capital budget. At TSMC, higher level of capital expenditures is always correlated with higher growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structure demand from the industry megatrends of 5G, AI and HPC. We now expect our 2026 capital budget to be towards the high end of our range of between USD 52 billion and USD 56 billion as we continue to invest heavily to support our customers' growth. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both annual and quarterly basis. Now let me turn the microphone over to C.C. C.C. Wei: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our first quarter with revenue of USD 35.9 billion, slightly above our guidance in U.S. dollar terms, driven by strong demand for our leading -edge process technologies. Moving into second quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies. Looking ahead, we are very mindful of the impact of rising component prices, especially in consumer and price-sensitive end market segment. In addition, the recent situation in the Middle East also brings further macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust. The shift from generative AI and the query mode to agentic AI and command and action mode is leading to another step-up in the amount of tokens being consumed. This is driving the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers and customers' customers, who are mainly the cloud service providers, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multiyear AI megatrend remains high, and we believe the demand for semiconductors will continue to be very fundamental. Supported by our robust technology differentiation and broad customer base, we maintain strong confidence for our full year 2026 revenue to now grow by above 30% in U.S. dollar terms. Next, let me talk about our N2 capacity expansion plan. Our practice is to prioritize the land in Taiwan to support the fast ramp of our newest node due to the need for tight integration with R&D operations. Today, our new node, N2, has already entered high-volume manufacturing in the fourth quarter of 2025 with good yield. N2 is ramping successfully in multi phases at both Hsinchu and Kaohsiung site, supported by strong demand from both smartphone and HPC AI applications. With our strategy of continuous enhancement such as N2P and A16, we expect our N2 family to be another large and long-lasting node for TSMC. Now let me talk about TSMC's global N3 capacity expansion plan. Historically, we do not add additional capacity to a node once it has reached its target capacity. However, as a foundry, our first responsibility is to provide our customers with the most advanced technologies and necessary capacity to unleash their innovations. Based on our assessment, to meet the strong demand in AI application, we are stepping up our CapEx investment to increase our N3 capacity. Thus, we are now executing a global capacity plan to support the robust multiyear pipeline of demand for 3-nanometer technologies, which are used by smartphone, HPC AI, including HBM-based dies, automotive and IoT customers. In Taiwan, we are adding a new 3-nanometer fab to our GIGAFAB cluster in Tainan Science Park. Volume production is scheduled for the first half of 2027. In Arizona, our second fab will also utilize 3-nanometer technologies. Construction is already complete and volume production will begin in the second half of 2027. In Japan, we now plan to utilize 3-nanometer technology in our second fab and volume production is scheduled in 2028. In addition to all the new fabs, we continue to convert 5-nanometer tool to support 3-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fab in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, including flexible capacity support among N7, N5 and N3 nodes. Thus, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers across all platforms. Also, let me emphasize that while the capacity is tight, we do not pick and choose or play favorites among our customers. Next, let me talk about our mature node strategy. TSMC's strategy in mature node has not changed. Our focus is to build high-yield capacity for specialized technologies rather than just normal capacity. For example, we are increasing our mature node capacity such as in JASM Fab 1 in Japan for CMOS image sensor application and ESMC in Germany for automotive and industrial applications. Meanwhile, we have a plan to wind down our Fab 2, which is 6-inch fab; and Fab 5, which is 8-inch fab; focus on gallium nitride and use available space to optimize the support for leading-edge applications. Even with our Fab 2 and Fab 5, we still have enough capacity to fully support our existing customers. In summary, our strategy will be to continue to optimize our capacity mix within mature nodes and focus on the higher value-added and strategic segment, while ensuring we have a necessary capacity to support our customers' growth. Finally, let me talk about our A14 status. Featuring our second-generation nanosheet transistor structure, A14 will deliver another full-node stride for N2 with performance and power benefit to address the sensible need for high-performance and energy-efficient computing. Compared with N2, A14 will provide 10 to 15 speed improvement at the same power or 25 to 30 power improvement at the same speed and close to 20% chip density gain. Our A14 technology development is on track and progressing well. We are observing a high level of customer interest and engagement from both smartphone and HPC applications. Volume production is scheduled for 2028. Our A14 technology and its derivative will further extend our technology leadership position and enable TSMC to capture the growth opportunities well into the future. This concludes our key message, and thank you for your attention. Jeff Su: Thank you, C.C. This concludes our prepared statements. [Operator Instructions]. Now let's begin the Q&A session. Operator, can we proceed with the first participant on the line, please? Thank you. Operator: First one to ask questions, Haas Liu from Bank of America. Haas Liu: Congrats on the solid results and guidance. I would like to start with your 3-nanometer gross margin outlook. You just mentioned the node is going to cross the corporate average gross margin in second half this year, which is now at mid-60 percentage levels. And we understand the technology is in severe undersupply backed by strong AI demand, and you already forecasted the capacity expansion through conversion and greenfield through 2028. Would you be able to discuss more in detail on what kind of applications are driving such strong business for you and convince you to expand more? And the other thing on 3-nanometer as well is just, the node started to ramp from fourth quarter 2022, which means some of your equipment will be fully depreciated by 2027. Should we expect the node margins to be trending even higher with very solid utilization and also pricing trend? Jeff Su: Okay. So the first question from Haas Liu of Bank of America, it's 2 parts on 3-nanometer. First, as C.C. described, we are executing a plan for expanding 3-nanometer capacity. So he wants to understand what are the applications to drive such a strong multiyear looking ahead pipeline of demand for 3-nanometer since it's already been around in volume production since late '22. That's the first part of his question. C.C. Wei: Let me answer that. I think the application is simple. It's still the HPC AI applications. Does that answer your question? Haas Liu: Okay. Yes. That is the first part. And the second part is... Jeff Su: And the second part of this question is on the gross margin for 3-nanometer. His question is really, what is the gross margin outlook for 3-nanometer? Will it crossover in the second half of this year? To what level? And then once it becomes fully depreciated, what happens to the margin? Jen-Chau Huang: Okay. This is Wendell. We expect the N3 gross margin to reach and cross the corporate gross margin level in the second half of this year. And we don't have a number to share with you, but after the full depreciation as our previous notes, the gross margins are generally very high. Jeff Su: Okay. Haas, I'll take that as a 1.5 questions. So if you have a quick follow-up for your second question? Haas Liu: Yes. And the other, I think, just a 0.5 follow-up is probably just on the CapEx. You revised up to the high end of your guidance for USD 52 billion to USD 56 billion for this year. Compared to 3 months ago, what gives you the incremental confidence when you discuss with your customers and also customers' customers regarding the demand outlook to support your stronger or the upper half of your guidance for the CapEx this year? Jeff Su: Okay. Thank you, Haas. So his second question is he notes that indeed, we have this time guided to the high end of our CapEx range versus January. So what incrementally is driving this revision to the CapEx? What gives us the confidence to go to the high end of the USD 52 billion to USD 56 billion range? C.C. Wei: Well, again, this is C.C. Wei. Let me answer this question. A very simple answer is, the demand are very robust, especially from the HPC and AI applications. And also, we try very hard to speed it up and pull in all the equipment as we can. Still, our supply is very tight. Demand is continuing to increase. And so we continue to work with our suppliers to speed it up. And that's why we are towards our high end of CapEx forecast. Jeff Su: Okay, Haas, does that answer your question? Haas Liu: Yes. Operator: Next one to ask question, Gokul Hariharan, JPMorgan. Gokul Hariharan: My first question on your comments on demand. Clearly, demand is even better than what you predicted back in January, C.C., and you also raised the CapEx. Now all your customers seem to be telling everybody they can tell that wafers still remain the biggest constraint. So given your expanded 3-nanometer capacity plan and faster CapEx, C.C., what is your expectation that how long this supply constraint is likely to last? Do you have any visibility of when you can kind of bring some kind of balance here based on what you hear from customers? And as a strategy, do you also plan to build out a more clean room space, because that seems to be a little bit of a constraint right now to bring on the capacity quickly. That's my first question. Jeff Su: Okay. Gokul, please allow me to summarize your first question. So his question is directed for C.C. He notes that the demand seems to be even stronger than our forecast in January. We have also raised the CapEx, and customers continue to say they need more chip supply. So with our capacity plan, do we have a forecast or expectation of how long the constraint can last? And will we have a strategy to build up clean room space first? Is that correct, Gokul? Gokul Hariharan: That's right. Yes. C.C. Wei: Okay. Gokul, let me answer the question. Again, it's very simple, because demand continues to be robust and the number continues to be increased, and we double check with our customers, customers' customers, or those CSPs. They gave us a very positive outlook, right? And so we have to speed it up with our buildup of clean room and buying the tools. And so we are working with construction and we are working with our equipment suppliers. And so we want the pulling forward of our forecast schedule. That's a simple answer. Because of AI, it's so strong. Gokul Hariharan: Any read, C.C., on when we can kind of meet this demand? Or do you think the next couple of years is still going to be very challenging to meet -- that supply is still going to be running below demand, let's say, into '27 also? Jeff Su: So Gokul would like to know when the supply can meet the demand? Do we have a forecast or a time frame? C.C. Wei: Gokul, you know we are -- it takes 2 to 3 years to build a new fab. And with the current schedule, we believe that '27, we will announce it anyway when we enter '27, but let me say that, it takes time to build a new fab, it takes time to ramp it up. And so we expect this to continue to be very tight. So that's why we just announced that we try to build 3 new N3 fab to meet the demand. Gokul Hariharan: Okay. That's very clear. So '27 is also very tight. My second question on competition. So obviously, you have the traditional competitors, Samsung, Intel. But one of your customers, Elon Musk, also announced Terafab Initiative recently. What is TSMC's perspective on this initiative? They have also been a customer of yours, and they recently signed a deal with Samsung a few months back. So what is TSMC's response here now that they are also trying to kind of build chips on their own? How are you trying to win back this customer? Like, C.C., what is your perspective here? Jeff Su: Okay. So Gokul's second question is on competition. He notes that we have competition and then recently, a competitor, or he notes that this Terafab. So he wants to know what is our perspective on this initiative. This customer has also been a customer of TSMC, but has also signed a deal with one of our other competitors, Samsung. So Gokul would also like to know what is our perspective on the Terafab? And what is our view on winning back this customer's business? C.C. Wei: Well, Gokul, actually, both Intel and Tesla, they are TSMC's customers. But again, they are our competitors, and we view Intel as our formidable competitor and do not underestimate them. But having said that, there are no shortcuts. The fundamental rules of the foundry game never change. They need the technology leadership, manufacturing excellence and customer trust, and most of all, the service, which has been mentioned by Jensen; thank you for his wording. Again, let me say that it takes 2 to 3 years to build a new fab, no shortcuts. And it takes another 1 to 2 years to ramp it up. Again, that's the fundamental of foundry industry. And whether we try to win them back, actually, they are still our customer. And we are very confident in our technology position, and we work very hard to capture every piece of business possible. Gokul, did I answer your question? Gokul Hariharan: Okay. That is very clear. So do you think your faster ramp-up of capacity can kind of win some of these customers back, because the reason seems to be mostly about capacity tightness rather than any other kind of big reasons, right? So is that your evaluation that this is probably the most important thing to win some of these customers back? Jeff Su: Okay. So Gokul's final question is then in winning customers back, his concern is because our capacity is tight. Is that the reason we are losing customers? And so can we win customers back? C.C. Wei: Well, again, let me emphasize, it takes 2 to 3 years to build a new fab. So in this time, we are also building a new fab to meet our customers' strong demand. No shortcuts. So anyway, the capacity is very tight, as I said, but we are working hard to make sure that we can meet customers' demand. Operator: Next one, we have Charlie Chan from Morgan Stanley. Charlie Chan: Congratulations for very, very strong results again. So I think I would also address the competition topic from a little bit different angle. So as you can see that those AI customers, they are developing a much larger reticle size chips, right? And some customers are considering to use eMIPs because it's a kind of substrate base, more suitable for circular larger size of chip design. So I'm not sure what's the TSMC's strategy to address this competition. And more strategically, is TSMC comfortable to open up your compute die to your competitors, for example, Intel to do the package? What's the kind of thought process behind? Jeff Su: All right, Charlie, thank you. So Charlie's first question is also related to competition. He notes that AI customers are seeking for larger and larger reticle sizes. So he wants to know what is our assessment of the competitive threat from solutions such as like eMIP? And what's our strategy to address this competition? Will we be willing to open up our front-end wafer and let someone else do the packaging basically? C.C. Wei: Well, Charlie, today, TSMC is supplying the largest reticle size packaging. And yes, we understand that our competitors also offer very attractive technology, but we welcome that so our customers can have more choices and then we can do more business with our customers. That's our attitude. But saying that, we don't leave any business on the table. We are working very hard to meet all our customers' demand. We also are developing very large reticle size packaging technologies. We are working with all the customers. And so far, so good. Charlie Chan: C.C., I have a follow-up on this. When you mentioned about larger size packaging technology, are you referring to CoPoS or CoWoS-L 3.5D? Or do you think 3D stacking can resolve this kind of panel expansion problem? Jeff Su: So Charlie is asking a follow-up. So he wants us to comment on, for larger reticle size, is it CoWoS-L, is it panel level? What exact detailed solutions are we doing? C.C. Wei: Charlie, so far today, we have very large reticle sized CoWoS. Of course, we are also working on CoPoS. And together, we try to make sure that we give enough capacity to support our customer with a reasonable cost. So that's why we build a CoPoS pilot line right now and expect production a couple of years later. But today, the main approach or the main supplier is still a large-sized CoWoS. And together with System on Wafer technology, we think TSMC gives our customers the best options for their product in the market. Charlie Chan: Got it. So yes, I would take, we don't need to worry too much about this [indiscernible] competition. So my second question is actually about your long-term CapEx plan. C.C., as you said that it takes 2 to 3 years to build a new fab. So you definitely have that visibility, right? So I remember back in 2021, management also provided 3-year CapEx guidance as USD 100 billion given very strong demand. I'm not sure if TSMC can provide a little bit longer-term CapEx guidance? Because as you said, right, the equipment supply is also pretty tight. Yesterday, ASML reported very, very strong results. So you said the EUV supply is an issue. And secondly, would the management provide kind of a long-term CapEx guidance to investors? Jeff Su: All right, Charlie, that's a lot of questions. But the second one then on CapEx and building capacity. Again, Charlie notes C.C.'s comment, capacity is not born overnight, it takes time. So he would like to know, besides this year's CapEx, which we have already said at the high end, can we provide a guidance for the next 3 years CapEx like we did back in 2021 in terms of the dollar amount? Jen-Chau Huang: Okay. Charlie, we don't have a number to share with you. But look at it this way. In the past 3 years, our total CapEx was USD 101 billion. This year, we're already saying CapEx is towards the high end, which is USD 56 billion, which is already over 50% of the past 3 years in total. So we have a strong conviction in the AI megatrend. So we expect the CapEx in the next few years, in the next 3 years, will be significantly higher than the past 3 years. Jeff Su: And then the final part of Charlie's question, with such a long lead time, are we concerned about securing tools or bottlenecks and such? C.C. Wei: Well, Charlie, in TSMC's culture, we're always working with our suppliers, because we view them as our partners. So we continue to work with them, especially for those ASML, Applied Materials, Lam Research, et cetera. So, so far, we are very happy with their supportive. That's all I can tell you. Operator: Next one, we have Sunny Lin from UBS. Sunny Lin: Congrats on the steady results. So my first question is, again, to follow up on CapEx. So if you look at from 2024 to 2026, so in this, call it, AI cycle, TSMC has been able to keep capital intensity at a healthy level of 30% plus, given very strong technology leadership and operating leverage. I understand the company doesn't really have a specific target on capital intensity. But for the coming few years, given the very strong revenue ramp of leading edge, how should we think about the revenue growth compared with CapEx growth? Should we think top line will remain steady and therefore, CapEx could grow in line or even below? What's the best way for us to think about it? Jeff Su: Okay. Sunny, thank you for your question. So please allow me to summarize. Sunny's first question is on, well, I think CapEx and really capital intensity. She notes, in the past few years, we've been able to keep capital intensity around the 30-something percent level. She notes that we don't have a specific capital intensity target per se, but her specific question, looking ahead the next several years, how do we see revenue growth versus CapEx growth? Is it likely to be higher, flat, lower? And therefore, what type of intensity does that imply? Is that correct, Sunny? Sunny Lin: Yes. Thank you very much, Jeff. Jen-Chau Huang: Okay, Sunny. So in the past few years, as you correctly pointed out, the revenue growth outpaced the CapEx growth. That's because if we do our job right, then we will continue to see that happen in the next several years. The revenue growth outpaced the CapEx growth, okay? Now therefore, we do not expect, in the next several years, a sudden surge in capital intensity. Sunny Lin: I see. Maybe a very quick follow-up. A lot of questions on competitions already. But also from a competition point of view, given a very tight supply at TSMC's side in recent years, would TSMC actually consider maybe spending CapEx a bit more, so that clients won't need to diversify given the tight supply? Jeff Su: All right. So Sunny's 1.5 question is, in terms of the CapEx, will we consider accelerating or spending more given the competitive threat from the competitors? If there's not enough capacity, then our customers will go to competitors. That's your question, correct? Sunny Lin: Yes. Thank you, Jeff. C.C. Wei: Well, Sunny, we're repeatedly saying that we prepare the capacity to meet customers' demand, not because of our competitor or not because of other considerations. The most important one is our customers' demand and they work with TSMC and so we plan our capacity and so our capital expense. Sunny, did I answer your question? Sunny Lin: Yes. Yes, very clear. So maybe my 0.5 question. And so if we look at this year, earlier, you just guided a bit higher than 30% growth for top line. But indeed, there's ongoing supply tightness. And so for 2026, how much upside could you realize for top line? And at this point, have you started to see some impact of consumer end demand and therefore, on your demand coming from smartphone and PC? Jeff Su: Okay. So Sunny's second question is regarding 2026 full year outlook. She notes now that we have increased the guidance to above 30%, how much more upside can there be? Well, maybe the first part also, how do we see the impact from the memory price hike to the end market? And how do we see, with above 30%, is there more upside? C.C. Wei: Well, Sunny, memory price hike definitely has some impact to price sensitive end market, especially in PC and smartphone market. We did see a little bit softer market. But to share with you, all the high-end smartphones continue to do better, and this is to TSMC's advantage. And as you're asking about how much higher than above 30% year-over-year growth, we will share with you in July, how about that, that we will have a more accurate or a more precise number to share with everybody. Sunny Lin: No problem. Operator: Next one, Jim Fontanelli at Arete. Jim Fontanelli: So my first question is to do with demand. So you commented earlier in the call that demand continues to outstrip supply for leading edge capacity. And obviously, you just delivered a very strong print and guide for gross margins. So against this backdrop, has management's thinking changed about the sustainable margin structure and what appropriate longer-term returns might be for the business? Jeff Su: Okay. So Jim's first question is asking on the margin structure. He notes, as we said that demand continues to be extremely robust and very strong. So how does this change? I think your question is our view on the long-term margin profile and the return profile. Is that correct? Jim Fontanelli: That's correct. Jen-Chau Huang: Okay, Jim. As we said in the last earnings calls, we've revised up our long-term margin target and ROE target. From 2024 to 2029, we're now saying the gross margins will be 56% and higher through the cycle, and we're looking at ROE of high 20% through the cycle. That's what we're currently looking at, and that's already higher than before. Jim Fontanelli: And that thinking is not changing against the backdrop where other parts of the AI supply chain are clearly starting to print super normal returns? That doesn't impact how you think about margin structure for the next 2 or 3 years? Jen-Chau Huang: Yes, Jim, the long-term planning is an ongoing and continuous process. So we do that all the time, and we will update you when there is a change. Jim Fontanelli: Okay. And my second question is, it looks like the Arizona site is becoming more strategic in terms of leading edge commitment for TSMC, particularly with the recently added second parcel of land. Could you talk about how you see mid- to long-term capacity opportunity and also how confident you are that the U.S. fab economics will match Taiwanese produced wafers? Jeff Su: Okay. So Jim's second question is on our Arizona fab expansion plans. He notes that it is becoming more and more strategic. We have recently, as we said, acquired a second large piece of land. So what is the plan or the purpose behind this? And then what is the profitability or margin outlook as well? C.C. Wei: Well, Jim, let me answer the question. We acquired the second land because we need it. We want to build more fabs in Arizona. And this is actually to meet the multiyear demand from our leading edge U.S. customers. And again, let me emphasize again that we are working very hard to speed it up. We already gained a lot of experience in Arizona. And so now we are much more confident than last year that we can make it a good progress and moving aggressively forward. And we expect we can improve the cost structure, of course. Operator: Next one, Bruce Lu from Goldman Sachs. Zheng Lu: I think I want to follow up on Jim's question for the profitability. I think earlier last year, when I asked why TSMC did not raise the profitable target when TSMC continued to sell the value. I think C.C. told me that to focus on the above version of 53% and above. I think last quarter, we raised it to 56% and above. So the question is that do you believe the current profitability fully reflects TSMC's value? So I'm guessing C.C. might ask me to focus on the higher portion of the profitability target again. So the real question is that given the uniqueness of the dominant position for TSMC, it's not easy to find a perfect benchmark for TSMC's profitability. So can you tell us how we should think the profitability benchmark for TSMC? Or what is the best way to see TSMC value to be fully reflected into the gross margin and operating margins? Jeff Su: Okay. Bruce's first question is, he wants to know what profitability benchmark he should be looking at, and whether we believe our current profitability level fully reflects TSMC's true value. C.C. Wei: Well, Bruce, actually, you asked about our pricing strategy. Let me say that we always view our customers as our partners. Of course, we know our value; of course, we know our position, but we also view our partners as very important business partners, so that we don't change our pricing dramatically or something like that. We just try to make sure that our customers can be successful in their market. And at the same time, we grow together, and we also earn our value, so that we can continue to expand our capacity to support them. That fundamentally is, number one, our customer got to be successful. That's our consideration, number one, and we grow together. And again, there's a keyword please pay attention to. Customer is our partner. Zheng Lu: Okay. So if your customers continue to be successful, maybe in a couple of quarters, we can see the higher profitability target again. Jeff Su: Bruce, what's your second question? Zheng Lu: Okay. My second question is that management has been guiding that AI accelerator revenue to grow about like mid- to high 50s CAGR in (sic) between 2024 and '29. So how does TSMC plan and forecast AI-related demand? I mean, does TSMC incorporate metrics such as total consumption growth in your assumption? Because the recent consumption in the first quarter is definitely accelerated and faster than earlier expectation. Do we see the changes for the AI accelerated revenue growth in the coming years? Jeff Su: Okay. So Bruce's second question is on our AI accelerator long-term CAGR guidance, which, yes, we have guided mid- to high 50s. He notes with the strong token growth and demand for tokens, do we have any changes to this long-term guidance? C.C. Wei: Bruce, actually, I think I say now that it's a very strong demand, and we continue to receive a very positive signal from our customers and customers' customers. And so what you say is whether we change our CAGR on AI accelerator? Actually, we continue to see strong demand, but again, let me say that it is toward higher 50s of CAGR that we observe. Operator: Next one to ask question, Laura Chen from Citi. Chia Yi Chen: May I take more details on TSMC's strategy in advanced packaging? And what will be the business model working with your OSAT partners, as we see that there are various different solutions provided by your peers and also the OSAT makers, yet TSMC is also expanding more in the advanced packaging. So how would TSMC work with your customers' planning on their advanced node wafer demand, but also align with their advanced packaging demand at TSMC? Jeff Su: Okay. So thank you. Laura's first question is on advanced packaging. She would like to know, we work with customers, collaborate with customers to plan our front-end wafer capacity. How do we work with the customers to plan the advanced packaging capacity is what she would like to understand, and also in the context of working with our OSAT partners on the advanced packaging businesses. C.C. Wei: Well, Laura, our priority actually, again, is to support our customers, right? And whenever we can or wherever we can, we want to make sure that their product can be -- the demand of their product can be met by TSMC's front-end and high-end packaging. So we certainly, let me say that our advanced packaging capacity is very tight also. So we have to work with our OSAT partners. We hope that we can increase the capacity to support our customers. Let me emphasize again, we support our customers. So we try very hard to increase our own capacity also. But certainly, it just has been very tight. And so that's what's our situation today. Chia Yi Chen: Sure, sure. Understood. My second question is also about advanced packaging. As C.C. highlighted before many times that AI chips are going into super chips with very large die size and TSMC now working at the biggest reticle in the world. But at the same time, there's potential technical challenges such as warpage. So do you think that the following road map like SoIC or like CoPoS can solve this kind of technical issue? And based on TSMC's technology road map, do we see any technology like SoIC or CoPoS will be a bigger ramp in a couple of years, can solve this problem? Jeff Su: Okay. So Laura's second question is also related to advanced packaging, AI and larger reticle sizes post potential technical challenges such as warpage. So she would like to know how do we see SoIC or panel-level packaging? What's the key to solving these issues? And what is the outlook in the next several years? C.C. Wei: Well, Laura, you are good. Actually, that's all the challenges that we have in advanced packaging technology. Mechanical stress, which is very top challenge to the electrical engineering, like I am. However, we accumulated a lot of experience already today because we have supplied most of the leading edge and in packaging area. And we continue to increase the die size and continue to meet all the challenges from the mechanical stress, like you said, actually the warpage or the thermal limitation. A good challenge. And we like it. The harder the better, because of TSMC's strength in technical engineering, and we have confidence that we can work with our customers to solve all the issues and continue to move on. Chia Yi Chen: So should we expect that SoICs, TSMC may introduce that earlier to solve this kind of a challenge, because we already have the learning curve and already have the products in production. So that should go faster than other technologies, I suggest. Jeff Su: So Laura's question is very specific. Yes, on SoIC, how do we see that developing, I guess? C.C. Wei: Well, we work with our customers, and we meet their demand, and that's all I can tell you. Speed it up or slow down? No, no, no, no. We work with our customers to meet their demand. Jeff Su: Operator, in the interest of time, can we take the questions from the last participant, please? Operator: Next one to ask question, Charles Shi from Needham. Yu Shi: TSMC's definition of AI revenue includes data center GPU, AI accelerator, HBM-based stack. Maybe I left out a few others, but it specifically excludes data center CPU. I think you made that definition very clear for a couple of years now. But with the CPU, there's more and more conversation about CPU now becoming part of the AI infrastructure, especially for agentic workloads. Any chance for TSMC to maybe provide us revised numbers for AI revenue and maybe AI revenue growth, CAGR projection going into 2029, 2030. And maybe hopefully give us some sense of how the historical AI revenue numbers would have been if some of the data center CPU numbers, especially for agentic AI workloads are included there. That's my first question. Jeff Su: Okay. Thank you, Charles. So Charles' first question, please let me summarize, is regarding our definition of AI accelerator, which is, of course, we have said GPU, ASIC and HBM controllers for training inference in the data center. He notes now with the agentic AI, he wants to know, will we start to include CPUs in this definition? If so, can we provide the historical data with CPU included? And what would the AI accelerator guidance be if it includes CPU? C.C. Wei: Charles, certainly, CPUs become more and more important in today's AI data center. But actually, let me share with you -- this is a good question, by the way. Let me share with you that we are not able to identify which CPU goes where, right? It's PC or desktop or it's AI data center. So today, we still not include the CPUs in our AI HPCs calculation. Someday later, we might consider. Jeff Su: Charles, do you have a second question? Yu Shi: Thanks, C.C. Yes. Maybe it's kind of also tied to the recent development in overall AI infrastructure, how things have been evolving. So NVIDIA, of course, they recently added more CPU content to the overall Vera Rubin SuperPOD, but I think that most people are focusing on that brand-new LPU. They recently added -- we understand and appreciate that the TSMC is very strong in CPU and we will definitely participate in that upside in CPU, but the LPU business, the acquired business, well, for historical reasons, it's still at your competitors, Samsung Foundry. And I think Investors are looking at that and seeing that maybe looks like Samsung Foundry finally made the first 2 inroads into AI. So any thoughts from TSMC side, how should we think about whether and how TSMC will win back that LPU business or any future difference chip business coming from your customers? Yes, give us some thoughts there, we would appreciate that. Jeff Su: Okay. Charles' second question is a very specific question about a very specific customer and very specific product, which is we typically do not comment on, but he wants to know for this customer's LPU product, which he notes is made at one of our competitors. How do we see this business going to the competitor? Do we have plans to win this LPU business back in the future? C.C. Wei: Charles, I think Jeff already gave me enough warning, very specific and very specific customer, very specific area. Let me answer your question. We are working with our customer for their next-generation LPU anyway. And we are very confident in our technology position, and we will work hard to capture every piece of business possible. How about that? Yu Shi: Very good. Thank you, C.C. That's very good color. Jeff Su: Okay. Thank you, Charles. Thank you, C.C. Thank you, Wendell. This concludes our prepared statements -- sorry, I should say this concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now, and the transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com. So again, thank you, everyone, for taking the time to join us today. We hope you continue to stay well, and we hope you join us again next quarter. Goodbye, and have a good day.