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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.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Traws [Technical Difficulty]. [Operator Instructions] As a reminder, this call is recorded. I would now like to turn the call over to John Fraunces, LifeSci Advisors. John Fraunces: Thank you, operator, and welcome, everyone, to Traws Pharma's Full Year 2025 Financial Results and Business Update Conference Call. This afternoon, Traws issued a press release reporting its 2025 financial results and provided a business update. If you have not yet seen this press release, it is available in the Investor Relations section of the company's website. Following my introduction, we will hear from Traw's Chief Executive Officer, Dr. Iain Dukes; and Chief Financial Officer, Charles Parker. Before we begin, I would like to remind everyone that statements made during this conference call will include forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties that can cause actual results to differ materially. Forward-looking statements speak only as of the date they are made as the underlying facts and circumstances may change. Except as required by law, Traws disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. For more information on forward-looking statements, please review the disclaimer in this morning's press release and the risk factors in the company's SEC filings. With that, I will now turn the call over to Traws's CEO, Dr. Iain Dukes. Iain Dukes: Thanks, John, and thanks to everyone for joining us today. Over the last year, Traws has made substantial progress towards our objective of bringing our differentiated next-generation antiviral candidate for influenza to patients. This morning, Traws announced a private financing of $60 million. The private financing was supported by new and existing health care-focused investors. The capital from this financing positions Traws to advance the flu program through a human challenge study this summer while providing access to additional capital as we achieve further key milestones. Influenza is estimated to be a multibillion-dollar opportunity spanning prophylactic and therapeutic applications, including strategic government stockpiling and pandemic preparedness incentives. The human challenge study trial focused on flu prevention is an important step towards establishing the potential for tivoxavir marboxil as a potential best-in-class prophylactic agent for flu prevention. We intend to initiate the study this summer once we have approval received from the Medicines and Healthcare Products and Regulatory Agency, or MRHA (sic) [ MHRA ] in the U.K. During today's call, we will provide an overview of development of our lead candidate, tivoxavir marboxil or tivoxavir for short for influenza. Tivoxavir marboxil is an exciting next-generation investigational influenza antiviral that targets the highly conserved bioenzyme CAP-dependent endonuclease. We believe tivoxavir is well positioned to become a best-in-class once-monthly oral prophylactic agent with additional potential for pandemic flu, including H5N1 bird flu. We will prioritize development of tivoxavir as a once-monthly prophylactic agent for influenza prevention. Seasonal influenza continues to have a severe public health impact in the U.S., particularly in vulnerable populations. While there are approved therapies and vaccines for flu, with such a number of infections, hospitalizations and deaths, there's still an incredible unmet medical need for improved prophylactic agents and therapies for flu. We envisage tivoxavir's potential use in 2 settings: prophylaxis, where it might be used on a monthly basis to prevent infection, especially during the flu season; and secondly, as an element of the national stockpile for pandemic preparedness. We believe tivoxavir is well suited to be a first-in-class prophylactic agent for seasonal flu based on its emerging profile as an oral once-a-month agent with a favorable tolerability profile and broad activity generally across influenza A and B strains. Cornerstone of our thesis for tivoxavir anchors on 3 items. First, previously reported preclinical studies showed robust antiviral activity against a wide range of influenza strains, including all influenza A and B strains. Second, positive preclinical data reported last year showed a single dose of tivoxavir provided protection against lethal bird flu challenge in 3 species with significant reductions in lung virus burden and pathology in nonhuman primates. Third, Phase I data in normal volunteer and healthy volunteers showed that the first-generation power and capsule formulation of tivoxavir maintained plasma blood levels well above the EC90 for over 3 weeks with good overall safety. Coupled to this, we have developed a next-generation compressed tablet formulation of tivoxavir with an optimized pharmacokinetic profile. Data from preclinical studies show a 30% increase in exposure with this new formulation. These results have given us confidence that the new tablet can provide 28-day coverage against influenza and be an effective once-a-month agent. We are in the process of conducting a Phase I bridging study in Australia to confirm the extended exposure we saw in preclinical studies. The positive bridging data will be shared with the MHRA in addition to the initial filings that we've already made with this agency. And hopefully, this will be used to advance ourselves to the next step in our prophylaxic program, the Phase IIa seasonal flu prophylaxis challenge trial. The Traws trial will be conducted at hVIVO in the U.K. Starting in June, positive results demonstrating protection from viral infection will be a landmark proof of concept for the program, supporting tivoxavir's unique value proposition as a safe and effective prophylactic agent. In the meantime, we continue to continue our conversations around tivoxavir in terms of it being included in the National Stockpile for pandemic preparedness. To support our intention to secure formal consideration by the Biomedical Advanced Research and Development Authority, or BARDA, for inclusion in the U.S. leading stockpile. We submitted our investigational new drug application or IND in January. FDA recently informed us that our IND filing has been placed on clinical hold due to concerns for the toxicology data package. We are actively engaging with the FDA to address its concerns and resolve the clinical hold as expeditious as possible with the goal of advancing the program in the U.S. in late 2026. We are optimistic about the ongoing bridging study and challenge study and look forward to reporting back on our progress through the year. At this point, I am going to hand this over to Charles. John Fraunces: Thanks, Iain [indiscernible] summary of the financial results. Charles Parker: Thank you, Iain. This morning, Traws announced the completion of a private financing that provides up to $60 million in potential gross proceeds. We also issued a press release this afternoon covering our results for the year-ended December 31, 2025. I'll refer you to our recent 10-K filing for a review of the full financial statements. You can also access the press release and the 10-K on our website. First, the recently completed financing. The private placement transaction includes funding of $10 million upfront and 3 warrants, which consist of a Series A milestone-based warrant with an aggregate exercise price of $10 million that becomes exercisable upon receipt of approval from MHRA to conduct the challenge trial. A Series B milestone-based warrant with an aggregate exercise price of $10 million that becomes exercisable following both shareholder approval and the announcement of data from the challenge trial. And a Series C common warrant with a 3-year term to purchase shares of our common stock and providing potential additional gross proceeds of $30 million if fully exercised following shareholder approval. Based on our current plans, the company believes that its current cash balance, including net proceeds from the offering and milestone-based warrants, if fully exercised, is sufficient to support planned expenses into Q1 2027. Turning to our financials. As of December 31, 2025, Traws had cash, cash equivalents and short-term investments of approximately $3.8 million compared to $21.3 million as of December 31, 2024. Revenue for the year-ended December 31, 2025, was $2.8 million compared to $226,000 for the same period in 2024. The increase is attributable to $2.7 million in deferred revenue recognized as revenue in the second quarter related to the mutual termination of a licensing agreement associated with our legacy oncology program in April of 2025. Acquired in-process research and development expense for the year-ended December 31, 2025, was zero compared to $117.5 million for the comparable period in 2024, recognized related to virology programs acquired in connection with the acquisition of Trawsfynydd through a merger. Research and development expense for the year-ended December 31, 2025, totaled $12.1 million compared to $12.8 million for the comparable period in 2024. The decrease of $0.7 million primarily relates to a decrease in expenses related to the oncology program, partially offset by an increase in expenses related to the virology programs. General and administrative expense for the year-ended December 31, 2025, totaled $8.5 million compared to $12.3 million for the comparable period in 2024. This decrease of $3.8 million is primarily attributable to a decrease in professional and consulting fees. The net income for the year-ended December 31, 2025, was $9.2 million, or net income of $0.83 per basic common and $0.82 per diluted common share. This compares to a net loss of $166.5 million or a net loss of $35.21 per basic and diluted common share for the year-ended December 31, 2024. Now I'd like to turn the call back to Iain. Iain Dukes: Thanks, Charles. Before we open the line for questions, I'll briefly summarize the topics we've covered on the call. Over the last year, Traws has made substantial progress towards our goal of advancing our differentiated next-generation potential best-in-class antiviral candidate for influenza. The recent $60 million financing provides us with the resources to drive forward the planned seasonal influenza prophylaxis study for TXM and supports Traws future growth. For influenza, we are poised to advance the evaluation of tivoxavir marboxil as a prophylactic agent, supported by completion of a bridging study for the compressed tablet formulation and initiation of a challenge trial in the U.K. this summer. As we begin the Q&A session, I want to thank everyone for joining us today. Now we'll open up the call for questions. Operator, please go ahead. Operator: Comes from the line [indiscernible] with Cantor Fitzgerald. Unknown Analyst: Hopefully, you can hear me. Great. I wanted to just work through a few points of clarification here, if I could. Just first on the FDA's questions. Do you have a sense of what, if any, new experiments you might need to conduct to satisfy their questions on the toxicology data package? And also based on sort of what we know from Xofluza, is there any plausible concern or risk around immunogenicity in the prophylaxis setting for tivoxavir, just given it's structurally similar? Or are you pretty confident that this can be fully resolved? Iain Dukes: Thanks for your question. So the structural similarity of tivoxavir to Xofluza is an important point that you bring up because baloxavir has a clean immunogenicity label. It was negative in [indiscernible] and has shown no immunogenic potential since it's been approved several years ago. So we think this is very strong evidence that the data that was generated in our initial package of information submitted to the FDA could have some flaws associated with it. So our plan is actually to repeat some of these assays and submit new assays as well and using Xofluza as an additional control in the assays that we submit to the FDA. So there's no reason a priority why we should be any different to Xofluza. And so that gives us quite a lot of confidence that the in vitro data suggests immunogenic risk are probably explainable through other mechanisms of action of the drug. Unknown Analyst: Okay. Nice. And then just on the U.K. side. So the -- I was hoping you could just characterize if there's any potential risk or what the various scenarios might be with the MHRA regarding starting that study on time in the summer with the prevailing toxicology data package or if there could be any sort of delays or need for submission of additional data in the U.K. Iain Dukes: Yes. Thanks for that. We actually don't -- we can't really answer that question today. Our package has been submitted to MHRA. They are now under a 30-day clock to review the package that we have sent. It is frequently the case that these regulatory agents come to different conclusions based on identical toxicology packages submitted. So for instance, in Australia, which -- where the regulatory agency saw exactly the same data that was seen by the FDA, we were obviously allowed to proceed with the healthy volunteer studies now twice because initially, our studies were approved and moved forward. And again, [ HRAS ] had access to exactly the same toxicology information that the FDA has today. And then secondly, when we recently got approved to run the bridging study in Australia, again, no concerns have been flagged. So we remain hopeful and optimistic that the MHRA will indeed approve the study as submitted. Unknown Analyst: Okay. Terrific. And just forecasting this out, thinking about sort of the value proposition for tivoxavir and flu prevention. It sounds like given the pharmacokinetic profile, like once monthly is possible here. But once you do the challenge study and you have the data in hand, if it turns out that twice monthly or even once weekly sort of optimizes efficacy, do you think that's just as viable commercially and something you would contemplate testing in a subsequent study? Or are you sort of committed to a once-monthly prophylaxis regimen here just from a commercial adoption and sort of competitive standpoint? Iain Dukes: No, not at all. We've done some initial market research on this point. And to your point, once weekly could still be a very attractive formulation for an oral compared to an injectable. So we will obviously very carefully evaluate the results from a challenge study, and we will be assessing the degree of protection at 1 week, 2 week, 3 week as well as 4 weeks in the study, and we'll make a decision based on what we see in terms of how we want to proceed forward into a Phase IIb/III in terms of the optimal dosing frequency that we would adopt. Unknown Analyst: Okay. Last question for me, just a quick clarification on the final $30 million tranche of the financing announced today. Is there any event that triggers that? Or is that sort of like at your request for shareholder approval, you can access that capital within that 3-year window? Charles Parker: Yes. I'll handle that... Iain Dukes: Charles, do you think... Charles Parker: Yes. Thanks for the question. The final warrant C, $30 million has an accelerated feature. If our stock trades at 2x the deal price, which was $1.67, then for 30 days consecutively, then we can -- there will be a 10-day window to force exercise that warrant. So that is the accelerated feature within the warrant. Otherwise, it's a 3-year term. Operator: I'm showing no further questions in the queue. Ladies and gentlemen, thank you for your participation on today's conference call. This concludes today's event. You may now disconnect.
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 afternoon, and welcome to the Lakeland Industries, Inc. Fiscal Fourth Quarter and Full Year 2026 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for revenue and cash flow from operations for fiscal year 2027, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties, as more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with US GAAP, including adjusted EBITDA, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA excluding FX margin, organic revenue, organic gross margin, and adjusted operating expenses. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release and/or the supplemental slides filed with our earnings release. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website at ir.lakeland.com. At this time, I would like to introduce your host for this call, Lakeland Industries, Inc.’s President, Chief Executive Officer, and Executive Chairman Jim Jenkins; Chief Financial Officer, Calvin Sweeney; Chief Commercial Officer, Global Industrials, Cameron Stokes; Chief Revenue Officer, Barry Phillips; and Executive Vice President of EMEA Fire Sales, Kevin Ray. Mr. Jenkins, the floor is yours. Jim Jenkins: Thank you for joining us today to discuss the results of our fiscal 2026 fourth quarter and full year ended 01/31/2026. Fiscal 2026 was a year of meaningful top-line growth and important strategic progress for Lakeland Industries, Inc. Calvin will walk through the financials in detail shortly, so I will provide you with a brief overview here. For the full year, net sales increased $25.4 million, or 15.2%, to $192.6 million, driven by continued strength in fire services. In the fourth quarter, net sales were $45.8 million, down $0.8 million, or 1.7% from the prior period. U.S. sales increased 35.1% for the full year to $81.6 million and increased 7.1% in the fourth quarter to $19.6 million. Europe also grew meaningfully for the full year, increasing $12.1 million, or 28.7%, while fourth quarter year sales were down $2.4 million due primarily to timing on LHD and Jolly orders. On profitability, adjusted EBITDA, excluding FX, was $7.2 million for the full year, and $1.3 million in the fourth quarter. Gross margin was 32.9% for the full year and 32.2% in the fourth quarter. Those results were below our expectations, and I want to be direct about why. We grew revenue at a strong rate, but we did not convert that growth into the earnings we expected. We view this as an execution issue, not a demand issue. The underlying demand environment across our core markets remains intact. We operated in a volatile cost environment during fiscal 2026; freight inflation, raw material pressure, tariffs, and certification timing delays exposed weaknesses in our planning and pricing response that we are actively addressing. Against that backdrop, I want to note something important. The fourth quarter generated approximately $2 million of operating cash. Delivering that level of cash generation on lower revenue than the third quarter reflects improved discipline across the organization, stronger cost control, and better day-to-day execution. We are seeing early signs the actions we have been taking are beginning to work. Subsequent to the fiscal year-end, we completed the divestiture of our HPFR and HiViz product lines to National Safety Apparel, generating approximately $14 million of cash proceeds. This transaction simplifies the business and allows management to concentrate fully on our core fire services and industrial protective product lines, where we see the greatest long-term opportunity. On the product side, we achieved a significant milestone with numerous NFPA 1970 2025 certifications across our brand portfolio. Products including Lakeland structural turnout and proximity gear, Meridian gloves and fire particulate-blocking hoods, Jolly boots, and Pacific helmets are now fully certified, enabling customers to order from a complete head-to-toe NFPA-certified range of products across Lakeland Industries, Inc.’s brands. This certification was a meaningful commercial unlock, and we look forward to showcasing our portfolio at FDIC 2026 next week. We strengthened the organization with several important appointments. Calvin Sweeney was named Chief Financial Officer in February 2026, having served as interim CFO since December 2025, and Kevin Ray was just recently named Executive Vice President of EMEA Fire Sales. You will be hearing more from both of them shortly. We also welcomed Lee Rudow to our Board of Directors in early April. Lee previously served as CEO of NASDAQ-listed Transcat, and his invaluable business and strategic M&A integration experience in the industrial markets with a strong track of execution across both organic growth and acquisition-driven strategies will be a valuable addition to our governance. During the year, we completed the acquisitions of Arizona PPE and California PPE, expanding our U.S. fire services distribution and rental capabilities with ISP locations in Arizona, California, and soon Denver. California PPE also opened a new state-of-the-art facility in Fresno, providing compliant decontamination, inspection, and repair services to California fire departments. These recurring revenue service businesses strengthen our fire platform and build long-term customer relationships. We also completed the $6.1 million sale and partial leaseback of our Decatur, Alabama warehouse property, generating an approximately $4.3 million pretax gain and reducing our fixed cost exposure. And Lakeland Industries, Inc. was added to the Russell 3000 and Russell 2000 in the season June, reflecting our growing market profile. Alongside these actions, we are working to further strengthen liquidity and flexibility through our pending ABL facility, which we expect to close soon, although there can be no assurance that the ABL facility will close on that timeline or at all. The Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal 2027. Taken together, these steps reflect a company that is not standing still but one that is actively reshaping its operating model to support improved performance. From a macro standpoint, fiscal 2026 was affected by tariff uncertainty, freight inflation, raw material cost pressure, and certification timing delays across both fire and industrial. Those factors pressured production efficiency, revenue timing, and gross margin. We also saw softer performance in select areas in the fourth quarter; we do not view the issues in front of us as demand destruction. We view them as timing, execution, and cost challenges that are addressable, and that is an important distinction. As we move into fiscal 2027, we are encouraged by the progress already underway and continue to make structural improvements that we believe will strengthen the business over the long term. We are tightening forecasting, strengthening accountability, and putting more structure around sales and production planning. As an example, inventory ended January at $82.5 million and is down meaningfully from October as we continue to better align supply with demand. We are entering fiscal 2027 with a simpler portfolio, improved internal discipline, and a pipeline that continues to build. We are now tracking modestly ahead of budget entering fiscal 2027, and our forecast is clear: convert demand into more consistent, repeatable financial performance, improve forecasting, better align sales and operations, increase utilization, and drive stronger margins and cash flow. Based on the foundation we have built, we are comfortable providing goalposts for fiscal 2027 of single to high single-digit revenue growth and a clear line of sight to positive cash flow from operations. Taken together, these steps reflect a company that is not standing still but one that is actively reshaping its operating model to support improved performance. With that, I would like to pass the call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment businesses. Cameron Stokes: Thank you, Jim. Turning to industrial and chemical critical environment. For the fourth quarter, chemical revenue increased $0.3 million to $5 million, demonstrating continued strength in that product line. Disposables revenue decreased $0.9 million and wovens revenue decreased $1 million in Q4, reflecting the headwinds Jim referenced, particularly softer performance in the North American industrial markets late in the quarter. For the full year, these three product lines combined represented approximately 49% of total revenue, with disposables at 27%, chemical at 11%, and wovens at 11%. On the strategic side, the divestiture of our high performance FR and high viz product lines meaningfully simplifies the industrial portfolio. These lines required significant management attention and resources that we are now redirecting towards higher-margin, faster-growing opportunities within chemical critical environment and core industrial protective apparel. The decision to divest was the right one, and it sharpens our focus on the product lines where we have a competitive differentiation and credible path to improving profitability. Within the business, we are seeing differentiated performance across our product lines so far in fiscal 2027. Chemical critical environment is outperforming, driven by continued demand from industrial and pharmaceutical end users, while wovens are tracking to plan with good visibility into the pipeline. Disposables faced the most pressure during the year, driven by tariff-related cost increases and softness in select North American markets, and we have defined specific recovery initiatives underway at the account level to address that gap. From a competitive standpoint, we are not seeing broad-based shifts across the market. The movement we are seeing remains limited and localized, and competitors have generally not responded with meaningful price action to date. At the same time, fuel and logistics instability has become a more relevant variable across the market than tariff uncertainty. That backdrop reinforces our focus on tighter channel discipline, better market segmentation, and more targeted execution by product line and end market. Our strategy for growing these lines is straightforward: continue to develop products and expand the range of certified high-performance offerings, disciplined strategic pricing to protect and improve margins as cost pressures ease, reach a broader set of end users and reduce distributor concentration, while optimizing operations to drive better utilization at our manufacturing facilities. I would like to note that the industrial segment tends to see its highest seasonal activity in the spring, when scheduled maintenance shutdowns at nuclear, coal, oil and gas, and chemical facilities drive meaningful order activity. We are entering that period now, and our teams are positioned to execute on the incoming demand. Looking ahead into fiscal 2027, our industrial priorities are clear. We are tightening demand forecasting and improving the alignment between sales commitments and production planning. We are also actively pursuing pricing actions where cost increases warrant them. We are working to improve manufacturing utilization at our Mexico and Vietnam facilities as we consolidate our footprint and transition production from India into those sites. The tariff environment remains a factor, but we are working through mitigation strategies and believe we can manage the impact without structural disruption to our cost base. Overall, the industrial and chemical business is stable, and we are focusing on converting that stability into consistent, improving profitability throughout fiscal 2027. I will now hand the call over to Chief Revenue Officer, Barry Phillips, to provide an update on our fire services business. Barry Phillips: Thank you, Cameron. Turning to fire services. Revenue for Q4 was $21.7 million, an increase of $0.5 million or approximately 2% compared to the prior year. For the full year, fire service revenue grew $30.6 million, or 48.6%, to $93.6 million. This is a significant milestone. Our fire segment now represents approximately 49% of our total revenue, a significant transformation from where we stood just two years ago when it represented approximately 21%. The full-year growth was supported by contributions from Viridian, LHD, Jolly, and Pacific Helmets, as well as Arizona PPE and California PPE. These acquisitions have expanded our geographic reach, broadened our product offering, and positioned us as the head-to-toe provider in global fire protection, a platform we believe is unique in the market. Fire demand is increasing as certification cycles are completed and tender timelines are tracking on schedule across multiple regions. These have been timing delays rather than structural demand issues. Opportunities remain in the pipeline and have simply shifted later than expected. Our tender pipeline is active globally, and we continue to see strong engagement from the fire departments and procurement agencies across the regions we serve. We also saw meaningful international wins during the year, including significant emergency follow-on orders from the National Fire Department of Colombia, an order from the Fire and Rescue Department of Malaysia, and a fire equipment tender award from ANAC, Argentina’s National Civil Aviation Administration. A particularly important milestone was receiving numerous NFPA 1970, 2025 edition certifications across our portfolio, enabling customers to order a complete head-to-toe certified range across our brands for the first time. These certifications are a commercial unlock that we have been working toward, and we look forward to showcasing the full core portfolio at FDIC 2026. On decontamination and services, our ISP business is growing faster than initially projected, and the greenfielding and ISP M&A pipeline remain robust. California PPE’s new Fresno location opened in January 2026, and our Denver location is expected to open in 2026. This recurring revenue model builds long-term customer relationships, generates predictable cash flow, and positions us well as fire departments increasingly invest in gear maintenance and NFPA 1950 compliance. Fire service margins remain structurally sound; as volume normalizes and tenders convert, margins are expected to recover without requiring broad pricing actions. LHD Germany is stabilizing, and we expect a formal relaunch of the brand at Interschutz 2026 in June, with leadership in Kevin Ray driving momentum across our EMEA brands. Looking ahead into fiscal 2027, we have the strongest backlog in Lakeland Fire’s history. We expect continued success with our head-to-toe offering and anticipated tender wins in Europe and the U.S. Our new NFPA product portfolio rollouts are well underway, and we look forward to showcasing our entire lineup at FDIC next week. I will now pass the call to Executive Vice President of EMEA Fire Sales, Kevin Ray, for an EMEA update. Thank you. Kevin Ray: Before I begin, I would like to provide you with a bit of my background. I have over twenty years of leadership experience in personal protective equipment and fire safety across the U.K. and EMEA. I joined Lakeland upon the acquisition of Eagle Technical Products, where I served as the Managing Director since 2013, and then Vice President of EMEA Fire and Global M&A Integration from 2022 until just recently, having been named Executive Vice President, EMEA Fire Sales, helping to shape Lakeland’s fire strategy across the region and integrate key acquisitions into a unified operating platform. Turning to EMEA, Europe revenue for the fourth quarter was $12.1 million, down $2.4 million versus the prior-year period. This was driven primarily by the timing of LHD and Jolly orders, as well as delayed government tenders and macroeconomic conditions across several markets. For the full year, Europe revenue grew $12.1 million, or 28.7%, to $54.2 million, a strong result that reflects the full-year contribution of LHD and Jolly. The Q4 softness that we have discussed is a timing story; it is not a structural one. The tender pipeline is intact, and underlying demand dynamics across the region remain supportive. On LHD Germany specifically, conditions in that market have been challenging, and we have been direct about that. We are actively restructuring the business to reduce the overhead and to rightsize the cost base for the current conditions. Stabilization is underway, and we are planning a formal relaunch of the LHD brand at Interschutz 2026. This is the largest fire industry event in the world and is only held every five years, so this really is a significant commercial moment for us. Interschutz will serve as our EMEA platform launch for the combined Lakeland Fire and Safety brand. We intend to demonstrate our integrated head-to-toe offering to the European market at this event and show what our portfolio now looks like as an integrated head-to-toe offering. We view it as a pivotal opportunity for LHD Germany in particular, and for our European fire brands broadly. Our LHD Hong Kong and LHD Australia businesses secured new contracts during the year that solidify those operations and build a stronger foundation for future growth in the Asia Pacific region. Late-stage tenders across the region are up, and the quality of the pipeline has improved meaningfully. Integration across the acquired EMEA businesses is beginning to unlock access and scale that we could not if operating these brands independently. We are now seeing what we estimate to be over $5 million of incremental business opportunities flow directly through intercompany collaboration within the group. These are cross referrals, shared supply chain economics, and joint initiatives, and that represents a growing, previously untapped source of revenue. This dynamic is extending beyond EMEA and beginning to manifest in Asia, Latin America, and North America as well, which speaks to the stability of the integrated platform. Our objectives from here are clear: to improve the conversion across our late-stage pipeline, to convert intercompany opportunities into tangible recurring revenue, and to continue building a more balanced and predictable tender pipeline across the region. I will now hand over the call to Calvin to review the financials. Thank you, Kevin, and hello, everyone. I will provide a brief overview of our fiscal 2026 fourth quarter financials before diving into the details. Calvin Sweeney: Net sales were $45.8 million for Q4 fiscal 2026, a decrease of $0.8 million, or 1.7%, compared to $46.6 million for the prior-year quarter. Adjusted gross profit for Q4 was $15.4 million, a decrease of $4.4 million, or 22%, compared to $19.8 million for the prior-year quarter. Adjusted gross margin was 33.5% in Q4, compared to 42.4% in the fourth quarter fiscal 2025. Adjusted operating expenses, excluding FX, were $14 million, up from $13.7 million in the prior year. Net loss was $166.2 million, or $0.61 per diluted share, compared to a net loss of $18.4 million, or $2.42 per diluted share in fiscal 2025. Adjusted EBITDA, excluding FX, was approximately $1.3 million for the fourth quarter, compared to $6.1 million for the prior-year quarter. Adjusted EBITDA, excluding FX margin, was 2.9%. Turning to the full fiscal year, net sales were $192.6 million for fiscal 2026, an increase of $25.4 million, or 15.2%, compared to $167.2 million for fiscal 2025. Adjusted gross profit was $66.4 million for fiscal 2026, a decrease of $4.7 million, or 6.6%, compared to $71.1 million for fiscal 2025. Adjusted gross margin was 34.4% for the full year, compared to 42.5% in fiscal 2025. Adjusted operating expenses, excluding FX, increased 10.2% to $59.2 million for fiscal 2026 from $53.7 million for fiscal 2025. Adjusted EBITDA, excluding FX, was approximately $7.2 million for fiscal 2026, compared to $17.4 million for fiscal 2025, with an adjusted EBITDA excluding FX margin of 3.7%. Net loss was $25.3 million, or $2.63 per diluted share, compared to $1.8181 billion, or $2.43 per diluted share for fiscal 2025. Looking at the fourth quarter in more detail, geographically, U.S. revenue increased $1.3 million, or 7.1%, to $19.6 million for Q4. Europe revenue decreased $2.4 million to $12.1 million, reflecting timing of orders from LHD and Jolly. Asia revenue increased $0.7 million, or 19.4%, to $4.3 million. Latin America revenue was $3.8 million, down modestly versus the prior-year period. Adjusted EBITDA excluding FX for Q4 fiscal 2026 was approximately $1.3 million compared to $6.1 million for the prior-year quarter. The decrease was primarily driven by the decline in gross margin related to the factors I just mentioned. Adjusted operating expenses, excluding FX, were $14 million in Q4 and declined sequentially across the prior three quarters, demonstrating that our expense discipline has held at the business scale. The key driver of the year-over-year adjusted EBITDA decline was gross profit compression, not expense growth. As gross margin recovers through utilization improvement, pricing discipline, mix management, and supply chain optimization, EBITDA will follow with meaningful operating leverage. Adjusted gross margin decreased to 33.5% in fiscal 2026 Q4 from 42.4% in fiscal 2025 Q4, a decrease of approximately 890 basis points. The primary drivers were product mix shift as fire services grew as a proportion of revenues at lower initial margins, manufacturing underutilization in Mexico and Vietnam, raw material cost pressure, elevated inbound freight and duties, and execution gaps in production planning. Partially offsetting these headwinds, Q4 showed sequential improvement in freight and duties versus Q3 and a more favorable sales mix within the quarter. Adjusted EBITDA excluding FX decreased from approximately $6.1 million in the fourth quarter fiscal 2025 to approximately $1.3 million in the fourth quarter fiscal 2026, a decrease of $4.8 million or 78%. Gross profit compression was the dominant driver. Operating expense changes were minimal year over year, confirming that expense discipline has held. The path to EBITDA recovery runs primarily through gross margin improvement, which we are addressing through utilization improvement, pricing discipline, mix management, and supply chain optimization. For the full year, adjusted gross margin was 34.4% compared to 42.5% for fiscal 2025, a decrease of approximately 810 basis points. The full-year bridge reflects three primary themes. First, mix: our fire acquisitions entered the portfolio at a lower gross margin profile than our legacy industrial lines, and as fire grew to approximately 49% of revenues, blended margin came under structural pressure. Second, cost headwinds: raw materials, tariffs, and elevated freight costs impacted the full year. Third, underutilization: manufacturing capacity in Mexico and Vietnam was sized for higher volumes; the fixed-cost deleverage in a period of below-target output was significant. We are addressing all three through manufacturing footprint consolidation, supply chain restructuring, and targeted pricing actions. Reviewing our revenue mix over the past three fiscal years is clear on both the geographic and product basis. On the geographic side, Europe grew from approximately 13% of revenues in fiscal 2024 to approximately 25% in fiscal 2025 and approximately 28% in fiscal 2026, a direct result of our LHD and Jolly acquisitions expanding our European fire platform. The U.S. has remained at approximately 42% in fiscal 2026, reflecting the growth of Viridian, Arizona PPE, and California PPE offsetting softness in industrial. This geographic diversification provides broader exposure to the global fire protection market. On the product side, fire went from approximately 21% of revenues in fiscal 2024 to approximately 38% in fiscal 2025 to approximately 49% in fiscal 2026. To us, this is the clearest illustration of our strategic pivot to the higher-margin, higher-growth global fire protection sector. Disposables moderated from approximately 40% to 27% as fire grew. The divestiture of HPFR and HiViz further simplifies this picture heading into fiscal 2027. As our acquired businesses integrate and fire gross margins recover toward their structural potential, our growing fire concentration should become a meaningful margin tailwind. Now turning to the balance sheet. Lakeland Industries, Inc. ended the fiscal year with cash and cash equivalents of $12.5 million and working capital of approximately $96.5 million. This compares to $17.5 million in cash and working capital of approximately $101.6 million as of 01/31/2025. Cash decreased $5 million versus the prior year reflecting $15.8 million of operating cash usage and $1.2 million of net investing outflows, offset by $12.5 million provided by financing activities. As of 01/31/2026, we had total borrowings of $32.3 million, with $28.5 million outstanding under the revolving credit facility, with an additional $11.5 million available under the revolver. Net investing activities included $6.2 million for the Arizona PPE and California PPE acquisitions, offset by $5.7 million proceeds from the Decatur warehouse sale, of which we used 100% of those net proceeds to repay our revolving credit facility. Importantly, Q4 generated approximately $1.8 million of operating cash, demonstrating that our focus on cost discipline and working capital management is beginning to yield results. We are in advanced stages of negotiating an ABL facility, which we expect to close soon, although there can be no assurances that the ABL facility will close on that timeline or at all. A Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal 2027. We expect the ABL facility to further strengthen our financial flexibility and support growth initiatives in fiscal 2027. Subsequent to year-end, the divestiture of the HPFR and HiViz product lines generated approximately $14 million in additional cash proceeds that are not reflected in year-end cash balances, further reinforcing our liquidity position. At the end of Q4, inventory was $80.5 million, down approximately $5.4 million from $87.9 million at the end of Q3 fiscal 2026 and essentially flat on a year-over-year basis despite revenue growing approximately 15%. That year-over-year stability reflects meaningful progress on our supply-demand alignment initiatives. The quarter-over-quarter decline in inventory is broad-based: organic finished goods were $36.3 million, down from $38.8 million in Q3; organic raw materials were $30.9 million, down from $33 million in Q3. Reductions were also achieved across Meridian, LHD, and Jolly as integration and planning processes improved. Our immediate priorities have been in the U.S. industrial, Jolly, and LHD’s regions where we saw the greatest opportunity to align balances with demand and improve working capital efficiency. Inventory optimization is one of the key levers in our path to improved free cash flow generation. As inventory levels normalize further, carrying costs decrease and working capital is released. This helps our business become more efficient operationally, and we see opportunities to continue this strategy to drive inventory lower in fiscal 2027 in a disciplined, demand-driven manner. With that, I would like to turn the call back over to Jim before we begin to take your questions. Thank you. Jim Jenkins: Fiscal 2026 was a year of significant transformation. We grew revenue 15.2% to $192.6 million driven by 48.6% growth in fire services, built a head-to-toe global fire protection platform through multiple strategic acquisitions, and made meaningful progress simplifying and strengthening the business, even as we navigated a challenging cost and operating environment. We are entering fiscal 2027 with key financial metrics showing sequential improvement over Q4 2026. The fourth quarter demonstrated that our operational discipline is improving. We generated positive operating cash flow, held expenses essentially flat, and delivered adjusted EBITDA despite lower revenue versus Q3. These are early but tangible signs of the operational improvement we have been working toward. As we enter fiscal 2027, our priorities are clear: we will continue executing margin recovery actions across logistics, operations, and pricing, including manufacturing footprint consolidation; continue efforts at cost containment across logistics and operations, including in the face of the Iran conflict and its potential impact on freight and supply chain costs; tighten forecasting accountability and implement a stronger structure around sales and production planning; revise the ERP rollout plan with our new implementation partner targeting 2027; actively drive greenfielding in the M&A pipeline within our ISP space—we opened our Fresno facility in January and Denver is expected to open in summer 2026, as Barry had mentioned; capitalize on the fire tender pipeline, including expected tender wins in Europe, and showcase our full NFPA-certified portfolio at FDIC 2026; and leverage our balance sheet to execute on our acquisition strategy focused on fire turnout gear decontamination, rental, and services. Today, as we are now almost through fiscal first quarter 2027, I am very optimistic about our business trajectory, given the recent customer wins around the globe, enhanced product development and differentiation with our new Firefox Elite L100 structural firefighting boot, and a recently achieved full head-to-toe range of NFPA 1970 2025 certified product offerings across our brand portfolio. Customer interest and demand are strong. Operationally, we are correctly positioned. The core team is in place, and we are ready to capitalize on an amazing opportunity that is on the horizon for Lakeland Industries, Inc. Based on these factors, we believe fiscal 2027 will see high single-digit revenue growth and a clear line of sight to positive cash flow from operations. We are grateful to our customers, distribution partners, and team members worldwide for their continued trust and commitment, and especially to those first responders around the world who risk their lives every single day to protect all of us. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners LLC. Please proceed with your question. Gerry Sweeney: Hey, Jim and team. Thanks for taking my call. Jim Jenkins: Hey, Gerry. Gerry Sweeney: Wanted to start with the fire side. I think in some of the prepared comments, the comment was largest pipeline in history. And I want to see—you know, some of this was definitely pushed out from 2025 due to government shutdown, NFPA standards, etcetera. So I think we sort of anticipated a building pipeline, but the question is, how do we unlock this, and maybe some more detail on the size of the pipeline and how does it flow through for this year? Jim Jenkins: I think I am going to have Barry, who has been working closely on that, respond to that, and then I will chime in. Barry Phillips: The comment was the largest open orders for Lakeland Fire in the company’s history, so our open book of orders coming through, scheduled for production and having a C-sale and invoice, that is the largest. The pipeline is the clearest view that we have been able to develop as we have been working through integrating our CRM software and program Salesforce globally, and our sales operations team structuring it for a full view across the business. We now actually have over $130 million in open pipeline that is visible to us, over $22 million of that in higher probabilities over half, and we have that view that we are working diligently with our teams to keep active. What we are seeing now is the opening of the spigot, so to speak, with the certifications coming through. Departments have been waiting for that certification approval, and then they start to look and bring things through. FDIC is the key component next week, where most of the NFPA push is through North and South America. Then we will be rolling things out with the rest of the world at the big show in June. On the FDIC show next week, generally, it is not an order-writing show, but it is a very visible show. It is Fire Department Instructors Conference, the longest-standing fire show in North America, and one of the globe’s largest ones other than Interschutz, which is once every five years and more global. Departments will come and, in a sense, kick the tires. Some of them have already started to have input for a field trial or user trial; those sorts of things take place. Sometimes you will get orders for commodity items, whether it is helmets or boots. If it is a larger department conversion, it is going to generally have some sort of a tender relationship or RFQ that will come into play or a wear trial. Gerry Sweeney: Got it. That is helpful. And then, switching gears slightly to the cleaning, the PPE opportunity. Obviously expanded in Arizona, sounds like it is going well. You are going into Denver. How big is that business in terms of revenue today, and how quickly can you grow that? Or do you have a target that you want to grow to in the next couple of years? Jim Jenkins: The goal is to get, in the services space, up to $30 million by fiscal 2028. We are ramping up rapidly, and I would be very disappointed if it was not much sooner than that at this point. When we acquired Cal PPE and Arizona PPE—Calvin, correct me if I am wrong—maybe $4.8 million, $4.7 million in annualized revenue. They have significantly ramped that up. They are winning customers; they are doing it the right way. The reason we are opening in Denver is we are not going to just open it and hope they come. We have active customers who have said, we need you to do this for us, and we need you to do it quickly. So when we open Denver, we would expect several fire brigades to be providing services for the moment we open that up. Fresno, we have seen similar. What happened with Fresno is that we had so much activity at our Riverside facility, it was busting at its seams. Having Fresno in Central California allowed us to shift some of those opportunities to Fresno while we were continuing to grow our opportunities in Southern California. While Fresno was working on some of that offload of capacity, they are also finding additional opportunities within Central California, adding to the Fresno mix. Arizona PPE—we are having a dialogue as a team now about expanding that footprint or increasing its warehouse capacity because they are bursting at the seams right now. As opposed to last year, Gerry, where we were pulling stuff in from quarters on the fire front, now we are trying to figure out how to make sure we can service it properly. Barry talks about the outstanding order flow that we have. That is driving us to do things. We have our North American manufacturing leader camped out right now at Meridian. Because Viridian was so slow last year, we had some personnel issues where we had to move on some sewing folks. We have since added capacity to that plant and individuals to that plant so that we can fulfill order flow for the first and second quarter. We have got visibility into order flow now into the second quarter and parts of the third quarter. We went from three and a half weeks’ worth of work at a place like Meridian to eight and a half or nine, and that has created challenges because we have to make sure the customer gets that delivery in a timely way. That is how we differentiate. In some of these ways, some of this happened very quickly, and we do not anticipate that momentum moving in the other direction. That is why we feel so optimistic, because for the first time, we have a production problem, not a sales problem. Gerry Sweeney: On your guidance, you said high single digits. On the chemical/woven side, the commentary is that it is stable. Is that high single-digit guidance a function of the visibility you are seeing on the fire side today? Jim Jenkins: Yes. It is a combination of that and what we also are seeing on the industrial side. The industrial segment—just as an example, in the United States—I get something called Cleveland Research from our partners at LineDrive. It is a survey of industrial channel partners, large and regional, and their view of where the market is going to be. Cameron’s philosophy has always been about trying to steal market share, which is really important in a business as mature as industrial. Historically the Cleveland Research report was saying half a percent growth in the North American industrial market, maybe 0.8% to 1%. Now it is 5%. When you are racing and being the most nimble in a market, and you have the team in your sales field and regional leaders we did not have historically, that foments a lot of optimism on the industrial space as well. Coupled with what we see in fire both in the U.S. and globally—Kevin Ray’s got his team in play in a lot of different opportunities. We would expect to hear soon on several opportunities in Europe where I think we have such close visibility to it, I would be really docked if we did not win. I look at places like the U.K. and Great Britain; I think we are in really good shape there. Gerry Sweeney: One more quick question. Margins—can you do a quick margin bridge? So it is around 30%; you were at 41% a year ago. You have volume, logistics/input costs, and pricing. Can you bucket those three out quickly as to how much of the downturn in margins each one played? Calvin Sweeney: Gerry, the bulk of that is mix; it is sales mix, followed by freight, duties, and materials cost that get you the rest of the way, but the majority of it was mix. Gerry Sweeney: So if you say mix, would that mean if fire volumes improve, we should see an improvement? Or are the margins in the gear low and you have to up the price? Calvin Sweeney: In fire services, the higher margin is the turnout gear, and then you have lower margin on boots. Jim Jenkins: We are currently in certification right now. We are working on getting certification from UL to be able to manufacture a Viridian product in Mexico. I have talked about this for quite a while. UL has been backed up doing certifications for fire. That backup, I think, has subsided, so I would expect to hear from them sometime in the summer. Then I can start manufacturing Viridian products in Mexico, and that is—Latin America for Viridian is their fastest growing. I am also looking for a certification for Lakeland product at Meridian so that, where needed, I can win departments that require made in U.S. I am now manufacturing LHD in China, and I am currently manufacturing Eagle in China, where we do not have issues with proximity to some regions in Europe where Kevin will still use third-party contractors. Yes, we would expect those margins to improve. As we garner critical mass in the services business—while those services businesses do not necessarily have great gross margin—their EBITDA margins are significant. That is why we have an urgent need to continue to drive growth in those businesses. Gerry Sweeney: Got it. I will jump back in. I apologize—quite a few questions, but thank you. Operator: Thank you. Our next question comes from the line of Michael Shlisky with D.A. Davidson. Please proceed with your question. Michael Shlisky: Yes. Hi. Good afternoon. Thanks for taking my questions. It was a little hard to tell how you feel, quarter to quarter, about the organic growth rate throughout the year. Do you think it might start off the year on a slower-than-high single-digit rate and end up at a higher rate, or could it be somewhat smoother organically throughout the four quarters? Calvin Sweeney: I think historically we start off a little slow in the first quarter of the year, and you will see improvement as we move throughout the year, especially now since we are picking up the certifications and see the demand increase. That happened mid-first quarter, so it is going to take a little bit of time for orders to come through. Michael Shlisky: Got it. On the ISP growth, interesting to see that you are opening in Denver. Any sense as to start to finish—when did you first hear you should be opening in Denver, and what was the time frame from that point to when you actually opened or are about to be opening? And are there any opportunities in other cities or states beyond Denver later on this year? Jim Jenkins: Barry, you are at the heart of the Denver effort right now. Why do you not answer that one? Barry Phillips: The Denver opportunity came to light just a few months ago. Our team and the leaders—our ISP’s Mike Glaze—is very well connected and known across the country. He used to be with Cal Fire; he ran their PPE program for many years before retiring and opening up California PPE. So, well connected. We know who to do and what and where. We were aware of an opportunity because a major competitor pulled out of the region. We know some of the technology providers because we have partnerships with them for the cleaning gear that drives our high efficacy ratings, and we found departments in that area that were looking for us and actually spoke to Mike in particular about coming in and taking care of their products for them. So we acted quickly. We have hired the leader for that site—she comes with a strong background and experience in the industry—and we are in process of getting things up and running. Our Fresno site, for example, as a footprint—we use that as a template to build out our sort of cookie-cutter, franchise-type thought on how to quickly ramp up. We did that in about a month and a half. The longest lead item is, first, securing the site; then after that, it is getting UL certification. The other parts—we know what to do, where to set it up, how to set the flow and process, and what resources we need to fulfill it. And, Mike, to the other part of your question— Jim Jenkins: We have several other opportunities that we are looking at from a greenfield perspective. We are doing some market research. Mike is checking out some opportunities in the Southeast; he has a few meetings next week—he is leaving FDIC for a meeting in the Southeast to look at opportunity there. Obviously, we want to be in the Midwest. I would envision over the course of the next year another three to five add-ons, in a perfect world, for greenfield—so we have another three to five between greenfield and acquired companies. As I said, these acquisitions are much lower cost, much higher rate of return from a pure synergy perspective because they kind of drive themselves and they can scale quite nicely, and Mike knows how to scale them and identify the people within a region to help drive that growth. He has already got a business plan on that front. I would envision three to five additional ones beyond Denver in North America. Kevin Ray has reached out—he wants one in Germany. It would make sense for us to do that. I think three to five in North America is probably the next twelve months of what I would be focusing on, though. Michael Shlisky: Great. And one last quick one for me. Kevin, welcome—glad you are head of EMEA Fire. What is the structure of the sales organization globally? Is someone going to be head of Americas soon that you are going to be hiring? I want to get a sense of the leadership structure. Jim Jenkins: We have a North American sales leader already. He reports into Barry. Everyone—other than Kevin—reports up through Barry. Barry is ultimately responsible for our global strategy. He and Kevin work together on the European side. I brought Kevin on board formally because, frankly, de facto, he had been a member of the management team for at least the last year, helping integrate the Jolly and LHD brands. Michael Shlisky: Just clarifying. Thank you so much. I will pass it along. Operator: Thank you. Our next question comes from the line of Analyst with Lake Street Capital Markets. Please proceed with your question. Analyst: Hi, guys. You have got Alex Donix on the line for Mark Smith today. Thanks for taking my questions. One for me—gross margins have been under pressure all year. Walking into fiscal year 2027, what are the biggest drivers of margin improvement there? What does the sequencing look like—what gets better first versus what takes longer to come through? Calvin Sweeney: It is really going to be the sales mix that drives that, and what we see is with increased demand on the fire side, especially in the higher-value products, we will see that starting maybe in late Q1 but most likely Q2 is where you really start to see the improvement. And you add that to some of the synergies we are driving with manufacturing— Jim Jenkins: —in place for products like Eagle and LHD in China, as opposed to utilizing third-party manufacturers, and the move of Meridian’s fire manufacturing for Latin America into Mexico. We think that, along with selling more turnout gear on the fire front, really adds to the margin. Analyst: That is helpful. And then last one for me. The high performance and high viz sale brought in about $14 million. It sounds like the balance sheet is the priority for those proceeds, but is any of that set aside for bolt-on deals, or any additional color on M&A would be great? Calvin Sweeney: Balance sheet. Jim Jenkins: The M&A opportunities—we are looking at an ABL because we would like a little more availability to do some of these smaller acquisitions. Whether we go that route or others, we will find a way to do it. As I said, they are not expensive deals. Analyst: Perfect. Thanks for taking my questions. Operator: Thank you. Our next question comes from the line of Analyst with Maxim Group. Please proceed with your question. Analyst: Hey. Thanks for taking my questions. I think you mentioned $5 million intercompany sales activity. I am wondering how you expect that to evolve now that you have the head-to-toe certifications, and what do you expect from it in the next fiscal year? Jim Jenkins: We expect it to grow significantly. We have an NFPA boot now for Jolly that we just got certified, so we will be rolling that out. Boots, gloves, helmets, and hoods—those are in-stock products that we need to have. The reception on the helmets right now is significant and has exceeded our expectations in the U.S. markets. That will continue to grow. The boots were very well received in the wear trials, so we will see pickup from that. Kevin has only recently started to drive the sales teams within the Eagle—well, not so much Eagle, he has been doing it with Eagle—but more with LHD and with Jolly, the cross-selling of the brands within other markets. Jolly has been very well received in the Latin American market, and now that we have an NFPA boot—where Latin America likes to have the choice of an NFPA offering—we would envision the ability to sell into that market as well. Do I have a dollar amount on that? I do not. But it is going to be, in my perspective, very easy to drive some of the growth in brands within a market like the U.S. that, until these certifications were standardized and finalized, we were not able to sell. Kevin Ray: Across the globe, the brand recognition—Lakeland Fire and Safety in the last twelve to eighteen months—is becoming a much higher-profile brand. It is getting credibility across the categories that we are supplying, so we are seeing more inquiries of a higher quality because of that. Barry Phillips: And to add to that, these brands that were regional manufacturers that worked through distribution globally with limited sales resources now have the full Lakeland sales team around the globe representing them. They are getting in front of end users and key channel partners that they did not have the opportunity to reach in the past, and that is where it is growing. Analyst: Great. Thank you. Operator: And we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Jenkins for his closing remarks. Jim Jenkins: Thank you, operator. Thank you all for joining us for today’s call, and thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland Industries, Inc. continues to be well positioned for long-term growth, and we look forward to sharing our continued progress on the next call. We will also be attending FDIC 2026 in Indianapolis from April [inaudible], so please stop by and say hello if you are there. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group. We will be more than happy to assist. Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
Spencer Wong: Good afternoon, and welcome to the Netflix, Inc. Q1 2026 earnings interview. I am Spencer Wong, VP of finance and capital markets. Joining me today are co-CEOs, Theodore Sarandos and Gregory Peters, and CFO, Spencer Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We will now take questions submitted by the analyst community, and we will begin on the topic of our results and outlook. The first question comes from Robert Fishman of MoffettNathanson. This question is: Can you speak to your full-year margin guidance and how it compares to prior guidance? With the Warner Brothers deal costs and beyond content spending, where else are you accelerating investment in 2026? Gregory Peters: Perhaps I can kick this one off and step back with a high-level framing. Of course, it is early in the year. There is still plenty of time to go and plenty of work left to do. But we have seen really good progress so far in this first quarter that builds on the solid momentum and results from 2025. Given that, we are maintaining our guidance and strong outlook for organic growth that we established for 2026: revenue growth of 12% to 14% and operating margin at 31.5%. That includes roughly doubling the advertising business to about $3 billion. We ended last year with more than 325 million paid members, and as that number continues to grow, we are entertaining an audience that is approaching a billion people, which is an exciting milestone to strive for and to achieve. Even given that number, we still have plenty of room to grow into our addressable market. From an addressable household perspective that have good data and a smart TV, we are still under 45% penetrated. We think that number is roughly 800 million, and it grows every year. We have captured about 7% of addressable revenue in countries and categories that we currently directly participate in. We now estimate that is $670 billion as of 2026, and that number grows year over year as well. We estimate that we account for only 5% of TV view share globally. By pretty much any measure, we have tons of room for growth still ahead of us. Theodore Sarandos: I would add, looking ahead, we are focused on three big priorities. Number one, deliver even more entertainment value for our members, and we do that by continuing to strengthen our core offering—series and films, originals and licensed. We are also pushing into new categories that are really exciting, like our further expansion into podcasts—we announced a few exciting new ones today—adding more regional live sports events, like the incredible event we just did in Japan with the World Baseball Classic, and growing our games offering, including the brand-new kids gaming app. Number two, we are leveraging technology to improve the service—from how it is delivered to how to find great things to watch, and now even how content is created and produced. Number three, we are improving monetization through a combination of broad distribution—mostly organic, supplemented with some great partners— increasingly sophisticated pricing and pricing plans, and a great and growing ad business as Greg just said. These features help position us to deliver multiyear growth beyond the 12% to 14% that we expect to deliver this year. At Netflix, Inc. we embrace change, thrive on competition, and stay focused on constant and consistent improvements—the things that make us faster and better than the competition in whatever form it takes. We feel great about the business and the organic growth opportunity ahead. We are as energized as ever to achieve our mission to entertain the world. Spence, maybe you could talk a second about the WB deal cost and the guide. Spencer Wong: Yeah. Sure. Thanks, Ted. So with respect to the Warner Brothers deal. Spencer Neumann: And those costs and how it impacts the guide: you may recall back in January, our initial forecast or guidance for the year was carrying $275 million of cost for M&A-related activity. That was not just Warner Brothers, actually. One item we were carrying was the Interpositive acquisition. It was not announced yet, but it was in our guidance, and that carries through our OpEx, which impacts operating margin. For Warner Brothers specifically, even though we walked away from the deal, some of our initially planned costs for the deal will not fully materialize, but some that we were planning to carry into 2027 were pulled forward into 2026. When you put all that together, we are still in the ballpark of the total we were projecting for M&A-related expenses in the year. There is no material impact on our operating margin outlook. As a result, there is no reflection of some increase or acceleration in other expenses in the year. Spencer Wong: Thanks, Spence. Thanks, Ted. Thanks, Greg. Following up on that question, we have one from Sean Diffely of Morgan Stanley. His question is: What have been your biggest learnings from the Warner Brothers experience, and does it in any way change your appetite for M&A or capital structure going forward? Theodore Sarandos: At the risk of being a broken record, we said from the beginning that the WB deal was a nice-to-have, not a need-to-have. We are very confident in the core business. Going into it, our biggest risk was losing focus on our core business while working on the transaction. As you can see from our Q1 results, we did not lose focus. We are very encouraged by the team’s ability to stay focused on our core business while exploring this opportunity. Historically, we have been builders, not buyers, so there were questions about our ability to do a deal of this size. We learned that our teams were more than up to the task. We learned a lot about deal execution and early integration. We are proud of the teams that did the work. We are proud to have won the bid. We were confident in our ability to get to the finish line with regulators for the approvals we needed. Mostly, we really built our M&A muscle. The most important benefit of this entire exercise was that we tested our investment discipline. When the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. Doing it at this level sets up our teams to understand that is the expectation of them day to day. We met a bunch of great people in WBD during this process, so if there is any emotion in all of this, it was the disappointment of not getting to work with those folks. We do come through this with no change in our capital allocation philosophy. We invest in the business, both organically and opportunistically with M&A, like you just saw with Interpositive. We do that while maintaining strong liquidity and returning excess cash to shareholders through share repurchase. M&A remains a tool to help us achieve our goals, and as you can see with the WB deal, we will remain very disciplined in how we approach it. Spencer Wong: Thank you, Ted. I will move us along now to the next topic, which is engagement. The question comes from Vikram Kesavabhotla of Baird: Last quarter, you shared that your primary quality metric for engagement achieved an all-time high in 2025. How is this metric performing so far in 2026? What are some examples of the data points that inform your measurement of quality? Gregory Peters: I will take this one. First, volume of engagement is still relevant. We track it and seek to grow it. In Q1, view hours were up at a similar rate of growth to what we saw in 2025, despite having the Winter Olympics—17 days of robust streaming competition—land in Q1 as well. But while view hours are important, they are just one of several metrics we look at, and we are increasingly making that a more sophisticated view. Member quality is an important part of that sophistication, with several associated signals, and in Q1 that primary member quality metric hit another all-time high. I am not going to detail how we compose our metrics; they take time and effort to build and prove out, and I am sure competitors would like that cheat sheet. We build confidence in our metrics, and specifically this member quality metric, by evaluating their predictive and explanatory power to primary metrics like retention. That is why we are clear that improving that number improves the business. As we invest in new forms of content, we also have to learn how the new programming provides different kinds of value. Live is a great example. It often drives significant viewing value for members, albeit with fewer view hours than a scripted series, and it has different acquisition characteristics. We continually build models for how that programming matters to our members and supports the business, and then we can bid appropriately. Spencer Wong: Thanks, Greg. Our next question on engagement comes from Rich Greenfield of LightShed Partners. Nielsen adjusted their methodology—the end result was lower streaming viewership and higher broadcast and cable viewership, albeit the trendlines were similar. Nielsen has delayed implementing these changes into its monthly Gauge report until 2026. The base of Netflix, Inc. viewership will be lower but also have more room to take share. How do you think about the coming impact, especially on your advertising revenue? Gregory Peters: Nielsen’s methodology change in the Gauge reporting is a change in how they calculate the national TV universe. It is not a change in how people actually watch TV. It changes Nielsen’s numbers, not actual viewing behaviors. Specifically, the new approach reduces the weight of streaming-only households and increases the weight of linear households, which makes streaming look smaller and broadcast/cable look larger on a relative basis as they measure and report. We, of course, have actual data on how much members stream, and we include that in our engagement report. That methodology is straightforward, and other streamers have started to measure views in the same way. As to advertising, Nielsen Gauge is not the currency for the video marketplace. Given that there is no change in consumer behavior or amount of viewing related to this shift, none of this changes our effectiveness or our aspirations in ads. We continue to expect to deliver $3 billion in advertising revenue this year; we have not adjusted that target. On your point about growth potential, independent of this shift, we still see tremendous opportunity to win more moments of truth—especially the most valuable moments. With our current position of being less than 5% of global TV time, we have a ton of room to grow. Spencer Wong: Thanks, Greg. We have several questions about our content and content strategy. First, from John Hulik of UBS: Any details you can share about the World Baseball Classic viewership? Are there other similar sports and live event opportunities that can appeal to a global audience and drive engagement? Theodore Sarandos: Thanks for asking about the World Baseball Classic, because it was a hit. It was the most-watched program we have ever had in Japan and the biggest global baseball streaming event of all time, with 31.4 million viewers. Events like this are important because, as Greg said, they drive outsized business impact and are proof that all engagement is not created equal. The WBC drove the largest single sign-up day ever in Japan. Japan led our Q1 member growth around the world and had its highest quarter of paid net adds in our history. It was also the first big regional live event for us outside of the United States, and we got to flex a new muscle—streaming multiple games concurrently—so a big expansion of our capabilities. We were excited, the fans were thrilled, and the leagues were excited. Much more to come. Gregory Peters: It was also a great example of how we were firing on all cylinders cross-functionally. Our marketing and partnership teams worked to bring this to Japanese consumers in a friendly way. It was impressive to see everyone organize around that. Theodore Sarandos: And a great shot in the arm for our ad sales group in Japan. One other thing on it—not to dismiss WBC. Spencer Neumann: Think about it more broadly because, as great as it was—and it was great—you may notice that APAC was our strongest FX-neutral revenue growth market for the quarter. It was not just because of this. We had strong performance across APAC: a great quarter in India, a really strong quarter in Korea, and Southeast Asia showed strength. Across the board in APAC, we executed—it was not just one title or one country. Theodore Sarandos: I would add it was exciting to see people pick up recent original series so that viewing went up—you saw some of those shows pop back into the top 10. The success of One Piece on the heels of the WBC created a great halo. Spencer Wong: I will take the next question from Robert Fishman of MoffettNathanson: With the NFL in the market for new packages, do you judge ROI on live event content spending the same way as scripted content, or does adding NFL games give you the ability to drive higher CPMs and ad growth that one-off scripted shows would not deliver? Theodore Sarandos: That is a great question. First, our sports strategy is unchanged. We are most interested in big breakthrough events, less so in regular season packages. Everything we pursue has to make economic sense in the ways you just talked through, and we consider all the benefits from both viewing and the ads business. Sports is an important piece of our live strategy, which also includes other big live events—Skyscraper Live, the Star Search reboot with live voting, the BTS comeback concert. We have had a number of sports successes, including our Opening Night MLB game with the Yankees and the Giants, our Christmas Day NFL games, some big fights, and the WBC in Japan. The NFL is a great property and delivers value as part of our total offering. We are in discussions and think there is an opportunity to expand the relationship—within the same strategy focused on creating big events. We have learned a lot about what works and how to value the NFL and live generally over the last couple of years, and this will inform how we have those discussions and help us be even more disciplined. We announced Tuesday a multiyear deal with CONCACAF for rights in Mexico, in addition to women’s World Cup rights in the United States and Canada, and our first big global M&A event with Ronda Rousey and Carano. We are ramping up our sports events globally and local-for-local, both in volume and profile, because we bring and receive a lot of value—and, most importantly, our members receive a lot of value. Spencer Wong: Thanks, Ted. Our next question comes from Peter Supino of Wolfe Research: Help us better understand your business model in podcasting—think he means your business strategy in podcasts. Theodore Sarandos: We talked about it in the letter, but even in very early days we are seeing data indicating incremental engagement on the platform. How do we know it is incremental? Two things jump out. One is daytime consumption: podcast consumption indexes to daytime hours on Netflix, Inc., which allows us to capture a time when we historically have less engagement. The other is that it indexes much more to mobile. Podcasting is more mobile, and professional TV and film historically make up a small percentage of mobile viewing, so it is great to meet our members where they are—even when they are enjoying other forms of entertainment. We have been building out a great lineup of podcasts, both licensed and owned—shows like The Bill Simmons Podcast, The Breakfast Club, Therapist from Jake Shang (which I have been waiting to say all day), Pardon My Take—all doing great. We have our own podcasts as well, like The White House with Michael Irvin and The Pete Davidson Show. Our companion podcasts have been great for superfans, like the Bridgerton Official Podcast. And today we announced new podcasts from Brian Williams, Evan Ross Katz, Steven Su, Ellison Barber, David Quang—the list keeps growing, and it is very promising. Spencer Wong: Great. We will now shift to advertising. This question comes from Dan Salmon of New Street Research: Can you share more on the growth of your total advertiser base? What proportion of advertisers are being serviced directly by the Netflix, Inc. sales team, and what proportion are buying on Netflix, Inc. through third-party DSP partners? Are you still largely focused on the top 500 brands, or is a mid-market strategy beginning to emerge? Gregory Peters: We will do our best to handle them all. The biggest benefit we got from moving to our own ad tech stack is making it easier for advertisers to buy on our service. Additionally, we have added more DSPs—more ways to buy—and we are seeing significant growth in programmatic, which is on its way to becoming more than 50% of our non-live ads business. Due to those moves, as well as improving go-to-market capabilities, more sales force, and building out our ads products, our advertiser base grew over 70% year over year in 2025 to more than 4 thousand advertisers. That expansion is a key indicator of the health of the business. Today, we are still concentrating on the largest buyers, which are serviced primarily by the Netflix, Inc. sales teams—either directly or with our sales team driving buying behavior through DSPs. Over time, we expect continued growth in the number of advertisers. We are pushing in that direction, and we think the percentage who buy programmatically will increase, and therefore programmatic share of ad revenue will go up. As we scale programmatic and broaden our advertiser base, we can follow the time-tested model of expanding iteratively into larger and larger pools of advertisers. Spencer Wong: Thanks, Greg. Next, a question around plans and pricing from Vikram Kesavabhotla of Baird: What informed your decision to raise subscription prices in the United States recently? What are your early observations regarding the impact on customer acquisition and churn in the region? Gregory Peters: This change was part of our plan for some time. We continually monitor signals from our members—quality-weighted engagement, plan selection, plan moves, and retention, which is industry-leading. We see improvements in value delivered to our members well in advance of making a price adjustment, and those signals informed this and all price changes. Our initial full-year guidance factors in the pricing adjustments we expect to make throughout the year. It is very rare that we have an unexpected pricing change. As for the most recent changes, the early signals are in line with expectations and similar to historical performance with price changes in the United States. The rollout is still ongoing, but indications are consistent with what we have seen before. Our pricing philosophy is consistent: we look to provide more and more value, invest revenue successfully, and occasionally, when we have added more value, ask members to contribute more so we can invest in delivering even more entertainment value. We think we are delivering one of the best entertainment values that has ever existed. As a comparison, in the United States right now, Netflix, Inc. subscribers are paying the least per hour of viewing compared to other SVOD offerings—in some cases, you would have to pay two times per hour to get a competitive service. Our ads plan at $8.99 in the United States is a great, highly accessible entry point and an incredible value. Spencer Neumann: To add to that value and how we see it in the metrics, look at retention and churn. We saw stronger retention across the board this quarter; every region was better year over year. That is encouraging in terms of the value we provide and aligns with the primary engagement value metric Greg mentioned, where we had a record in Q4 of last year and a record again in Q1 of this year, which is playing out in the numbers. Spencer Wong: Thanks, Spence. A couple of questions on gaming, the first from Eric Sheridan of Goldman Sachs: You are in your fifth year of the gaming strategy. What have been the key learnings? How do platform games change user consumption habits? What are the most interesting areas to invest behind gaming in the coming years? Gregory Peters: I think “platform games” here just means games on our platform. At the highest level, we see a significant market opportunity—$150 billion in consumer spend ex-China, ex-Russia, not including ad revenue. That number is getting bigger. A significant part of that market faces issues like new player acquisition or low-friction discovery and play—areas we are well positioned to improve. We have been building foundations: the ability to develop games, bring games onto our service, connect those games with players, and give players high-quality experiences. As with film and series—and as hypothesized—we have learned that gameplay can have a positive impact on member retention, as well as driving acquisition, although the observed acquisition effect has been small to date, which is consistent with our maturity and consumer expectations of us as a gaming platform. A key user dynamic we have repeatedly observed is that delivering a fan of a film or series an interactive experience in that same universe not only extends the audience’s engagement, but also creates synergy that reinforces both mediums—interactive and noninteractive both do better. That further drives engagement and delivers more value. We are investing in games that reflect our other beloved IP or events and give fans interactive experiences that extend those universes; in games on TV, a new canvas for players and developers; and in kids, providing a dedicated experience. While we have been building this for a couple of years, we are still scratching the surface of what we can ultimately do. We have been building infrastructure and core capabilities, and now we are increasingly able to deliver more of the kinds of experiences that move us toward our vision. There is tons more work to do, but it is fun to get to this stage. You will see increasingly interesting releases from us in the year to come. We will continue to ramp our investment—still small relative to overall content spend—based on demonstrated performance and growing returns. Spencer Wong: Great. And, Greg, a follow-up on games from Brian Pitts of BMO Capital: The recent announcement of Netflix, Inc. Playground is seemingly one of your biggest moves into video games to date. Would you help us understand how you will measure success with Playground and the incremental value you expect for your broader subscriber base? Maybe start by explaining what Netflix, Inc. Playground is. Gregory Peters: Playground is essentially a separate app for games for kids. Kids represent one of our four key focus areas for games—kids, narrative, party/puzzle, and mainstream games. Our goal is to become a destination where kids’ favorite worlds come to life through games and interactive experiences. This extends a long history in which we have treated kids as a special audience that deserves special care. We provide kids with a dedicated experience and parents with tools—ratings, parental controls, PIN controls, etc. Playground extends that philosophy into games. It includes a growing collection of kids’ games in one app so they can navigate between them; fully curated, age-appropriate titles based on beloved shows and movies—think Peppa Pig, Dr. Seuss, Bad Dinosaurs—no ads, no in-app purchases. It also fits kids’ natural viewing habits, as a significant portion already happens on mobile and tablet, and it is all added value included in your membership. We are seeing encouraging signals: as we add more kids’ games, we have seen strong growth in engagement through both new titles and improved discovery on existing titles. Ultimately, we see an important long-term opportunity to deliver more entertainment to kids in ways parents feel good about, not just across games but across TV and film as well. Spencer Wong: Thanks, Greg. Next question from Eric Sheridan of Goldman Sachs: Entering 2026, how would you characterize the current competitive landscape for content? Are you seeing any differences in competitive intensity by geography, language, or format? Theodore Sarandos: Competition is not new for Netflix, Inc. Consumers have always had incredible choices in entertainment, and we have continued to grow by offering enormous value. Great projects are immensely competitive, and those are the projects we want. We have been pleased that Bela and the content team have been able to land some of the most competitive projects recently—Strangers with Gwyneth Paltrow attached to star, based on the New York Times bestselling book; Rabbit Rabbit with Adam Driver, directed by Philip Barantini, who directed Adolescents for us—both incredibly competitive projects we were able to land. It is not just about paying the most. Relationships matter, particularly when there are many competitive choices. Providing a great experience for creators, delivering a big audience, and generating buzz are what we do. We are seeing a lot of repeat business, the ultimate sign we are doing our job well. Today, Beef Season 2 starts. The show’s creator, Sunny Lee, did the first season, which was the most honored limited series of the year when it came out two years ago—45 individual awards—and it was a hit worldwide. We just did an overall deal with Sunny; he will be creating for Netflix, Inc. for years. The cast—Oscar Isaac, recently in Frankenstein and Golden Globe–nominated; he has another film this year and another project we just greenlit; Carey Mulligan, who has done multiple projects for Netflix, Inc., including her Oscar-nominated performance in Maestro; she is in Narnia coming up later this year, she was in Mudbound and The Dig; Charles Melton, a Golden Globe nominee for May; Cailee Spaeny, who was just in Wake Up Deadman—the whole cast is Netflix, Inc. family. Running Point comes out next week, another new hit series with Mindy Kaling; we love the relationship. It is not just in the United States. Álex Pina, who created La Casa de Papel, has done multiple projects since, including one he is working on now. If repeat business is a sign of success, I am excited about what we are doing. We also think about competition in terms of those we are competing for projects and members with—and those we are customers of. Running Point is produced by Warner Brothers for us. We license shows like Watson and Mayor of Kingstown from Paramount. We have a Pay-1 deal with Sony; we have one with NBCUniversal that includes DreamWorks Animation and Illumination. Our investment in those films, co-productions, and licensing feeds the entire movie ecosystem around the world. While it is a little unusual to be both customer and competitor, it is not unusual in entertainment, and we manage those relationships well. Spencer Wong: Thanks, Ted. Eric Sheridan from Goldman also has another question, this time on AI: How does the company’s approach to the role AI can play in the creative process continue to evolve? With the announced acquisition of Interpositive, can you discuss the decision around that deal measured against your broader strategy? Theodore Sarandos: In general, we expect GenAI to help make content better—better tools and processes. Netflix, Inc. will remain at the forefront in exploring and innovating AI in the creative process. Given our technology DNA, unique data assets, and tremendous scale, we see great opportunities to leverage new technical capabilities across every aspect of the business. AI will deliver benefits for our members, creators, and employees. On the content side specifically, it takes a great artist to make great art—AI will not change that—but AI will give those artists better tools to bring visions to life in ways we are just scratching the surface on. Today, talent leverages these tools for set references, previsualization, VFX sequence prep, and shot planning—all of which also improve on-set safety, which is not talked about enough. With our acquisition of Interpositive, we think it accelerates our GenAI capability because it is proprietary technology created specifically for filmmakers and filmmaking, different from other GenAI video applications. While our ownership of Interpositive is very new, we have generated interest with creators who have spent time with the tools, and we are seeing momentum build around adoption. Gregory Peters: To pick it up there, the factors that inform where we should be developing technology—where we have a differential or unique capability to invest in generative AI that delivers returns to the business—include data (its uniqueness and scale) and where there are products or business processes at scale to attach this technology and get leverage. Content production, which Ted went through, is a big one. Member experience is another. We have been in personalization and recommendation for two decades, but we still see tremendous room to make it better by leveraging newer technologies. Recommendation systems based on new model architectures not only improve current personalization but also let us iterate and improve more quickly—adding support for different content types much more efficiently. As noted in the letter, in the last quarter these new capabilities drove increased engagement with the service—that is super exciting to see. The better we execute here, the more our product experience acts as a force multiplier to the large content investments we make. The last area I will mention is advertising. We are growing scale there and see an opportunity to leverage AI within our Netflix, Inc. Ad Suite—making it easier to design new creative formats, custom ads, improve contextual relevance, and roll them out more quickly and effectively, allowing partners to leverage them more easily. Spencer Wong: Great. We have time for one last question, from Rich Greenfield of LightShed Partners. He asks about Reed’s decision to not stand for reelection at our upcoming annual meeting: You have talked publicly that Reed Hastings preferred to build versus buy. Was Netflix, Inc.’s decision to pursue Warner Brothers a key factor in his timing of leaving the Netflix, Inc. board this year? Theodore Sarandos: Sorry for anyone looking for palace intrigue—no. Reed was a big champion for that deal. He championed it with the board. The board unanimously supported the deal. We had perfect alignment between management and the board on the Warner Brothers deal. That had nothing to do with it. Spencer Wong: And, Ted, do you want to close us out with some words on the decision? Theodore Sarandos: Absolutely. Reed Hastings, our founder and our board chair, let us know he has decided not to run for reelection to our board at the next shareholder meeting. It is unusual for a founder to step away from the board of the company after succession, but Reed is no ordinary founder. The first time I met Reed in 1999, he said he was building a company that would be around long after him, and that requires succession. When Reed took the first steps in this more than a decade ago, he said he would hang around for about another ten years. It has only been six, but this is Reed’s style—make decisions and move fast. We have a long history of going from brainstorm to scale at breakneck speed. Reed will remain the chairman and a member of our board through his current term. The board and the Nominating and Governance Committee will take the next steps in reshaping the board in the months to come. On a personal note, I have been fortunate to have great bosses who inspired me, coached me, and gave me opportunities. Reed did these things at unimaginable levels. Reed is an economist and an engineer in his head, but a teacher in his heart. He not only shared the spotlight—a rarity in Hollywood—he pushed me into the spotlight, celebrated wins, coached through misses, and made me the executive I am today. I am forever grateful. He built a company of risk takers and a culture where character matters and nobody rests in the pursuit of excellence. I have loved working with and for Reed through amazing twists and turns, and he has modeled what it is to be a leader and a friend. I was reminded of a quote from Max De Pree: “The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader must become a servant and a debtor. That sums up the progress of an artful leader.” Reed Hastings is the ultimate artful leader, and he leaves me and Greg enormous shoes to fill. In the spirit of an artful leader’s work in progress, I say to Reed, thank you. Gregory Peters: Ted, I will join you. From the very beginning, Reed established the standard for what leadership and culture look like at Netflix, Inc. His vision, willingness to take risks, to embrace and motivate change, to be transparent even when it is hard, and his total commitment to our values and to always putting our members and the company first have shaped every part of what Netflix, Inc. is today. The innovations Reed championed did not just build Netflix, Inc.; they helped move a whole industry forward. They expanded what is possible for storytellers and audiences around the world. We bring stories from around the world to audiences in ways that were not imaginable before. We got to this point because Reed has a way of pushing you to think bigger, to be more honest with others and yourself, and to own your decisions—always in a way that made you feel supported and trusted. He would debate his perspective with tremendous passion to get us to the best, most informed answer, then support you in your decision with equal passion even when he personally disagreed—and celebrate you with even greater passion if you ended up being right. That style has shaped who I and many others across Netflix, Inc. are today. A lesson I learned from Reed—perhaps the most meaningful and apropos to this moment—is the realization that while many of us spend tremendous effort building something we believe in, how we hand that work off to someone else is of equal importance. We should put equal effort, thoughtfulness, and planning into that transition as we did into all that came before. When my time to transition comes, I aspire to be as selfless, disciplined, and graceful as Reed has been. Reed, thank you for the trust you placed in us and the example you set. We will carry those principles every day. Spencer Wong: Thank you, Reed. I echo that as well. Spencer Neumann: Same here. You could not have said it better. I get chills thinking about it. One thing standing out for me right now, which is real time, is that big singular red “N” of the Netflix, Inc. logo, because it seems so appropriate—Reed, you are literally an “N” of one, forever in the DNA of this place. Thanks for everything. Spencer Wong: Great. With that, we will conclude the call. Thank you, everybody, for joining us, and we will see you next quarter.
Operator: Good day, everyone. Our conference call will be starting soon, within approximately two minutes. Thank you for standing by. Thank you everybody for joining us, and welcome to SL Green Realty Corp.'s first quarter 2026 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. You should not rely on forward-looking statements as predictions of future events, as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and belief as of today. Additional information regarding the risks, uncertainties, and other factors that could cause such differences to appear are set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at slgreen.com by selecting the press release regarding the company's first quarter 2026 earnings and in our supplemental information included in our current report on Form 8-K relating to our first quarter 2026 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit yourself to two questions per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc. Marc Holliday: Thank you for joining us today at the conclusion of what was an excellent quarter here at SL Green Realty Corp. We achieved nearly all of our objectives and then some. I know there is some misunderstanding in the analyst community about the cadence of our quarterly earnings, but internally, we were right on our numbers for Q1 and advanced many of our objectives for the year. The headline news starts with our leasing, where we had the single biggest first quarter in the 28-year history of this company. We signed 51 leases totaling 930,000 square feet with a mark-to-market that was 16% higher than the previously fully escalated rents on the same spaces. The takeaway is pretty clear and consistent with what we have been saying for some time now: there is a massive imbalance in the prime office market. At its core, we lease premium space to sophisticated users, and right now demand far outstrips remaining supply after so many years of lease-up both in our portfolio and the city at large, especially in East Midtown. The vacancy rate for trophy buildings dropped again to 3.4% at the end of the first quarter, which is essentially saying there is no space at all in that segment of the market. As a result, we are seeing continued escalation of rent levels for these buildings and significant improvement in net effective rents, which greatly benefits our portfolio, which, as you know, is mostly centered in this area, and I do not expect this situation to abate anytime soon. On the one hand, the business climate in New York remains really good. Look at some year-end 2025 stats that came out in the first quarter. City tax revenues reached $80 billion in 2025, 16% higher than pre-pandemic, and that is a record level. Real estate tax collections grew by almost 3% year-over-year. Personal income taxes were up nearly 12% year-over-year, which shows you the enormity of the bonuses and compensation being paid out in the primary business sectors of New York City. There were $65 billion of record Wall Street securities industry profits in 2025. The prior record was $61 billion back in 2009. There are 160 unicorn startups in New York City—private startups valued over $1 billion—and that is the second largest startup ecosystem behind Silicon Valley. $31 billion was raised in venture capital last year, up 25% from the prior year. And New York City ranked number one as the talent hub for 2025 graduates, where one in nine college graduates came to New York City. On top of a fundamentally strong local economy, we hope and expect to see macroeconomic improvement in the coming months that will simply add to the momentum in the leasing market. After leasing more than 1 million square feet of space in our portfolio year-to-date, we still have a pipeline of approximately 900,000 square feet of space, most of which we expect to consummate. The demand continues to be there. On the other side of the equation, there is really no end in sight to the supply crunch. There are zero new space deliveries anticipated for the next three years, with recently completed projects like the Rolex building, 525 Fifth Ave, now in the rearview, and new projects like 343 Madison and 625 Madison not expected to complete until sometime around 2029 or 2030. It is simply physically impossible for any other new construction to be delivered between now and 2029 in Midtown Manhattan. This presents us with one of the most favorable dynamics we have seen in quite some time. Therefore, we are proceeding at a very rapid pace on our very own project at 346 Madison, our next great office tower. We just closed on the site in the fall, and already we are issuing a 100% schematic design on May 1, just six months from the acquisition, and proceeding immediately into design development. We expect to be filing the project into ULURP, the city's land use approval process, by the end of this year. That is a much faster pace than we achieved with One Vanderbilt. I am also very happy with the way the design programming of the building is progressing. We have already been out talking to select potential tenants and top brokers, presenting the project and getting extremely good feedback confirming we are heading in the right direction with this new development. I expect on the next call to be able to give you some financial details after we price the project with our construction manager and obtain some major trade feedback in the coming months. Our other big development project at 7 Times Square/53rd Ave is also making great progress. As we said last quarter, we now have an agreement with our final remaining tenant for full vacant possession, which enabled us to start fully mobilizing and commencing execution of contracts for work. We are now in the early stages of procurement, and so far we are tracking on or below budget by successfully navigating tariffs and inflation. Work is far advanced on interior demolition, and in the coming months we hope to finalize our arrangements for debt and equity capital. We also made progress on our disposition goals this quarter, entering into contract to sell the residential and retail components of our 7 Dey project and closing on the sale of 690 Madison Avenue with our JV partner. More to come in the ensuing months as we progress our way through the $2.5 billion disposition plan. We also took advantage of compelling opportunities in the credit market via our debt fund, which is really performing well thus far. We put out $226 million since our last call, including a transaction closing today, bringing total committed to about $567 million out of a total $1.3 billion fund. All of this positive activity is propelled by a very strong city economy, and we do not expect a summer lull this year as sometimes occurs in years past. In fact, we are expecting a big summer with FIFA World Cup events and the nation's 250th birthday celebrations bringing big crowds and lots of economic activity to the city in June and July. We are forecasting a big boost and shot in the arm, which bodes well for SUMMIT, in particular, for our restaurant venues, and for the city generally. We feel good about the city and state budget situation as well. The rating agencies did send a message to the new administration about wanting to see some efficiencies in the budget being negotiated now, and the budget that will be in place at the city level by June, and I have every confidence the budget gap will be solved through revenue enhancements, expense control, and support from the state. As has been reported, one piece of that sounds like it will be a new pied-à-terre tax the governor announced yesterday with the support of the mayor and the city council speaker. Once you get past the notion that we need to find some revenue enhancements as part of this budget process, give credit to the governor for taking a pragmatic and surgical approach to ensure that all New York City residents are paying a fair share. This is a concept that has the support of many New Yorkers because it narrows the focus and impact to the highest earning non-New York City residents who otherwise pay no New York City income tax and benefit from New York City's exceptionally low residential real estate taxes. Last but definitely not least, since we last met, we announced the promotion of Harrison Sitomer to President and CIO. When Andrew Mathias left the President's seat after twenty-five years of service, we did not rush to find his permanent successor. Instead, we took a measured approach to filling this important position. I wanted someone who truly represents our culture, ethos, and excellence, which is what distinguishes and defines who we are, and Harry is all of those things. As our company turns 30 years of age in 2027, this promotion is a big step towards identifying, growing, and supporting the next generation of leaders here, and I hope to have more announcements in the years to come about the continued ascension of our rising stars. To wrap things up, I think this was a great quarter and we have made significant early progress on our goals. But when we get together in three months, my instinct is that we will have a lot more to talk about next time on the leasing front, the transaction front, and the company performance front. Thank you. We will now open the call for questions. Operator: To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Steve Sakwa with Evercore ISI. Your line is open. Steve Sakwa: Great, thanks. Maybe Steve or Marc, could you just comment on the pipeline activity that you quoted, Marc? I think you said it was 900,000 feet. How much of that is kind of new or expansion tenants? How much of that is just maybe pull-forward renewals? And maybe just talk a little bit about tenant expectations on expansions and space and how they are thinking about space usage? Marc Holliday: Well, look, I have the pipeline in front of me. It is predominantly consistent with last quarter, mostly a large number of medium-sized tenants, which is really good and what you would expect because we do not have a lot of big blocks of space left now that One Madison is fully leased. You have to remember, the nature of our pipeline does not necessarily tie into the nature of the pipeline generally for tenants in the market. What it relates to is what is available in our portfolio, and what is available in our portfolio right now—where I think two-thirds of our buildings are projected to be at 98% or better by the end of this year—we are really just doing new leasing in some of the projects that still have more than that kind of vacancy: 420 Lexington, 1185 Avenue of the Americas. Those are the two most prevalent buildings I see in this pipeline, along with a little bit at 1350 Sixth Avenue, a little bit at 100 Park, and then everything else is a deal here or there—45 Lex, 500 Park, etc. I would not extrapolate that that is the market because there are a lot of big tenants in the market, and Steve can talk about that. There are tenants in that 150,000 to 250,000 to 500,000 square foot range and 1 million square foot users, but you have to have the inventory, which is why we are leasing up the portfolio so rapidly, and why we launched so quickly on Madison, where we will have 850,000 square feet of brand-new state-of-the-art space to deliver right across the street from One Vanderbilt. Anything you want to add to that, Steve? Steven M. Durels: Of the pipeline, of the 900,000 square feet, 30% of that pipeline is leases out, so we are on a path to wrap those up in short order. As we have seen throughout the year, financial services, professional services, and tech tenants are predominantly driving the market. And I think Marc makes a strong point, which is our pipeline is not dominated by only the best-of-the-best buildings; versus a year or two ago, we are seeing real velocity in the mid price point buildings where we are seeing exceptional rent growth as well. Graybar, by way of example—and I have been involved with that building for longer than I want to admit—is at the high-water mark in the building's history as far as rents that are being achieved. Lastly, on the concession side, we have clearly seen rents rise, but TIs have flattened and, in some cases, particularly where we have a lot of leverage, they are coming down modestly, but free rent is clearly starting to come down. In particular, on our renewals, we are having a great deal of success in controlling our concessions. Steve Sakwa: Great, thanks. That is good color. Maybe, Marc, just on the transaction front, I am curious what feedback or data points you are getting from some of the overseas investors. To what extent any of the Middle Eastern investors are either distracted or have other uses of capital that may not want to come to the U.S. at this point? Any thoughts you could share about overseas investors looking at the U.S. market and New York in particular? Marc Holliday: Our counterparties, for the most part—whether it be partners, co-lenders, groups that are giving us special servicing assignments, groups we have some management for—the predominant countries of origin tend to be Asia, Europe, Canada, and domestic. We do not have a lot of partnerships or counterparties in the Middle East, so I cannot really give you any direct feedback there, only anecdotal feedback, which is as you would expect: sovereigns from Saudi Arabia, Qatar, and the UAE are definitely, I think, pulling in their horns at the moment while they assess that which they are committed for versus how they look at deployment of new capital. But that is really just there. We are not seeing that in the other markets. If anything, we are still seeing what we talked about three months ago, where I think Harry gave you good color on the feedback we were getting, particularly on the heels of the last trip we did to Asia—in Japan, Korea, and elsewhere. There is still, to this day, strong appetite in both credit and equity, but equity for well-located assets of the highest quality, and generally relationships we have, factoring in our sponsorship. We feel very good about executing the joint ventures and financings that we have scheduled for this year with counterparties from those parts of the region, and we have not seen any material shift in those folks. Albeit, if you are dependent on Middle East capital, I am sure it is a different story. Harry? Harrison Sitomer: The only thing I would add is that in moments of macroeconomic uncertainty, proven hard assets in proven locations continue to demonstrate resiliency. We saw that with the One Madison Avenue financing that we got done. I think we met with some of you down at Citi as we were pricing that deal in the early days of the Middle East conflict. That deal ended up having 44 investors across all of the classes. Certain classes in that deal were seven times oversubscribed. One piece that our business specifically is going to benefit from is that over the past few years we have not been heavily reliant on private credit, so we have not seen big valuations boosted up by big private credit loans. As a result, we are far more resilient to what is going on right now than most, if not all, other industries. Steve Sakwa: Great. Thanks for the color. Operator: Thank you. Our next question comes from John P. Kim with BMO Capital Markets. Your line is open. John P. Kim: Thanks. You are at 94.4% leased occupancy. Your target for the year is 94.8%, and you have a 900,000 square foot pipeline. Is there upside to that target for the year? And same question on leasing spreads, given you had 16% for the quarter and your target figure is around 10%? Matthew J. DiLiberto: We increased, in our press release last night, our year-end same-store occupancy target from 94.8% to 95%. So we have gotten the upside there. On mark-to-market, we had a healthy objective. It was clearly a very healthy number in the first quarter. We still have nine months to go, but we are well on track for our objective. We typically do not revisit leasing objectives after just three months—we want to get at least six months in before we do that—but obviously the momentum we have coming out of the first quarter puts us on a great track to meet or even exceed the objectives we laid out back in December. John P. Kim: And then on your economic occupancy, it went up sequentially to 85.9%, which is positive, but it is still below your guidance or target for the year, which is around 89%. Can you talk about how the cadence of economic occupancy goes for the remainder of the year and the impact that will have on same-store NOI? Matthew J. DiLiberto: The flippant answer—but it is the truth—is it is obviously going up sequentially over the next three quarters to get to that 89% objective that we set out for the end of the year, and we are on the path for that, which then sets us up for our 10% same-store cash NOI growth objective for 2027. All in all, the first quarter on every metric we look at was on or ahead of our expectations. The leasing metrics speak for themselves—a record quarter not just on volume, but on starting rents. The trajectory from earnings to spend was as good or better than what we expected. So great cadence into the back three quarters of the year. Operator: Thank you. Our next question comes from Alexander David Goldfarb with Piper Sandler. Your line is open. Alexander David Goldfarb: Harrison, first, congrats. A question following up on your comments to Steve on private credit. As you talk to lenders and capital providers, do you feel comfortable that private credit is not going to infect real estate? Private credit has its own issues in, say, software, but this is not like the second coming of the GFC. Do you feel, in talking to people, that there is some concern it could broaden? Harrison Sitomer: The simple answer is we are just not seeing it. If anything, the inverse: some private credit investors have felt their pain through the software cycle right now, and they are looking for hard assets. One of the first places they will look is, as I said earlier, proven locations and proven assets. Right now, I see no sign of any direct impact to our industry or our capital markets environment. We are the beneficiary of having not seen that run-up and big private credit demand into our space, so now there is not a lag hangover effect of those groups pulling out of certain markets. We did not feel one ripple effect of any private credit lender in the market when we priced One Madison in what was probably the toughest week you could imagine—between a conflict in the Middle East and all the redemptions you saw in the news. We had 44 distinct investors and certain classes seven times oversubscribed. Alexander David Goldfarb: And the second question is for Steve. You mentioned the strength of the more value proposition. Do you see an opportunity for you to acquire B buildings, especially around your core Park Avenue/Grand Central, to create more density in your target submarkets? Marc Holliday: Alex, it depends on how you define B assets. We are buying assets to convert or to develop. We are not buying B assets to hold and operate if B is defined as real commodity space, even though there is probably, on a relative basis, a lot of upside in those assets. You are not wrong—there will be a tail effect here and you will see B asset rents go up—but we are trying very hard and intentionally to deal not just in a sector where we think rents are going up, but where we think net effective rents can be maximized. For that, you are really looking mostly for the highest nominal head rents—whether they be $100, $150, $200 a foot or more for new development. Even at $90–$100, if you are dealing with assets where rent points might be in the $50s–$70s, even though you may experience pretty good nominal rent growth, you still have concessions for those leases that are relatively the same—free rent and TI per foot construction costs—as for the much higher nominal rents. We think there is a lot more margin in dealing in the $90-and-up, $100-and-up rents, and that drives us—for hold assets or redevelopment candidates—into that sector. Unless we feel we can ultimately execute a program and drive rents into those upper categories, you will not see us participate, even though rents and prices are moving in the B assets. It is not a bad play; it is just not our focus. Operator: Thank you. Our next question comes from Nicholas Yulico with Scotiabank. Your line is open. Nicholas Yulico: Thanks. First question, going back to the idea that there is really not much new supply coming to market in the city for four years or so. Can you talk more about how that plays out relative to your portfolio and submarkets? It sounds like it should be a benefit. In some cases, new supply is being looked at by tenants with lease expirations four years out, so there is no real benefit today to buildings from that. Can you unpack that dynamic a bit more? Steven M. Durels: Two takeaways. One, tenants are getting smart to the market and seeing rents rising, and that is driving those paying attention to do early renewals. In some cases, we are in front of tenants with expirations three to four years out in time, which is great. It is a smart landlord play to do early renewals and take downtime or vacancy risk off the table. Two, there is a spillover effect where tenants need to go farther afield or one avenue over from where they wanted to be, and that is giving lift to some other buildings. Within our portfolio, the best example is 1185 Sixth. We are seeing some pretty heavy rents by comparison to historical rents in that building, with a tremendous amount of leasing velocity. It had a lot of tenants vacate over the last several years, and we are on a path to that building being fully stabilized this year with rents in the mid-$80s to mid-$90s per square foot. Nicholas Yulico: Thanks, Steve. Second question for Matt on quarterly FFO. I know you do not plan to give guidance and there are moving parts in a quarter that create volatility, but if we think about the first quarter number and then getting back to the full-year guidance range, can you talk at a high level about some components that will accelerate FFO throughout the year? Matthew J. DiLiberto: Our quarterly results can be choppy and people tend to read too much into a quarterly result. The reality of our first quarter numbers is that we were not even a penny off from our internal expectations—property NOI was better than we expected, offset by SUMMIT, which had a tough weather quarter and underperformed our expectations. Net-net, we landed right on top of what we expected. As we look out over the balance of the year, we are headed right to the midpoint of our guidance range as well. FFO results quarter to quarter might be choppy, driven less by NOI and more by fee income. Our third-party fee businesses are growing, and a lot of those fees come in big chunks rather than ratably—success fees out of special servicing, fees from transactions. We did not close big transactions in the quarter, to say nothing of DPOs that we still have in our projections for the balance of the year. We feel comfortable about where we are in the guidance range, with a bias to the higher end. Marc Holliday: I would add to that on SUMMIT. SUMMIT is an enormous success. Every year we are pushing ahead the envelope on the earnings capacity of SUMMIT. For 2026 over 2025, we had another big increase baked into our expected performance. It was off a bit in Q1, but it was far and away the leading attraction in the first quarter among all the attractions in the city. Where other decks might have been down a percent or more, SUMMIT held its own. I am completely confident, based on what I have seen in April alone as the weather has improved and heading into what is going to be an extraordinarily good summer for the reasons I mentioned, that we will end up the year at SUMMIT ahead of our ambitious targets. We are extending our hours more than budgeted in response to excess demand we are seeing for May and June, because we are pre-selling those tickets. In terms of future ramp in FFO for the company, SUMMIT will be a contributor. Operator: Thank you. Our next question comes from Anthony Paolone with JPMorgan. Your line is open. Anthony Paolone: Thanks, and good afternoon. First, on your 95% targeted leased rate for year-end versus where your economic occupancy is—the gap is pretty wide and assumed to be narrowing. Can you give us a sense of where a normal spread between those two should be over time for the portfolio? Matthew J. DiLiberto: We only started reporting economic occupancy last quarter, so we do not have perfect history. Clearly it is at the wides right now. It will narrow substantially over the course of the year to probably half as wide as it was at the end of last year by the end of 2026. On a stabilized, normalized basis, it is always going to lag leased. If you are in a fully leased portfolio—95% plus—with limited roll, which is the period we are headed into, I could see that being roughly 200 basis points of difference on a recurring basis as space rolls and you re-tenant space. That seems like a comfortable place to be—maybe tighter—but 200 feels about right. Anthony Paolone: Thanks. Second, on capital markets: can you characterize liquidity broadly in the market right now—are a lot of buyers back, a lot of product for sale, cap rates for the best versus more commodity product? Just a broad sense of liquidity and capital markets at the moment. Marc Holliday: I will break it into equity and debt. On equity, we always have our head down focused on our business plan. The plan is on track and we feel good about executing it this year. As a data point, we have 11 transactions in the business plan for this year. On the last earnings call I said we had four dispositions we were working on. When I went to Citi, I said we had five. Now, where we sit today, that number is six. Two of those six were the already announced deals at 690 Madison and 7 Dey, and the other four transactions are progressing very well. I would expect all four of those to close or be in contract in the second quarter. Those were the six identified for the first half of the year, and they are on plan, on target, and expected to get done in the first half. With respect to the credit markets, the market is very strong right now, especially because of the CMBS market and the SASB market that we just experienced at One Madison. Harrison Sitomer: Two data points there: One Madison was the largest office deal done in the U.S. since January 2025, and the bottom of that deal—priced in a very complicated and difficult week—was the tightest new-issuance office spreads at the bottom since when we did One Vanderbilt in 2021. We continue to see new capital coming into the credit markets. We are not feeling any of the lag effects of private credit pullback, and liquidity continues to get stronger in the credit markets as we are seeing. Operator: Thank you. Our next question comes from Seth Berge with Citi. Your line is open. Seth Berge: Thanks for taking my question. First, going back to some of the SUMMIT commentary and the demand you are seeing there—are you seeing, with the strong demand, opportunity for premium experience upsells? How is the pricing side coming along? Marc Holliday: Q1 is not a good representation of what the next eight and a half months will look like. Tourism in the city was off a bit, which may translate into a slightly different mix of domestic versus foreign visitation. Domestic accounts for about 30%, which is quite high. It is a very popular local attraction as much as a tourist attraction—we worked hard to transcend both markets from an observatory, cultural, and nightlife perspective. Looking at the advanced sales we are booking now, tourism is picking up, and we expect to recoup whatever slight diminution there was in Q1 over the next nine months. We expect a typical profile to last year, with the summer months seeing a lot of international travel. There is expected to be over 1 million people coming in for FIFA World Cup games at MetLife Stadium and 8–10 million people coming in for the Semiquincentennial around Independence Day. We are strategically situated to sell out those months. On upsells, the only one is the Ascent elevator rides. When the weather is very cold and winds are high, we do not run that as often; those ticket sales were down a bit in Q1 but have completely bounced back and more. SUMMIT is hitting on all fours, and we are opening SUMMIT next summer in Paris. It is going to be an extraordinary day for SUMMIT and for the company when we have our first global location accepting visitors, with an additional announcement pending in the coming months. Seth Berge: Thanks. As a follow-up to Harrison's capital markets comments, specifically with equity markets and dispositions, can you talk about the profiles of who the buyers are for office and residential? Is there a core bid for office, or is it value-add/opportunistic? And any impact on willingness to buy/sell office from thinking about long-term AI impact on employment? Harrison Sitomer: The composition of investor groups has not changed from what Marc outlined earlier. We spent a lot of time early in the year on our first show in Asia and are in the process of closing out a handful of transactions I mentioned earlier. Those buyers are looking at a range—our disposition plan includes everything from ground-up office buildings to core office to value-add office, and that market continues to be there for all of those product types. On residential, you can look at our latest comp: the sale we did at 7 Dey to a buyer that is a core residential buyer continuing to accumulate more product through a public listing they have. On AI, the investors we speak to are looking at the same stats we listed at the beginning of the call. It was the best first quarter for New York City office leasing since 2014. Some of that leasing is driven by AI tenants, some of which we have announced, and investors are optimistic about what they are seeing. Operator: Thank you. Our next question comes from Ronald Kamdem with Morgan Stanley. Your line is open. Ronald Kamdem: Two quick ones. First, on the postmortem on the dividend cut. Can you talk more about what went into cutting it to that level—taxes or cash flow—and why not cut more, given high interest costs and limited flow-through? Why not cut the dividend even more to offset that? Matthew J. DiLiberto: We spent a lot of time discussing the dividend. Ultimately, taxable income is what, above all else, drives the dividend, and our business plan for this year was consistent with the dividend level we established. We can maneuver within taxable income to some extent, but if we are going to execute on the business plan—and we are on a path to do that—then you have to pay the dividend at a certain level, and that dividend is where we established it at $2.47. At the same time, it allows us to retain almost $50 million of incremental capital that we can put to other accretive uses—DPOs, maybe buybacks. Capital spend will go down such that, in the back half of 2027 into 2028, there is a big shift in cash flow to the positive. We will reevaluate the dividend every year based on taxable income. Ronald Kamdem: Thanks. Second, I know FAD is not cash flow and it was a bit down in the quarter. As you think about the ramp on NOI as you get commenced occupancy, any sense of the magnitude of dollars that are going to flow to FAD? Matthew J. DiLiberto: As I said last quarter, the spend in 2026, like in 2025, is the funding of a lot of leasing—9 million square feet of leasing we did over a three-year period. That assuages in 2027 into 2028 and will drive same-store cash NOI growth north of 10% next year and enhance earnings and FAD. We will talk magnitudes as time progresses. Marc Holliday: I only see one way to look at it: we are leasing the hell out of this portfolio. With that comes leasing capital that we will muscle through in 2025, 2026, and 2027, but we are going to try and get this portfolio to 96–98% leased. That would be unprecedented for 31 million square feet. Getting beyond what I would call the frictional vacancy point of 97%—we are vastly outcompeting and getting more than our fair share. We will pay for that tenancy because there was a lot of out-migration for unnatural reasons in 2020–2024. By this time next year, to the levels I think we are going to get, we will already be working on 2027, 2028, 2029. We want to get this portfolio to full occupancy. There will be a cost to that, but when you attain it and then you are living in a world mostly of renewals, there will be an enormous rightsizing of the capital, like we experienced in the past and will experience in the future. That is our business plan. We are not just on track; we are ahead of track. Our average rents are going up significantly faster than expenses, which are up about 2% a year. Steve is starting to rein in capital, first on renewals and then on new tenants. This is what shareholders want us to be doing: redeveloping our buildings, having a premium Class A portfolio, leasing it to its fullest, and investing in a portfolio with unparalleled residual value in 2027–2028. From my vantage point of 36 years in the business, I have never seen a market as good as this one. Operator: Thank you. Our next question comes from Blaine Matthew Heck with Wells Fargo. Your line is open. Blaine Matthew Heck: Great, thanks. Following up on dispositions: Harrison, you mentioned you would have closed or be under contract on six of the 11 targeted sales by midyear. In rough terms, would those proceeds put you at about half, or a little more than half, of the targeted $2.5 billion of sales this year, or are those six skewed smaller or larger than the remaining five? Marc Holliday: Approximately half. Blaine Matthew Heck: Great. And, Marc, we are several months into the new mayor’s time in office. Beyond the budget, can you talk about anything that has been a positive or negative surprise relative to your initial expectations, and whether you see any risks or opportunities for your business arising from policy changes? Marc Holliday: It is still very early—it is too early to assess any mayoralty in the first hundred days. This is measured over years, not months. I look to the opinions of stakeholders: condo buyers—Q1 was a record for $10 million-and-up condo sales, up about 47%; Wall Street profits; expansion by tenants. I am seeing tenants who are, on a scale of five or six to one, expanding rather than contracting. Tech is back. The key issue is affordability. Different mayors will tackle it in different ways, but we agree it is best for the city to make the city more affordable. The current administration’s focus seems to be on getting more production in housing to help stabilize or even bring down rents. You see cutting through red tape on “City of Yes,” SEQRA/land use revisions, support for conversions under 467-m, and a program to try and reduce insurance premiums for affordable/rent-controlled housing. Having that focus is productive as long as there is appreciation that tax collections make all this work, and our industry drives tax collections. Our industry is firing on all cylinders. If left unimpeded, and if we can exceed tax receipts this year on top of record receipts last year, there will be money to take care of administration priorities—mass transportation, affordability, cost of goods. Objectives align, and I see a city poised for a very good year. Operator: Thank you. Our next question comes from Peter Dylan Abramowitz with Deutsche Bank. Your line is open. Peter Dylan Abramowitz: Hi, thank you for taking the question. Matt, you mentioned being biased towards the high end of your guidance range. You talked about fee income impacting the ramp throughout the year. In terms of potentially getting to the high end, can you talk about the specific items that could get you there? Is it NOI? Other items? And any commentary on underlying guidance assumptions and whether those have changed? Matthew J. DiLiberto: In Q1, NOI was running ahead of our projections, and that flowed through to earnings and same-store cash NOI. The 2.6% positive same-store cash NOI was 300 basis points higher than what we expected for the first quarter, so NOI will be a contributor. Marc discussed SUMMIT and the momentum we are seeing already in April and expect over the balance of the year to make up any small shortfall in Q1. Fee income—our third-party fee business is growing. If we can exceed our initial projections, that is very high-margin, high-multiple business. We have a DPO in our guidance; if we can source more, that is upside. Momentum from Q1 biases us to the midpoint or higher. Peter Dylan Abramowitz: Thanks. And maybe a question for Marc on the new administration. You mentioned the pied-à-terre tax that was reported yesterday. I believe the estimate for incremental revenue is around $500 million, which still leaves a budget shortfall. From the first hundred days or so, there have been talks of taxes on higher-earning households and higher property taxes that have not gotten a lot of support. With a gap to fill, what else is possible from a legislative perspective to fill that, and how could that impact your business? Marc Holliday: The City Council and the new City Council Speaker, Julie Menin, came out thoughtfully with their own budget. The mayor has a budget; the council has a budget. Their emphasis will be on cost-cutting. Last year’s budget was about $115 billion; this year is projected at $127 billion. You are not going to get all $12 billion of increase—that is the initial stab. There will be efficiencies and reductions achievable. If you assume the state is going to solve $500 million to $1 billion of it, you are talking about a 3–4% gap to be closed, with revenue projections likely reassessed higher based on the first quarter’s tax receipts, plus the new pied-à-terre tax, plus council proposals on modifying PTET, and a modification of UBT/UBIT. They are going to close that gap. By June there will be a balanced budget through incremental tax, some revenue reforecast, and some expense reductions. The city has gotten there every year since the 1970s. We will get there again. Operator: Thank you. Our next question comes from Vikram Malhotra with Mizuho. Your line is open. Vikram Malhotra: Good afternoon. Thanks for taking the question. Marc and Matt, pushing a bit more—you have done a lot of good work getting up occupancy, TIs are coming in, you have less to lease, and you are dealing with 2027 expirations. Can you give guardrails on how this ultimately translates to a measure of cash flow—FAD or cash flow from operations? You said 10% same-store next year, but it would be nice to get some broad guardrails rather than wait nine to twelve months. And can you clarify TI spends in 2026 and 2027—do we wait until 2028 before growth picks up? Marc Holliday: When you say guardrails, I am not exactly sure what you mean beyond what we have given. We gave it in December, and our projections have not changed. There is plenty in the supplemental and our other disclosures to get a handle on the amount of capital necessary for leasing—it is arithmetic. You see every quarter how much we spend on TIs, commissions, and free rent based on quantum of leasing. As we approach 96–98% occupancy, there are going to be spend years for the balance of this year and next, but we have said—and I thought we were clear—that by 2028 we expect our FAD to be in line with our dividend that we recently recalibrated to, and then hopefully more. We will get there with that kind of guidance in 2027, but not today. Vikram Malhotra: Just to clarify: by 2028, you think FAD will be similar to the dividend? Marc Holliday: If you look at my commentary on the dividend and what Matt said in the release when we came out with the new dividend level after our last board meeting, we said the new dividend level was set where we expected to be able to cover that dividend and more by 2028. I am reiterating that. That is our belief and how we got to that very specific number—it is based on our models and calculations. We try to be very conservative on NAV and growth projections, but we are headed to a great spot both in earnings and cash flow. Vikram Malhotra: Thanks. Going back to SUMMIT, makes sense the World Cup should drive a nice uptick. Any update on other projects and regions—when could we see the next SUMMIT driving NOI? Marc Holliday: We expect to open Paris in summer of 2027. I will come out in December with monetary guidance on that. In 2027, it will only be open half a year, but I expect a seismic, popular, well-attended opening. What we have designed is like SUMMIT 2.0 with lots of new features. It is thrilling to work with Kenzo and Rob Schiffer on these projects now coming to life, with more beyond. The next locations would not be 2027—they will be announced this year with future openings thereafter. Paris is first next year. Operator: Thank you. We have a question from Brendan Lynch with Barclays. Your line is open. Brendan Lynch: Great, thank you for fitting me in. Matt, you got a nice reduction in your spread to SOFR with the new revolving line of credit, and you have been bringing down your cost of debt for the past year. Macro-dependent, but do you see other opportunities within your control to reduce your weighted average cost of debt further? Matthew J. DiLiberto: Great execution on the credit facility—appreciate the work of our team and the participating banks. The financing backdrop was strong and the institutional support was extraordinary. We have about $3 billion left of our $7 billion financing plan for the balance of this year, and then not a lot thereafter. We talked in December about increasing some floating-rate exposure because we expect the curve—maybe not at the pace we would like—but eventually to come down. We will let some of our fixed-rate derivatives burn off and take advantage of a lower SOFR curve overall. Harrison can speak to the financings in our pipeline and what we are seeing in the market. Harrison Sitomer: We have three financings left in the business plan for this year, the largest of which is 245 Park Avenue. We just started that process yesterday, so we will see it play out through the second and third quarters. More to come next call. On pricing, we have no influence over base rates, so we will monitor SOFR and Treasuries. On spreads, we are optimistic about tightening, especially in CMBS. Especially at the bottom of the deals, we are seeing spreads tightening even from where we saw One Vanderbilt price. Each deal will depend on asset quality and execution, but we definitely expect a strong execution at 245 Park. Brendan Lynch: Great, thanks. The press release alluded to turning more active on share repurchases. Matt mentioned that earlier as well. What conditions would incentivize you to be more active on executing the existing authorization? Marc Holliday: I have been clear in the past: I think the stock is terribly mispriced. You do not have to look hard to appreciate the magnitude of the discounted valuation relative to a fairly liquid and active market where it is not hard to get price and value discovery on assets we own, especially well-leased assets where the debt and equity cost of capital is well known. I look at buybacks as a significant opportunity that we will take a very hard look at with incremental liquidity to the business plan. Our plan includes investment in new development projects and reduction in indebtedness—both secured and unsecured. With incremental liquidity above and beyond that plan, share repurchases get the first and hardest look. Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Marc Holliday for closing remarks. Marc Holliday: Thank you, everyone. We ran longer than usual, so thank you for all the questions. We look forward to speaking in three months’ time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. First Quarter 2026 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. Company presenters will begin with prepared remarks and then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star then 1 on your touchtone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. The Company has asked me to remind everyone to refer to the cautionary notes regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2026. At this time, all participants are in listen-only mode. This conference is being recorded. If you need operator assistance during the conference, please press 0. It is now my pleasure to turn the call over to Donna J. Townsell, Director of Investor Relations. Thank you. Good afternoon, and welcome to our first quarter conference call. Donna J. Townsell: With me for today's discussion is our Chairman, John W. Allison; John Stephen Tipton, chief executive officer of Centennial Bank; Kevin D. Hester, president and chief lending officer; Brian S. Davis, our chief financial officer; Christopher C. Poulton, president of CCFG; and Scott Walter of Shore Premier Finance. Our first quarter sets a strong tone for 2026. Results demonstrate sound expense control, consistent operating performance, and attractive returns, including record-setting metrics of book value per share of $22.15 and tangible book value per share of $14.87, which is a $1.72 per share increase year over year for a 13% increase. CET1 at 16.7%, leverage of 14.3%, and Tier 1 capital of 16.7%. In today's economic environment, that is a meaningful accomplishment, and our team is pleased to walk through the quarter's results with you. Our opening remarks today will be from our Chairman, John W. Allison. John W. Allison: Thank you, and welcome to Home Bancshares, Inc. for the first quarter 2026 earnings report to shareholders. Thank you for joining us today, and I think the headline and the quotes pretty much summarize the first quarter. I want to thank our team for getting us off to a great start in 2026. For those of you who are not already Home shareholders that are interested in a better understanding of Home, I think it is important that you look at the strength of the balance sheet, couple that with the monthly and quarterly consistent level of performance over the last several years as primarily showcased by the last five quarters. The prior year has reminded us of the highest interest rate cycle in the early eighties, where almost all banks struggled because of poor balance sheet management, and the same story has been even more visible today, i.e., lack of liquidity by investing in long-term securities trying to stretch for yield. I am proud of Home. We did not suffer those problems during that time and were reporting record earnings while others were struggling. S&P Global just ranked Home's performance for 2025 as number two of all banks in the U.S. over $10 billion. We are honored by this elite ranking by one of the world's best and most respected experts. We were barely edged out of the number one position last year. Maybe we will get it this year. We are happy to have completed the merger with our acquisition of Mountain Commerce and look forward to a successful combination. Due to the back-office computer upgrade that was already in progress before Mountain Commerce, we will not be able to start converting Mountain Commerce until November. As a result, the MCB anticipated savings will not be realized until probably late 2026. Once accomplished, we believe our new partners can soon begin helping us to continue the outstanding performance that Home Bancshares, Inc. is known for in the U.S. and worldwide. Home is proud of our reputation—one of the strongest, safest, most conservative, and best performing banks in the world. We will continue to try to make our shareholders proud and happy to be part of this outstanding company. We know who we work for, and that is our shareholders. If you loan money, we all know problems can and will arise from time to time that have to be worked through. We have a $110 million Texas credit that we decided to place on nonperforming status this quarter. This is the same credit we have been talking about for a year and a half or two years. The credit remained current until this quarter. It has been one we have been monitoring intensely for about eight months. We entered into a short-term forbearance agreement with multiple deadlines and requirements. We are advised by legal counsel not to discuss in depth. I can say we are either going to get paid off or we will liquidate the existing collateral. We do not anticipate any additional loss, but if things were to result in some loss, Home's story puts us in a position to deal with whatever comes. Because of the conservative balance sheet, we are running right at $300 million in loan loss reserves—one of the highest reserve percentages in the world. Couple the strong reserves with a consistent quarterly pretax, pre-provision net revenue of $150 million to $160 million, and we are confident in our ability with whatever happens and do not expect this loan to have any major impact on earnings, if any at all. It is our belief that there are more than sufficient assets and personal guarantees to properly resolve this issue. I am pleased with the results comparing Q1 to Q1 last year. The first quarter only had 90 days, and if we had the two extra days in a normal quarter, plus just a little touch of wind, we would have been even stronger. We had no wind this time. This quarter, we got zero wind, Brian. You always come up with wind. You did not come up with any juice this time. Well, we did have that FDIC assessment, but we got a reduction. Okay. Well, we had to write off the balance now, so that is evident in the noninterest income category being the lowest since December 2024. Maybe next quarter will be the best. On M&A, I want to congratulate the administration and the Fed along with the Arkansas State Bank Department for the fast approval process. The speed of approval may possibly give time for another deal this year. We are certainly in the market and looking for another good fit. We continue to repurchase stock as the volatility of an uncertain world—with a war count that makes it uncertain—has provided opportunities for us to purchase more recently. That is before we were in a blackout period. However, we did file our normal 10b5-1 for this time. If the volatility continues, we will be very active on the repurchase side. I think we have essentially bought back, if not all, of the shares issued in the Happy Bank transaction, and I will endeavor to do the same for the Mountain Commerce Bank transaction, particularly if volatility continues to create opportunities. The repurchases will take some time, but once MCB is converted on our system, the additional share reduction should have a positive impact on earnings. We are being very careful on the loan side because of the uncertainty of the war, the consumers, business, asset classes, and what this cycle may ultimately evolve into. Talking heads have all said rates are coming down, but we have cautioned that possibly they will go back up before they come down. Inflation is not dead. Let me say that again. Inflation is not dead. And as Jamie Dimon would say, that is a major cockroach in the mix. The question is how high and how long do they remain high? It depends on how aggressive the Fed is going to be with escalating interest rates to try to get a handle on inflation. Remember the late seventies and the early eighties? 21%. It is not going to be that high, but it has to be corralled. Christopher C. Poulton, who runs our New York office, has a great saying: the year of the lender is followed by the year of the collector. I think our early Texas experience confirms some of Chris' statements. I think it is a time to be very careful. The normal structure of some asset classes that worked in the past may not work today. It is our job to watch and hopefully recognize in advance these loans that we think may be infected with what Jamie Dimon would say are cockroaches. You will hear from Christopher C. Poulton today about his attitude on private credit and the changes made because of it. His call on private credit was outstanding. The good news—market pricing on acquisition deals is more in line with the correct value and slows the shareholder dilution at least for a while. One of the CEOs that did a fairly flagrant—delusionary may be the word—trade sometime back came up to me at a bank conference and said, “I am here to get my butt chewed out.” And I proceeded to do just that. Then I gave him a hug, and we discussed the pros and cons and the impact of the damage done to long-term loyal shareholders, and agreed that dilution is not the friend of the shareholder. Enough said. With all the attention that dilutive transactions are getting, maybe the publicity and management embarrassment has slowed the shareholder damage. At least, I certainly hope so. I hope it is finally the start of a sea change that forces management to do the right thing for the shareholders. Donna, great quarter. I am pleased with the strong continuation of Home's earnings. I will hand it back to you, and since I have teed up Chris, let us go to Chris first. Let him comment and turn it forward, and then we will go to Steven and Kevin and Brian, and back to you to wrap up. By the way, you all need to know Donna takes a pen away from me and gives me a rubber ball to speak with so that way I do not make any noise. So she stole my pen and gave me a rubber ball. So thanks, Donna, for looking out for me. Donna J. Townsell: My pleasure. Okay. Sounds good. Thank you, Johnny. Up next, we have a report on CCFG from Christopher C. Poulton. Christopher C. Poulton: Thank you, Donna. Today, I will provide a brief update on CCFG's first quarter, and then, as Johnny said, I will share some perspectives on the private credit market. During Q1, we grew the portfolio to approximately $2.1 billion. This represents roughly a $60 million increase supported by $370 million in new loan production. Loan production remains steady, and this number is in line with prior year levels. Payoffs for the quarter totaled just under $200 million, which is also consistent with historical averages. We do expect slightly higher payoffs in Q2, though I think our pipeline should allow us to replace those balances either this quarter or the next. Over the past several years, I have discussed declining balances in our corporate lending portfolio. This is an appropriate time to provide some additional context, particularly in light of recent news around private credit. CCFG has long participated in the private corporate credit market. Our exposure has varied over time, but we have maintained a consistent presence and have long-term experience in the space. Our private credit balances peaked at just under $500 million in 2022, and today outstandings are $87 million. That is a reduction of over 80% in the past three years. Why did we make the choice to reduce our private credit exposure? Beginning in 2023, we observed several trends that influenced this decision. First, we saw new bank entrants. As some banks looked to reduce their reliance on commercial real estate, many chose to lend into the growing private credit space through participations in structured facilities. This led to broad yield compression across the private credit market and, as often happens, some loosening of credit structures and underwriting standards. At the same time, we saw significant equity inflows from individual investors or retail investors into these sponsored vehicles. We have seen this movie a few times before, and we have not always enjoyed the ending. We have historically maintained an intentional focus on the shorter-duration position—typically under three years—and as a result, we were able to actively exit credit facilities as they reached the end of their reinvestment period. In total, we exited eight corporate lending facilities through repayment during this time. Our remaining exposure is limited to a few facilities, primarily within AA-rated structures. Our attachment point is approximately 58% of par value of the underlying loan, which provides 40% sponsor equity support beneath our senior position. While market dislocation often creates opportunity, we believe it is still early in the cycle. As a result, we are remaining cautious, and at present, our bias is toward further reduction while continuing to monitor this closely. With that, Donna, I will turn it back to you. Donna J. Townsell: Thank you. Great call, Chris. Thank you for keeping your eye on the ball with private credit, Chris. Next, we will hear a few words from John Stephen Tipton. John Stephen Tipton: Thanks, Donna. Chris, we appreciate your approach and discipline over the last eleven years with us. As Johnny mentioned, 2026 was a good start to the year: $118.2 million in net income, a 2.09% return on assets, and a 16.56% return on tangible common equity. Q1 earnings were in line with the prior quarter despite two fewer days, and were up $3 million or 2.6% from 2025. The reported net interest margin was 4.51%, down 10 basis points from Q4, as there was zero event income in Q1, and up seven basis points from the same period a year ago. The core margin, having no event income, was 4.51% versus 4.56% in Q4. The overall loan yield declined by 15 basis points to 7.08%, while interest-bearing deposit costs declined by 12 basis points to 2.35%. Total deposit costs were 1.83% in Q1 and exited the quarter at 1.82%. Deposit balances increased $258 million driven by all of our Florida regions. I would expect some headwinds in Q2 from tax payments, but we are pleased to start the year strong. A highlight from the quarter was that noninterest-bearing balances grew by $126 million to almost $4 billion and now account for 22.5% of total deposits. As we typically see in Q1, loan production softened coming off of a very strong fourth quarter. We had total loan production of $917 million with over half of that coming from the Community Bank footprint. Switching to capital, we repurchased 507 thousand shares of stock during the quarter for a total of $1.314 billion, and as Johnny said, we will continue to be active with our share repurchase plan. Capital levels continue to build with common equity tier 1 capital ending at 16.7% and total risk-based capital at 19.5%. Lastly, we are thrilled to have the Mountain Commerce employees, customers, and shareholders on board and look forward to growing the Tennessee franchise for Home. With that said, I will turn it back over to you, Donna. Donna J. Townsell: Thank you, Steven. And to close out our prepared remarks, Kevin D. Hester has a lending report. Kevin D. Hester: Thanks, Donna. Given our strong showing in 2025, it could be easy to look at this quarter as boring. I think that shows the high bar that we have set for ourselves, because any quarter that posts a return on assets of 2.09%, maintains solid asset quality, and is an earnings beat over the same quarter a year ago is not an easy task and should be inspiring. As I anticipated last quarter, ending loan balances dropped by a little over $50 million, but it happened very late in the quarter, which resulted in average loan balances actually being up $174 million on a linked-quarter basis. I see this downward trend continuing in the legacy bank into the second quarter because Q2 and Q3 projected payoffs are very high. The MCB acquisition will, however, add over $1.4 billion in loans to the balance sheet. Based on my meetings with their lenders, I expect them to settle into our credit culture quickly and be accretive to loan production in short order. Johnny mentioned the nonaccrual of the Texas C&I credit that we have been wrestling with since 2024, and this increased nonaccrual balances significantly. But we have made recent progress with the executed forbearance agreement, which leads us to a couple of ways to exit this credit during the next quarter or two. We are continuing to work with the same small set of issues that we have been dealing with for a while now. We took our medicine in 04/2024, but maximizing the exit sometimes takes more time and effort than you would like. It is wonderful to have the level of capital and reserves that we have, which allows you to maximize recovery on this limited set of problems. To that end, criticized assets were flat on a linked-quarter basis and early-stage past dues were below 50 basis points. Even with the large increase, the reserve coverage of nonperforming loans is still over 160%. As a point of reference, our loan loss reserve would cover 15 years of our historical charge-offs if you use the last five years of average charge-offs as a base—and that base includes the large 04/2024 Texas cleanup quarter. There is nothing wrong with a workmanlike quarter where you meet expectations. I expect that a majority of banks would trade results with us. On that note, Donna, I will send it back to you. That is accurate. Donna J. Townsell: Kevin, thank you for that report. Before we go to Q&A, does anyone have any additional comments? John W. Allison: Well, I thought about deposits. We had good deposit growth, and then tax time comes up. I think I said the same thing last year. It is good to have real customers. That is right. And we do have real customers, as evidenced by the tax checks we are seeing go out right now. That is good and bad, but they are our customers. They are not transactional. They are relationships. So I am proud of that. We will take a little up and down business, Kevin. I mean, Steven, you grew up. John Stephen Tipton: I agree 100%. John W. Allison: I am pretty pleased overall. Brian, you got any comments on the quarter? Brian S. Davis: I agree with you. I am pleased with the quarter. There is not really any noise to it, so it is just kind of good core earnings. John W. Allison: That is really it. We just kind of rolled on from what we have been doing. I think we have said in the past, we need more assets, and that is what Mountain Commerce has done for us. We have been consistent. Our earnings have been consistent quarter after quarter through this process, and we do need more assets. Right? So we will get this under wraps and Steven and Bill will get the savings out of Mountain Commerce. We will see that come to the bottom line, and maybe we will have another deal before then. So, Donna, I will let you have it. By the way, you all need to know Donna takes a pen away from me and gives me a rubber ball to speak with so that way I do not make any noise. So she stole my pen and gave me a rubber ball. So thanks, Donna, for looking out for me. Donna J. Townsell: My pleasure. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press star then 1. When prepared to ask your question, please ensure your device is unmuted locally. Our first question comes from Stephen Kendall Scouten with Piper Sandler. Your line is open. Please go ahead. Stephen Kendall Scouten: Good afternoon, everyone. Appreciate the time. I guess, Johnny, maybe if you can talk a little bit more about how the progress is going to acquire even more assets on top of Mountain Commerce. I mean, like you said, your returns are phenomenal, so it just feels like you need to be able to multiply that on a larger balance sheet. What have conversations been like and how aggressive would you be? And within that, would you ever think about loosening—the triple accretive mantra—to get a deal done? John W. Allison: I think we hold pretty tight to our philosophy around here. My fear is they will say, “Well, he lied.” I can hear the market saying, “Oh, he lied. He broke it. He diluted the deal.” So I just do not believe in doing that. I am the largest individual shareholder, and I am not interested in diluting myself. I think it hurts our shareholders. You know my philosophy on that. We stretch as much as we can on the trade, but people have joined this company because we do not dilute, and if I diluted now, I think it would be kind of—as I am getting older in my career—people would say, “He got weak and gave up.” I have not as of yet, and I think it is known when we are talking to a prospective seller: we say, we do not dilute. We need you to understand we are not going to be your highest price. But if you are going to sell the stock tomorrow, it does not matter—just do a deal and the buyer dilutes the hell out of himself. If you sell stock tomorrow, it does not matter, just get out and get going. But if you are going to ride with them for a while, it makes lots of sense not to do a dilutive deal. So if you want to hold the stock and keep it for a period of time, I think our sellers appreciate the fact over the years that we have not diluted. I know there is another deal out there right now they are getting bid up on, but I am not going to bid up on it. We will bid it to the maximum we can bid it, and if we do not get it, we do not get it. A lot depends on the seller—what the seller wants to do. Do they want to stay and be part of it, or do they want to go to the house? If they want to go to the house, just get the biggest best price and sell the stock tomorrow. Otherwise, if you want to be in it for a period of time, you need to have a good partner that is not going to dilute you. I know I rambled a little bit, Steven, but anyway. Stephen Kendall Scouten: That is helpful. And in terms of the pipeline of conversations, what is that like? We have not seen as many deals here in the first part of the year get announced. Are sellers just kind of not interested because the environment is pretty good? Or is it just the volatility in the stocks? What are you seeing in terms of conversations? John W. Allison: There are conversations going on—not only with us, but elsewhere. Bankers have called us and said, “Hey, what about this and what about that?” I said, we are not ready right now. Let us get Mountain Commerce, get our arms around it, and then we will be ready to go. But we are having conversations. At a bank conference recently, we ran into a couple of people, and I said we ought to talk sometime, and they followed up since then. Just a conversation in a bar. I said, “Yeah.” They were sitting at one table and said, “We will visit sometime.” That brought a banker out of the woodwork to talk to us about these two possible options. I actually think people are embarrassed to dilute the hell out of the shareholders right now. They have been called out for the dilution, and we see what has happened to the market prices of bank stocks. We went from 22.5x projected earnings to 11x earnings, or 10.5x. Where did the money go in bank stocks? My contention is we ran all the good investors out by beating them up—dilute, dilute, dilute. I want to get back to the old days where we were 21.5x earnings, and everybody was happy. Everybody made lots of money. It is a different world now, and I think it is directly a result of the dilution. Stephen Kendall Scouten: Valuations are crazy. We have to start calling you homebankai.com or something like that. One other question is around loan yields. There was a pretty big move in the loan yields this quarter. Can you give some color on how much of that was core decline versus where new loan yields are coming on, and how much the NPA affected reported loan yields quarter over quarter? John Stephen Tipton: Hey, Steven. This is Steven. First, on the impact from the nonaccrual—we do not have any of that in our margin for the quarter. Had we had it on the books, the impact was about 5 basis points to the loan yield and about 4 basis points to NIM. So the 4.51% that we reported—had it been on accrual for the full quarter—it would have been 4.55% versus 4.56%. A little color there. Some of the other decline in loan yields was really just a function of variable rate resets from the Fed moves last year that occurred January 1 and at other frequencies. If you normalize for the nonaccrual, we would have been down 10 or 11 basis points and matched what occurred on the deposit side. Production yields—I think we averaged 7.25% to 7.25% for the first quarter. We were at 6.99% or 7% in the Community Bank footprint—so, north of prime and getting our fair share. Stephen Kendall Scouten: Great. Appreciate all the color. Everyone, thanks for the time. John W. Allison: Thanks, Steven. Appreciate you. Operator: We now turn to David Rochester with Cantor Fitzgerald. Your line is open. Please go ahead. David Rochester: Hey. Good afternoon, guys. I just wanted to talk about the loan trend real quick. It sounded like you mentioned paydown activity being a little bit elevated in 2Q and 3Q. How are you thinking about the organic loan trend? I know you got the deal closed this quarter, so that will bump things up a bit. Just trying to understand the underlying organic trend, and what part of the book are you seeing those paydowns in? Is it more of the same? Anything new? Any difference across the different geographic regions? Kevin D. Hester: Hey, Dave. This is Kevin. I will answer that. It is going to be a little bit of a long answer because I am going to give you some color on the pipeline process. Our pipeline process likely has more visibility into the payoffs than the new loans that are coming on. We know because of CCFG's portfolio being a two-to-three-year turn, and a lot of what we are doing on the large side is construction deals, and we know when those are finishing. So we probably have a four-to-six-month lead time on a payoff, whereas we might have 30 to 45 days to put something on the pipeline for a new credit because we do not put new credits on the pipeline until they are fully approved. For Chris' group, CCFG, they may close it in 15 to no longer than 30 days, and in the Community Bank footprint, it might take 45, but it is probably closer to 30. So our pipeline process is more highly skewed toward knowing our payoffs. That said, we do see second- and third-quarter payoffs being higher than they have been the last couple of quarters. Will we have some production that will offset that? It is possible, but it is going to come in over the next 45 to 90 days. It is not on our pipeline yet because it has not gotten fully approved. Second piece is MCB is not yet in our pipeline process. So I really do not have a good feel for what they might contribute in the second and third quarter. I will know that probably in the next week to two weeks. So the short answer is: it feels a little soft in the second quarter. Could we outrun it? We could, but we are going to have to get the production in here and get it on the books. David Rochester: Okay. Great. Appreciate all the detail there. Maybe switching to the margin. What do you think is going to be the rough margin impact from the close of the deal, and if we have a stable Fed funds rate through the end of the year, how does the margin trend after the 2Q change from the deal? John Stephen Tipton: Hey, Dave. This is Steve. We are still finalizing the purchase accounting. I do expect a little pressure on the margin—obviously, it is additive to NII and EPS—but expect a little pressure at least initially on the margin. We landed for the quarter at 4.51% and, thinking about the nonaccrual, we were 4.49% for March—still fairly in line with where we were. Maybe it ticks down slightly with MCB, and then we hope to build on it from there. I talked to Bill today, and their story over the last year or so has been the ability to reprice deposits at maturity as they come through, and that appears to be what is taking place over the next 45 days and over the course of the year as some of the wholesale deposits either reprice or go away. David Rochester: Appreciate that. One last on M&A. I know you are open to deals in all your markets, but with Tennessee in the mix, are you prioritizing any markets now? John Stephen Tipton: Always Florida and now Tennessee. Kevin D. Hester: We could entertain those markets. David Rochester: Sounds good. Thanks again. Appreciate it. Operator: We now turn to Brett D. Rabatin with Stonex. Your line is open. Please go ahead. Brett D. Rabatin: Hey, good afternoon, everyone. Wanted to start on expenses. You kept expense growth pretty limited last year—like 3% growth—and I know Mountain Commerce will create a little noise, but is there anything you are going to spend money on either as a result of that deal or as you get bigger? And any thoughts on maybe core growth this year relative to 2025? John Stephen Tipton: Hey, Brett. This is Steven. Core expenses were about $115 million for the quarter. We will have some normal raises throughout the year with merit increases and contracts here and there, but that is a decent base today. Mountain Commerce probably adds $7 million to $7.5 million a quarter to that number right now, until we get to the latter part of the year and get their conversion in and begin to recognize the majority of those cost saves. There will be some cost saves along the way throughout the year, but the majority will come in the middle of the fourth quarter. Brett D. Rabatin: And then, Johnny, thematically, I know you are interested in M&A, and you have historically had a term for people that hire lenders from other banks. In Tennessee, with disruption due to big deals, would you let Bill hire some folks on the lender side in Tennessee, or is that still not part of the equation? John W. Allison: That is not the way I think about it, but Bill may think differently about it. We really have not discussed it. We are headed over next week to meet their customers and shareholders and talk about Home Bancshares, Inc. and Mountain Commerce and the partnership together. I will visit and catch up with you later on Bill's thoughts. I am not aware of any teams that he is talking to. Not saying it would not be out of the realm of possibility in the Nashville or Knoxville market. If it is due to disruption, that is a little different premise than just going in and taking away folks that are happy where they are. I get the disruption concept, and there could be something there. But we will see. Brett D. Rabatin: Lastly, on the pipeline—any of the pipeline trepidation related to competitive pressures? It seems some banks are being more competitive on rate. Is the competitive landscape impacting what you want to do in the back half? Kevin D. Hester: Some markets are harder than others. It is not the same players in every market. There is some rate pressure. There is even some underwriting and structure pressure that people have given into a little bit over the course of 2025 and early 2026. That is always a challenge. We fight that because we are pretty consistent in what we do. Brett D. Rabatin: Fair enough. Appreciate all the color. Operator: We now turn to Catherine Mealor with KBW. Your line is open. Please go ahead. Catherine Mealor: I have a follow-up on deposit costs. You mentioned the 1.82% exit deposit rate, which is similar to where you were for the average in the quarter. As you think about the rest of the year—if we do not have any more rate cuts—do you feel like deposit costs will start to increase as we move through the year, especially maybe once we get past second quarter and growth improves? How are you thinking about incremental deposit costs? John Stephen Tipton: Hi, Catherine. This is Steven. With MCB, we mentioned what they have coming through the maturity pipeline and certainly expect theirs to come down. On the legacy Home portfolio, we have some deposits tied to the short-term T-bill—91-day T-bill—which trickled up a little bit in the first quarter and put some pressure on other changes we were able to do. CDs will continue to mature that we will try to reprice down. I am still optimistic that we can inch out a basis point or two as we go throughout the year, but I will caveat that with competition. We are still seeing banks offer 4% for CDs and 3.75% to 4.05% on money market. We will defend our customer base both here and in Tennessee. John W. Allison: I am getting excited—4% might be cheaper if they do what I think they are going to do. It looks silly when you see people doing that, and we are still seeing some 6% too. When you think about that, how ridiculous that might turn out to be—we obviously have not stopped inflation. It depends on how aggressive the Fed is. If they have to be aggressive to slow inflation, it may take 200 basis points to stop it. If they lower significantly, I think that would be a huge mistake. Catherine Mealor: Johnny, you have been right on the rate trade the past couple of years. Is there anything you are doing in your balance sheet to prepare for the risk of higher rates? John W. Allison: Not really. We are just careful with our pricing. I was mad at myself last night when I said what was going to happen and then I did not bet it. I ran into a friend who said, “I heard you, Johnny. I went out and bought $4 million worth of money cheap, and I still have it.” I said, “Good for you.” He said he did it because of what I said. I did not do it, and that is a good thought—maybe to take a look at stretching out there a little bit. This is almost a ditto of the seventies and the eighties. We have this war now. We have oil, and we know what that does. We saw PPI at 4% annualized—we have not seen those numbers in a while. It could get a little crazy. I just do not have the answer yet. Hopefully, it will come to us. Catherine Mealor: And then on the credit side, anything you are seeing? I appreciate that you do not want to talk about the $92 million credit that moved to NPA this quarter until you get it resolved, but outside of that, any other trends or weakness across the book? Kevin D. Hester: Criticized assets—which includes all of our OLEM and below—were flat quarter over quarter, and early-stage past dues are as low as they have been, at below 50 basis points. We are working with the same set of issues that we have been working with for the last few quarters. I said a couple of quarters ago that the small group might get worse before it gets better, and that is what happens when you have to put it on nonaccrual and start working it out. We have already taken what we believe is our maximum loss, and we would expect to recover some to all of that depending on the way it resolves and which path it goes through. Talking about the larger credit now, we at least have good visibility into how that happens, and it could happen as early as this quarter or next. We feel good about that. It is the same set of problems. I am not seeing anything of materiality that we are concerned about. John W. Allison: I do not think we are going to lose any money on this deal. I like the guarantors. I like the assets—these are in-demand assets. They are not scrap assets. The assets are being leased as we speak. We sold some of these assets in the past on a 70/30 basis—we got 70% and the customer got 30%—and they paid down perfectly. Assuming the rest bring the same value, we are going to take 100% of the proceeds from this point forward. If we get the sales schedule, I think we will be fine. If there is any hole left, these people have honored everything they have ever said to us. It is a very wealthy family. Maybe if there is $10 million left, we put them on a $10 million ten-year note or something. I think they will honor it. Catherine Mealor: Has the price in oil had any impact? John W. Allison: If anything, it might help, quite honestly. Catherine Mealor: That is what I was thinking. Thank you so much for the color. Appreciate it. John W. Allison: Thank you. Appreciate it. Operator: We now turn to Michael Edward Rose with Raymond James. Your line is open. Please go ahead. Michael Edward Rose: Hey. Good afternoon, guys. Two follow-ups. First, on the large Texas loan—was there any interest reversal this quarter, and what was the impact on the margin? John Stephen Tipton: Hey, Michael. It is Steven. The 4.51% margin does not have any accrual in that number. The impact was about $1.6 million for the quarter, which is about 5 basis points to the loan yield and about 4 basis points to NIM. If we had had it on accrual for the whole quarter, 4.51% would have been 4.55% compared to 4.56% last quarter. Michael Edward Rose: Really helpful. And on scheduled payoffs, can you quantify what the expected payoffs and paydowns are over the next quarter or two? Kevin D. Hester: It looks to me like the second quarter is close to $1 billion, and third quarter could approach that. Those include abnormal paydowns and principal paydowns too. That is what you would have to do to stay even in each of those quarters. John Stephen Tipton: For some context, payoffs in Q1 were about $650 million, but they were $950 million in Q4—$750 million to $800 million in quarters prior to that. It sounds big, but that is the range we run, depending on seasonality. Kevin D. Hester: And that does not include MCB—none of what I am quoting includes MCB because they are not in my pipeline yet. Michael Edward Rose: Got it. Any loans with MCB identified that maybe do not fit your standards that you plan to run off? Kevin D. Hester: I am not aware of anything. We looked at every loan in due diligence. I do not remember anything I would say to run off. Their credit culture is pretty close to ours. They may be a little higher leverage in some areas—we will work on that over time. They have opportunities with us that they have not had, as they have not been willing to do much construction. Any decisions we make to go a different direction than what they have done, I think, will be more than offset by opportunities to do things they have not done before. I look at them as a positive. As I said, I would expect them to hit the ground running pretty early. We have already had pipeline discussions over three or four credits as of last week. I told Bill: nobody cares what you make this quarter—get ready for the future. If you have anything you need to write down, write it down. Get rid of it. Get it going. Get it out of here. I think we are coming in with a pretty clean check coming in the front door. Michael Edward Rose: Appreciate all the color. Thanks. Operator: We now turn to Analyst with RBC. Your line is open. Please go ahead. Analyst: Just a couple of things to follow up on. Johnny, did you say in your prepared comments that you think deal pricing has moderated somewhat? John W. Allison: Deal pricing—acquisition deal pricing—yes, I think it has lightened up a little bit. I do not see the urgency out there that I did. However, people are talking and continuing to want to do something, and some of them want to do it with Home. I think it is out there. It is just a matter of whether we are ready to do that. We are probably getting close to ready to look at something else, but we are not going to be able to convert it about the same time we convert Mountain Commerce in November. We have been pushed a little bit ourselves. We have had people calling us outside of investment bankers and saying, “We met your company two or three years ago, and we are thinking about doing something and wanted to talk to you.” That happened with a couple—one Florida and one Tennessee—that came at us. We are going over to see Bill and his team. We will have an opportunity to talk to Bill when we get to Tennessee and see where we are going and what we are thinking. We are looking at a Tennessee deal—there is some water out there. We will see how they work out. Analyst: Related to that, how do you feel about being more aggressive on the repurchase plan? Do you have an optimal capital level in mind, or are you warehousing capital for future acquisitions? CET1 of 16.7%—those are high levels. John W. Allison: I do not know if we can spend it as fast as we are making it. That is a pretty good position to be in. We made $118 million—pretty nice. We have so much capital right now that we like our position, but I am ready to buy stock. I am looking at it today. We cannot buy today. Tomorrow we can. We filed our 10b5-1. I want to buy back all of Mountain Commerce—it is about 5.5 million shares. I think we bought essentially all of Happy back. I want to buy all of Mountain Commerce back and go out there. We can do it pretty quick with the capitalization we have. I like to buy stock. Analyst: So it is not an either/or—you can do both? John W. Allison: That is correct. John Stephen Tipton: Yep. Analyst: Thanks. Appreciate it. Operator: We now turn to Matthew Covington Olney with Stephens. Your line is open. Please go ahead. Matthew Covington Olney: Sticking with M&A, you mentioned some potential bank targets in Florida and Tennessee. Can you speak to the appetite of doing M&A in existing markets versus expanding into new markets? Is the bar set higher if you were to expand the franchise into new markets? John W. Allison: There is no comparison to me. If there is a Florida deal out there that we can do, we have management from Key West to Pensacola—management all over the state. We can just add it to someone. You have heard me talk about pouring into one of those guys' buckets. They are great managers. The performance of our Florida operations is outstanding. Those guys know what to do and how to do it. It makes it simpler and easier. We made the big move to Tennessee because we like Bill and his team. We need to grow there and build that and muscle up Tennessee because I think there is opportunity—there is a little disruption over there. I think it will give us an opportunity to pick up and build some muscle in that state as we have done in Florida. The reason being, you get more consolidation savings. If you can close some branches, that is a big savings. We will continue to focus more on where we are than outside of that. When we look outside, one of those deals I am talking about that your banker was calling me about is outside of that. I really like the operator. We like the guy. We like his company. We like what he does. They do not have the growth that Florida has, but he runs a good, clean operation. Why would we go there? Because it is simple and clean, and they do a good job running their company. It kind of fits Bill’s math. If you are going outside the market, you better get somebody like Bill that knows what to do and knows how to run it. Matthew Covington Olney: Appreciate it. As a follow-up—Chris is still on the line—question about private credit. You noted the bias for further reduction. Can you expand on your outlook over the next few years, and when do you expect to see opportunities for growth for CCFG? Christopher C. Poulton: Thanks, Matt. Two things. One, right now the uncertainty is: what do the underlying loans look like and where do they go? It feels early because I think you are going to see a false bottom—some price expansion or markdowns in notes, people say “that is it,” and then there is the third shoe to drop. We are not seeing a lot of capitulation on price, and there should be, and we are also not seeing much activity. Nobody is pricing a new facility today if they do not have to. We look a lot at whether these loans have been marked appropriately—what is happening to the other line of credit, has EBITDA expanded or not, have the loans been marked, etc. We would like to see a little more of that before we get comfortable. We have had people come to us and say, “I would like to get out of some positions; what would the price be?” Our answer: price does not fix credit. An extra 50 basis points is not going to save me when I need credit support. Right now, we are biased toward “let us figure this credit thing out.” This may turn into nothing—maybe all these things are fine—but I do not think you should take that risk today. We would want to see more capitulation before we would expand again. We have been in this market for ten-plus years. I think people that came into the market need to take some losses before I would feel comfortable—that is how you get discipline. New entrants thought they were getting something risk-free, they priced it that way, and then it turned out not to be, and then everybody gets religion again. We will look for that, and when we see signs, we might consider expansion again. We also have facilities that will roll off, and right now if a facility rolls off, we probably would not replace it. On the C&I side, that is the posture. Real estate—we continue to see good pipeline growth. We are going to have elevated payoffs, but one is a credit we have had that I have been saying is two weeks from payoff for six months—I think it is paying off today. Not a worry for us on credit—they have been in the sale process and it dragged on. We like the credit, but we get nervous when things stay too long; stuff is supposed to move. We continue to see great opportunities. The pipeline is strong. It might take me more than a quarter to replace what comes off, but not a lot more than that. Matthew Covington Olney: Helpful, Chris. Thank you. John W. Allison: Thanks. Operator: We now turn to Brian Joseph Martin with Bryn Capital. Your line is open. Please go ahead. Brian Joseph Martin: Hey, guys. Just one follow-up, Chris, if you are still there. On your outlook for the year—you talked about a payoff last quarter; it sounds like that maybe got pushed back a bit. Is your outlook for growth still mid-single-digit this year with the puts and takes? Christopher C. Poulton: I think that is right. That is what I would like to see. If we do not have that, I would be a little disappointed. We really look at it on a rolling basis—over the next rolling twelve months, will we grow? I think so. We booked quite a bit last year; we had really good production; not all of that is funded, so we expect some of that to roll through. I like where we are on pipeline. We are in constant contact with customers; most of our business is repeat. Some of it moves around—you get a call on something hot, then they pass, then it is back on. We are flexible, and because we are flexible, we get a lot of looks. Generally speaking, on a rolling three to four quarters basis, I can say we are probably going to expand. Brian Joseph Martin: Perfect. Thanks, Chris. A couple follow-ups from me. Johnny, any change now that you have Mountain Commerce—in terms of sizing—would you look smaller or bigger, or just what is available? John W. Allison: Somewhere in the size of, or larger than, Mountain Commerce would be nice. But we would probably do a smaller deal if it fits Bill. If it is in a market where Bill is not, and it fits him, we would step down and do a smaller transaction. Tennessee is a pretty good size, and we are in about four or five locations—six, seven, eight—we have room to go in that state. Brian Joseph Martin: Got it. Steven, on the margin—you talked about opportunity on cost of deposits at MCB and maybe not as much room on legacy. On the asset side, what is the opportunity for what is remaining to be repriced this year for Home, and any impact from MCB? John Stephen Tipton: I do not think any impact necessarily from Mountain Commerce on the asset side. What we are seeing most recently on what is maturing, given where competition is, is essentially trying to blend with overall where it is maturing from to keep it on the books. The benefit that maybe banks thought was there a year ago—given loan pricing competition and other areas—it is kind of hold on to what you got. Brian Joseph Martin: Gotcha. On production—you said around $900 million this quarter. In recent quarters, has production been similar? John Stephen Tipton: It is a little light for Q1. The $917 million this quarter—Q4 was a little over $2 billion. Seasonally, Q4 is higher. Prior quarters have been a little north of $1 billion. John W. Allison: And some of this is not funding day one. A fair portion is construction that will not fund until six months from now when it starts to fund, so it is hard to pencil all at once. Brian Joseph Martin: Understood. On credit quality—the Texas one you talked about, and the Dallas/Fort Worth apartments and the boat credit—are those still being worked through with no real update on timing? John W. Allison: We work those credits every day. The boat—we are going to a trial in June. We have the boat. It just keeps going before the judge; now we have a third judge and are going to trial. It is a $5 million boat. It is $5 million owed. It may be $7 million to $9 million—by the time we get it sold, it may be $3 million if it takes too long. I have never seen anything quite like that—very frustrating. The apartments in Dallas—we will get it sold eventually. We have had five, six, seven buyers. We will get it sold. There is no loss in that for us. Kevin collected a couple million dollars on it a while back. It is just a matter of getting it out. There were some obstruction problems. It is in receivership, and the receiver has to correct some safety issues. We may find somebody to take it where it is at. We are working leads all the time. Realistically, we may have to work through the issues that need to be completed before you find the right buyer. There is opportunity there. If we find the right person, we will get it sold and moved. Brian Joseph Martin: And the outlook on charge-offs near term—still pretty benign? Christopher C. Poulton: I would agree with that. John W. Allison: I do not anticipate any more losses on the boat credit or the apartment credit. Those are the ones we are working through. They are marked and written down. If the $100 million credit had some loss, I would be shocked. I have been fooled before, but I think we are fine. It would just be a bump in the road for us. We have the PPNR, and we have reserves. We have 15 years’ worth of charge-offs in our reserve—based on our history, including the Texas cleanup. Brian Joseph Martin: Last one for Brian. Fee income seemed pretty clean around $44 million. Is that a decent level to think about going forward? Brian S. Davis: You are right. Over the last four quarters, we have had somewhere between $4 million and $5 million every quarter drop down in the other income line item—different events ranging from $5.7 million in the third quarter of last year to $3.9 million in the first quarter of last year. This quarter, we did not have any of that. Brian Joseph Martin: So a good baseline to work off, with hope to trend upward. Perfect. Congrats on the quarter, and thanks for taking the questions. John W. Allison: Appreciate you. Thank you. Operator: We have no further questions. I will hand back to Mr. Allison for any final comments. John W. Allison: Thanks. It is a long day. A lot of questions. A lot of interest. Thank you for your support. We will continue to do our part, and hopefully we will continue to run the 2% ROAs. They beat us up a little bit on the stock today—kind of hammered us on the stock. I do not think we deserve to be off 3%, but it is an opportunity to buy. It is a great opportunity to buy. Timing would be good for us. That is it. Thank you very much. Talk to you in 90 days. Operator: Ladies and gentlemen, today’s call has now concluded. We would like to thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rubin Ritter, Interim CEO. Please go ahead. Rubin Ritter: Welcome, everyone, also from my side. Thank you for joining. My name is Rubin. I'm Interim CEO at Kinnevik since about 4 weeks. This is my first earnings call. And so far, I'm enjoying the work with the team. It has been very busy weeks. So there is a lot to talk about. And I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks, and then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Kinnevik? And in my mind, there is kind of a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Kinnevik obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Kinnevik, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership. So I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus on simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that, and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth seeking debate in the team. So this is really the type of values that I want to strengthen within Kinnevik during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily 3 effects: The first one being a derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the Climate Tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently, and personally, I probably disagree with some of that, and I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed, and we are reflecting that really to the full extent in our NAV. Now as a first consequence of the ongoing portfolio review, which is not concluded, but has started, we have taken the first decision, which is to discontinue the sector of Climate Tech. I personally actually believe that Climate Tech has a great purpose. And so I don't really kind of like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed, we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. We have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings. But I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Kinnevik, so we will not report on that dimension going forward. Just to be clear, of course, all 5 of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders and not because they are core or strategic in nature. Now we have also worked intensely in the team to review our organization and our ways of working. And we have and the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Kinnevik. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views more towards a feeling of being one team where just people have different roles and different accountabilities, but ultimately, are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship. Because when we look at how we invest, we invest really from our own balance sheet, which means literally every krona that we spent unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think in this context, we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signals a significant savings potential that we want to realize by the end of this year. And we aim for a target level of management cash cost of around SEK 200 million per year, starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now also in the spirit of making every krona account, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should. And I think this is also exciting because the value of many of these companies lies in the future. So we should be investing. And I also believe that our role as investors is to support these companies on the journey. And sometimes also, that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company but also at the execution track record, the financial performance, the competitive moats and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder. But I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than SEK 1.5 billion in follow-up rounds in the existing portfolio. And we should not think of this as a budget, but more think of this as a cap. So some of the things that I outlined here will help us to preserve cash. And I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we're doing exactly that. And my expectation is that this would leave Kinnevik with around SEK 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provide authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on. So there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a long-standing history of doing just that. But we are also on a journey where many things will change, and we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now there are just 2 areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic. We have started with the 2025 reported management cost, which was SEK 341 million. We have then deducted all noncash items, which are primarily depreciation, amortization and LTIP and then have arrived at the management cash cost for 2025 of SEK 313 million, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king. So that's what we should be talking about. We have then made our considerations around the target of how we think the team should be set up for the coming years and the review of nonpersonnel costs. And on that basis, we have defined SEK 200 million as our new target annual management cash cost. Now you should think of this number as kind of a steady-state cost number. So it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance but also significant deal-related or other one-off costs. So to get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. So you should think of this chart not as an exact plan, but more as a way to think about it and an indication. So per the end of this quarter, of the Q1, so the last quarter, we have SEK 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what we have to spend going forward. It's, first of all, the cost for our own team, which I just talked about. If we take a reserve for that for the coming 5 years, 5 x 200, gets us to SEK 1 billion. And then I've talked about the follow-on where we want to stay below SEK 1.5 billion for the current portfolio, which brings us then to SEK 5 billion in cash that will be available to the next CEO, and my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections. Samuel Sjöström: Thanks, Rubin, and good morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which, Rubin will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Enveda continue to deliver on important milestones. Their discovery platforms, lead drug candidate, completed very successful Phase Ib studies demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results, which the company will now try to confirm in Phase II studies. So operationally, our larger companies outside of Climate Tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in 3 areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at Perk and Mews. Now we're yet to see that come through in actual reported performance, and our forecast do not incorporate this potential impact, but I should say that Perk shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there is continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now that's something we, probably you and Cityblock clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. Thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values and thereby, ultimately, share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer-term outlook for our companies. But moving to Page 7, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software like health care technology services. It is evident that capital is rotating into other sectors with public software being the weakest performer year-to-date with index declines of around 20% to 25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. Two in particular stand out and they also resonate with our own hypothesis. And that's, firstly, that fast-growing companies continue to command significant valuation premiums in public markets. And secondly, looking at share prices over a longer time period than just Q1, more vertical software companies that provide specialized services have outperformed less critical horizontal application companies. And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, the subcategorization may grow in importance going forward. Having said all of that, again, in Q1, the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarter's changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red label dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Mews and Oviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Pleo, we've been a bit harsher considering the lower growth profile of these companies relative to other industries. Our valuation model suggests that this is fairly proportionate to what we're seeing in public markets, where slower growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Cityblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers to try and reflect this underlying market narrative. Moving to Page 8 to put this multiple headwind in absolute terms, it brought an SEK 8.3 billion negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter and in Q1 at SEK 27.9 billion or SEK 101 per share. Going by sector. Health & Bio was down 20% and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our Climate Tech companies, meanwhile, were down a meaningful 56% in aggregate, and this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to EUR 10 million. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming 5 to 6 years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Rubin mentioned, we've narrowed our sector focus. That entails us not making any new investments in Climate Tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in Climate Tech and the valuation reassessments that we're making this quarter. And on our website, you will also find the spreadsheet providing a historical pro forma NAV overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widened and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful, nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to Page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our EUR 20 million participation in Mews' funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to SEK 116 million after the sale of a real estate property as part of the rightsizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter ending at SEK 7.5 billion. So our financial strength and flexibility remains strong, and is reinforced by the cost savings and the SEK 1.5 billion follow-on expectation for the existing portfolio that Rubin went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Rubin gives his closing remarks. Operator: [Operator Instructions] Now we're going to take our first question. And it comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: So starting if you could help us break down these SEK 1.5 billion you're talking about. Is this primarily through continued participation in primaries in the larger companies? Is it tilted more towards the emerging companies? I guess, especially, as you mentioned, it excludes some of the opportunities for follow-ons? Rubin Ritter: Yes, sure, happy to give some more color on that. So I think the SEK 1.5 billion is derived by going through the portfolio and looking at where do we see follow-on demand coming up in the coming years, and then just taking the sum of that. Of course, those things are difficult to foresee. So it might be more tilted towards younger companies. It might be tilted to companies that already have larger scale. But overall, the idea is that this is the amount that we expect we -- the limit to what we might need to bring the portfolio to profitability in follow-on rounds. I think separate from that, I just think it's important to underline that to me, if there is one company in the portfolio that reaches scale and profitable growth and starts to go into the phase where you would talk of them as a compounder that continues to execute, but on the basis of a much more mature profile or as being listed. And then if Kinnevik were to decide to double down on that asset and take a larger ownership stake, to me, that would be a different logic. And that would fall into the SEK 5 billion discretionary investment that we might choose to make going forward. So this is, I think, a bit how our thinking of the SEK 1.5 billion differs from the SEK 5 billion that the firm has available long term. Linus Sigurdson: Okay. That's clear. And then if you could talk a bit about how you've set up processes to make potential exits? I mean should we think about this as a portfolio wide effort? Are you targeting certain types of companies? And if this is what you mean when you say the portfolio review is not concluded. Rubin Ritter: No. I'm sorry. By saying that the portfolio review is not concluded, I'm just sort of indicating that in the 4 weeks that I have been here, I have not been able to dive deep into every one of those assets, right? So we have started with that, and you see that already some decisions have come out of that process. But I think for practical purpose, we are still in the middle of it. I mean, Kinnevik has more than 30 portfolio companies. And I think it takes time to go through that, and it will take us more time going forward. In terms of exits, so I think for Kinnevik in the midterm, it would be wise to move towards a more concentrated portfolio. At the same time, I think it's very difficult to time these things. And I also think it's not in the best interest of our shareholders to rush into exits. So there I think we just have to be balanced in how we approach it. Linus Sigurdson: Okay. I appreciate that. And then my final question, I mean, I can understand this waiting to pursue buybacks ahead of a permanent CEO being in place and your comments around optionality and the SEK 5 billion. But what types of actions do you envision a permanent CEO could take? Rubin Ritter: I'm not sure I fully understand the question, but I think a new CEO could take all sorts of actions, primarily also defining what will be new focus areas for investments going forward and how do we want to complement the existing portfolio that we do have that, as we know, consists primarily of younger companies, fast-growing companies, how do we want to complement that with investments potentially in other sectors or with a different maturity profile. Those will be decisions to be taken by a new CEO, also in line with the new strategy going forward. Operator: The question comes line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I appreciate the clarity. I wanted to follow up on the potential exits here going forward. I mean, how do you view the possibilities for that? And how high on the agenda is it right now as it could sort of change your outlook for what you provided for the balance sheet going forward? I mean looking at some of this, especially the prior core assets, it seems quite clear that they are quite attractive in sort of the private market space. So how do you think around that? Rubin Ritter: Yes, as indicated, I think directionally, over the next years, I would like to see a more concentrated portfolio. So I think that is something that we definitely will look at and consider. But then at the same time, we live in a very volatile world. I think it's very difficult to give more color or like a specific forecast on how exactly that will play out. So I think we just will be investing a lot of time to go through the portfolio to review the different options that we have. And I can promise to you, we'll be very active in thinking about where to take the portfolio and what actions would be in the best interest of our shareholders. I just find it very hard to make specific forecasts on that topic. So I would not want to promise something that is then hard to influence because it also depends on many other factors. And I think it would be wise for us -- like if I think of this as my portfolio, I think I would try to really carefully strike that balance to become more concentrated going forward, but then also to try to find the right time and the right moment and the right price if I wanted to make any exits. Derek Laliberte: Great. That's very understandable. And on the write-downs here, I mean, apart from the peer declines outside of Climate Tech, what do you mean about what has changed in your underlying view of the assets outside there because we see Perk being down 43% and Pleo down by 40%, which does some pretty extremely in the light of how peers have moved and also the latest transaction values in the market. Samuel Sjöström: Derek, it's Samuel. I'll try to answer that one. So naturally, our views and our companies are evolving continuously. But as we stated in today's report and in the prepared remarks, there hasn't been any meaningful changes to the outlooks for our larger companies in this quarter. So what we're trying to do here and what our process is trying to sort of apply onto our private portfolio is this very substantial drawdown in public markets. And there, we believe, and the models tell us that it should be affecting our investees in varying degrees. So as you rightfully state, Oviva and Mews have recently raised funding rounds. That typically leads to slightly milder but still meaningful write-downs because as I mentioned, the expiry date on transaction valuations in this type of volatile market is very, very short. And then we have companies that are growing slower, such as Cedar and Pleo. And the data tells us that those should be impacted slightly harder than a company growing a bit faster all else equal. And you mentioned Perk. Clearly, there, we have a comparable in Navan. That company is trading at around the same levels it was doing at the turn of the year. So our process makes us feel obliged to move closer to where Navan is trading, even though our view on Perk's long-term value creation potential has not changed one bit. So I'd say the write-downs you're seeing and the variations in write-downs you're seeing in this quarter is less driven by a change in view on our individual companies or their performance. It's about how to apply this very significant derating in public markets across a set of investees that share some characteristics and have some differences in between them. Derek Laliberte: Appreciate the clarity. And then looking at the 10 largest assets you list here, can you say something about which of these you are the most sort of comfortable with in light of the potential of AI disruption here? And where do you see the biggest risks in the portfolio? Samuel Sjöström: So naturally, as you can imagine, we and our companies are spending a lot of time assessing how our company's best can adapt to a changing environment, not something that clearly we're used to. I don't want to reduce the write-up that we've put up on our website to a 30-second answer. But to give you some examples, like we see very strong moats and aspects like Mews' ownership of quite complex workflows at hotels. We see moats and Enveda's ownership of proprietary data, and we see defensibility at Oviva in terms of the trust from customers and regulators that they've built up over several years of real-world operations. But I'd refer you to that write-up on our website. And I think in terms of how the risk of AI disruption is reflected in our valuations this quarter is mainly through this relatively indiscriminate derating that we're seeing in public peers. And we're not sort of trying to be smart when applying that in terms of thinking about the longer-term view on AI that we have in the piece on our website, but the valuation process is much more quantitatively driven. Derek Laliberte: Got it. Okay. And then just on this organizational simplification you're carrying out. I mean, looking forward, what will be sort of Kinnevik's action as an investor going forward as you see it? Rubin Ritter: Well, I think Kinnevik's focus really over the last years has been to invest into fast-growing challenger type companies that take on big problems and try to solve them differently through technology. And I think that is really the type of business that we have been focused on in the past. And of course, we'll also continue to work in that field and continue to evolve our view and continue to try to find great opportunities. But then I think in terms of how to build capabilities there, it's also, to a large extent, driven by what future strategies and future focus a permanent CEO looks at. And I think that can only be answered once that person is on board. When we think or when I think about the target org, we try to provide that flexibility in the way that we structure the work in our investment team, to do it in a way that we can continue to cover those sectors that we are focused on right now in a really good way. And in my mind, that's not always a function of the number of people. It's also a function of many other things. And then how to have the flexibility to add new ideas and investment themes that will define the future of Kinnevik once it is clear what those are. Derek Laliberte: Perfect. And finally, I mean, given that you're striving for more efficient operations, does having sort of 2 offices and teams align with that vision? Rubin Ritter: So in my mind, I think that going forward, Stockholm should be culturally, and also from where the team comes together, much more the center of gravity. We'll continue to have colleagues that live in different places across Europe and London will be one of them and will provide good opportunities for them to work there and meet companies. But I don't think we should think of that as a second half, not only in terms of the cost that presents, but also and maybe more importantly, in terms of what that presents in terms of having different cultures. I mean, Kinnevik is before the change and after the change, ultimately a small team. And I think there is a big benefit to have 1 physical place where the cultural center of gravity is. And I think, for Kinnevik, that should be in Stockholm. Operator: The question comes from the line of Bjorn Olsson SEB. Bjorn Olsson: Two questions on the organizational changes. First, could you give any more flavor in terms of where you expect to find the cost efficiencies? Is it from the investment teams, back office or just sort of across? And second, I mean, culture is something that's in the walls. So when you now strive to increase the performance culture in your company, do you have any sort of tangible actions planned in terms of either changed incentive schemes or any sort of change of key staff or similar? Rubin Ritter: Thank you for the question. So I think in terms of where we see savings potential, I think it's really -- we look at it across the board, and across all those different topics that you have mentioned. It comes down to a leaner target organization, but also then on nonemployee-related costs, there are opportunities that we see, such as office cost, IT cost and many others. So it gets very granular very quickly. But I think we just really also owe it to everybody that we do that tedious work. And essentially, we're looking at every single contract, and we are reviewing if we need it. And what is the value it creates, and is there a simpler and more efficient and better and also a cheaper way to do it. So that's clearly a focus. I think in terms of performance culture and achievement culture, you are 100% right that this is not something that can be impacted just within a few weeks. I think that is -- obviously, those processes take more time. And I think a lot of that will also be then hopefully brought forward by a new CEO. But to me, it is really a lot about leading by example, how do you take decision? What quality of argument do you accept? What do you not accept? So I think it's in the -- in many of the details of our daily collaboration that I think culture comes through. And just to be clear, that's also not just about me changing that, that's also about kind of the team bringing out the good things that we see and encouraging the team also to lead itself and each other in that regard. So I think that is something I'm quite passionate about and where I think we can make a lot of progress. You mentioned incentives. I mean incentives, of course, also play an important role. But to be fully frank, I haven't looked at that in the first 4 weeks, but I agree it's an important theme, and it will be important for the long-term success of the company that we get incentives right. That is, by the way, saying that they are not right, but they need to be right, and I haven't reviewed them yet. Bjorn Olsson: Good point. So then just a minor follow-up. So in terms of redundancy costs, when you're sort of rightsizing, that should probably be lower than if the FTE reduction is a smaller part of the SEK 100 million in cost savings? Rubin Ritter: I think personnel is a part, just like many other pieces, and there will be also redundancy costs related to personnel but also related maybe to other contracts that we might want to get out of. And the idea would be to incur the majority of that still this year. Operator: Now we're going to take our next question. And the question comes from the line of Oskar Lindstrom, Danske Bank. My apologies, there are no questions from Oskar. Now we'll proceed for the next question. And the question comes line of Johan Sjoberg from Nordea. Johan Sjoberg: I had a couple of questions actually. Starting off, Rubin, I mean, looking at your -- I understand you're 4 weeks into your temporary job and you have a lot on your plate right now. But on the other hand, I mean, you have tons of experience, you have aboard with a similar amount of experience. You have Samuel also, who is well on track, how things have been progressing with the 30 portfolio companies. So my question for you is how long time do you think it would take you to sort of get your head around all the companies, which was to sort of focus upon who will be sort of your concentrated portfolio over the coming -- in the foreseeable future? Rubin Ritter: Yes, sure. I mean I personally would think of it as a kind of ongoing process and ongoing discussions and considerations that we have in the team. And I think we also have many ideas in that regard already. And as you mentioned also, we're not doing everything from scratch. There is existing views and existing knowledge, obviously, in the team, right? So sometimes it's also just about following up on that and servicing those pieces. So I think we're incredibly focused on it. But I don't think it would be wise to now put ourselves in the corner by sharing specifically what our thoughts are on individual companies. I think that's not advisable. But as in any good investment company, I think those discussions should be ongoing as ordinary course of business also to just always be up-to-date on your portfolio on the different type of companies, and what our position on them should be going forward? Johan Sjoberg: I understand. So you have to sort of push a little bit here on the 30 portfolio companies. So when you talk about a more concentrated portfolio, what sort of range are we talking about here? Are we talking about below 20 or are we sort of -- once again, I understand it's early, and you don't want to sort of promise anything, but just for us to get some sort of feeling here. Rubin Ritter: Yes, right. I mean, to be frank, I think a lot of that also comes down to strategic decisions by a new CEO, but then I also don't want to shy away from an answer. In my view, it's not necessarily about a magic number. So I don't think there is kind of the perfect portfolio that is 10 or 15 or 25. But it's really about, in each of the companies to have a position that allows us to be a meaningful owner and to only have such a number of positions that you can cover with a kind of small, lean, but very experienced and high seniority team, that you have only positions where you can have a meaningful value add to those companies where you truly can be a great owner of that business and provide the right level of leadership to those companies. So those would be some of the considerations I would be focused on. And I don't have the number for you. I don't think of it in those terms, but I do think that the current number is too large. I think that is also given -- I mean we all know there is a large bucket of what we call other companies that has to do with previous strategies. And I think a lot of these things just have maybe a bit accumulated over time. And there we need to think through how to take that into a good direction going forward. Johan Sjoberg: Perfect. And we also talked a lot about the new CEO. Could you just give an update on how that process is ongoing here? It's been since November that the first decision was out. And you had a lot of time. I understand a lot of -- it's been a full headwind in Q1 in terms of how the market is viewing this sort of company, but also what is done right now. Rubin Ritter: Sure. I mean that search process is led by the Board and then more specifically, a subcommittee of the Board. And I'm sure they will give an update as soon as they have an update. But there's not really a whole lot more I can say on the issue. I'm on the subject. I'm right now incredibly focused on the inner workings of Kinnevik and all the work that we outlined in the presentation. Johan Sjoberg: Okay. Final question, Samuel, maybe you can help with this one. I mean just looking at the NAV or the write-down of NAV in the quarter, I think it's great that you have taken down the NAV because obviously, the market has not believed in sort of the underlying figures here. And sure, we've seen multiple contractions during the first quarter. But then on top of that, also you had some -- you also changed your view of growth for some of the few companies. And I guess, first of all, this is not a number, which I guess, Rubin, you feel much more comfortable with also, although just 4 weeks into the job. But just to get a feeling for, I mean, Samuel, maybe just looking at sort of the multiple impact on the write-down, how much would that be? And sort of what is the impact from your sort of changed view on the NAV also? Samuel Sjöström: Thanks, Johan. So I mean the easiest way to answer your question is to refer back to the page where we show that multiple contraction had a negative impact on NAV in excess of SEK 8 billion. And again, in terms of how we've applied the multiple compression we're seeing in public markets onto our portfolio, that is sort of flowing through our process, which is unchanged and is sort of intrinsically rigged, to be conservative, to be objective and to be as numbers driven as possible. And clearly, valuation levels in our portfolio has come down over the last quarters and last years. And I think that's 2 reasons mainly. Our portfolio has matured and that public comps have derated significantly. So in this quarter, specifically, we're taking that significant hit from the public peers. We've learned a lot over the last couple of years, and those learnings are clearly sort of ingested into our quantitative models. And then as always, there are individual considerations, but then again, those individual considerations are mainly of a technical and quantitative character in our different regression analysis and so on. So again, in terms of outlooks on our companies, looking at the larger investees as a group, those are largely unchanged. And in Q1, the larger companies have delivered on expectations. But yes, there is a lot to decipher in the public market moves in Q1. Johan Sjoberg: I'm just referring to sort of looking at the software down 38%. I mean just looking at sort of the presentation which you gave ahead of -- these are clearly below. And once again, I don't have a problem with it at all, but it seems like you have written it down more than sort of what the multiple seems to report, multiple contractions, that's sort of my -- maybe I'm wrong here. Rubin Ritter: To summarize, I think we are confident with the variations that we have put out in Q1. I think that's the bottom line of it. Operator: Now we're going to take our next question. And the question comes line of Oskar Lindstrom from Danske Bank. Oskar Lindström: I hope you can hear me this time. I have 2 sets of questions. The first one is on this ongoing portfolio review. And could you see adding back a cash flow-generating asset as opposed to more of the growth-oriented assets that you have today as part of the portfolio, again, to sort of have that balance between cash flow-generating assets and growth assets? That's my first question. Rubin Ritter: I think it's a very relevant question. And I think it also falls into that category of future strategy where, again, I just want to be careful with my own view, given that I'm also only here temporarily. But I think there is -- my personal view is, there is merit to what you are saying. And I think there needs to be the effort to make the portfolio more balanced. And my understanding is also, I don't oversee kind of the full 90-year history of Kinnevik, but my understanding is that also even though the company has a history of backing challengers and taking technology investments at early stages and kind of betting on the future in a way, in my understanding, that was at many times also balanced with more mature, more cash-generating assets in the portfolio, maybe also some of them being listed. And to me, that seems like an advisable idea because right now, of course, and that also became apparent when we went through the valuation exercise, one challenge that we clearly have, and I think it's also something that the team here internally really tries to live up to very hard, is that we have a portfolio of private fast-growing assets that are just really not easy to value. I think we can all agree on that. And then every quarter, of course, we have the expectation of public shareholders that want clarity and transparency, also for very understandable reasons. And every quarter, again, we have to kind of bridge that gap, and that's not an easy task to do, and that's also not easy on the team here internally. And I have also experienced that now firsthand when going through the valuations. So I think also in that regard, it might be a path to just make our lives a bit easier and also to generate a more balanced outcome for shareholders. So I think there's merits to that idea. But then again, I think it's also subject to the general strategic discussion going forward. Oskar Lindström: My second question is on the roughly SEK 1.5 billion of follow-up investments that you've talked about. How soon could that SEK 1.5 billion needs to be spent and you estimated? Is it like front loaded or sort of evenly over the years or how soon? Rubin Ritter: I really understand the question. And I think I would also love to know, I think that's the honest answer. I mean we have some view and some visibility on what demand might be coming in the coming months, but then it's also really difficult to forecast. And just maybe also to reiterate, I think it's really important to think of this not as a budget that we intend to spend, but it's more kind of an estimate or like a cap that we want to limit ourselves to because I also think in my perception in the market, there has been the perception that maybe the majority of the cash that we have might need to be deployed into the current portfolio. And I think our message is just that we really don't think that, that is the case necessarily. So that is the context why we have talked about this number, the SEK 1.5 billion. But then really, it will be a bottom-up exercise. I think every follow-on opportunity has to be assessed in its own right. I tried to speak to what are some of the characteristics and some of the analysis and some of the considerations we will make when we evaluate whether or not to participate in those rounds. And I think that is really what will be happening. So it's very much bottom-up. I wouldn't want to forecast it too detailed on a time line. And I think of the SEK 1.5 billion as an estimate and the maximum number. Oskar Lindström: Just a follow-up there. The SEK 1.5 billion, is that within the next 5 years? Just to clarify that once more. Rubin Ritter: Yes, I mean that's probably like a reasonable assumption. We talk about the existing portfolio, right? So like theoretically, it's a number into kind of eternity because we have the existing portfolio. It continues to drive towards profitability. And at some point, more and more of these companies just will not need further follow-on investments, right? So then they fall into a different category where we can, of course, always think about if we want to accrue to a larger stake because we think it's a company really want to be holding long term with a larger allocation, but that's been a different consideration, right? So as the portfolio grows towards profitability, that number will be deployed, and it's difficult to put a number on it, but probably 5 years is a valid assumption. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: I just have two from my end as well. Rubin, thank you for your thoughts. And I was just curious, there must be some sort of conversations that come your way that says, look, with valuations crashing the way they've had, aren't there any opportunities in the market also to sort of deploy capital in some very interesting assets that are now probably attractively valued, maybe in sectors that are topical like AI? How do you sort of deal with those kind of topics that come your way, given Kinnevik at the end of the day is an investment holding company? Some color there would be great. And second, I guess, we're halfway into April, have you all seen the valuations of the peers that you're using as comps stabilize so far in Q2? Or has it also been volatile with the geopolitical sort of news that's out there? Some color there on what's going on with the comp base would be great quarter-to-date. Rubin Ritter: Great. Thank you. Maybe I can comment on the first question, and then Samuel can take the second question. So I think you have a great observation that obviously volatility always also creates opportunities. And it is exactly in that context that I also see Kinnevik's SEK 5 billion of cash available to investments as a great asset to be able to potentially act on opportunities. And I also expect the Board will continue to be volatile going forward. So I think in that context, that balance sheet just becomes a very strong asset in the way that I look at it. In terms of AI, I mean, Kinnevik already today has exposure also not only to software companies that are taking this new technology onboard very decisively, but also to some AI native companies. And here, maybe I can also point you to the piece that Samuel already has referred to on our website on building business -- our thoughts on building businesses in the age of AI. Samuel Sjöström: Yes, Nizla on what we're seeing in peers, April to date, I'd say that volatility remains very high. If you look at cloud ETFs, they were up 5% yesterday and a week ago, they were 10% lower than they are today. So it seems to continue to sort of bounce around, both in terms of share prices, but I'd say sort of the volatility and the underlying drivers seems high as well with new AI product releases every week and clearly, what's going on in the Middle East and the posturing from the U.S. administration. So volatility is persisting in April. In terms of absolute levels, they are roughly around where we ended Q1. But again, very volatile still out there. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to Rubin Ritter for any closing remarks. Rubin Ritter: Great. Thank you all for your participation, for your time, for your questions and the good discussion. Maybe just to reiterate, as we have also pointed out in the Q&A, Q1 has been a tough quarter in many ways to our shareholders, to the team, to the company overall. A lot of things have been happening. And I also think that during Q2, we will just be very busy as the world continues to be volatile, and as we start to take some of the steps that we have been discussing. We have been talking about the cultural shift that we want to work on, how we want to work on preserving cash, for optionality for the future and how we want to move towards a gradual portfolio concentration by balancing that with the time that it might need. And I think many of those changes will also take time and hard work. But at the same time, when I try to see through this, I also see many positive things. I'm just really convinced that the changes that we have talked about will make the company stronger. And I really think that the cash position that the company has will create options going forward. And as we just discussed, I think that's particularly valuable in a world that is as volatile as ours. I do think we have great companies with great potential in the portfolio. And even though we have talked about the NAV impact on this quarter, I think we just should not forget that these companies are there and that they continue to execute. And I see a quite good path and a good chance that their value will also become much more tangible going forward. So I think this provides the basis for the company being significantly stronger in the future than it may seem today, and that is what we as a team are really focused on. So thank you again for your time, and have a good day.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you. Abhishek Jain: Yes, [ Sashi ]. Thank you. Warm welcome to our Q4 FY '26 earnings call. We'll begin the call with business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer; we also have our CHRO, Saurabh Govil; and our Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms at 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainty and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srini, Over to you. Srinivas Pallia: Thanks, Abhishek. Hello, everyone. Thank you for joining us today. Geopolitical and policy disruptions have become the new normal. Despite these headwinds, IT spending has shown resilience. Cloud, data and AI continue to attract investments as they provide infrastructure for future growth. Client priorities are shifting with spending decisions increasingly tied to outcomes. And at Wipro, we continue to make decisive investments to navigate the AI-first world. With that context, let me now turn to our performance in quarter 4 and for the full year FY 2025 '26. All growth numbers I shared will be in constant currency. Our IT Services revenue for quarter 4 was $2.65 billion, reflecting a sequential growth of 0.2% and degrowth of 2% on a year-on-year basis. Our operating margin came at 17.3%, a contraction of 30 basis points sequentially. The order booking for quarter 4 was at $3.5 billion, which is a growth of 3.2% sequentially and a degrowth of 13.9% on a year-on-year basis. We had 14 large deals totaling $1.4 billion this quarter. For the full year, IT Services revenue were $10.5 billion, reflecting a year-on-year degrowth of 1.6%. Our operating margin was at 17.2%, an expansion of almost 15 basis points as compared to FY '25. Now to our strategic market unit performance in quarter 4. Americas 1 delivered sequential and year-on-year growth, driven by strong performance in consumer, technology and communications. The health care center was impacted by seasonality and policy changes. Americas 2 decline sequentially and on a year-on-year basis. The BFSI sector was impacted by delayed ramp-ups on some large deals that were closed earlier this year and by certain client-specific issues. Europe grew sequentially and has remained flat on a year-on-year basis. We see good traction in the U.K., specifically in the BFSI sector. We also see strong deal momentum in Germany. APMEA grew sequentially and on a year-on-year basis. Growth driven by Southeast Asia. We are seeing traction in the BFSI, technology and communication sectors. We are encouraged by the momentum we are seeing in the APMEA region both in performing and bets we continue to make there. A strong example is the strategic deal we announced recently with the [indiscernible] expected to exceed $1 billion in contract value with a committed spend of $800 million. This is 1 of our largest engagements to date in APMEA. In this quarter, we also closed several strategic engagements. Let me highlight 2 examples with global technology leaders to drive AI at scale and how Wipro is partnering with them. In my first example, a leading global technology company has engaged Wipro to help run and improve its frontier AI models. Wipro will manage the end-to-end operation of these AI models from training, governance and evaluation to domain-specific validation. In fact, this engagement will be done to a specialized global delivery platform. We will make these models more accurate, reliable and safe while ensuring they can be deployed and managed at scale. In my second example, we have been selected by a leading global semiconductor company to provide engineering services that accelerate product development and manufacturing across its complex hardware platforms at locations distributed globally. We will support the entire engineering life cycle from product development to performance testing analysis. Before final shipment is made by our clients to their end clients. This will help our clients achieve faster resolution management, higher yield and improved governance with AI-driven analytics and automation. As intelligence becomes industrialized and widely accessible, we are making a deliberate strategic pivot to stay ahead. As you might be aware, we have launched a dedicated AI-native business and platforms unit to expand beyond a services-only model to a services-as-a-software approach. This unit will operate with dedicated leadership, focus investments and a distinct operating model to accelerate enterprise-grade agentic AI solutions. [indiscernible] will also incubate new AI businesses through an invest build partner approach in addition to collaborating with Wipro Ventures and our partner ecosystems. Together with core services, this creates a dual engine model, driving transformation at scale while building AI-native platforms that differentiate services enable repeatable deployments and unlock nonlinear growth. With that, let me move on to our guidance for the next quarter. In Q1, we are guiding for a sequential growth of minus 2% to 0% in constant currency terms. Thank you. I'll now hand it over to Aparna, our CFO. Aparna Iyer: Good evening, everyone. Let me share a quick update, and then we can open it up for Q&A. Our IT services revenue for Q4 grew 0.2% sequentially in constant currency terms, and 0.6% in reported currency. Our revenues declined 0.2% on a year-on-year basis in constant currency terms. For the full year FY '26, IT Services revenues declined by 1.6% in constant currency. Our operating margin for the quarter was at 17.3%, a contraction of 0.3% over Q3 '26, and a 0.2% contraction on a year-on-year basis. With this, our full year operating margin stands at 17.2% and expansion of 15 basis points year-on-year. We maintained the margins within a narrow band even after absorbing 2 incremental months of DTS HARMAN. And we also rolled out salary increases effective first March. As we move into Q1, we will have the headwinds of 2 months of salary increase and a few large deals that we've won and the volatility could be there in our quarterly performance. Having said that, our endeavor would be to maintain these margins in a narrow band in the medium term. Net income for the quarter was at INR 35 billion. Adjusted for the impact of labor code changes, our net income increased 3.7% sequentially. For the full year, our net income increased 2.2% year-on-year. This was after absorbing the impact of restructuring charges in both Q1 and Q3 of last year. EPS for the quarter was at INR 3.3 and INR 12.6 for the full year. Moving on to our strategic market unit and sector performance. All the growth numbers that I will be sharing will be in constant currency. Americas 1 grew 0.3% sequentially and grew 2.9% on a year-on-year basis. Americas 2 declined 2.6% sequentially and 6.7% on a year-on-year basis. Europe grew 2% sequentially and was flat on a year-on-year basis. APMEA grew 3.1% sequentially and 0.8% on a year-on-year basis. Moving on to sector performance. BFSI declined 1.3% sequentially and 0.5% year-on-year, Health declined 4.4% sequentially and was flat year-on-year. Consumer grew 1.7% sequentially and declined 2.9% year-on-year. Technology and Communication grew 5.3% sequentially and 10.4% year-on-year. EMR grew 1.1% sequentially and declined 5.9% year-on-year. Let me share some other key financial metrics. Our operating cash flow continues to be higher than the net income and stood at 112.6% of net income for FY '26. Our gross cash including investments was at [ 5.9 billion ]. Accounting yield on average investment held in India was at 7.3%. Our ETR was at 23.5%. In terms of guidance to reiterate the Srini said, we expect our revenue from IT Services business segment to be in the range of $2.597 billion to $2.651 billion. This translates to a sequential guidance of minus in constant currency terms. Lastly, I'd like to share that in our recently concluded Board meeting, the Board of Directors have announced and approved a buyback of INR 15,000 crores at a price of [ INR 250 ] per share. This is the largest buyback that Wipro has announced, and we expect to buy back 5.7% of the paid-up capital. The buyback is expected to complete in Q1 '27 subject to shareholder approval. Our endeavor has always been to return a substantial portion of the cash generated in our -- through our operations back to our shareholders in FY '26 alone, we distributed dividends of $1.3 billion, taking our total payout ratio for 3-year block ending FY '26 to about 88%, which is significantly higher than the minimum threshold of 70% that we have as per our capital allocation policy. With that, I will hand it over for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of [ Pratik Maheshwari ] from HSBC Securities..Sorry, his line is disconnected. We'll go on to the next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Sir, the first question is, there has been a good large deal wins, which has happened on the one end as well as fourth quarter of last year. And we kept on telling about delay in these large deals, which was expected to come in Q3, then we said Q4, then we said it will come 1Q, but the guidance does not show that. despite the nature of the deal being cost takeout when it comes to consolidation. Why is this delays happening? Srinivas Pallia: Thanks, Sandeep. This is Srini here. Thanks for your question. Let me just talk about the quarter 4 performance in the context of the 4 SMUs we had. Three out of the 4 SMUs, Americas, well, Europe and APMEA have grown sequentially. Having said that, specifically Americas 2, we saw significant softness. And this is specific to the BFSI sector there. This has been a combination of both client-specific issue and delayed ramp-up that you're talking about. The reason for the delay is a very client specific, but we see that opportunity coming up sooner than later, and that will give us the growth in that particular account and that particular sector. Sandeep Shah: Okay. And do you believe second quarter onwards, there could be ramp-up can actually pull up the growth? Or you believe plan-specific issue because of the geopolitical issuance macro may continue? Srinivas Pallia: So as far as this particular client is concerned, it will end in quarter 1, Sandeep, and there is no further impact for us materially. That's number one. Number two, as far as geopolitics is concerned and we have not seen any clients at this point in time, demonstrating any specific behavior. And also, if you reflect on the pipeline that we have across the market, including countries and across the sectors, a very strong pipeline. Of course, it's a very competitive landscape, and the competition is very intense. And the way we have gone ahead with the Olam deal, which is a very transformational deal, long-term deal also taking their entire IT into Wipro welcoming them into the Wipro family. The second one that we announced yesterday, which was part of the vendor consolidation, the kind of deals that are coming off are very different but very strategic, and we are staying focused on execution for us, which will help us quarters ahead. Sandeep Shah: Okay. And just last two, there has been a notable decline in our top line. What is the reason for the same? And second, can you give us the inorganic growth contribution you were factored in the first quarter growth guidance? Aparna Iyer: So these 2 deals that we've announced in this month, Sandeep, are a part of our guidance. At the midpoint, we've assumed both these deals to start yielding revenues for 1.5 months, halfway through the quarter. To your point on the top count growth, it's a sequential decline. But from a year-on-year standpoint, it continues to have grown. And we are very confident that it will continue to come back as we go through the quarters. Sandeep Shah: Okay. Okay. Is it possible to quantify inorganic growth in the guidance? Aparna Iyer: They are not inorganic. They are actually strategic deal wins. If you look at it, Olam is a strategic deal win with -- it's a relationship that is -- has committed revenue. So -- and even the other 1 that we announced was part of the vendor consolidation strategy, for 1 of our top clients, and we continue to participate in these kind of deals. And both will be a part of our numbers and our guided range. Operator: Next question is from the line of Ravi Menon from Axis Capital. Ravi Menon: Beyond the top customers where we've seen a sharp decline, we also been top 25 customers also declined slightly. The top customer decline although we said it's temporary. It's a very sharp decline. Can you talk a bit about what led to this? And why -- what gives you confidence that this will be temporary. Aparna Iyer: Ravi, if you look at it, our top client has been producing a healthy growth for us for a fairly long size right? This kind of one-off quarter volatility is not something that we are unduly concerned about. The relationship remains very strong, and you should continue to see it bounce back. Ravi Menon: And the unbilled revenue has grown this quarter more than $80 million. And then we also see some long-term unbilled revenue. Could you talk a bit about what's led to the [indiscernible] how should we see that trend? Aparna Iyer: No. So I don't think -- see, the unbilled revenue that has gone up is more a quarterly aberration. It should correct itself from a quarter on. I mean, from a year-on-year standpoint, actually, our DSO has remained flattish. Like I said, our operating cash flow has remained 112% of net income we are not seeing any large exposures or pile up of unbilled in our balance sheet. From a unbilled standpoint as well, I think it's fairly content and we have some consistent improvement. Yes, some of the larger deals as they pick up, we are open to -- they will come with some amount of balance sheet leverage, but nothing that's unduly different than what we do as business as usual, Ravi. Operator: Next question is from the line of Dipesh Mehta from Emkay Global. Dipesh Mehta: A couple of questions. First on the -- part. You said BFSI weakness was because of 2 factors. One is client specific and second is delay in ramp-up. And 1 of the question answer you indicated about some of this is likely to be ending by quarter 1, which part you are indicating by Q1? Aparna Iyer: We have said that the client-specific issue that we have seen in 1 of our clients in Americas 2 has had an impact on both Q4 and Q1 and there won't be a continuing impact of that going forward. Dipesh Mehta: And what about the delay in ramp-up part? Aparna Iyer: Yes. So if I have to characterize, we've had several large deal bookings, right? Now the 1 that we announced on [ Phoenix ], it is fully ramped up 2 plants. There's no delay, right? If you look at the other 3 mega deals that we spoke of, 1 of them is on plan, and we are continuing to ramp up. We are seeing challenging 1 of those -- as we spoke about, where we are seeing a delayed ramp-up, which is, in particular, impacting the growth rate of that particular sector in that particular market unit. Outside of that, BFSI growth rate of pretty good in Europe and APMEA. As that client comes back and we start to ramp up, you will see those growth rates improve it. That is our job. Dipesh Mehta: And can you give some sense about that the what factor is leading to delay in ramp up whether -- so if you can provide some details around it, qualitatively, what is leading to some of those delays? Second question which I have is, if I look, let's say, the couple of projects in which we close or in the process of closing, we included in the guidance, if, let's say, any delay in some of those closures, do you see risk to that guidance kind of thing? Aparna Iyer: We guide in a range. There is -- like I said, we guided a range and there is a midpoint, and we have some cushion, both on the downside and on the upside. And for now, we are comfortable within that guidance. On the first point, Srini. Srinivas Pallia: Yes. Dipesh, Srini here. On the first point, this is a very client-specific issue, where they have changed a little bit of the strategy around some of the things as part of the business because of which they have delayed it. But having said that, we have the clear visibility going forward. It's about the matter of timing, when and how much, and that should help us going forward, Dipesh. Dipesh Mehta: Understood. And last question from my side. I just want to get some sense about how Capco is playing out. Srinivas Pallia: So Dipesh, as you know, Capco is a tip of the spear for the consulting piece on the -- side. They are definitely doing well. And if you look at sequentially, Capco is performing very well and also on the year-on-year, both have been very positive. And in fact, Capco had 1 of the highest revenues in the last several quarters. So Capco is making a big difference in terms of the whole AI advisory and consulting. And the way they are being proactively shaping the clients thought process in terms of the whole geopolitics and in terms of the trade and tariff and the technology transition has been really good. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats Srini and Aparna for the buyback announcement finally. I know the market participants have been waiting for this 1 for quite a while. Two questions from my side... Operator: Sorry, Vibhor, you're sounding different. Vibhor Singhal: I'm sorry, sorry, just give me a second. [indiscernible]. Operator: Can you -- are you on your handset mode. Vibhor Singhal: Switch to the handset now? Operator: Yes, it is clear. Now please go ahead. Vibhor Singhal: Okay. Sorry for that. Yes. So a couple of questions from my side. Srini, on the energy and the -- verticals. This has been a vertical in which we've been very strong for quite a while. Just wanted to pick as to what are the conversations that you're having with the clients at this point of time because of the -- that is going around, will the crude prices and the volatility in it impact our business in this vertical, either positive or negative? Any conversations that have already started on that regard? Or is it too early to call out any impact of that on the segment? Srinivas Pallia: So Vibhor, from our perspective, if you look at the quarter 4, we have seen a sequential growth. And both manufacturing, particularly auto industrial, as seen impact otherwise on the reason for tariffs. Now coming specifically in the context of geopolitics, wherever, I think there is -- some of the clients are waiting and watching. But having said that, not dramatically changed their strategy. For example, what they're trying to do, especially in the manufacturing sector, if you will, they're looking at how do you secure the supply chain, make it more visible and more dynamic going forward. And that's some of the opportunities that we are looking at in the context of AI that can actually help. So that's the trend that we are seeing. Auto industry. Obviously, they're also looking at how the markets are going, and it varies from country to country in terms of how the business is going. And the third is in terms of overall manufacturing, we have not seen any clear change, but they have been constantly under pressure because of tariff flood disruptions that they're going through. And they're also looking at what kind of consumer demand they can have. And also they are keeping a close watch on the input cost because that will also impact their final product cost. So they are trying to sharpen their budgeting, I would say, tightening at this point in time. Vibhor Singhal: Got it. Got it. Good. My second question, Srini, was basically on -- again, sorry to have on the Q1 guidance, once again, as Aparna mentioned, we are taking around half -- 1.5 months of contribution from the new deal that would approximately come to around 0.7%, 0.8% of revenue. Then another -- 0.8% from the 1-month integral of HARMAN integration. That leads [indiscernible]. Operator: I'm sorry, Vibhor, you're sounding muffled again. Can you repeat the last part please? [Technical Difficulty] Okay. Now it's fine. Vibhor Singhal: Yes. I'm so sorry for the poor connectivity. Yes. So as -- I think the 2 deals will contribute 1.5 months of revenue, that's around 0.7%, 0.8% of revenue. HARMAN acquisition, 1 incremental month in Q1, again, that's another maybe 0.7%, 0.8%. So around 1.5% growth is coming from these 3 factors. So these aside, I think the remaining business seems to be quite a sharp line in Q1. You mentioned 1 of the client-specific issues, which you will continue to face in Q1. But are there any other significant client ramp-downs or any other delays that we are seeing because of which this Q1 growth -- organic growth or if I can call the growth beyond these 3 seems to be so weak? Aparna Iyer: You know DTS HARMAN is fully in our Q4 numbers... Vibhor Singhal: But in Q4, that was only 2 months. So on Q2, this will add another month in Q1? Aparna Iyer: No. No. Q4 was all 3 months. Yes. So that is not -- that is the only inorganic piece and our growth for Q1 is -- yes, there are these 2 deals that we've spoken about, which will be there, and it will add to our revenues in Q1. And we've assumed that they will start yielding revenues mid-quarter. Vibhor Singhal: Mid-quarter. Got it, got it. Aparna Iyer: Yes. [indiscernible] organic growth, are these strategies taken. Yes. Vibhor Singhal: Very much point taken. Just my last question on the margins. I think very strong performance on the margins in this quarter despite wage hike and HARMAN integration as well. Do we believe these margins are sustainable in the coming quarters as well, given that we'll have a couple of these deals -- out deals also that we will be factoring in? Do you believe you will be able to maintain their margins at around the current levels as we have always maintained. As we've always stated that this is our target range? Aparna Iyer: Yes, there are 3 areas where we are going to be investing in. We've already rolled out the wage hike effective first March. So we will have 2 months incremental impact, which will have to be absorbed, right, in Q1. Two, we are winning among these large deals, and they are 1 in a competitive environment. They will come with their share of lower margins, especially as we start these deals, right? Second, there is certainly around capabilities. We've acquired the DTS HARMAN connected services fees, which will -- which is also putting pressure on margins. And as I look ahead, we will continue to actually accelerate investments, especially around Wipro Intelligence, the platform unit that we have announced. And it will need a lot of investment that we will work through and share with you transparently as we go through the process as we form our strategy around it, that will also be an area of focus for investment. Given all this, we will have to drive operational improvement that is a continuous process, as you know. And like I said, maybe we see some quarter-on-quarter volatility, but our endeavor is going to be that in medium term, we continue to drive that productivity and cost takeout and deliver on the promise of actually AI helping us to deliver our fix-price programs better. And we continue to optimize all other over. Now as we do that, hopefully, we are able to keep our margins in the medium term in [indiscernible]. Operator: We'll take our next question from the line of [ Prateek Maheshwari ] from HSBC Securities. Unknown Analyst: So Srini, I've got a couple of questions. So I'm sorry for harping again on Americas 2. Just wanted to understand that, there are the client specific issue that you guys have faced in the fourth quarter and you facing the first quarter spend. However, if I look at Americas 2 over a 1-year period or a 3-year period, it seems that there's been a [indiscernible] there been multiple clients specific issues that have happened. So just wondering to understand your thoughts on this if it is a mere coincidence or how -- what are your thoughts on this? And just second question from [indiscernible] around the AI partnerships. So we are seeing our larger peers have -- along the parties with probably [indiscernible] like once said[indiscernible] but we haven't heard a lot from you -- so just wanted to understand how you guys are planning around this. And if you were the planning for [ GTM ] these models as well. Srinivas Pallia: Thanks, Pratik. You're right, AI is a central strategy for Wipro. 2 quarters back, we had launched Wipro Intelligence, which is a combination of industry and cross industry and functional platforms and solutions. And this quarter, the last quarter, we announced the formation of year native business and platform unit. The reason why we are doing it is in the last 2 quarters based on our experience, both in terms of industry platforms and the delivery platforms, which is WINGS for run and operate and Vega our [ DLC ] life cycle, which is more on the change in transform side. We have seen a very good traction. The clients feel very comfortable with the way we have put the guardrails making sure we align the technology to what they are actually using, making sure it is secure, reliable and responsible as well. Also, in terms of the productivity benefits that we can offer to them, both in the existing engagement and also the new engagements we plan to do. And we will continue to invest in this. And I think Aparna called out as well that Wipro Intelligence and the new AI-native business and platform unit is going to pivot us into our services as a software industry. So while we continue to deliver the services to our clients, this should help us to actually create a software-as-a-service through our platform model. We already saw some success with our platforms. be it in Health Care, be it in Banking, Insurance, Telecom. So we want to see that because the clients are actually feeling very comfortable with the fact that the whole platform is native, which is AI powered and it's able to well integrate into their domain with the kind of agent and agentic operations we're trying to bring in. So that investment will continue, [ Prateek ]. Unknown Analyst: First question, if you could share also -- so the question was that there's been multiple client issues over the years. Just wanted to understand what your thoughts on that. Srinivas Pallia: Yes. I think this quarter, last quarter, it was something that we called out as well, very specifically for the 2 reasons like you mentioned in your question itself. But 1 is the specific client ramp-up that has not happened upon I talked in detail about that. But we feel -- and I also answered that question, we feel fairly confident that clients come back because there was some directional change, and they wanted to pause before they had the clarity around that. The second 1 was something that the account-specific issue that happened, which impacted for us in quarter 1 and in addition to quarter 4. Having said that, if you look at our top accounts, they continue to stay focused on our top accounts with a very clear account management strategy. And in fact, many of our clients are asking us to come back and help them in terms of AI advisory and consulting in terms of how to navigate in the AI world. So what's important for our account team is to be very proactive and leverage to Wipro and platforms and solutions and kind of help the client through this disruption process. Unknown Analyst: Srini, If you could allow me to squeeze 1 more question. I just wanted to ask, you said that you have a positive view on BFSI in APMEA and also in Europe. So just wanted to ask outside of the client-specific issue that you may face in the first quarter, do you have a positive view on the USPs as side well. Srinivas Pallia: So I think from an overall -- I think the best way for me to reflect, [ Prateek ], in your question is the kind of pipeline that we have. And -- talk about having a very secular pipeline across industries and across markets. And your question specifically to BFSI, if you were to look at Americas and Europe and APMEA. And also the Capco question that came up. We continue to see very good traction. We continue to see a very good pipeline. And some of this, what the kind of work that Capco does is very consulting-led and advisory-led. And we also want to see how those implementations for the clients can happen. And for me, clearly, from a BFSI perspective, right, very clearly, the client wants to invest in AI around data platforms and agentic workflows and security. And while they are continuing to optimize but the spend in this specific area around AI, data and cloud continues. Operator: We'll take our next question from the line of Abhishek Shindadkar from Incred Research. Abhishek Shindadkar: Can you hear me? Operator: Yes. Abhishek Shindadkar: The first question is regarding the contribution for HARMAN. So when we gave the guidance last time, in the third quarter, the 0.8% was the contribution. And incrementally, 2 months was assumed when we gave the fourth quarter guidance. Can you just quantify what would have been the contribution for this quarter? Or if you can just quantify the organic growth for us? That's the first question. And I'll just ask the second 1 later. Aparna Iyer: So your question is around how much did the HARMAN acquisition contribute in Q4? Is that your question? Abhishek Shindadkar: Yes. Aparna Iyer: So we actually made a stock exchange filing around the revenues of the organization. You can assume the quarterly run rate around that much. Abhishek Shindadkar: Understood. That's helpful. The second thing is on the top client and maybe it has been asked, but not just the top, but if I look at the top 5. And if I look at the client metric and the attrition across some of the larger accounts, do you for this kind of stopping or halting in the next quarter? Or we may continue to see some challenges in the accounts, larger accounts even in the next quarter? Aparna Iyer: I think our overall growth rate also tend to reflect in our top client metric growth rates as well, right? That said, if you -- like if you had to look at the year-on-year performance of our top client and it's been largely flattish year-on-year constant currency actually has grown on a year-on-year constant currency by 0.2%. And top 10 have grown a positive 1.5% on year-on-year constant balance. And therefore, are we unduly worried about the top relationships that we have, no, we're not worried about it. That said, our constant endeavor is to continue to win with our largest client in the market. and some of the wins that we have announced even this bag are towards that. So you will continue to see us growing and expanding this because this is the way in which our growth will come from. It's our #1 strategic priority. We will work with large clients, and that is the endeavor. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Thank you all joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the Investor Relations. Have a nice day. Thank you. Operator: On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the hVIVO Annual Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and please do give that your attention. I'm sure the company will be most grateful. I'd now like to hand over to CEO and CFO, Mo, Stephen, good afternoon. Yamin Khan: Good afternoon. Thank you for the intro. So I'm Yamin Mo Khan. I'm the CEO of hVIVO. I've been with the company for just over 4 years, and I have with me our CFO, Stephen. Stephen Pinkerton: I'm Steve Pinkerton. I've been with the company for almost 9 years. I've been the CFO for the last 4 years. Yamin Khan: I would like to welcome you all to our full year 2025 results. The company has had a challenging 2025, at least financially. But operationally, I think we've done some great work, and we'll go through both our operational achievements as well as our key financial parameters. So we'll move straight on to the financial -- the normal disclaimer and then really to go through the company's overview of what we are planning to do from a strategy point of view and what we have achieved because it's key to have a strategy, of course, it is, but it's also key to see how we are progressing in executing that strategy. So as you all know, we are the world leader in human challenge trials, and we will remain so, and we are continuing working hard to expand our human challenge trial capabilities. But one of our key focus area is to continue to diversify and add new capability. And that's been part of our action for the whole of 2025 and 2026. And we'll really talk about how we are diversifying into new areas. So new stages of clinical development from preclinical all the way to end of Phase III, whereas historically, we've run the Phase II human challenge trial and also expanding our therapeutic expertise, not just doing infectious disease trials, but doing respiratory and cardiometabolic too. And on top of that, of course, through our acquisitions, we already have achieved a geographic expansion into Germany and pan-European presence. And I think the key thing is that in 2025, we have already achieved a number of the key criteria that we were looking at. So the expansion into Phase I is done. We are now retiring the brand names for Venn Life Sciences, CRS as well as Cryostore and rebranded ourselves under the single one hVIVO brand, which you may have seen launched yesterday on LinkedIn and other social media channels. Going forward, we want to provide our customers with an integrated end-to-end drug development platform under the hVIVO brand and operating ourselves under 4 different service lines, which I will describe later on. I will be focusing on the diversification of services, but please note that this is not at the cost of human challenge trials. We want to continue to build our human challenge trial capability and remain ahead of everyone else. But the key focus for us is to remain more diversified and offer a greater portfolio of services across the board. We have built a new challenge model. So we've launched contemporary human challenge models in influenza as well as the world's only commercial hMPV challenge model. We've also recognized some cross-selling opportunities whereas historically, we may have not approached customers in Phase I. Now we can offer them the Phase I, Phase II combination as well as Phase I and human challenge trial combination. Post period, we've had some really excellent highlights with the new trials contract we announced yesterday as a really good signal that human challenge trials are returning and back to normal. This is an influenza prophylactic antiviral challenge trial that will take place this year, and we expect to recognize the majority of revenue in 2026. We also are in the process of finalizing our agreement for our world's first Phase III human challenge trial in whooping cough with ILiAD Biotechnologies. With that, I'll hand over to Stephen to go through the key financials. Stephen Pinkerton: Good evening, everyone. 2025 has just -- has been a challenging year for this business. We delivered GBP 46.8 million. That's in line with our downgrade that we gave in May 2025. It happened quite quickly. We faced a number of cancellations right in the April, May time. Normally, the number of cancellations that we have is around about 2 on an average. And this -- and we had quite a bit more than 2 in the current year. And that is the main reason for the lower revenue performance. However, I think the business has adjusted well. We made a profit of GBP 1.4 million despite these headwinds from the U.S. and that's after the net acquisition losses of GBP 1.4 million. So the underlying performance of this business was profitable in the circumstances. Cost management was at the foreground, but the efficiencies that we achieved in 2025 to establish in 2025 pull through in 2025. One of the clearest examples is recruitment. We were able to leverage our database rather than go out for lead generation and spend money on advertising and things like that. But clearly, one of the clear reasons for the profitability was also these cancellation fees carried no variable spend attached to them and flowed through to the bottom line. And this gives you a sense of whilst HCT got impacted significantly by the headwinds in the U.S. with infectious diseases and vaccinations not being in favor, our contract model softened the blow somewhat in this -- on our HCT studies -- on our HCT revenues. Moving on to cash. Cash of GBP 14.3 million was a little bit better than the expectations, although this is much lower than we started the year at GBP 44.2 million. Just under 50% of that is due to the acquisitions supporting the working capital and also obviously, the consideration for acquiring -- making those acquisitions. Just over 50% of that is due to the core business and the limited number of HCT trials that we have signed in 2025 or before the end of the year. The Board has made the decision not to pay a dividend for 2025. That's really -- the value of the dividend is GBP 1.4 million, and we felt it's much better spent investing and growing in the long-term future of this business. The order book of GBP 30 million is -- compares to GBP 43.5 million has been restated. So previously, we would have included the full value of a contract at the time when the contract is signed. However -- when an SUA is signed, a study start-up agreement is signed. However, because we faced a number of cancellations and we have changed the methodology. At the time we set up a start-up agreement, we get start-up fees and we get a booking fee. And because that booking fee was seen as a commitment, we would use the CTA full value. However, we're now only including the contracted values in the order book. And we are also now only announcing contracts when the CTA value -- when the CTA has been signed with clients. So there is a bit of delay because, first of all, you've had headwinds affecting the HCT market. And we're now only announcing studies once the CTA is signed. And the time between SUA and CTA can be anything between 5 months to 12 months in Signature in terms of when they sign between the 2. But there's another slide further on, and Mo will take you through more on the order book going forward. Just touch on revenue. This is a waterfall from 2024 to 2025, the key sort of drivers and changes in the revenue makeup mix over 2025. Remember, in 2024, we did receive facility fees that clients paid us to effectively what we built up in Canary Wharf for a large study that was delivered in 2024, and that was roughly about GBP 4 million. HCT, we've just talked about, it did decline significantly. It's due to a number of cancellations. I also wanted just to highlight that some of that decline has got to do with -- in HCT, we also include manufacturing revenue, which is around about 10%. 10% of the HCT sales that we make is where we have manufactured challenge agents for clients. And so I don't want people to remember that this is an important part of our portfolio is being able to develop challenge agents. Clinical Trials were slightly up year-on-year. We did have a high volume in 2024, where we -- and we've managed to be able to repeat it in 2025. So I think that's quite a good performance. Labs is slightly up. It is off a low base, but we see a pretty good order book going forward on that. Consultancy was down, and that's mainly because a big pharma took some work in-house. But with the support of CRS, we're beginning to see some cross-selling from the CRS clients into our consultancy -- early clinical consultancy services, so that's improving. Looking at the acquisitions, Cryostore at 0.8 million, that was their revenue for the year. That's perfectly in line with our expectations and the due diligence work that we did on Cryostore. They are delivering as expected. It's a high margin. It is a business that has sort of 90% to 95% retention rate. So it's a great little business and it's doing very well. Clinical Trials, our German acquisition, GBP 12.3 million is a little lower than we expected at our due diligence stage. It was really down to the RFPs in 2024 not converting as expected as per previous sort of conversion rates, impacted definitely by the whole sector. The whole sector had a little bit of a hesitation and a hiccup across the CRO sector. So certainly that impacted. However, we have seen an uptick in the conversion rates in 2025, offsetting some of that shortfall in 2024 -- of the 2024 RFPs. And then just to touch on cash, a little bit of cash utilization here. I've just tried to split how we've utilized our cash. We have utilized some GBP 29 million. This is the core. We used GBP 15.4 million and inorganic work, it was GBP 14.5 million. Cash generated from operations of GBP 10.4 million is obviously due to the HCT where we've had unwinding of the deferred revenue and the new sales on HCT is still to come back and looking at the pipeline, that's looking positive. But obviously, it's impacted us for 2025. The purchase of PPE, the GBP 1.4 million is largely lab equipment. We did purchase the first digital PCR equipment in Europe, Hamilton. It's a great piece of kit. It's quite expensive, but it supports us with our field study work that we're doing on Cidara and new field work that we're going to do. It's much faster and it's much more efficient as well. Financing activities of GBP 4.6 million includes a dividend of GBP 1.4 million. And obviously, we're not paying that in 2025. It's in 2026. So there's no dividend going on. The other thing that we benefited in 2024 was we had a rent-free period in Canary Wharf. So our lease payments have jumped up by about GBP 2 million to GBP 3 million in 2025. So that's the makeup of the GBP 4.6 million. Then just the acquisitions, GBP 10.5 million spent on consideration costs and the GBP 4 million is really the sort of the working capital and funding the loss for the year. But overall, I think the business has reacted quite well to the headwinds that we have faced and try to reflect there is some resilience in the business in terms of the way we contract to soften the blow, and we're well set to go forward. And with that, I'll hand you over to Mo. Yamin Khan: Thank you, Stephen, for going through the numbers. I want to really focus on why do I feel bullish going forward. We've just been through a challenging 2025, and we had a profit warning in 2025. The share price has been depressed. But I still believe that as a company, we've had a transformational year. So we've gone through 2 acquisitions, Cryostore in London and 2 clinical research units in Germany from CRS. And we realigned our company under the single one hVIVO brand. The reason why that is important is we want to offer a one-stop shop for our customers to go from preclinical is at the consulting stage all the way to end of Phase II or end of proof of concept, basically to show a signal whether a drug works or not as well as offering Phase III site services. So under the 4 different arms we have right now that we are fully operational and currently in working practice, the consulting arm focuses on CMC, PK, regulatory type of consulting with majority of really falls under the former Venn team. But they work very closely with the clinical trial service arm in the sense that when we are running a Phase I trial, as part of that, we may be helping our customers to design protocols, write clinical development plans, obtain regulatory advice. So the clinical trial service unit works very closely with the consulting arm. Under the Clinical Trials unit, we also include the Phase II nonhuman challenge trials we run, both in Germany, but also in the United Kingdom, in London, in particular. The third arm is the human challenge trial arm. But this is a legacy arm where we manufacture new challenge models, we validate them and then we run the human challenge trial work on that. And the final piece to the [indiscernible] is, of course, is the laboratory piece, which historically has catered human challenge trials, but now is a stand-alone business on its own. So it will continue to provide services to the human challenge trial -- clinical trial business. But on top of that, we also expect to service third-party clients, trials run by third-party CROs. Cidara being a key example where we provided full center virology assistance in the laboratory aspect to 50 sites in Phase II to 150 sites in the Phase III. What this enables us to do is to handhold the client from the beginning to the proof of concept. It also means that we're able to access new clients independent of the stage they're at with regards to the clinical development program. Historically, we were a Phase II human challenge trial business. Now we can attract clients whether they're in preclinical Phase I, Phase II or Phase III. So this automatically increases the portfolio of our customers. Having said all of that, I want to reiterate human challenge trials remain a key component of our offerings. We are no longer relying on them as a sole provider of future revenue. In 2024, over 85% of our revenue was generated from human challenge trials. In this year, we are forecasting less than 50% of our revenue to come from human challenge trials. Of course, this is partly due to the downturn in the human challenge trial awards and the cancellations we've had in 2025. But it does show the progress we have made in the non-challenge trial business, the fact that we can now expect over 50% of our revenue to come from non-challenge trial business. The scale and breadth of the company has also radically changed. We now have over 200 beds in a variety of different locations where we can treat patients for all sorts of clinical trials. We've created centers of excellence for different type of therapeutic areas. So in infectious diseases and also respiratory in London, cardiometabolic in Mannheim, renal and hepatic special population studies in KIEL. Now this gives us, again, access to new customers that we have not had access before. CRS historically have mostly worked with German customers. Now we are targeting our sales activities to pan-European and also U.S. customers to run their trials in Germany with the -- for the Phase I part. We've seen volatility within the FDA and more and more customers looking to do early-stage clinical development outside of the U.S., whether that's in Australia or in Europe. And we want to play a key role in attracting those customers to you, especially in Germany when it comes to Phase I trials. On the human challenge trial business, as I said before, we want to continue to build on this and be the world leader. We do majority of the commercial human challenge trials that are conducted in the world. We've added a new human metapneumovirus model, hMPV challenge model. It is the only active challenge model commercially available in hMPV. We've renewed our influenza viruses in a number of different strains and Traws Pharma is taking advantage of a new contemporary viral model that we have in place that we launched last year. And we will continue to build on our human challenge trial business, and that's key. We're also potentially expanding into respiratory human challenge trials, challenging asthmatic or COPD patients to cause mild exacerbation and testing new antivirals or asthma and COPD products. So human challenge trials will remain a crucial part of the business. We have 3 other key growth initiatives that I want to walk you through. And the reason why they're important is I expect them to contribute significantly going forward as part of our non-human challenge trial business. The first one is the cardiometabolic. I'm sure you are all aware of the recent boom in anti-obesity drugs. And we want to be part of a clinical development team that tests new anti-obesity drugs. But cardiometabolic is more than just anti-obesity drugs. It also includes drugs targeted against diabetes, for example, hypertension, high cholesterol levels in patients. We have a world-renowned endocrinologist, key opinion leader in doctor -- Professor, sorry, Thomas Forst, who heads up our -- who is our Chief Medical Officer at CRS or now the clinical trial service arm, who is responsible for leading this franchise. He acts as a director on several advisory boards for Big Pharma. And we believe through our initiatives in attracting new customers outside of Germany, supplementing the patient recruitment with the U.K.-based FluCamp now fully implemented in Germany, we can run more trials in Germany. The key for us is that we offer Phase I and Phase II combo trial delivery platforms, Phase I in healthy volunteers and expanding into Phase II patient-based studies. Now in our group of service providers, there are not many vendors out there that can provide both healthy volunteer Phase I trials and Phase II patient studies. And there's a gap in the market, which we want to make the most of. Our second key driver is respiratory. So historically, on the human challenge side, almost all of our challenge trials have been run in infectious diseases that target the respiratory system. So we inherently have a really strong respiratory franchise with some really good experts and our facility is equipped already to monitor different respiratory parameters when it comes to running Phase II and Phase III trials. And that's something we are now making the most of in the sense that we are targeting clients, respiratory clients to conduct non-challenge trials. We run a number of non-challenge asthma trials. We have a huge database of patients both in asthma and COPD. And we're now seeing traction from our clients who are interested in running field studies with us on both asthma and COPD indications. And this is something, again, we want to build on and then build new indications on the back of delivering these types of patients. The third and final piece of the puzzle is a laboratory. We want to build the laboratories. As I mentioned earlier, historically, laboratory has catered for our human challenge trials. We now have a strong stand-alone business. We've added new capabilities to this. We have added a droplet digital PCR machine that can automate and speed up the analysis of samples for PCR purposes. We've also added a next-generation sequence capability, which is NGS capability. It means that we can sequence pathogens or other molecules much faster than we have previously done. In fact, we formally outsourced this piece of work because it was part of the human challenge trial business. And now by bringing it in-house, we can increase our revenues and improve our margins. And our goal is to continuously monitor the requirements in the market for different types of laboratory requirements and to target customers for repeat business in this area. And the end-to-end platform isn't just a fancy word that I say to try and promote hVIVO to you. It's something that we have seen in action. Cidara is a really good case study. Cidara is a U.S.-based biotech company that came to us 3 years ago almost when we ran the human challenge trial. On the back of positive results from our human challenge trial, we were a site -- a clinical site in the Phase II field study, where we contributed around 1 in 6 patients in the total recruitment base. On top of that, we acted at the central virology laboratory for the Phase II trial. That was a positive outcome for that trial. On the back of that trial, Cidara was sold to Merck for $9 billion. We are currently, again, working with Cidara, now Merck on a Phase III study, also acting as a clinical site and a central virology laboratory for over 150 sites or hospitals around the world who send their samples to our laboratory where we analyze the primary endpoints. This is something we want to do more of, and we have now diversified to include both the consulting and the Phase I. So now, for example, we can speak to a customer at the preclinical stage, help them formulate their product through our CMC and our PK consulting services, take them to the regulatory bodies through regulatory consultants, do and conduct the Phase I trial first in human clinical trial and then the Phase II trial in patients. And along this journey, by doing it under one contract, one roof, it means you improve the efficiencies, you enhance the quality and you reduce the cost. All these are very attractive sentiments to a biotech who is looking to get to and the proof of concept with -- as fast as possible and potentially as cheap as possible. The reason why I feel this is important is because I believe that going forward, we will see an increase in number of trials done by biotech to get to Phase II. That's because the Big Pharma are cash rich right now. But they also have a challenge of a very big patent cliff, around $300 billion worth of new branded drugs will expire their patents in the next 5 years. This means that after that, the revenue that these companies will get from the branded product will reduce significantly because there will be copycat generics on the market at a much cheaper price. To fulfill their pipeline, Big Pharma will spend money to buy new assets. And because they're cash rich, they can afford to pay a higher price and get a drug that is at a later stage of development, so lower risk of development. If that was to happen, the biotech companies need to run Phase I and Phase II trials. And that's where we come in. We can work with these biotech companies and give them an enhanced package to get to end of Phase II. And the therapeutic is we're working on what we call primary care indications. So these are indications where you would typically go to your GP for rather than a hospital. So we focus on infectious diseases, in respiratory, in cardiometabolic. We can add other franchises, for example, women's health or dermatology and so on. And the key for us here is to have an integrated end-to-end delivery system that requires minimum effort and resources from a biotech. So their team can remain small and nimble and we could be the workforce underneath them to get to the stage where they're ready to market themselves to Big Pharma, just like we helped Cidara to do. The diversification, again, isn't all talk, okay? I mentioned the fact that 50% of the revenue will come from non-challenge trials. And you can look at the order book. The order book is also diversified. Stephen explained our new algorithm when we announced the order book and new contracts. And the key to that is that it should be more resilient, more reliable because it's closer to the execution of the work rather than at the start-up agreement. It also means that our order book in this instance, as you can see, will be lower than previously stated because we are announcing this contract at a more mature stage. This order book for 2025, of course, does not include the Traws Pharma contract because that was signed in post period. But I would want you to focus on the other areas and the growth we are seeing across the board in the different service lines. And that's key for us. So we want to build the human challenge order book. Of course, we do, but we also want to continue to build and grow and accelerate the order book in the non-human challenge trial areas. When it comes to new proposals, we've also seen a really good uptick. So 2025 numbers were significantly better across the board compared to 2024. And this year already, in the first quarter of 2026, we've seen a 50% increase in new proposals submitted year-on-year. And the variety of clients we're getting is also much greater than ever before. And I want to reiterate this. We're now attracting clients in new therapeutic areas. We're also attracting clients at different stages of clinical development. And that's key for us to build a future to diversify and derisk. If something like what happened last year was ever happened again, we are much better placed to manage that. And the final slide, just to sum up where we're at. So I totally understand people's frustrations, investors' frustration with regards to the financial outcomes and the share price depression in 2025. But I hope I have relayed some of the key work we have done. We've been very busy in getting the acquisitions on board, realigning the company to diversify and integrated end-to-end delivery system. And that's something we want to continue to go forward with. The CRS and the Cryostore integration are fully complete. We have all the line management realigned. We have launched new group-wide systems that work across all our colleagues across the group. You've seen from the pipeline is strong. The short to medium-term outlook is very good. We have signed Traws Pharma as a major human challenge trial. We hope to finalize the ILiAD contract soon. So the pipeline is very strong. And in the meantime, by the way, we are continuously signing Phase 1 contracts. These are generally between GBP 600,000 to GBP 1 million in value. So they're not announceable. But I'm pleased to say we are continuously working with new clients as well as some repeat clients in the preferred providerships that we are building the order book on that side as well. And with having said all that, we are confident that we will achieve high single-digit revenue growth in 2026. Thank you for your attention. Operator: [Operator Instructions] Investors before we go into the Q&A session, a recording of this presentation will be available via the Investor Meet Company platform shortly after today's call. Mo, Stephen, you received a number of questions from investors both ahead of the event and during today's event. So thank you, firstly, to everyone for your engagement. If I may just hand back to you, Mo, maybe you could kindly navigate us through the Q&A, and I'll pick up from you at the end. Yamin Khan: Great. Thank you. Okay. I'll get straight on to it. What is the outlook of firming orders with ILiAD now that funding has been secured by the firm? So the funding has been secured by the firm. You're absolutely right. And part of the funding has been allocated to run a human challenge trial with us, of course. The contractual negotiations are almost fully complete, and we are near finalization of this contract. So look out for the, hopefully, the [indiscernible] soon with regards to the announcement of the fully signed contract with ILiAD, which will be the world's first Phase III pivotal whooping cough trial. And just to kind of comment on this further, this will create a significant press when it comes to human challenge trials because the FDA, the MHRA and the EMA, the European agency, have agreed to use a human challenge trial data as a part of the submission package to get to marketing authorization. This has not been done before proactively. So this sets a precedent, hopefully, for future clients and sponsors to ask the same from regulators to use a human challenge trial as a way to get to license here. So something we are very proud of. We are, of course, very delighted that ILiAD has preselected us as their preferred partner, but this is bigger than just hVIVO. This would impact the whole human challenge trial franchise once that data is produced. What is the value of Traws Pharma deal to hVIVO plc? As you know, we have not publish the value of the contract. I think what I know this is price sensitive and competitive sensitive. And I'm sure our clients would not like to share -- us share confidential information with you guys. But it's a good, strong contract with up to 150 people being enrolled into the study. And as I mentioned, this will start almost immediately. In fact, the proprietary work has already started, and we look to complete majority of the trial in 2026. In light of the new Traws Pharma, HCT, will we have better capacity for ILiAD? Yes. The way we have planned out all this work, of course, there is capacity to conduct both trials in 2026. But the ILiAD contract, by the way, is multiyear. So it will go from '26 but the majority of the revenue, in fact, now will be recognized in 2027. And I think it goes to show the resilience of the company now where if you ask me 12 months ago, ILiAD would have formed a large proportion of 2026 revenues. But for a variety of reasons, that study has been delayed, but we are still sticking to our guidance. So even though ILiAD will form a much smaller portion of the 2026 revenue, we still are very confident of our guidance we have put out there. But in 2027, we expect ILiAD to perform even more with regards to revenue recognition. Isn't the CRO market extremely crowded? In that case, why are you expanding your CRO offering instead of doubling down on human challenge? It's a very good question. So human challenge trial, I think we have doubled down, if you will. We are the world leader. We have over 12 different challenge models. Nobody comes near us. We have around 350,000 people on a database that we can use to recruit healthy volunteers. Again, nobody comes near that. We've done 50 trials to date, over 5,000 healthy volunteers in operated. So we are the world leader in this. There's no doubt about that. But we have to be careful as we've seen in 2025. If you rely on one single modality, you do risk your future growth. And for that reason, we do want to grow further. But your key point that the CRO market is crowded, it's correct. But it's crowded in certain stages of development. There are not many multisite CROs out there that can do healthy volunteer Phase I studies and then expand into multisite patient study. We own our own clinical sites. Most CROs will go to third-party sites and rely on their recruitment capability. 80% of the trials that are delayed, are delayed due to poor patient recruitment. And that is a problem we will solve by internalizing patient recruitment. So our own team, our patient recruitment team will recruit patients into the London facilities as well as the German facilities. So although the CRO market is crowded, I believe we have a niche that will grow because of the pharma requirements of a more [indiscernible] product from biotechs, and that's what we want to service. The choice to reduce your overdependent on human challenge trial studies and smooth out the revenue cycle. So we're not reducing our human challenge trial capability. But we are diluting it by increasing the non-challenge franchises, absolutely. And the reason behind that, of course, as you mentioned, is to reduce volatility and lumpiness and cycle, if you will. I think this one is for you, Stephen. Is hVIVO plc evaluating further cost-cutting measures given the business outlook? Stephen Pinkerton: So we have a very good operational team where we plan out all our known studies. So we plan based on our contracted work and then we always look to scale accordingly. So yes, we plan our costs based on known factors, on our known studies. And yes, so we are always looking at our cost base, but there's no significant change that we're expecting in the short term. Yamin Khan: Thank you. The next question is a long question. I'll just get to the end. Will the company ever start winning new HCT trials again? And if so, when? Well, we won one yesterday, which was announced. So that's something. And as I mentioned earlier, we are looking to finalize the agreement with ILiAD on what will be our largest ever human challenge trial. Will you -- Stephen, this is one for you. Will you be paying dividends as I'm sure shareholders will be quite disgruntled about the past few years? Stephen Pinkerton: Okay. So as I mentioned earlier in the presentation, the Board has decided not to pay a dividend this year. We'd rather spend the money on investing for the future growth of this business. And if you think about it, at the beginning of the year, we had GBP 44.2 million and it seemed churlish not to pay a dividend. But we -- now we have GBP 14 million, which is more than enough for our sustainable growth, but we think it's better to spend that money, all of that money going forward and investing and growing this business for. Yamin Khan: Why did you decide to have your largest facility in Canary Wharf instead of a cheaper location elsewhere in London? What tilted the decision in favor of Canary Wharf? It was an economical decision. So we did look at a number of options in and around London, and this was the optimum with regards to location to get access to healthy volunteers and patients, but also economically, it was a very favorable terms for us. Remember, Canary Wharf were and still are attracting more life science companies to this campus. And as part of that, they really wanted us to be involved and spearhead that campaign. Apart from ILiAD, are there any other HCT deals that are close to signing over the next 3 months or so? So I can't comment on next 3 months or so, but absolutely, there are multiple deals we are currently working on, which are currently at the proposal stage. You saw the increase in proposals that we have seen in 2025, which have increased by 50% in the first quarter of 2026. So the pipeline of work remains very strong, and we do hope to close a few of these in the coming months and in the future periods. If hVIVO plc evaluating further acquisitions, we always will keep an open eye on further acquisition for the right fit. I think that will be key rather than the size and the timing. If the deal is good and it gives us access to new therapeutic areas, new geographies, then we will seriously have a look at those options. This is one for you, Stephen. How would you say your fixed cost and variable cost split? Just a rough split would be useful. Stephen Pinkerton: So this is actually not a straightforward answer because we have quite a number of different contracts in place with our clients and different revenue types. So I mean, if you think about our consultancy business, it's got capacity, it's not fully utilized. So what is my variable spend in that case? There isn't any. I can take on more work. If I look at HCT trials, the sort of the variable spend on the HCT trial is maybe 15%. If I look at the Clinical Trials business, the variable spend will be roughly 25% to 30%. So it's very much dependent on your revenue mix. Yamin Khan: Thank you. I can see we are running out of time. I think we've got 1 minute left, so I'll quickly go through a couple of, I guess, different questions. So does the Lab only service samples taken in London? Or can you process samples from anywhere in the U.K. So we process samples that are taken anywhere in the world, to be honest. So we have a whole biologistic arm that works with courier partners and ships samples at the right temperature control environments to our Canary Wharf facility here on this floor, in fact, where we have all the equipment ready to process samples. So we do manage a large number of samples in any given week, especially for ongoing trials such as the Cidara trial. Is the strategic move towards diversifying our revenue sources also margin accretive in the medium to long run compared to previous revenue mix. Stephen, do you want to get that? Stephen Pinkerton: I missed that one. Yamin Khan: Is the strategic move towards diversifying our revenue sources also margin accretive in the medium, long run compared to the previous revenue mix? Stephen Pinkerton: No, HCT was definitely a much more profitable piece of the business, especially when you're running multiple HCT trials at the same time. So we're able to leverage our fixed cost base a lot more efficiently over HCT. Clinical Trials is a lot more outpatient. So obviously, you have a lot more sort of transactional type of work to get through. So Clinical Trials is a lot more competitive environment as well. So your margins are a little bit tighter. Labs is probably a bit better, your margins are a bit better there because it's a contact with the client and Consultancy has also got a different margin. So the new revenue streams don't necessarily improve the margin. But when you start dealing with scale, then you start getting an improvement in margin. So with HCT coming back and with the scale that we're envisaging and driving towards on the other new revenue streams, which should get closer to where we were previously. Yamin Khan: Thank you. On that note, I will close our presentation. I think we've gone 2 minutes over. Thank you, everyone. Operator: That's okay. Thank you, Mo, Stephen. And of course, we'll make any other questions available post today's call. Mo, Stephen, I know investor feedback, as usual, is very important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps final words over to you, Mo, and then I'll send investors to give you feedback. Yamin Khan: Yes. So I want to thank everyone for your loyalty in hVIVO. I hope we have described at least some of the key points that we have achieved in 2025 and continue to do so in 2026. I appreciate financially, it was a challenging year, but you've seen the actions we have completed, and I think our strategy is sound. We are going for a market gap that currently exists. We're offering services that are unique. And I think our future is now derisked, and we are a much more resilient and less volatile company. Operator: That's great. Mo, Stephen, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of hVIVO plc, I would like to thank you for attending today's presentation, and enjoy the rest of your day.
Operator: Welcome to U.S. Bancorp's First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately 10:00 a.m. Central Time. I will now turn the conference call over to Jen Thompson. Jennifer Thompson: Thank you, Regina, and good morning, everyone. In our Boardroom today, I'm joined by Chief Executive Officer, Gunjan Kedia; and Vice Chair and CFO, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release and supplemental analyst schedules can be found on our website at ir.usbank.com. Please note that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's earnings presentation, our press release and in reports on file with the SEC. Following our prepared remarks, Gunjan and John will be happy to take questions that you have. I will now turn the call over to Gunjan. Gunjan Kedia: Thank you, Jen, and good morning, everyone. I will begin on Slide 3. This quarter, we delivered earnings per share of $1.18, a year-over-year increase of approximately 15%. Total net revenue of $7.3 billion increased 4.7% year-over-year, with broad-based growth across each of our 3 major business lines. Net interest income on a taxable equivalent basis increased 4.1% year-over-year, supported by robust core loan growth in commercial and credit card and a second consecutive quarter of record consumer deposits. Fee income grew 6.9% year-over-year, reflecting improved payments performance and momentum across capital markets and investment services businesses. Capital markets' performance was particularly strong as new product penetration with long-standing clients and favorable market volatility combined to drive strong revenue growth. We delivered positive operating leverage of 440 basis points in the quarter. Strong revenue growth and continued expense discipline improved our efficiency ratio by 260 basis points year-over-year. John will provide more details on our financial performance in his opening remarks. On Slide 4, we are spotlighting our Business Banking franchise. This segment contributes approximately 9% of our revenues and represents a compelling long-term opportunity for us. We have been building out new products and operational capabilities for this segment. We have also expanded our client teams to build deep, multi-serve relationships that are served in branches with direct bankers and exceptional digital experiences. That approach has driven high single-digit compound annual growth in both clients and fees over the past 2 years. Looking ahead, we are investing in integrated solutions, collectively branded Business Essentials. These solutions offer banking, card, spend management and merchant solutions that support small businesses at every stage of their life cycle. Our recently announced partnership with Amazon is significant in size and will meaningfully expand our small business reach. This partnership is unique from traditional co-brand card arrangements in anticipating a clear pathway to broader banking relationships over time. On Slide 5, we highlight strong momentum in California, where we increased our scale and density with our Union Bank acquisition at the end of 2022. As previously reported, we realized merger-related expense savings of approximately $1 billion and are now focused on capturing the considerable revenue synergies offered by this acquisition. The map on the left illustrates our strong positioning in markets with a high concentration of small businesses. California is a powerful growth engine for us and is outperforming the broader franchise across multiple key dimensions. Moving to Slide 6. Within payments, we continue to see fee revenue growth consistently strengthening across all segments. In our credit card business, new products aimed at affluent transactors, along with significant increases in marketing, have resulted in double-digit growth in account acquisitions over the past 4 quarters and a strong start to the year. Merchant processing fee growth remained steady in the mid-single digits, reflecting disciplined execution across 3 core strategies: software-led products focused on 5 verticals and expanding direct distribution. And in corporate payments and prepaid, we are beginning to see growth rebound as spend levels normalize and installations of last year's strong business wins start to show through in results. I'll close on Slide 7. In capital markets, our organic product expansion as well as our pending BTIG acquisition are expected to drive sustained revenue growth. In payments, the Amazon partnership will meaningfully accelerate credit card revenue growth by the end of the year and expand our banking opportunity with the small business segments in the future. And in our consumer franchise, we look forward to building Financial Edge, a program to better serve the needs of NFL athletes and their families and to build our brand nationally, both in partnership with the NFL. Let me now turn the call over to John. John Stern: Thank you, Gunjan, and good morning, everyone. First quarter results showcased another quarter of strong business momentum and ongoing execution against our medium-term financial targets. If you turn to Slide 8, I'll start with some highlights, followed by a discussion of trends for the first quarter. We reported earnings per common share of $1.18 and generated $7.3 billion of net revenue, representing 4.7% growth year-over-year. Improved revenue trends reflect strong loan growth in areas like C&I and credit cards, along continued momentum in fee-generating businesses like capital markets, investment services and payments. Average total assets increased 0.7% linked quarter to $688 billion, reflecting steady client activity across the franchise. For the first quarter, ending assets were $701 billion. As a reminder, the Category II transition requires 4 quarters of average assets to be $700 billion or more. As expected, credit quality metrics remain stable, underscoring the resilience of our clients in an uncertain operating environment. As of March 31, our tangible book value per common share increased more than 15% on a year-over-year basis. Slide 9 provides our key performance metrics. We continue to operate comfortably within our medium-term targets for profitability and efficiency. Disciplined balance sheet management and strong returns drove a return on tangible common equity of 17%, while return on average assets was 1.15% this quarter. Net interest margin was flat linked quarter at 2.77% as core loan growth and stable deposit pricing were offset by elevated mortgage prepayments and somewhat tighter credit spreads. Turning to Slide 10. Over the last 2 years, we have increased our tangible common equity 31%, while continuing to deliver high-teens returns on tangible common equity given steady and improving earnings growth. The sequential step down this quarter reflects normal seasonality, along with the impact of continued AOCI burn-down, rather than any change in the underlying earnings or profitability trajectory. As we look ahead, we remain confident in our ability to deliver high-teens returns on tangible common equity. Slide 11 provides a balance sheet summary. Total average deposits were relatively flat on a linked-quarter basis, as record consumer deposits were offset by typical seasonality in our wholesale and investment services businesses, improving our deposit mix. Our percentage of noninterest-bearing to total average deposits remained stable at approximately 16%. Average loans totaled $394 billion, up 3.8% from the prior year or 5.3% when adjusting for loan sales in the second quarter of 2025. The growth was broad based and centered around credit card, commercial and commercial real estate. The ending balance on our investment securities portfolio as of March 31 was $174 billion. Turning to Slide 12. Net interest income on a fully taxable equivalent basis totaled $4.3 billion, an increase of 4.1% on a year-over-year basis, driven by a robust loan growth, funding optimization and ongoing benefits from fixed asset repricing. Slide 13 highlights fee revenue trends within noninterest income. Total fee income increased 6.9% on a year-over-year basis, supported by nearly 30% growth in capital markets, nearly 10% for trust and institutional fees and ongoing momentum across our payments business. As a reminder, our capital markets business is focused on fixed income, foreign exchange and derivatives, including our commodities business. Our pending BTIG acquisition adds equity and investment banking capabilities in the future. During the quarter, we also made updates to a select number of fee categories to better align our disclosure with how we manage the businesses. Prior results were restated for these classification changes, with no effect on total fee revenue. Turning to Slide 14. Noninterest expense totaled approximately $4.3 billion, up 0.8% linked quarter. On a year-over-year basis, ongoing productivity and continued expense discipline helped us fund strong investments in technology and marketing. Slide 15 highlights our ability to effectively manage our expense base while driving top line growth. Disciplined expense management has become foundational to how we operate, showcased by our seventh consecutive quarter of positive operating leverage. Looking ahead, we see opportunities to build on our strong operating leverage story, supported in part by the ongoing deployment of AI and other automation tools to improve efficiency. Slide 16 highlights our credit quality performance. Our ratio of nonperforming assets to loans and other real estate was 0.38% as of March 31, an improvement of 3 basis points from the previous quarter, and 7 basis points from a year ago. The first quarter net charge-off ratio was 0.56%, increasing 2 basis points sequentially, driven by the seasonal nature of credit cards, while our allowance for credit losses of nearly $8 billion represented 2.0% of period-end loans. On Slide 17, we're providing a closer look at our business credit exposure within the nondepositary financial institution loan portfolio given the increased attention on this segment. Business credit intermediaries represent approximately 3% of total ending loans, and these exposures are well structured. Our risk framework includes meaningful over-collateralization, clearly defined industry concentration limits and first-lien collateral. Importantly, this reflects U.S. Bank's long-standing approach to risk management and underpins our comfort with both business credit and the broader NDFI portfolio. Turning to Slide 18. As of March 31, our common equity Tier 1 capital ratio was 10.8%, or 9.3% including AOCI. On Slide 19, we wanted to provide some initial thoughts following the updated Basel III proposals. We're encouraged by the initial proposals and expect to see meaningful RWA relief under both methodologies, particularly in areas like mortgage and investment-grade corporate lending, providing additional flexibility to support clients through disciplined balance sheet usage. While we await final outcomes around key elements such as the AOCI phase-in and the effective date of the new rules, the framework as proposed supports our return to historical capital deployment ranges under both scenarios. On Slide 20, we provide a comparison of our first quarter results to our previous guidance. For the first quarter, net interest income, fee revenue and noninterest expense all exceeded our previous guidance. I'll now provide forward-looking guidance for the second quarter and the full year 2026. Starting with the second quarter 2026 guidance. Net interest income growth on a fully taxable equivalent basis is expected to be in the range of 6% to 7% compared to the second quarter of 2025. Total fee revenue growth is expected to be in the range of 6% to 7% compared to the second quarter of 2025. We expect total noninterest expense growth of 3% to 4% compared to the second quarter of 2025. I'll now provide full year 2026 guidance, which is consistent with our previous guidance. We expect total net revenue growth to be in the range of 4% to 6% compared to the prior year. We expect to deliver positive operating leverage of 200 basis points or more for the full year. And our guidance excludes the impact of the pending BTIG acquisition, which is expected to contribute approximately $200 million of fee revenue per quarter, with an anticipated close date in the back half of the second quarter. The impact of the Amazon small-business card and the NFL partnership are fully contemplated in our guidance. Turning to Slide 21. First quarter results represent another consecutive quarter of operating within all of our medium-term targets. While we are pleased with our continued momentum, our focus remains on delivering consistent, sustainable and industry-leading returns over time. And we have a high degree of confidence in our ability to strengthen our performance and build on these results. Let me now hand it back to Gunjan for closing remarks. Gunjan Kedia: Thank you, John. As we look ahead, the macroeconomic backdrop remains constructive despite some softening of sentiment recently. Consumer spend, core loan demand and credit delinquency trends all indicate relative stability. The regulatory backdrop is becoming more helpful, giving us greater capital flexibility over time. And our execution has strong momentum. All of that gives us confidence in our ability to continue building earnings power and creating long-term value as we move forward. With that, we will now open the call for your questions. Operator: [Operator Instructions] And our first question will come from the line of Scott Siefers with Piper Sandler. Robert Siefers: John, I wanted to ask about positive operating leverage. You kept the 200-plus basis points target for the year although you did -- you're doing significantly more than that now. It looks like it'll be about 300 basis points in the second quarter. Maybe I was hoping you could discuss how you're thinking about it. Would you sort of manage to that level or maybe let some incremental revenues drop to the bottom line if they came in better? And I guess the or more leaves a lot to the imagination. So I'm just curious on your thoughts. John Stern: Sure. Thanks, Scott. I appreciate that. Yes. No, we feel good about the outlook. As we mentioned in our guidance slide, we have a lot of growth opportunities, as we talked about. As we've mentioned in the past a couple of quarters now as we think about 2026, we're really thinking about our revenues growing faster and that being the driver of positive operating leverage. And we have a desire really to invest some of the savings that we have into things like technology and marketing, some of the things that we've talked about in the past. And it also kind of depends on the nature of the revenues. If fee revenues grow faster, as an example, that's going to bring with it more expense just by the nature of the compensation and things like that. And then net interest income, of course, we welcome that as well. So from an operating leverage standpoint, we have a lot of flexibility, and we feel good about our outlook. Robert Siefers: Terrific. Okay. And then maybe, Gunjan or John, really good commercial loan growth, maybe if you could touch on sort of what you're seeing in terms of utilization rates. And then, Gunjan, you touched on customer sentiment a bit toward the end of the prepared remarks, so maybe just some thoughts on what you're seeing there. Maybe if you could expand upon that a bit. John Stern: Yes. No, absolutely, Scott. I'll start. The commercial loan side, we just -- we saw a broad-based good core loan growth really across a number of different sectors. On the large corporate side, food and beverage, energy, health care are probably the top ones in our area. M&A for these customers as well as just general CapEx, really starting to kind of see its way through. Small business also continues to be a very strong performer for us, and that we expect that all to continue. We've talked about loan growth to being in the kind of that 3% to 4%, but I certainly think it's going to be higher than that. It's probably more in the mid-single-digit range from a broader loan growth perspective for the full year. So I think there's just a lot of momentum. In terms of utilization rate, we're at 25% or so, a little bit north of 25%. That's probably a good level for it. It's been creeping up a bit. I don't think there's a lot more upside from that standpoint. But just in general, core loan growth has been really strong. Gunjan Kedia: Scott, what I'll add on sentiment is it's turning to more core demand, which we find to be very healthy. So if you compare this time last year when the tariff discussion was very present, the demand we saw last year was very focused on the AI trade data centers, some M&A-driven trades, but a real pause pending some resolution or clarity around tariffs. What we see with loan pipelines going forward, which are quite robust, is people beginning to invest in kind of core middle market expansion and CapEx. So the sentiment has stabilized quite nicely. Operator: Our next question will come from the line of John Pancari with Evercore ISI. John Pancari: And then just on the funding and the margin side, I appreciate your loan growth commentary in terms of what you're seeing. What does that imply in terms of how we should think about the pace of deposit growth? And what are you seeing on the deposit pricing side? We've got a number of even the larger banks that are flagging some pressure still on the deposit pricing side from a competitive dynamic. And then lastly, how should we think about the progression of your margin here as you look out through '26? John Stern: Yes. A couple of things there, John. On the funding side of things, the deposit equation, we're seeing -- it's a competitive market, right? It's always been that way on the deposit side. But we saw, relatively speaking, price stability really within -- across the portfolios that we have. Maybe just as a reminder, our focus is really going to be and has been on growing consumer deposits. Again, we saw another record level on the consumer deposit side. We've seen a $7 billion increase year-on-year, nearly 3% growth. We've seen a focus for us on operational deposits on the wholesale side really utilizing deposits that can help us, along with the broader relationship and leverages into fees and things of that variety. So that has been where our focus has been on the deposit side. And we've been able to just navigate the deposit environment as we typically do. On the margin side of the equation, just as a reminder, I mentioned the margin was flat this quarter and we gave some color that the positive drivers were really good core loan growth, as we talked about. And then the pricing characteristics I just mentioned on the deposit side. On the other end of that though, there was some of the loans we brought on were at tighter spreads. Still good returning, but these are larger institutions that trade at tighter spreads. And so that was a little bit of a way as well as the impact of some refinancings on the mortgage side as rates -- we had more refinance activity of nearly 15% to 20% more than we did prior year. So those are kind of the puts and takes. Going forward, I expect that the mortgage stuff will abate and the other things to stick, meaning the good core loan growth, the deposit pricing stability, our earning asset mix all improving as we think about the future. So we see -- we continue to see progression in our net interest margin going forward. John Pancari: Okay. Great, John. And then just separately on the capital front, if you could maybe just talk a little bit about capital allocation priorities, how you're thinking about the buyback expectation? And then as you look at inorganic opportunities, you've done the BTIG deal. Should we expect that there'll be a more active effort to continue to build out the capital markets business potentially inorganic? And then, of course, Gunjan, I got to throw the whole bank M&A question at you as well. Sorry to ask it this early in the call. Gunjan Kedia: Sure. John, you start... John Stern: Maybe I'll start on the priorities of capital deployment. Really no change to our thinking here, John. I think from a capital deployment, we really focus our client and loan growth. And we certainly saw that this quarter, we're going to support our clients as needed. And then we're going to focus on the capital deployment to our shareholders. Certainly, the dividend is extremely important. And then the buybacks, as you know, we went from $100 million to $200 million this quarter. I would anticipate we're going to continue to glide up. I think we're going to start at $200 million would be my base case, but -- because we see such strength in the pipelines. But it could increase from there or that would be our intention. We're certainly going to glide up as we -- again, as we get to our capital levels that we need to get to. Gunjan Kedia: Thank you, John. I do want to just reiterate that we are very committed to long-term capital distribution targets of 70% to 75%, and we are keen to get back to those levels with share repurchases. And we are very close, John, to just stabilizing our capital ratios in a Category II framework and, of course, very encouraged by the capital rules that might accelerate that. So that's the backdrop. On our bolt-on acquisition strategy, we are constantly looking at properties. They are usually not as big as the acquisition we did with BTIG. It would be unusual for us to think about another bolt-on in the capital markets world because we are focused on closing the BTIG deal and getting synergies out of that. But we stay open to that. Those tend to be quite accretive immediately. They are small deals that give you local scale in a particular product to fill a gap. On your broader M&A question, nothing has changed about our strategy. We are very excited about the organic growth opportunities we have in front of us and the momentum we have. So that is our focus. Operator: Our next question will come from the line of John McDonald with Truist Securities. John McDonald: John, maybe just to follow up on your net interest margin comment. Just to clarify, you do expect the margin to continue expanding, maybe expand in the second quarter and move steadily upward. And are you still on a path to that 3% sometime next year? John Stern: Yes, John. Yes, we certainly still see a path to that 3%. The margin is not always linear, and I gave kind of the reasons why this quarter, the pluses and minuses, of course. I mean, if I think about just the underlying metrics, just to repeat, we feel like in terms of loan growth is a good indicator and good -- that will help in terms of the earning asset mix of how we think about the loan growth driving the balance sheet sizing. The deposits are stabilizing, as I mentioned. And then just our asset mix is improving. If I had to think about just the small business Amazon acquisition that will come on in the third quarter as an example. So it's things like that, that are going to be -- that we will continue to focus on that should help drive the net interest margin go forward. John McDonald: And that 3% target, is that still a good target for next year time frame? John Stern: Yes, we certainly feel there's a path in 2027 to get to that level. John McDonald: Okay. And then just maybe broader, your thoughts on the revenue growth guidance for this year? With the loan growth now looking a bit better and fees starting off strong in the first quarter, is it fair to say you're starting off the year feeling like the higher end of that 4% to 6% range is achievable? Maybe just some thoughts on what are the big swing factors for the low end versus the high end of that 4% to 6%. John Stern: Yes. No, good question. We have certainly had good momentum on a number of different areas in the fee categories. We've listed out capital markets has been extremely strong for us, you see that growth. Payments is -- we're starting to -- we've been making a clear inflection there. And things like the corporate payments after the second quarter are going to -- the drag of government spending from last year, that's going to fall away, and we have good pipelines in that area. And our institutional businesses are doing extremely well. So I would expect, yes, we'll -- my bias certainly is to be on the higher end of that 4% to 6% range on the fee revenue side of the equation. John McDonald: And I was thinking also on the total revenue guidance is also the 4% to 6%? John Stern: And the total -- yes, total revenue is 4% to 6%. We feel like that's the right level for us to be at this particular juncture. Gunjan Kedia: And John, on NII, we are very -- we are feeling optimistic about the volume demand for loans, and the deposits have stabilized. It's just the Iran war has a level of uncertainty around monetary policy and rate path that does impact the resi mortgage book and credit spreads. So we are staying with the 4% to 6% on the NII just because there's quite a heightened level of uncertainty around the rate path. Operator: Our next question will come from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: So 2 questions. One, I think on the regulatory stuff, or the regulatory changes, just talk to us, I think given you've obviously slightly crossed $700 billion this quarter. We have heard tailoring is front burner agenda for the Fed over the summer. If Category II moves to, I don't know, $900 billion, $1 trillion in assets, what does that mean for you strategically capital allocation-wise? Does it change anything? Does it not change anything? Would love your perspective there. John Stern: Yes. Sure, Ebrahim, thank you. I think from a Category II, certainly, we're watching to see what the rules are and how those come up. Right now, we have to focus on just kind of what the rule set is. So we are focusing on our Category II level. Of course, with the regulatory changes, we put the slide in on the 2 different proposals in terms of standardized and expanded versions. Both of those are better than the Category II regime. So that's going to be a better -- more of a help for us. And in the end, it's just going to give us more flexibility. So those are going to be kind of the helpful nature of the capital areas. Gunjan Kedia: Ebrahim, the big variable is timing of when the rules, either indexing and tailoring or even the proposed Basel III rules are effective. So to the extent that the indexing is forward-looking, it doesn't make a difference if the proposed rules get implemented sooner than we think, then we are in a good shape. But either which way, we're very prepared for Category II with full AOCI in our capital. That's what we are counting on, and we are very proximate to that. So it's not a meaningful change to anything we would anticipate doing with capital distributions. Ebrahim Poonawala: Got it. Clear. And then on your Slide 5 and 7, I'm just trying to right-size the idiosyncratic growth opportunity for USB. In Slide 5, California, super competitive. We have a Canadian bank that's also trying to gain share in California. And then on Slide 7 where you lay out Amazon, NFL, like I'm not sure if that's going to be a needle mover or it's a good logo to have. If it's possible to frame what the actual opportunity could be on both those as we think about the P&L over the next year or 2, I think that would be extremely helpful. Gunjan Kedia: Yes, thank you. These are quite needle moving. So John, why don't you give some color on that and I'll add on? John Stern: Yes. So on the Amazon side of the equation, we expect that to be coming online in the third quarter. The loan amount is going to be about $1.6 billion area, is likely in that area, and it's going to be about 70,000 co-brand clients. It's probably going to add in the neighborhood of $75 million to $85 million per quarter. A majority of that is going to be on the net interest income side of the equation. Again, this is all taken into our guidance, of course, as I mentioned in our prepared remarks. But we're going to expect to see that in the third quarter and we'll take a reserve with that at the appropriate time. That's about this kind of the same level that our current book represents. Gunjan Kedia: And I'll add on California. Yes, it is competitive, as are any other regions that have a big opportunity. But it's a very, very big market too, and we are becoming very significant as a player there, and we are seeing the growth be higher than the rest of our franchise. I'll say a word about what is the significance of the new co-brand relationships we are doing. We built our digital platform to nationally serve co-brand card clients with banking services for the first time with State Farm. We improved that platform with Edward Jones, and it's unique in the market today. And it's very attractive to partners because you can provide a full range of service to your clients under sort of your user experience. The Amazon deal allows us to take that platform and then expand it to the small business side, at which point it becomes a very big asset to attract big co-brand mandates. So that's a lot of revenue. We have 1.4 million small businesses today. These are banking clients. And the Amazon deal will bring 700,000 new small businesses to the co-brand side, with the opportunity to attract them to the business side. So it's a pathway to a very different type of growth that doesn't need to come with sort of deposit pricing erosion or any of the usual ways banks grow their business. So we are very excited about these possibilities. Ebrahim Poonawala: And if I may follow up just, Gunjan, on the State Farm and the Edward Jones, because it is idiosyncratic what you're doing there. Is the view that you can actually grow cards or grow fees in markets where you obviously don't have an on-the-ground presence? Or is the success there determined by converting that State Farm client into a core USB client? Like how do you -- what determines success? Gunjan Kedia: We think of it as an attractive value proposition for co-brand relationships, first and foremost. That's the easiest value proposition to the partner, because they like to provide the banking services. We think it's a good front-edge brand build with the local client base on the ground. It does not compete in size with what the deposit gathering machine of a bank generally is. But the results show up here in a very unique way to go to market on our card business on attracting new clients for a bank of our size, that's the fifth largest bank, and we're very, very well known within our own franchises, but trying very, in a very disciplined way, to build our brand out outside of our franchise. And that's what the NFL deal is about to. So it is an idiosyncratic approach. It has been very economically lucrative for us. And because the platform is now built and now we're going to expand it to small business, it also supports our own product sets, like the Bank Smartly product set that is attracting very meaningful level of deposits along with the card loyalty programs. Operator: Our next question will come from the line of Mike Mayo with Wells Fargo Securities. Michael Mayo: You certainly have come a long way with your CET1 when you highlight over the last 3 years going from 6% to 9%. So the days of "Are you going to be issuing capital?" are long behind you. But still, when you look back over time, the positive operating leverage is something relatively new. It's not U.S. Bancorp of old in terms of the efficiency ratio. And John, you mentioned this is the second quarter in a row of positive operating leverage. Is this something that you're going to kind of track quarter-to-quarter-to-quarter? And then on the other side of that, I'll contradict myself a little bit here, I think everybody wants to make sure you're investing for that growth, and you've highlighted all sorts of growth initiatives from partners to California, to small business, to middle market, to payments. If you were simply to highlight your 3 priority areas for investing for growth, what would those be? But first, the operating leverage, if you would. John Stern: You bet. Thanks, Mike. Yes, we've had 7 quarters in a row of positive operating leverage, which is we are very proud of, and we are very much committed to positive operating leverage. We are tracking that and we will continue to track that. We've -- we're going on with the mindset this year, while last year was more driven by expense management and finding savings within the company to become more efficient, we continue to do that, but what we're doing now is we're taking those savings and investing in some of these projects that we were talking about, and Gunjan will highlight some of the priorities here in a moment. But the things like the small business area, more of the marketing, more of the technology builds and all that sort of thing are really what we are very much focused on. But we are very much committed to positive operating leverage and having it more driven by revenue growth here as we look into 2026. Gunjan Kedia: Thank you, John. Mike, what I'd add is last year we were very focused on expense management and fee growth. Both of those were natural extensions of last 5 years of very heavy investments digitally into a really world-class product set. And the product set is very good, and it came with some sacrifice of efficiency ratio in the past. And going forward, our business mix is very, very helpful to delivering consistent positive operating leverage. And I want to just reiterate that we are very committed to sustaining that over time. The priorities in terms of growth are very simply to continue to grow out our fee categories. We want to always be known as very heavy in fee mix driving heavy returns for us as a bank. Our second real focus is to strengthen our consumer and small business franchise. And all of the examples that we are sharing here are towards that goal so that the consumer franchise and the core funding mix continues to strengthen over time. And we do want to go back to our DNA of being a very simplified, streamlined cost structure, which we think we can do. In the past, it was very much around the automations. And going forward, we are very focused on what AI can do. So that's the priorities: fee growth, strengthen the consumer franchise and go down the journey of becoming an AI-native organization. Michael Mayo: All right. That's clear. And then just one follow-up. You're saying you have credit card customer growth of 10%, but you've only had fee growth of 5%. So does that imply you expect much better fee growth ahead, or is it -- doesn't work that way? Gunjan Kedia: No, it does work that way. There is a leading gap between acquisitions and when revenue shows up. And that's just the reward structure and the upfront rewards of transitioning the book. So if you see what we've done really over the last 6 quarters is elevated our marketing and acquisition spend, and we track that very closely, across the 2 big types of segments: the balance revolvers and the transactors. We've always been quite strong on the balance side. If you look at our A&R, it has consistently exceeded HA data. But it was the fee side, the transactor side that we really accelerated acquisitions. Faster acquisitions are actually negative revenue on the core revenue pipeline. So you see this measured balance between acquiring new clients, and it's showing up in revenue. And so you see the acquisition numbers be much stronger, and they will lead to stronger strengthening revenue growth about 4 to 6 quarters out. Operator: Our next question comes from the line of Erika Najarian with UBS. L. Erika Penala: Just a few follow-up questions for me, please. Just on the forward look for deposit costs. If the Fed doesn't cut, John, do you think U.S. Bank can hold the line on deposit costs? And to that end, some investors were asking for clarity on your response to John's question. I just wanted to make sure we're taking away the right thing in that, fee revenue, you're confident you could be at the high end of the guide, but you're keeping your ranges for both net interest income and total revenue, because while loan growth is strong, the rate curve has a little bit more volatility in terms of the forward look? John Stern: Yes. Erika, so on your first question on the deposit side of the equation, yes, I think -- the short answer is yes. I think we've seen stabilization in our deposit mix. We are ultra-focused on the priorities that I just mentioned in terms of consumer deposit growth as well as on the wholesale side of the equation. What we've been doing, maybe just to add a little bit more color, is we have been doing a lot of work to reduce, and you'll see this in our numbers, CDs and higher cost institutional-type deposits and things like that, that have less value, maybe our one more -- one-off type transaction as opposed to multi-serve. So that's really where our focus is on the deposit side. And so we do see that. On the -- just to repeat what we've said, our bias is really on the high end of the range for fees just given the momentum we're seeing in all those categories. And we have that visibility because you can see the pipelines of the businesses that are coming online. You can see in all the different categories that I just talked about, including payments, including institutional services. And then capital markets just has been continuing to be robust. On the net interest income side, just we continue to expect mid-single-digit growth in that area. And that's a reflection of just the uncertainty in the marketplace right now. There's a lot of puts and takes that are occurring. And so while we have deposit stabilization, while we have good core loan growth, those are all things, some things are coming on at tighter spreads and the interest rate environment is uncertain, and we just are taking that into consideration here. L. Erika Penala: Got it. And the second question is just a follow-up on the capital discussion. So under the current rules, obviously, in theory, you'll be crossing Cat II at some point next year. If you do elect to the ERBA or enhanced risk-based approach, is your understanding that is the 5-year phase-in going to be the overarching sort of guide? Or does it -- does the AOCI cliff once you cross over? Or to Gunjan's earlier point, does it matter very little because of the timing issue and your AOCI would burn down by the time that's valid anyway? John Stern: Yes. It's a good question, Erika, and it's one we actually have for the regulators in terms of just clarification of it. We're unique in that we have proximity to Category II. So there is a little bit of a timing collision between the Category II timing of when we come online which is we expect that would to be under current rules sometime in 2027, the effective date of ERBA, and when does that occur? And then of course, Ebrahim, I believe, had the comment about, is there some rules that will change on the index? So a lot of things are moving. What I'll tell you is that we're preparing for a Cat II world. That is what we are -- have been ensuring that we have -- we'll be in compliance with. We have the capability to go to standardize or ERBA. That's -- technologically, that's very simple for us to execute. And I think overall, we will just have -- we'll monitor and we'll update you as we go. But we feel prepared, and we have a lot of -- we feel like we have a lot of flexibility now with the capital rules and how that will go -- how ultimately it will play out. L. Erika Penala: And just a quick follow-up question in terms of what Gunjan is saying with regards to optimizing the payout. Does the timing of the clarification impact sort of the path to optimization? Or does that really have to do with sort of the RWA demands from stronger loan growth, in terms of timing of capital payout optimization? Gunjan Kedia: Erika, I would say that we believe the regulators' intent is to allow all banks 5-year phase-in on AOCI to take the cliff effects away. But we are waiting for that clarification. A very good outcome from a capital distribution side for us will be, let's say, a very prompt date to have the current proposals of Basel III be effective and for us to get a 5-year phase-in period, in which case we'll be well ahead of our capital needs even as a Cat II, and we would bring forward the capital distributions. We are thinking here 1 or 2-quarter changes. So that's why I say it's not that material to our strategy or our timing. But it can move by 1 or 2 quarters in terms of how quickly we step up. Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: Just one question on the expense side. You did a great job holding the line as you had expected to on year-over-year growth in first. And we can see in the second quarter guide that it's, as expected, moving higher. Just wondering, first to second quarter costs last year were actually down. So understanding the year-over-year growth goes up a little bit. But kind of tied to the prior points about operating leverage and magnitude, if we get back into this 3% to 4% growth, is that how we kind of think about it as we just move forward on a regular basis, that the investment that you're making kind of and revenue-related leads you to a decently higher expense growth rate than what we had seen in the first quarter, which I don't think people thought was going to be the baseline? John Stern: Yes. Ken, yes, I appreciate that because, right, we've been operating at pretty much a flat expense base for several quarters now, I think it's 10 or something like that. And here, we are stepping that up. And it's -- I'll tie it back to some of the answers we have been giving on positive operating leverage. We're very much committed to positive operating leverage, but we want it to be driven by revenue. And so to the extent that revenue is at the levels that we are forecasting, for example, here in the second quarter, that 6% to 7% area, then that calls for expenses to be elevated and higher so that we can invest more into the business. Certainly, if the revenues don't materialize, we have levers to move that down. I think you can tell from our actions over the past 2 to 3 years plus, maybe decades, that we have the ability to manage expenses and have the different levers to do so. So we have a lot of confidence in our ability to achieve positive operating leverage. Gunjan Kedia: Thank you, John. I'll add, Ken, you can be confident in our degrees of freedom around expenses. We have quite a lot of flexibility in delivering the positive operating leverage and flex with the revenue set up. The productivity that the franchise is observing is very real and not just squeezing expenses, which I know investors worry about whether that is sustainable. So we are, as John said, very committed to positive operating leverage and with some ability to flex on the expenses as needed. Kenneth Usdin: And are you able to pull forward investments? Like if you are doing that well on the revenue side and you still want to keep closer to that 200, I mean, I think people are hoping for more than 200, but how much on the flex side, do you also kind of have the opportunity to just get some spending done and then set yourself up for even better results in the future? Gunjan Kedia: It's a combination. So there are things like branch investments and things like big technology builds that you don't think you can flex and change in the short term. But a lot of our expense is contra revenue in the sense of marketing expense for acquisition of card or marketing expense for brand building is very short-term flex. So that mix is flexible enough for us to think about it. And we do hear your point, I'm not ignoring it, that investors would prefer it to be more than 200 basis points. But as you know, the opportunity set in our portfolio is really very attractive. So we are leaning into it this year, while last year we realized that we really needed to put some points on board on positive operating leverage. And you saw from John's chart, we've reduced efficiency ratio by more than 400 basis points over the last 2 years. And we still have some aspirations to be just a lean bank, but not at the expense of really investing to capture some of the growth opportunities we have. Operator: Our next question will come from the line of Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Gunjan, can you share with us -- obviously, you were very clear about focusing in on organic growth. And we all know in the banking industry that consumer transaction accounts or DDA deposit accounts are the gold that really drives profitability from the liability side of the balance sheet for all the banks. And our industry or your industry has obviously consolidated. U.S. Bancorp has been a big consolidator over the years. And that's one way to grow those core deposits, of course. But with the organic growth, is there any plans for U.S. Bancorp maybe to follow some of the strategies your peers are pursuing now of building out nationwide or regional-wide branches to grow these core deposits? Even though I know online digital is a main driver of capturing new growth. But it seems like it's complemented by having physical branch presence. What are your thoughts on that? Gunjan Kedia: Gerard, well, we very much agree that the physical branch presence is very critical both to the quality of the deposits and the deposits per account. So the economics of a branch-based deposit acquisition are very attractive to us. As you know, we spend $200 million a year on our branch network. We still have work to do in changing the formats of the branch, to go from focus on servicing, which our legacy branch network very much had focused on, like these small branches, many times an in-store, what you see us building out even sometimes in the same location are these multiproduct branches where you can have a small business adviser, a wealth adviser, a mortgage adviser and, of course, our banking and loan and small business specialists. So we are very committed to branch expansion. The slight nuance here is that our focus is on densifying those parts of our existing footprint where our brand is very powerful to become the top 3 depositor in that geography. And so that's been our focus. We're building our branches in places like Nashville, Phoenix is a big focus for us, Reno, and pockets of sort of really new, young growth, is where we are building out the branches. What we want to do though is to leverage the uniqueness of our payments franchise and our digital capabilities to augment that branch-based growth. But all of this to say we strategically understand the need to be very highly focused on building out a high-quality consumer and small business franchise and improving the deposit quality over time. That's why we track the consumer deposits as a mix of our total deposits like a hawk now. And we are very focused on growing that mix. What would you add, John? John Stern: Yes. I mean, I think that's well said. And from a deposit standpoint, as I mentioned, we've been growing those deposits. And I think the opportunity for us to refurbish and to, where we have scale and lean in on those areas that you mentioned and then some, is really where we are focusing our investment and time. And that's where, ultimately, once you have scale in those markets, you can get the deposit features that you want that help us with the things like the deposit stabilization that we're getting in terms of not as much rotation in the consumer side of the equation and things like that. So that's very much a focus for us as we -- as Gunjan has articulated. Gerard Cassidy: Very good. And the follow-up question is, and I direct it to you, folks, because you're well respected on credit quality through a full cycle. You're one of the banks that has demonstrated consistent underwriting conservativeness. And I want to come back to the slides that you put out, John and Gunjan, 17 and 26, on the NDFI portfolios. And what's interesting is that many of the banks are giving us this information, which is very helpful, and it doesn't appear that these NDFI portfolios, even in the business credit intermediaries category, are that frightening, if you will, because of the structure of the portfolios. And so this is more of an educational question, I'm asking for myself and probably others. What kind of scenario -- and again, I'm not saying it's going to happen to you, folks, but again, it's more -- you guys know credit very well. What kind of scenario would you actually have to see for losses to show up in these types of credits? Because it doesn't appear that it's going to happen even in a traditional credit cycle? Or am I way off? John Stern: Well, thanks, Gerard, for that thoughtful question. I think a couple of points I'd make. One, we put the slide out there. This really started, I think, a couple of quarters ago, and there was a couple of unique losses that were in the marketplace and there was a reaction to, hey, what's in the book from an investor standpoint. And so I think more information, more education is helpful. I think getting more granular, like we did on Page 17 in terms of giving you some color on the structure and how it's set up to give, just how you -- what exactly you just said that we think there's very low loss likelihood in these sorts of structures. It would, in terms of like AAA CLOs, I mean, we've never really seen losses. And of course, as a banker, you want to never say the never say never because you -- that's why you have limits, that's why you have underwriting practices, that's where the risk management comes in. Because it's hard to envision any -- there's lots and lots of scenarios out there, and there could be one that could trigger something. I don't know what that would be. I don't know what the trigger item would be. But that's why we have the limits, that's why we have the rigor that we do. And we'll stay true to that, and that's -- we wanted to illustrate that on Page 17 and the other page in the appendix. Operator: Our next question will come from the line of Saul Martinez with HSBC. Saul Martinez: I want to go back to Amazon. You guys seem very excited at the opportunity set here. And Gunjan, I think you said it meaningfully expands your card growth. And John, you gave some numbers around it, $1.6 billion of loans and, I guess, $75 million, $80 million of revenue. But can you talk to the size of the opportunity? It seems like a relationship that can really grow. How big can this get either in terms of volumes, loans, revenues? And what can you do -- what are you doing to ensure that this partnership is enhancing value for yourselves and for Amazon? Gunjan Kedia: Saul, we have a portfolio of co-brand partners, and the growth in that book is very reliant on the growth of the customer base of our partner. So to that extent, just because Amazon's ability to grow its small business base, and their aspirations around this segment, give us optimism around our path forward. Just when we convert the book in the third quarter, what we are expecting is about $75 million to $85 million per quarter type of impact, which is meaningful from a growth standpoint. Our intention would be to have some of that show up in the revenue projections of the business, but some of that we'll reinvest in driving new client acquisition. But our goal here is to take our payments business to a more robust long-term growth trajectory. And that's what this platform helps us do, along with many others that we are building. Saul Martinez: Okay. That's helpful. And maybe to stay on payments, I wanted to ask about the merchant acquiring business. The merchant processing fees did grow nicely again, mid-single digits, 5%. The volumes have been a little soft though the last couple of quarters. I think it was 2% last year -- last quarter, 1% this quarter. It's actually a little bit lower than even the number of transactions, which grew slightly more than that, which would suggest lower ticket, average ticket. It's a little bit unusual in an inflationary backdrop. But anything to read from this? Are you seeing higher take rates? Does it reflect the mix shift? Are you seeing changes in consumer behavior or consumer spend patterns? I'm just curious if there's anything to read from this because, obviously, the volume eventually, I think you would want to have volumes growing a little bit faster than what they've been growing the last couple of quarters. John Stern: Saul, it's a great insight and question. I'll give you the quick fact on it is it's just -- it's basically 1 or 2 clients that have exited that have really no revenue impact on the numbers. And so the big picture then, therefore, is that the underlying trends of our clients are more reflective of the growth rate that you see. So if you were to take that -- and what I mean by that is the growth rates we had in card are kind of that 5% to 6% area. That's kind of more reflective of what we're seeing in our core for merchant, which is reflective of that growth rate of 5.1% that you see for the quarter. And broadly speaking, payment trends have been just very strong. Gunjan mentioned in her comments, despite the sentiment that is out there, the spend patterns that we've seen both in terms of high-FICO and in mid-FICO are about the same, discretionary versus nondiscretionary about the same. We're just -- it's broad-based strength in the spend despite the sentiment that you see out there. Gunjan Kedia: And over time, we do want to decouple from the volume growth. This is a vast industry and a lot of volume comes with very little revenue and a lot of risks. So we are going to be quite disciplined about only focusing on the revenue growth. And I do understand from your point of view, there's not that much visibility to revenue trends. A lot of the external reporting is only volume. And we'll try to bring as much transparency. But we are very committed to a profitable business that grows modestly, and not chase after sort of big volume that comes with very, very thin revenue, which you can do in this market quite a bit. Operator: Our next question will come from the line of Vivek Juneja with JPMorgan. Vivek Juneja: I have a couple of questions. One, to sort of follow up on payments. I think you have a new category now, it says corporate and treasury payments, pardon me, if I get that wrong, or is it treasury and corporate? I know you just changed, yes, corporate payment and treasury management revenues. You've reclassified it. The growth rate in that slowed to 2% year-on-year, and you have the fuel card, which benefited a lot from gas prices. So any color on what's going on there that you can help elaborate on that growth rate? John Stern: You bet, Vivek. Yes. So with the change, we combined treasury management as well as corporate payments, that's kind of the classification change based on how we manage the businesses here within the company, along with other changes that we put in the 8-K a week or 2 ago. In terms of the growth rate, just on the corporate payment side is where we're seeing the drag in that number. And that's really a reflection of last year at this time, recall, there was the tariff announcements and things of that variety and a lot of focus on government spend from DOGE and other things like that, that really we're beginning to lap that. In the second quarter, you'll start to see that lapped and fully in the third quarter. So we see the pipelines being really strong there. And so by the time we get to the third quarter, that will be more representative of what we believe that will be the true growth rate in that business. Vivek Juneja: A different question. John, thanks for the disclosure on the NDFI stuff. I know you gave BDCs and CLOs. How about private credit? And what's your exposure there? John Stern: Yes. So I think if I'm reading you right, just on the capital call facilities and things like that... Vivek Juneja: No, that's private equity, I was talking private credit, because that's going to be different from BDCs? Or is that in your mind synonymous? John Stern: Yes. I mean, I think Page 17 is a lot of the private credit type of exposures. So I think that's the laundry list is how I would lead to. Then the call facilities, which I know you mentioned private equity, that's going to be the other -- the equity component of NDFI. So I look at this page as really the private credit component and exposure, on Page 17. Vivek Juneja: Okay. You mean because you've got the 5 different categories, but not all of that should really be private credit? John Stern: Yes. No, true. True, true. Yes, CDF, BDCs and the CLOs, I would say, are really representative of the private credit components, yes, which is just under 3% of our total loans. Operator: Our next question comes from the line of David Chiaverini with Jefferies. David Chiaverini: The other bogeyman out there is AI disruption risk as opposed to just private credit. Can you frame to what extent any of your fee income businesses could be at risk from AI, particularly payments, and the moats you have to defend your position? Gunjan Kedia: Let me start. We don't see any particular business be truly exposed to an en masse sort of disruption either in terms of price collapse or volume transition. What we are seeing is a very rapid shift in customer search behavior in how they find products and services. So to the extent that we need to keep up with the discovery, and it's very like basic things like search engine optimization tools for marketing are very rapidly migrating to the AI world. The reason we don't think that is going to be impacting our business is because we are building those capabilities and transitioning our approaches pretty rapidly too and there's a lot of tool kit. So I will tell you we are watching these trends very carefully to see how it might be. But as of now, we are not seeing anything that would show a sudden discontinuity or shift here. John Stern: Maybe I'd just add. I mean, I think of -- we had a commentary from Stephen in the recent conference about the usage of AI. We have a lot of businesses that have complex operations that we do very well, if you think about fund services and corporate trust. So this is an opportunity for us to leverage AI and go on offense really and simplify our operations and the complexity that goes along with it. We have the knowledge of how these things work and so we should be able to take advantage of that faster than any other outside competitor or fintech or whatever the case may be. So that's kind of how we think about it. Operator: Our next question will come from the line of Chris McGratty with KBW. Christopher McGratty: I'm interested if any of the optimism on loan growth is perhaps nonbank lending turning back to the traditional banks such as yourself? John Stern: I don't think so. This is -- what we're seeing is if I think about private credit and where they've grown, they've grown in more of the leverage space, more in HLT and other places like that. And a lot of that we just -- because of our credit underwriting and the way we look at things, those are areas that we're not as focused on really. So we never really have truly competed head-to-head with the private credit wing, so to speak. This growth that we're seeing is going to be more in the large corporate space. I mentioned food and beverage and energy, utility, all these sorts of categories are really coming online. And that's unique. That has not shown up in the last several quarters. So I think that is why we wanted to call that out and why we have such optimism in our pipelines go forward. Christopher McGratty: Okay. And then given the optimism on growth, is the expectation core deposit funded? Do you think you'll need to rely on perhaps more expensive sources to fund the stronger growth? John Stern: Yes. Maybe just to link a couple of comments we made here, I think deposits will generally grow in line with loans, although it may not be one for one. It will probably be a little bit less. And the reason I say that is because our focus is really on consumer deposits and growing operational deposits and really limiting or eliminating things like CDs and higher-cost institutional or just kind of onetime clients that just -- that's all we have is just the deposit. So we're going to be more nimble on the deposit side of growth versus the loan side, I would imagine. Operator: Our next question is a follow-up from the line of John McDonald with Truist Securities. John McDonald: Just a quick modeling question on the BTIG. John, understanding it's not part of the guidance. When you say accretive for the year, does that include any integration charges, so that's kind of all in accretive to your results for the year is the expectation? John Stern: Yes, that's our expectation, John, is slightly accretive to inclusive of those charges. We'll start to provide some of that information as we come online. We're expecting kind of back half of the year in terms of that. So obviously, there'll be a bigger expense base. There's less of a margin with this business than most of our businesses. So you'll see that flow through. And then it's merger cost that we'll identify as well. John McDonald: Okay. So the financial impact, probably not much in the second quarter? This will all start hitting your numbers in the back half? John Stern: Yes, that's right. Yes. I wouldn't expect much of anything in the second quarter. Then the third and fourth quarter, we should be, pending regulatory approvals, yes. Operator: And there are no further questions at this time. I'll hand the call back over to Jen for closing comments. Jennifer Thompson: Thank you, everyone, for joining our call this morning. Please contact the Investor Relations department if you have any follow-up questions. Regina, you may now disconnect the call. Operator: This concludes our call today. Thank you all for joining. You may now disconnect.
Jack Perkins: Good morning. Welcome, everyone, to today's fireside chat with Pineapple Financial, hosted by KCSA IR. I'm joined today by Shubha-Jeet Dasgupta, Chief Executive Officer of Pineapple Financial, along with Anthony Georgiades, General Partner at Innovating Capital and a member of Pineapple's Board of Directors. We appreciate today's attendees taking the time to join us as we walk through Pineapple's Q2 2026 results. Before we begin, I'd like to remind everyone that statements made during today's discussion may be considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable securities laws. Actual results may differ materially due to risks and uncertainties described in Pineapple Financial's filings with the SEC. The company undertakes no obligation to update forward-looking statements, except as required by law. In a moment, Shubha and Anthony will provide an overview of the business and recap of Pineapple's Q2 results and strategic priorities. Following our discussion, we will turn to the audience for live questions regarding Pineapple, its core mortgage platform and its partnership with the Injective Foundation. [Operator Instructions] If we're unable to address your question during today's session, you can also follow up after today's discussion by contacting us through Pineapple Investor Relations e-mail at pineapple@kcsa.com. Please note that today's call is being recorded on Thursday, April 16, at 11:00 a.m. Eastern Time, and a replay link will be made available following the conclusion of the presentation. With that, I'd like to pass the line to Shubha to get us started today before we get into some Q&A. Over to you, Shubha. Shubha-Jeet Dasgupta: Thank you so much, Jack. And on behalf of our Board of Directors, our management, Anthony and myself, I'd like to thank all of you for joining us here today, for your interest in Pineapple and for your support over the years. With our Q2 earnings now complete, this is a great moment for us to step back and talk about where Pineapple is today and also talk more about where we're headed. Focus today is really on execution, discipline and what comes next for the business. We've gone through a meaningful transformation from a traditional mortgage brokerage into an integrated fintech platform over the last few quarters, and I want to frame it for everybody here. Let's start off with where Pineapple is today. We spent the last decade building an incredible national mortgage broker platform here in Canada. We're supporting hundreds of mortgage brokers from coast to coast and funding almost $2 billion a year in annual mortgage originations. Our Q2 2026 mortgage volume was posted at $367.2 million with 6-month aggregated volume being $829.3 million, implying that our annual run rate is near $1.6 billion to $1.7 billion for the year. For context, the 6-month mortgage volume edged up to about $829.3 million from $811.5 million in the prior year. This might seem like a modest increase, but it's very worth noting that the broader Canadian mortgage origination market is still operating below its 2022 levels. We're still seeing significant effects of the rise in interest rates and inflation that have caused consumer sentiment to be dampened and continuously impact affordability and the ability for new Canadians to enter the housing market with limited constraint -- sorry, with constraints and limited housing supply. So the fact that we're continuing to see stable to improving activity across our network, even in this environment speaks to the resilience of our platform as well as the reoccurring nature of Canada's renewal-driven mortgage cycle. This is not a concept business. This is an operating with real scale, real revenue and a country footprint in one of the most resilient markets in the world. What's changed is where we are in that journey. We've moved out of the build phase and into a phase that is really about execution and performance as an integrated platform. Let me talk to you a little bit about our recent operational reset. Over the last couple of quarters, we've made a very deliberate decision to resetting the operating model. That was really about tightening discipline across the business with a key focus around reducing our fixed cost base, improving capital efficiency and aligning the organization around execution while continuing to modernize and optimize our platform for the future of digital finance. This work included a workforce realignment, moving to a cleaner technology-enabled model rationalizing software and third-party spend, ensuring that we were streamlining and allocating our funds to the right places and integrating AI across a number of workflows, including automating agent onboarding, data and customer engagement as well as a multitude of others. Initiating tokenization of mortgage dining was also a big part of the last couple of quarters, and we'll be diving into that in more detail throughout this presentation. The results speak for themselves. We've implemented over $1.5 million of annualized cost savings to date. Total expected reductions will exceed $2.5 million by June 30 later this year. We've reduced our monthly cash burn by over 50%, and this is a structured reset of our expense base and not just a temporary. But I want to be clear, this is not about demand softness. This is about platform modernization and building a more efficient, more scalable platform for the years and decades ahead. Our goal is simple. We're building a business that's scalable with materially better unit economics and a more durable multifaceted earnings profile. Let me talk to you a little bit about how we think about our business. We now think about [ Pineapple ] as one integrated operating system built around 3 core pillars. The first is the mortgage platform. This remains to be our core foundation and fundamental. It drives origination, relationships and cash flow, a real operating business with a concrete footprint in the Canadian mortgage market and growing. Canada's mortgage market is structurally resilient. Let me talk to you a little bit about how it differs from that of the U.S. market. The U.S. market may see more longer-term 30-year mortgages. We have more short-term mortgages typically between 1 to 5 years. And this short-term renewal cycle creates a reoccurring pipeline of refinance and renewal activity that continues to drive business independent of new home purchases. Q2 revenue was $0.7 million and supported by stable subscription revenue and diversified income streams. And the second component is data and tokenization. We've been collecting mortgage data for years across our expansive network. Now it's about structuring, standardizing and ultimately monetizing it. This is the path toward lender-facing reoccurring revenue products and a higher margin revenue mix. And our third digital asset treasury. This is about capital efficiency and yield generation within a structured government framework. As of February 2028, the debt was valued at approximately $22.4 million, comprised primarily of approximately $7.21 million on INJ tokens, injective tokens. During this period, we generated $221,718 in staking revenue. This is a new incremental reoccurring income stream, and that's just. We've assembled the best-in-class institutional infrastructure, the injector foundation, Kraken FalconX, Monarq and Canary Capital, covering custody, execution, advisory and yield optimization. And we've also selectively deployed capital through lending arrangements and structured derivative strategies to generate incremental yield while maintaining strict risk controls. The key point here is that these are not 3 separate businesses. These are designed to reinforce one another in the value compounds through integration. How do our Q2 results fit into that? Well, when we look at the second quarter, it was really about execution against them all. We completed the operational reset. We strengthened the cost structure and reduced cash burn. We generated over $220,000 in staking income, a new tangible revenue stream. We authorized a $3 million share repurchase program expected to commence in the coming days to reinforce our commitment to disciplined capital allocation and long-term shareholder value. And our balance sheet is the strongest position it's ever been with $17.9 million in cash, $3.1 million in positive working capital and a treasury value of approximately $22.4 million. So this was not a quarter of new ideas. It was a quarter of putting our foundation in place and delivering tangible results. Now we'd like to pass the line to Anthony, who's going to put the Q2 financials into greater context. Anthony? Anthony Georgiades: Yes, absolutely. Thanks, Shubha. So I just wanted to take a quick moment to really reframe the quarter a bit because I think it's critical that investors understand the underlying performance relative to some of the reported numbers directly. And also just really understand the magnitude of what's actually changed inside the business over the last 6 and 12 months. So if you look at the headline number, there's obviously a reported net loss of roughly $19 million or so. But that really reflects 3 noncore and largely noncash items. You have a $17 million unrealized noncash mark-to-market adjustment on digital assets. Obviously, the digital asset landscape has been largely volatile over the last several months related to both monetary policy as well as a number of different global and macro concerns. Simultaneously, this quarter reflected the consummation of the PIPE transaction that officially went through in January. So there's $2.8 million of onetime financing costs associated with that PIPE that hit the quarter. There's also around $2 million or so of fair value changes in different instruments such as warrant liabilities as well as incremental interest expense tied to the treasury strategy, that interest being largely PIK and noncash pay. So if you normalize for that, what you see is really a business that has undergone a material financial and operational inflection. So to quantify that for a moment, we generated positive adjusted operating income of approximately $125,000, which while on the face might seem de minimis, if you compare that to the previous year, we're on the same metric, the business generated a negative loss of around $2 million and around minus $500,000 for the same period. That's a roughly 150% plus improvement in operating performance and a swing from both cash flow negative generation to cash flow positivity. Adjusted EBITDA as well came in at roughly $0.5 million versus a loss of roughly $600,000 last year, a $1 million improvement on a 3-month basis year-over-year or roughly 165% swing on a relative basis. What's important to really understand here is that, that improvement was achieved while maintaining a relatively stable revenue base in a still constrained mortgage environment. So this tells you this is not really a cyclical improvement. This is structural and has to do with a lot of what Shubha had alluded to. And this is really kind of where the narrative and work since. Over the last 2 quarters, we executed a full operating model reset. As Shubha mentioned, we reduced fixed costs materially. We rationalized vendor and software spend, and we reoriented the work force towards a more technology-enabled model. Simultaneously, we've begun embedding AI across a number of different core workflows. To date, we've implemented over $1.5 million in annualized cost savings with line of sight to around $2.5 million later this calendar quarter. which will take us to breakeven on a cash flow and operating basis going forward. That equates to, as Shubha mentioned, a 50% plus reduction in monthly cash burn. And so I want to be clear on one thing as well. This was a very deliberate rearchitecture of the cost base to really support a more scalable, capital-efficient platform. And these quarterly earnings are really the first time we're actually starting to see this trickle through the numbers here. What that means going forward is higher incremental margins, stronger operating leverage and really a business that can compound earnings without scaling costs linearly. Now stepping back to look at the balance sheet because this is where a lot of the transformation begins and becomes far more evident itself. The business has obviously 50x plus its overall cash balance, largely by way of the PIPE transaction that took place several months ago. We're also sitting at a positive working capital of roughly $3.5 million versus a deficit in the prior period. The slide here references a $22.4 million digital asset treasury. I do want to just clarify that that's roughly $22.4 million of INJ at the fair market value. There's also stable coins that are outstanding as well as a meaningful cash position. And so we actually look at the digital asset component on a fair market basis closer to around $45 million in liquid and liquid equipment assets. From a liquidity standpoint to that vein, we now have several years of operational runway, which gives us the ability to execute deliberately without really dependent on external capital or really shareholder dilutive capital sources. This is a fundamentally different company than really what it was 12 months ago. To spend another minute or so on the digital asset treasury because I think it's still somewhat maybe misunderstood or underappreciated. At a high level, we think about the debt as a structured capital allocation program, not necessarily passive balance sheet exposure. As I mentioned and as Shubha alluded to, we've generated several hundred thousand in staking income during the period, which has become a new recurring yield stream. We only forecast that to continue to grow as we continue to execute and deploy and state a variety of these different instruments. But that's really just the base layer. Where we've also really been focused is active yield generation within a disciplined framework. This includes structured derivative strategies, including writing puts to generate premium against our underlying INJ positions, accumulator style exposures, which allow us to systematically build position at favorable levels, meaningful discounts to open market transactional purchases. Also secured and unsecured lending strategies where we deploy assets to generate incremental yield and broader market neutral or partially hedged strategies to enhance returns while managing volatility. All of this is done within a government framework, defined liquidity thresholds, position limits, counterparty diversification and Board level oversight. And importantly, we've really built a first-class institutional grade stack around this, working with groups like FalconX on prime brokerage and lending, working with groups like Kraken on OTC transactions, working with groups like Monarq and Canary on structuring trades and structuring product. Each of these different counterparties handles very distinct functions across custody, execution, advisory and yield generation strategies overall. From a valuation standpoint, we've also introduced NNAV, which we think is an important lens for investors overall. At quarter end, NNAV was approximately 0.73x. In other words, what NNAV signifies is the fully diluted enterprise value of the business relative to the fair market value of its underlying crypto holdings and digital asset holdings itself. In other words, the market is valuing the company at a relative discount to the underlying asset base before fully attributing value to the operating platform itself or potential forward earnings power. And obviously, that dislocation is something we're very focused on, which leads us really directly to capital allocation. We've structured and authorized a $15 million share repurchase program. The Board has approved an initial $3 million tranche, which we're expecting to commence imminently in the coming days. We'll operate within Rule 10b-18 parameters. We'll have an initial ceiling in terms of price per share in the open market that we're going to be acquiring that in terms of $1.50. Obviously, that's subject to Board oversight. But at current levels, the Board and management see compelling risk-adjusted return in our own equity, and this gives us a disciplined mechanism to act on that. The last thing I want to touch on briefly is really where the business is going from here. We've alluded to this both in terms of what we've done on the cost reduction side, what we've done with respect to really rearchitecting the business. But the next phase of the platform is really focused around intelligence and automation. We've already begun embedding AI across onboarding, across underwriting workflows, across customer engagement. That's really just the tipping point and starting point. As we continue to structure and tokenize the underlying data layer, and integrate that across our platform, we believe there's a real opportunity to continue to build out and execute on software-driven, high-margin recurring revenue products that sit on top of really the existing mortgage infrastructure, think automated underwriting support, data-driven lender products, intelligent lead routing, conversion optimization and potentially eventually AI-native financial workflows. Directionally, we're very, very excited about where the platform is heading. We've already made tremendous progress in that respect, and we're excited to obviously continue to execute on the strategy from here. Jack Perkins: Thank you, Shubha. Thank you, Anthony. Appreciate your comments. We'd now like to take some time to review several questions that have come in. [Operator Instructions] First question, Pineapple, and this is for you, Anthony. Pineapple has spent the last several quarters repositioning the business from the build-out phase towards execution and operating discipline. Could you, at a high level, tell us how investors should think about what has changed inside the business and why this is an important moment for the company? Anthony Georgiades: Yes, definitely. So I guess to kind of rephrase what's kind of actually changed inside the business. The cleanest way to think about it is we've really transitioned from a general build phase into an execution phase, and that execution is far more focused on a -- it's really predicated and supported by a much larger balance sheet as well as a much more data-driven and software-driven and intelligence-driven initiative towards new revenue streams. Over the last 12, 18 months or so, we invested heavily in infrastructure, heavily in capital formation and significantly in a lot of the platform development. A lot of that work is largely behind us. You're starting to see that in the numbers already as a result of that transition. We've moved from an adjusted operating loss to a positive adjusted operating income and EBITDA as well moved from a meaningful deficit to positive. At the same time, and obviously, directly related, we've reduced monthly cash burn significantly. This isn't really a forward-looking story in that respect anymore in terms of forward growth. It's already showing up in the financials. The organization is now far more aligned around execution, efficiency and capital discipline. That's where our focus remains. And now we're doubling down on areas of growth across those different streams that will really take this business into the next phase of its evolution. Jack Perkins: Excellent. Thanks, Anthony. That was great. Another question for you. As you have described, this is a structural reset of the operating model. Can you walk us through what that reset involved and what it enables going forward in terms of margins, efficiency and scalability? Anthony Georgiades: Yes, absolutely. I think this one is important, too, because there are a lot of organizations and enterprises that go through the motions in terms of these sorts of rearchitectures and cost reduction exercises and whatnot. And to some extent, they're tile efforts or temporary in nature. We approach this reset as a permanent rearchitecture, not any sort of temporary cost reduction exercise. Management went through the business line by line, vendor stack, software, operational workflows, workforce and really aligned everything around a more efficient technology-enabled model. A key component of that, as we've discussed, was how can we really embed AI across core functions, whether that's onboarding, whether that's data processing, whether that's customer engagement. And how do we use that to leverage and to scale without adding incremental variable cost or incremental fixed costs to the platform. Obviously, as we've discussed, we've been able to both implement a more efficient and robust platform while simultaneously doing that with an estimated $2.5 million of savings on a net-net basis. But really, the more important point is what that enables, right? We have a much more structurally lower fixed cost base, which means, generally speaking, as revenue continues to grow, whether from the mortgage platform, whether from data initiatives, whether from treasury income, we anticipate and meaningfully expect higher incremental margins. That's the operating leverage we've been talking about. That's operating leverage we're focused on unlocking overall. Jack Perkins: Wonderful. Thank you, Anthony. That's an exciting time moving forward for the company. Taking a deeper look at the mortgage platform, and Shubha, I think this is a good question for you. What specific actions have been taken to improve agent productivity, retention and overall unit economics? And what early indicators are you seeing from these initiatives? Shubha, you're on mute. Shubha-Jeet Dasgupta: You guys hear me okay? Jack Perkins: Yes, we got you. Shubha-Jeet Dasgupta: Sorry. Yes. So I was saying, Jack, as an organization, we spend so much time with a focus around our agents and ensuring that we're optimizing their businesses and enhancing it to increase our revenue, increase our margins and increase our potential. We're constantly having meetings refine areas of improvement, how can we make this platform. And over these last couple of quarters, we've continued to invest into that area with workflow automation, continuous enhancements and significant CRM enhancements and optimization, lead generation tools through Pineapple our proprietary technology stack. All of these things plus are translating directly into our productivity. To give you some early indicators that are really encouraging that we've noticed here in the organization, subscription revenue has increased to $210,000 -- over $210,000 this quarter, which is up from about $185,000 in the prior year period. And what that tells us is that our agents are engaged and seeing value in the platform. Six-month mortgage volume continues to increase and move on the upward trajectory, as I referenced earlier, albeit modest right now, it's a really good indicator to show that the work that we are doing is very resilient even in difficult markets and in trying times. So we think that we're continuously making impacts, continuously making improvements and continuously focus on efforts to increase the productivity of our platform and the user. Jack Perkins: Excellent. Thank you, Shubha. And just kind of a follow-up on that. From a market perspective, Renewal and refinance activity appear to be driving a greater share of the mortgage volume today. Can you talk a little bit about how Pineapple's platform position will benefit from that shift? Shubha-Jeet Dasgupta: Yes. The Canadian mortgage market has so much opportunity and various segments of opportunity that each move in different cycles. We went through a phase a couple of years back where home buying and investment purchases were the significant drivers of the mortgage market of our business. As the years have evolved and changed, we've seen kind of the cyclical nature of mortgages and which vertical becomes more dominant than the other change with it. And today, we're seeing a lot of focus in activity around renewal and refinance. Well, statistically, almost 60% of Canadian mortgages will be coming up for renewal in the next we saw the biggest purchase year happen in 2021 when 5-year fixed rates were. That brings you right to today with all of those mortgages that happened in a record year coming up for renewal and coming up for maturity. That gives us an incredible opportunity to capture this reoccurring pipeline of renewal business, deliver value to our clients and drive revenue back towards us. We're also seeing a shift in the interest rate landscape here in Canada. Over the last few months -- sorry, over the last few years, Bank of Canada as well as our bond market has continued to move in a downward trajectory. Bank of Canada has reduced interest rates by over 200 basis points and yields have dropped to the same, which have reflected over into lower fixed cost and fixed rate mortgages. Both of these 2 have allowed us to go back out to the market Canadians have bought a mortgage over the last couple of years at significantly higher interest rates and refinance them into lower more acceptable prices. This allows us to reduce their monthly liabilities, allows them to live a little bit more comfortably and certainly helps us drive more revenue into the business. This is one of the core elements of our team and really capturing this reoccurring revenue. We've built and designed it in a way that we have triggers and milestones where we'll drive these opportunities right to our sales force. We'll put it at the top of their dashboard so that they can see which customers they need to work with and how they can help them find solutions for their specific mortgage needs. And over the last couple of quarters, as you can see from our financial results, this has been paying off for us with more volume, more agents and more productivity. Jack Perkins: Thank you, Shubha. Next question, this one is for you, Anthony. This quarter's reported results are significantly impacted by noncash digital asset revaluation and onetime financing costs. How should investors think about the underlying operating performance of the business, particularly in light of the improvements in adjusted operating loss? Anthony Georgiades: Yes. So I'd separate the -- or delineate really the GAAP accounting from the operating reality. The reported loss is almost entirely driven by 3 items, as you mentioned, right? You have a noncash mark-to-market adjustment on digital assets of roughly almost $17 million. You have onetime financing costs tied to the actual transaction itself, close to $2.83 million overall. There's also incremental interest expense pertaining to the debt strategy overall. But none of these really reflect the core recurring performance of the platform itself. Normalizing for these takes us to obviously the adjusted operating income and adjusted EBITDA. Looking at those same adjusted metrics on a year-over-year or quarter-over-quarter basis, we're seeing obviously a meaningful swing and movement towards positivity rather than operating at a deficit, which is exactly what we've been guiding for the last several months. And we're on track to be a cash flow positivity by the end of calendar Q2, by the end of June of this year. And importantly, overall, the digital asset adjustments of unrealized and noncash aren't things that as it stands today, the digital asset treasury contemplates or forecasts will become realized at any point in the near term. from our perspective, the real more important and relevant lens is that cost structure has improved, cash burn has materially reduced and our operating trajectory, as we've guided, has actually moved ahead of forecast towards breakeven, which we anticipate occurring in the coming months. And that's the true underlying story. Jack Perkins: Thank you, Anthony. Turning to data and tokenization. Pineapple has framed this as a natural extension of the Core mark mortgage platform. Can you walk us through how the company is thinking about unifying its data assets and what key milestones investors should be watching over the next few months -- sorry, over the next few quarters? Anthony, I think this is a good one for you. Anthony Georgiades: Yes, sure. So the data tokenization opportunity is to be specific, not a separate initiative. It's a natural extension of the underlying platform. Mortgage finance, whether it's in Canada, whether it's in the U.S., whether it's anywhere globally, still operates on an extremely fragmented unstructured data set, documents, PDFs, siloed systems. So what we've been doing and what we've had success doing is taking that disparate unstructured data that we've accumulated over years across the mortgage network and converting it into structured, verified, highly clean and centralized data sets that can subsequently be tokenized or licensed or offered in the form of API subscriptions to a constituent of third parties, whether that's lenders, whether that's hedge funds, institutional asset managers, data providers, you name it. And this has really created the foundation for things like internal automated compliance workflows, lender-facing analytics and ultimately, as I just alluded to, recurring software-driven revenue streams. The key point is that we already own the data. So this isn't about necessarily going out and trying to find and procure incremental data sets. This is about monetizing an existing asset base, not building something wildly speculative. And so near term, investors should really be on the lookout for announcements pertaining to pilot programs, validation, POCs, et cetera. Over time, we believe this becomes a very high-margin lucrative layer on top of the core platform. Jack Perkins: Thank you, Anthony. Next question is for Shubha, the digital asset treasury is a newer component of the story. Can you explain how this strategy fits in with the broader operating model and how you're approaching yield generation alongside liquidity and risk management? Shubha-Jeet Dasgupta: Yes, absolutely. And I mean from a risk management perspective, just to kick it off, it would be remiss of me not to note that we have an exceptional special advisory committee led by Anthony on this call that has done a tremendous job from a Board perspective to build out this digital asset treasury and really optimize what this potential can be. The gap for us and how we look at it is the -- we're generating a staking yield. We've referenced on this call a couple of times over $200,000 over this period. And this is a new incremental and reoccurring revenue stream. So it's yield, it's real yield on capital that would otherwise be sitting. But as I referenced just a moment ago, the key word here around risk is discipline. We've maintained minimum operating cash reserves. We're not using leverage aggressively. We're [ rehypothecating ] assets. And we've built out an institutional grade infrastructure. We have Kraken for custody; FalconX for execution; Monarq for advisory; and Canary Capital for yield optimization. This is a very, very well-governed program and not. Jack Perkins: Thank you, Shubha. Anthony, can you explain -- sorry, can you expand on the governance framework around the treasury, including how decisions are made and what safeguards are in place to ensure it supports the operating business? Anthony Georgiades: Yes, definitely. So risk management overall is foundational to how we've built the program, generally speaking. The treasury operates under a policy framework with clearly defined parameters, liquidity thresholds, position limits, concentration guidelines and really approval protocols at both the management, Board and counterparty level, including our asset managers. Every significant deployment decision goes through that process. On the execution side, we've deliberately separated custody execution, advisory and yield functions across a consortium of independent institutional partners whether that's Kraken, FalconX, BitGo, Monarq or Canary Capital. So there's no single point of failure or concentration risk in our counterparty exposure overall. And on the risk management side, we maintain significant cash positions. We've also built a surplus of working capital. Historically, the business has operated at a working capital deficit, and we've been able to shift from working capital deficit to positive working capital in the range of plus $3 million, which is really in excess of our floor in terms of minimum cash reserves. And based on current operating burn, we estimate in really a downside scenario that there's at least several years of operational runway. The treasury enhances that overall financial position doesn't put risk on the operating business, but rather enhances it and some plans it with incremental yield. Jack Perkins: Great. And now with the share repurchase program in place, how should investors think about the framework that you'll use to evaluate when and how to deploy capital into buybacks? Anthony Georgiades: Yes. So I guess, first and foremost, we view buybacks strictly through a capital allocation lens. When we look at the business today, when you look at our cash position, when you look at our treasury value and when you look at the operating platform that we've been building and evolving and obviously driving going forward, we see a clear disconnect between intrinsic value and market pricing. Last quarter end, NAV was approximately 0.73x, which implies the market is valuing the underlying business at a discount to the liquidation value of its underlying assets on an enterprise value basis and providing no intrinsic value to any other of the assets of the business itself, such as the operating platform, mortgage platform or very speculative growth initiatives we're engaging on. So with that in mind, we've authorized a $15 million share repurchase program with an initial $3 million tranche that's going to be deployed and commenced in the coming days. We're going to be executing this within Rule 10b-18 guidelines, subject to Board oversight, we have an initial threshold set of $1.50 per share in terms of the maximum price per share we'll acquire at. And we'll remain disciplined, always weighing buybacks against alternative uses of capital. But where we see obviously a compelling risk-adjusted return, we're prepared to obviously act and execute on. Jack Perkins: Great. Thank you, Anthony. I think we have time for one more question. Shubha, this one is for you. Looking ahead to the balance of 2026, what are the key execution priorities for management? And how should investors measure progress as Pineapple moves towards improved operating leverage and a more durable earnings profile? Shubha-Jeet Dasgupta: Sure. And I think I've been round this question off for us and pose this question off tying together everything that Anthony and I have been talking about here today in 3 priorities. The first being continuing to scale bridge on our mortgage platform. It means continuing to drive revenue growth while holding cost structure flat. We believe internally as management and Board. We believe and we know that we can scale this business multiple within any movement in operational expenses. We've already given guidance to a full year revenue in the range of about $7 million to $9.5 million on a run rate basis going up until the end of this calendar year, and we're targeting breakeven on a cash flow basis. So that's certainly something that investors will want to keep an eye on the metrics we keep close attention to. Second, on the advancement of our data and tokenization road map that just spoke in detail from development into early commercialization, investors can definitely keep a watch out for pilot programs, vendor partnerships, POCs and everything else as we begin to really push this product into real-world. And finally, third is continuing to build yield on digital asset treasury and demonstrating that the governance frameworks were designed, staking income should grow and the program will mature. The ways to measure it, it's pretty straightforward. Keep watching our adjusted operating income, the EBITDA trajectory, cost per funded loan, subscription revenue trends and our staking income. Those are the metrics that will tell you and guide you whether the execution that we are implementing on a daily basis is working. We're confident it is, and we expect the numbers to reflect over the coming quarters, and we are continuously thankful of our supporters and shareholders. Jack Perkins: Thank you, Shubha, and thank you, Anthony. That concludes today's fireside chat. On behalf of Pineapple Financial, thank you to everyone who joined us today. A replay of today's discussion will be made available through the company's Investor Relations website and social channels. Please contact pineapple@kcsa.com if you have further questions that we were not able to address today on the call. Thank you, everyone, and until next time.
Operator: Good afternoon, ladies and gentlemen, and welcome to the hVIVO Annual Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and please do give that your attention. I'm sure the company will be most grateful. I'd now like to hand over to CEO and CFO, Mo, Stephen, good afternoon. Yamin Khan: Good afternoon. Thank you for the intro. So I'm Yamin Mo Khan. I'm the CEO of hVIVO. I've been with the company for just over 4 years, and I have with me our CFO, Stephen. Stephen Pinkerton: I'm Steve Pinkerton. I've been with the company for almost 9 years. I've been the CFO for the last 4 years. Yamin Khan: I would like to welcome you all to our full year 2025 results. The company has had a challenging 2025, at least financially. But operationally, I think we've done some great work, and we'll go through both our operational achievements as well as our key financial parameters. So we'll move straight on to the financial -- the normal disclaimer and then really to go through the company's overview of what we are planning to do from a strategy point of view and what we have achieved because it's key to have a strategy, of course, it is, but it's also key to see how we are progressing in executing that strategy. So as you all know, we are the world leader in human challenge trials, and we will remain so, and we are continuing working hard to expand our human challenge trial capabilities. But one of our key focus area is to continue to diversify and add new capability. And that's been part of our action for the whole of 2025 and 2026. And we'll really talk about how we are diversifying into new areas. So new stages of clinical development from preclinical all the way to end of Phase III, whereas historically, we've run the Phase II human challenge trial and also expanding our therapeutic expertise, not just doing infectious disease trials, but doing respiratory and cardiometabolic too. And on top of that, of course, through our acquisitions, we already have achieved a geographic expansion into Germany and pan-European presence. And I think the key thing is that in 2025, we have already achieved a number of the key criteria that we were looking at. So the expansion into Phase I is done. We are now retiring the brand names for Venn Life Sciences, CRS as well as Cryostore and rebranded ourselves under the single one hVIVO brand, which you may have seen launched yesterday on LinkedIn and other social media channels. Going forward, we want to provide our customers with an integrated end-to-end drug development platform under the hVIVO brand and operating ourselves under 4 different service lines, which I will describe later on. I will be focusing on the diversification of services, but please note that this is not at the cost of human challenge trials. We want to continue to build our human challenge trial capability and remain ahead of everyone else. But the key focus for us is to remain more diversified and offer a greater portfolio of services across the board. We have built a new challenge model. So we've launched contemporary human challenge models in influenza as well as the world's only commercial hMPV challenge model. We've also recognized some cross-selling opportunities whereas historically, we may have not approached customers in Phase I. Now we can offer them the Phase I, Phase II combination as well as Phase I and human challenge trial combination. Post period, we've had some really excellent highlights with the new trials contract we announced yesterday as a really good signal that human challenge trials are returning and back to normal. This is an influenza prophylactic antiviral challenge trial that will take place this year, and we expect to recognize the majority of revenue in 2026. We also are in the process of finalizing our agreement for our world's first Phase III human challenge trial in whooping cough with ILiAD Biotechnologies. With that, I'll hand over to Stephen to go through the key financials. Stephen Pinkerton: Good evening, everyone. 2025 has just -- has been a challenging year for this business. We delivered GBP 46.8 million. That's in line with our downgrade that we gave in May 2025. It happened quite quickly. We faced a number of cancellations right in the April, May time. Normally, the number of cancellations that we have is around about 2 on an average. And this -- and we had quite a bit more than 2 in the current year. And that is the main reason for the lower revenue performance. However, I think the business has adjusted well. We made a profit of GBP 1.4 million despite these headwinds from the U.S. and that's after the net acquisition losses of GBP 1.4 million. So the underlying performance of this business was profitable in the circumstances. Cost management was at the foreground, but the efficiencies that we achieved in 2025 to establish in 2025 pull through in 2025. One of the clearest examples is recruitment. We were able to leverage our database rather than go out for lead generation and spend money on advertising and things like that. But clearly, one of the clear reasons for the profitability was also these cancellation fees carried no variable spend attached to them and flowed through to the bottom line. And this gives you a sense of whilst HCT got impacted significantly by the headwinds in the U.S. with infectious diseases and vaccinations not being in favor, our contract model softened the blow somewhat in this -- on our HCT studies -- on our HCT revenues. Moving on to cash. Cash of GBP 14.3 million was a little bit better than the expectations, although this is much lower than we started the year at GBP 44.2 million. Just under 50% of that is due to the acquisitions supporting the working capital and also obviously, the consideration for acquiring -- making those acquisitions. Just over 50% of that is due to the core business and the limited number of HCT trials that we have signed in 2025 or before the end of the year. The Board has made the decision not to pay a dividend for 2025. That's really -- the value of the dividend is GBP 1.4 million, and we felt it's much better spent investing and growing in the long-term future of this business. The order book of GBP 30 million is -- compares to GBP 43.5 million has been restated. So previously, we would have included the full value of a contract at the time when the contract is signed. However -- when an SUA is signed, a study start-up agreement is signed. However, because we faced a number of cancellations and we have changed the methodology. At the time we set up a start-up agreement, we get start-up fees and we get a booking fee. And because that booking fee was seen as a commitment, we would use the CTA full value. However, we're now only including the contracted values in the order book. And we are also now only announcing contracts when the CTA value -- when the CTA has been signed with clients. So there is a bit of delay because, first of all, you've had headwinds affecting the HCT market. And we're now only announcing studies once the CTA is signed. And the time between SUA and CTA can be anything between 5 months to 12 months in Signature in terms of when they sign between the 2. But there's another slide further on, and Mo will take you through more on the order book going forward. Just touch on revenue. This is a waterfall from 2024 to 2025, the key sort of drivers and changes in the revenue makeup mix over 2025. Remember, in 2024, we did receive facility fees that clients paid us to effectively what we built up in Canary Wharf for a large study that was delivered in 2024, and that was roughly about GBP 4 million. HCT, we've just talked about, it did decline significantly. It's due to a number of cancellations. I also wanted just to highlight that some of that decline has got to do with -- in HCT, we also include manufacturing revenue, which is around about 10%. 10% of the HCT sales that we make is where we have manufactured challenge agents for clients. And so I don't want people to remember that this is an important part of our portfolio is being able to develop challenge agents. Clinical Trials were slightly up year-on-year. We did have a high volume in 2024, where we -- and we've managed to be able to repeat it in 2025. So I think that's quite a good performance. Labs is slightly up. It is off a low base, but we see a pretty good order book going forward on that. Consultancy was down, and that's mainly because a big pharma took some work in-house. But with the support of CRS, we're beginning to see some cross-selling from the CRS clients into our consultancy -- early clinical consultancy services, so that's improving. Looking at the acquisitions, Cryostore at 0.8 million, that was their revenue for the year. That's perfectly in line with our expectations and the due diligence work that we did on Cryostore. They are delivering as expected. It's a high margin. It is a business that has sort of 90% to 95% retention rate. So it's a great little business and it's doing very well. Clinical Trials, our German acquisition, GBP 12.3 million is a little lower than we expected at our due diligence stage. It was really down to the RFPs in 2024 not converting as expected as per previous sort of conversion rates, impacted definitely by the whole sector. The whole sector had a little bit of a hesitation and a hiccup across the CRO sector. So certainly that impacted. However, we have seen an uptick in the conversion rates in 2025, offsetting some of that shortfall in 2024 -- of the 2024 RFPs. And then just to touch on cash, a little bit of cash utilization here. I've just tried to split how we've utilized our cash. We have utilized some GBP 29 million. This is the core. We used GBP 15.4 million and inorganic work, it was GBP 14.5 million. Cash generated from operations of GBP 10.4 million is obviously due to the HCT where we've had unwinding of the deferred revenue and the new sales on HCT is still to come back and looking at the pipeline, that's looking positive. But obviously, it's impacted us for 2025. The purchase of PPE, the GBP 1.4 million is largely lab equipment. We did purchase the first digital PCR equipment in Europe, Hamilton. It's a great piece of kit. It's quite expensive, but it supports us with our field study work that we're doing on Cidara and new field work that we're going to do. It's much faster and it's much more efficient as well. Financing activities of GBP 4.6 million includes a dividend of GBP 1.4 million. And obviously, we're not paying that in 2025. It's in 2026. So there's no dividend going on. The other thing that we benefited in 2024 was we had a rent-free period in Canary Wharf. So our lease payments have jumped up by about GBP 2 million to GBP 3 million in 2025. So that's the makeup of the GBP 4.6 million. Then just the acquisitions, GBP 10.5 million spent on consideration costs and the GBP 4 million is really the sort of the working capital and funding the loss for the year. But overall, I think the business has reacted quite well to the headwinds that we have faced and try to reflect there is some resilience in the business in terms of the way we contract to soften the blow, and we're well set to go forward. And with that, I'll hand you over to Mo. Yamin Khan: Thank you, Stephen, for going through the numbers. I want to really focus on why do I feel bullish going forward. We've just been through a challenging 2025, and we had a profit warning in 2025. The share price has been depressed. But I still believe that as a company, we've had a transformational year. So we've gone through 2 acquisitions, Cryostore in London and 2 clinical research units in Germany from CRS. And we realigned our company under the single one hVIVO brand. The reason why that is important is we want to offer a one-stop shop for our customers to go from preclinical is at the consulting stage all the way to end of Phase II or end of proof of concept, basically to show a signal whether a drug works or not as well as offering Phase III site services. So under the 4 different arms we have right now that we are fully operational and currently in working practice, the consulting arm focuses on CMC, PK, regulatory type of consulting with majority of really falls under the former Venn team. But they work very closely with the clinical trial service arm in the sense that when we are running a Phase I trial, as part of that, we may be helping our customers to design protocols, write clinical development plans, obtain regulatory advice. So the clinical trial service unit works very closely with the consulting arm. Under the Clinical Trials unit, we also include the Phase II nonhuman challenge trials we run, both in Germany, but also in the United Kingdom, in London, in particular. The third arm is the human challenge trial arm. But this is a legacy arm where we manufacture new challenge models, we validate them and then we run the human challenge trial work on that. And the final piece to the [indiscernible] is, of course, is the laboratory piece, which historically has catered human challenge trials, but now is a stand-alone business on its own. So it will continue to provide services to the human challenge trial -- clinical trial business. But on top of that, we also expect to service third-party clients, trials run by third-party CROs. Cidara being a key example where we provided full center virology assistance in the laboratory aspect to 50 sites in Phase II to 150 sites in the Phase III. What this enables us to do is to handhold the client from the beginning to the proof of concept. It also means that we're able to access new clients independent of the stage they're at with regards to the clinical development program. Historically, we were a Phase II human challenge trial business. Now we can attract clients whether they're in preclinical Phase I, Phase II or Phase III. So this automatically increases the portfolio of our customers. Having said all of that, I want to reiterate human challenge trials remain a key component of our offerings. We are no longer relying on them as a sole provider of future revenue. In 2024, over 85% of our revenue was generated from human challenge trials. In this year, we are forecasting less than 50% of our revenue to come from human challenge trials. Of course, this is partly due to the downturn in the human challenge trial awards and the cancellations we've had in 2025. But it does show the progress we have made in the non-challenge trial business, the fact that we can now expect over 50% of our revenue to come from non-challenge trial business. The scale and breadth of the company has also radically changed. We now have over 200 beds in a variety of different locations where we can treat patients for all sorts of clinical trials. We've created centers of excellence for different type of therapeutic areas. So in infectious diseases and also respiratory in London, cardiometabolic in Mannheim, renal and hepatic special population studies in KIEL. Now this gives us, again, access to new customers that we have not had access before. CRS historically have mostly worked with German customers. Now we are targeting our sales activities to pan-European and also U.S. customers to run their trials in Germany with the -- for the Phase I part. We've seen volatility within the FDA and more and more customers looking to do early-stage clinical development outside of the U.S., whether that's in Australia or in Europe. And we want to play a key role in attracting those customers to you, especially in Germany when it comes to Phase I trials. On the human challenge trial business, as I said before, we want to continue to build on this and be the world leader. We do majority of the commercial human challenge trials that are conducted in the world. We've added a new human metapneumovirus model, hMPV challenge model. It is the only active challenge model commercially available in hMPV. We've renewed our influenza viruses in a number of different strains and Traws Pharma is taking advantage of a new contemporary viral model that we have in place that we launched last year. And we will continue to build on our human challenge trial business, and that's key. We're also potentially expanding into respiratory human challenge trials, challenging asthmatic or COPD patients to cause mild exacerbation and testing new antivirals or asthma and COPD products. So human challenge trials will remain a crucial part of the business. We have 3 other key growth initiatives that I want to walk you through. And the reason why they're important is I expect them to contribute significantly going forward as part of our non-human challenge trial business. The first one is the cardiometabolic. I'm sure you are all aware of the recent boom in anti-obesity drugs. And we want to be part of a clinical development team that tests new anti-obesity drugs. But cardiometabolic is more than just anti-obesity drugs. It also includes drugs targeted against diabetes, for example, hypertension, high cholesterol levels in patients. We have a world-renowned endocrinologist, key opinion leader in doctor -- Professor, sorry, Thomas Forst, who heads up our -- who is our Chief Medical Officer at CRS or now the clinical trial service arm, who is responsible for leading this franchise. He acts as a director on several advisory boards for Big Pharma. And we believe through our initiatives in attracting new customers outside of Germany, supplementing the patient recruitment with the U.K.-based FluCamp now fully implemented in Germany, we can run more trials in Germany. The key for us is that we offer Phase I and Phase II combo trial delivery platforms, Phase I in healthy volunteers and expanding into Phase II patient-based studies. Now in our group of service providers, there are not many vendors out there that can provide both healthy volunteer Phase I trials and Phase II patient studies. And there's a gap in the market, which we want to make the most of. Our second key driver is respiratory. So historically, on the human challenge side, almost all of our challenge trials have been run in infectious diseases that target the respiratory system. So we inherently have a really strong respiratory franchise with some really good experts and our facility is equipped already to monitor different respiratory parameters when it comes to running Phase II and Phase III trials. And that's something we are now making the most of in the sense that we are targeting clients, respiratory clients to conduct non-challenge trials. We run a number of non-challenge asthma trials. We have a huge database of patients both in asthma and COPD. And we're now seeing traction from our clients who are interested in running field studies with us on both asthma and COPD indications. And this is something, again, we want to build on and then build new indications on the back of delivering these types of patients. The third and final piece of the puzzle is a laboratory. We want to build the laboratories. As I mentioned earlier, historically, laboratory has catered for our human challenge trials. We now have a strong stand-alone business. We've added new capabilities to this. We have added a droplet digital PCR machine that can automate and speed up the analysis of samples for PCR purposes. We've also added a next-generation sequence capability, which is NGS capability. It means that we can sequence pathogens or other molecules much faster than we have previously done. In fact, we formally outsourced this piece of work because it was part of the human challenge trial business. And now by bringing it in-house, we can increase our revenues and improve our margins. And our goal is to continuously monitor the requirements in the market for different types of laboratory requirements and to target customers for repeat business in this area. And the end-to-end platform isn't just a fancy word that I say to try and promote hVIVO to you. It's something that we have seen in action. Cidara is a really good case study. Cidara is a U.S.-based biotech company that came to us 3 years ago almost when we ran the human challenge trial. On the back of positive results from our human challenge trial, we were a site -- a clinical site in the Phase II field study, where we contributed around 1 in 6 patients in the total recruitment base. On top of that, we acted at the central virology laboratory for the Phase II trial. That was a positive outcome for that trial. On the back of that trial, Cidara was sold to Merck for $9 billion. We are currently, again, working with Cidara, now Merck on a Phase III study, also acting as a clinical site and a central virology laboratory for over 150 sites or hospitals around the world who send their samples to our laboratory where we analyze the primary endpoints. This is something we want to do more of, and we have now diversified to include both the consulting and the Phase I. So now, for example, we can speak to a customer at the preclinical stage, help them formulate their product through our CMC and our PK consulting services, take them to the regulatory bodies through regulatory consultants, do and conduct the Phase I trial first in human clinical trial and then the Phase II trial in patients. And along this journey, by doing it under one contract, one roof, it means you improve the efficiencies, you enhance the quality and you reduce the cost. All these are very attractive sentiments to a biotech who is looking to get to and the proof of concept with -- as fast as possible and potentially as cheap as possible. The reason why I feel this is important is because I believe that going forward, we will see an increase in number of trials done by biotech to get to Phase II. That's because the Big Pharma are cash rich right now. But they also have a challenge of a very big patent cliff, around $300 billion worth of new branded drugs will expire their patents in the next 5 years. This means that after that, the revenue that these companies will get from the branded product will reduce significantly because there will be copycat generics on the market at a much cheaper price. To fulfill their pipeline, Big Pharma will spend money to buy new assets. And because they're cash rich, they can afford to pay a higher price and get a drug that is at a later stage of development, so lower risk of development. If that was to happen, the biotech companies need to run Phase I and Phase II trials. And that's where we come in. We can work with these biotech companies and give them an enhanced package to get to end of Phase II. And the therapeutic is we're working on what we call primary care indications. So these are indications where you would typically go to your GP for rather than a hospital. So we focus on infectious diseases, in respiratory, in cardiometabolic. We can add other franchises, for example, women's health or dermatology and so on. And the key for us here is to have an integrated end-to-end delivery system that requires minimum effort and resources from a biotech. So their team can remain small and nimble and we could be the workforce underneath them to get to the stage where they're ready to market themselves to Big Pharma, just like we helped Cidara to do. The diversification, again, isn't all talk, okay? I mentioned the fact that 50% of the revenue will come from non-challenge trials. And you can look at the order book. The order book is also diversified. Stephen explained our new algorithm when we announced the order book and new contracts. And the key to that is that it should be more resilient, more reliable because it's closer to the execution of the work rather than at the start-up agreement. It also means that our order book in this instance, as you can see, will be lower than previously stated because we are announcing this contract at a more mature stage. This order book for 2025, of course, does not include the Traws Pharma contract because that was signed in post period. But I would want you to focus on the other areas and the growth we are seeing across the board in the different service lines. And that's key for us. So we want to build the human challenge order book. Of course, we do, but we also want to continue to build and grow and accelerate the order book in the non-human challenge trial areas. When it comes to new proposals, we've also seen a really good uptick. So 2025 numbers were significantly better across the board compared to 2024. And this year already, in the first quarter of 2026, we've seen a 50% increase in new proposals submitted year-on-year. And the variety of clients we're getting is also much greater than ever before. And I want to reiterate this. We're now attracting clients in new therapeutic areas. We're also attracting clients at different stages of clinical development. And that's key for us to build a future to diversify and derisk. If something like what happened last year was ever happened again, we are much better placed to manage that. And the final slide, just to sum up where we're at. So I totally understand people's frustrations, investors' frustration with regards to the financial outcomes and the share price depression in 2025. But I hope I have relayed some of the key work we have done. We've been very busy in getting the acquisitions on board, realigning the company to diversify and integrated end-to-end delivery system. And that's something we want to continue to go forward with. The CRS and the Cryostore integration are fully complete. We have all the line management realigned. We have launched new group-wide systems that work across all our colleagues across the group. You've seen from the pipeline is strong. The short to medium-term outlook is very good. We have signed Traws Pharma as a major human challenge trial. We hope to finalize the ILiAD contract soon. So the pipeline is very strong. And in the meantime, by the way, we are continuously signing Phase 1 contracts. These are generally between GBP 600,000 to GBP 1 million in value. So they're not announceable. But I'm pleased to say we are continuously working with new clients as well as some repeat clients in the preferred providerships that we are building the order book on that side as well. And with having said all that, we are confident that we will achieve high single-digit revenue growth in 2026. Thank you for your attention. Operator: [Operator Instructions] Investors before we go into the Q&A session, a recording of this presentation will be available via the Investor Meet Company platform shortly after today's call. Mo, Stephen, you received a number of questions from investors both ahead of the event and during today's event. So thank you, firstly, to everyone for your engagement. If I may just hand back to you, Mo, maybe you could kindly navigate us through the Q&A, and I'll pick up from you at the end. Yamin Khan: Great. Thank you. Okay. I'll get straight on to it. What is the outlook of firming orders with ILiAD now that funding has been secured by the firm? So the funding has been secured by the firm. You're absolutely right. And part of the funding has been allocated to run a human challenge trial with us, of course. The contractual negotiations are almost fully complete, and we are near finalization of this contract. So look out for the, hopefully, the [indiscernible] soon with regards to the announcement of the fully signed contract with ILiAD, which will be the world's first Phase III pivotal whooping cough trial. And just to kind of comment on this further, this will create a significant press when it comes to human challenge trials because the FDA, the MHRA and the EMA, the European agency, have agreed to use a human challenge trial data as a part of the submission package to get to marketing authorization. This has not been done before proactively. So this sets a precedent, hopefully, for future clients and sponsors to ask the same from regulators to use a human challenge trial as a way to get to license here. So something we are very proud of. We are, of course, very delighted that ILiAD has preselected us as their preferred partner, but this is bigger than just hVIVO. This would impact the whole human challenge trial franchise once that data is produced. What is the value of Traws Pharma deal to hVIVO plc? As you know, we have not publish the value of the contract. I think what I know this is price sensitive and competitive sensitive. And I'm sure our clients would not like to share -- us share confidential information with you guys. But it's a good, strong contract with up to 150 people being enrolled into the study. And as I mentioned, this will start almost immediately. In fact, the proprietary work has already started, and we look to complete majority of the trial in 2026. In light of the new Traws Pharma, HCT, will we have better capacity for ILiAD? Yes. The way we have planned out all this work, of course, there is capacity to conduct both trials in 2026. But the ILiAD contract, by the way, is multiyear. So it will go from '26 but the majority of the revenue, in fact, now will be recognized in 2027. And I think it goes to show the resilience of the company now where if you ask me 12 months ago, ILiAD would have formed a large proportion of 2026 revenues. But for a variety of reasons, that study has been delayed, but we are still sticking to our guidance. So even though ILiAD will form a much smaller portion of the 2026 revenue, we still are very confident of our guidance we have put out there. But in 2027, we expect ILiAD to perform even more with regards to revenue recognition. Isn't the CRO market extremely crowded? In that case, why are you expanding your CRO offering instead of doubling down on human challenge? It's a very good question. So human challenge trial, I think we have doubled down, if you will. We are the world leader. We have over 12 different challenge models. Nobody comes near us. We have around 350,000 people on a database that we can use to recruit healthy volunteers. Again, nobody comes near that. We've done 50 trials to date, over 5,000 healthy volunteers in operated. So we are the world leader in this. There's no doubt about that. But we have to be careful as we've seen in 2025. If you rely on one single modality, you do risk your future growth. And for that reason, we do want to grow further. But your key point that the CRO market is crowded, it's correct. But it's crowded in certain stages of development. There are not many multisite CROs out there that can do healthy volunteer Phase I studies and then expand into multisite patient study. We own our own clinical sites. Most CROs will go to third-party sites and rely on their recruitment capability. 80% of the trials that are delayed, are delayed due to poor patient recruitment. And that is a problem we will solve by internalizing patient recruitment. So our own team, our patient recruitment team will recruit patients into the London facilities as well as the German facilities. So although the CRO market is crowded, I believe we have a niche that will grow because of the pharma requirements of a more [indiscernible] product from biotechs, and that's what we want to service. The choice to reduce your overdependent on human challenge trial studies and smooth out the revenue cycle. So we're not reducing our human challenge trial capability. But we are diluting it by increasing the non-challenge franchises, absolutely. And the reason behind that, of course, as you mentioned, is to reduce volatility and lumpiness and cycle, if you will. I think this one is for you, Stephen. Is hVIVO plc evaluating further cost-cutting measures given the business outlook? Stephen Pinkerton: So we have a very good operational team where we plan out all our known studies. So we plan based on our contracted work and then we always look to scale accordingly. So yes, we plan our costs based on known factors, on our known studies. And yes, so we are always looking at our cost base, but there's no significant change that we're expecting in the short term. Yamin Khan: Thank you. The next question is a long question. I'll just get to the end. Will the company ever start winning new HCT trials again? And if so, when? Well, we won one yesterday, which was announced. So that's something. And as I mentioned earlier, we are looking to finalize the agreement with ILiAD on what will be our largest ever human challenge trial. Will you -- Stephen, this is one for you. Will you be paying dividends as I'm sure shareholders will be quite disgruntled about the past few years? Stephen Pinkerton: Okay. So as I mentioned earlier in the presentation, the Board has decided not to pay a dividend this year. We'd rather spend the money on investing for the future growth of this business. And if you think about it, at the beginning of the year, we had GBP 44.2 million and it seemed churlish not to pay a dividend. But we -- now we have GBP 14 million, which is more than enough for our sustainable growth, but we think it's better to spend that money, all of that money going forward and investing and growing this business for. Yamin Khan: Why did you decide to have your largest facility in Canary Wharf instead of a cheaper location elsewhere in London? What tilted the decision in favor of Canary Wharf? It was an economical decision. So we did look at a number of options in and around London, and this was the optimum with regards to location to get access to healthy volunteers and patients, but also economically, it was a very favorable terms for us. Remember, Canary Wharf were and still are attracting more life science companies to this campus. And as part of that, they really wanted us to be involved and spearhead that campaign. Apart from ILiAD, are there any other HCT deals that are close to signing over the next 3 months or so? So I can't comment on next 3 months or so, but absolutely, there are multiple deals we are currently working on, which are currently at the proposal stage. You saw the increase in proposals that we have seen in 2025, which have increased by 50% in the first quarter of 2026. So the pipeline of work remains very strong, and we do hope to close a few of these in the coming months and in the future periods. If hVIVO plc evaluating further acquisitions, we always will keep an open eye on further acquisition for the right fit. I think that will be key rather than the size and the timing. If the deal is good and it gives us access to new therapeutic areas, new geographies, then we will seriously have a look at those options. This is one for you, Stephen. How would you say your fixed cost and variable cost split? Just a rough split would be useful. Stephen Pinkerton: So this is actually not a straightforward answer because we have quite a number of different contracts in place with our clients and different revenue types. So I mean, if you think about our consultancy business, it's got capacity, it's not fully utilized. So what is my variable spend in that case? There isn't any. I can take on more work. If I look at HCT trials, the sort of the variable spend on the HCT trial is maybe 15%. If I look at the Clinical Trials business, the variable spend will be roughly 25% to 30%. So it's very much dependent on your revenue mix. Yamin Khan: Thank you. I can see we are running out of time. I think we've got 1 minute left, so I'll quickly go through a couple of, I guess, different questions. So does the Lab only service samples taken in London? Or can you process samples from anywhere in the U.K. So we process samples that are taken anywhere in the world, to be honest. So we have a whole biologistic arm that works with courier partners and ships samples at the right temperature control environments to our Canary Wharf facility here on this floor, in fact, where we have all the equipment ready to process samples. So we do manage a large number of samples in any given week, especially for ongoing trials such as the Cidara trial. Is the strategic move towards diversifying our revenue sources also margin accretive in the medium to long run compared to previous revenue mix. Stephen, do you want to get that? Stephen Pinkerton: I missed that one. Yamin Khan: Is the strategic move towards diversifying our revenue sources also margin accretive in the medium, long run compared to the previous revenue mix? Stephen Pinkerton: No, HCT was definitely a much more profitable piece of the business, especially when you're running multiple HCT trials at the same time. So we're able to leverage our fixed cost base a lot more efficiently over HCT. Clinical Trials is a lot more outpatient. So obviously, you have a lot more sort of transactional type of work to get through. So Clinical Trials is a lot more competitive environment as well. So your margins are a little bit tighter. Labs is probably a bit better, your margins are a bit better there because it's a contact with the client and Consultancy has also got a different margin. So the new revenue streams don't necessarily improve the margin. But when you start dealing with scale, then you start getting an improvement in margin. So with HCT coming back and with the scale that we're envisaging and driving towards on the other new revenue streams, which should get closer to where we were previously. Yamin Khan: Thank you. On that note, I will close our presentation. I think we've gone 2 minutes over. Thank you, everyone. Operator: That's okay. Thank you, Mo, Stephen. And of course, we'll make any other questions available post today's call. Mo, Stephen, I know investor feedback, as usual, is very important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps final words over to you, Mo, and then I'll send investors to give you feedback. Yamin Khan: Yes. So I want to thank everyone for your loyalty in hVIVO. I hope we have described at least some of the key points that we have achieved in 2025 and continue to do so in 2026. I appreciate financially, it was a challenging year, but you've seen the actions we have completed, and I think our strategy is sound. We are going for a market gap that currently exists. We're offering services that are unique. And I think our future is now derisked, and we are a much more resilient and less volatile company. Operator: That's great. Mo, Stephen, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of hVIVO plc, I would like to thank you for attending today's presentation, and enjoy the rest of your day.
Operator: Good day, ladies and gentlemen. Welcome to TomTom's First Quarter 2026 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to your host for today's conference, Claudia Janssen, Investor Relations. You may begin. Claudia Janssen: Yes. Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the Q1 2026 operational highlights and financial results with Harold Goddijn and Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financials. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. With that, Harold, let me, for the last time, hand it over to you. Harold Goddijn: Yes. Thank you. Thank you very much, Claudia, and good afternoon, everyone. Thank you for joining us. I will start with a brief update on our strategic and operational progress, and then I'll hand over to Taco for the financials. The first quarter of 2026 execution was solid. Profitability continued to improve. Our core Location Technology business, Automotive and Enterprise, both made good progress, while revenue trends reflect the transition we expected this year. In Automotive, we see carmakers accelerating their software strategies and taking more control of the in-vehicle stack. And at the same time, the industry continues to move towards higher levels of automation. Our Lane Model Maps are becoming an important differentiator. We're building on that, working closely with OEMs to support advanced driver assistance and autonomous driving. In Enterprise, we extended both our customer base and our use cases. We strengthened our position in traffic and traffic analytics through new partnerships, including AECOM, Kapsch TrafficCom and LOCUS. These partnerships extend our real-time traffic data into infrastructure planning, traffic management, location intelligence. They also underline the value customers place on quality and depth of our data and on TomTom as a trusted partner. Overall, we are confident in our progress. The steps we are taking, advancing our maps platform and building strategic partnerships position us well for 2026 and beyond. Before I hand over, a few words on the leadership transition we announced in March. Following a structured succession process, Mike Schoofs has been appointed CEO in today's general meeting. Mike has been with TomTom for over 20 years and built our global commercial organization. He knows the company, he knows our customers, and he knows the market inside out. I'm confident he will lead the next phase of our strategy with clarity and momentum. As a co-founder, it's very satisfying to see TomTom move in this next chapter with strong leadership in place. And with that, I'll hand over to Taco for the financials. Taco Titulaer: Thank you, Harold. Let me discuss the financials and after that, we can take your questions. In the first quarter of 2026, group revenue was EUR 129 million, an 8% decrease from last year's EUR 140 million. The decline was in line with the expectations and guidance we provided with our Q4 results. Let me briefly break down our top line performance. Automotive IFRS revenue came in at EUR 76 million for the quarter. That's a 5% decrease compared with the same quarter last year. Automotive operational revenue was EUR 70 million, which is 16% lower year-on-year. The decrease in revenue related from the gradual discontinuation of certain customer programs, along with the effect of a stronger euro relative to the U.S. dollar. Enterprise revenue was EUR 38 million, down 8% year-on-year. Adjusted for currency fluctuations, Enterprise revenue showed a slight increase year-on-year. Taken together, our Location Technology segment generated EUR 114 million in revenue, which is 6% lower than Q1 last year. On a constant currency basis, Location Technology revenue increased marginally. The Consumer segment, as expected, declined versus prior year. Consumer revenue was EUR 15 million, down 21% year-on-year. Q1 2025 was EUR 19 million, reflecting the development of the portable navigation device market. Consumer now represents a smaller part of our total revenue. Gross margin improved to 90% this quarter, up from 88% in Q1 last year. The 2 percentage point increase was driven by a higher proportion of high-margin Location Technology revenue in our revenue mix. Operating expenses were EUR 103 million, a reduction of EUR 15 million compared with the same quarter last year. The decrease is mainly the result of the organizational realignment we carried out last year, which lowered our cost base, combined with the higher capitalization of our investment in Lane Model Maps. As a result of higher gross margin and lower cost, our operating result was EUR 14 million for the quarter, a sharp improvement from EUR 6 million in Q1 last year. Our operating margin was 11%, up from 4% in the same quarter last year. Finally, free cash flow for the quarter improved to a positive inflow of EUR 1 million when excluding restructuring payments compared to a EUR 3 million outflow in Q1 2025. We continued our share buyback program during the quarter. By the end of Q1, we have completed EUR 11 million of the EUR 15 million announced in December last year. We ended Q1 [indiscernible] of EUR 248 million with no debt on the balance sheet. This cash position provides us sufficient stability and flexibility. Our first quarter performance confirms that we are on track for 2026. The revenue decline we saw in Q1, as mentioned before, was anticipated, and we managed to improve our profitability despite the lower revenue. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of EUR 495 million to EUR 555 million in 2026, with Location Technology revenue of EUR 435 million to EUR 485 million and an operating margin around 3% for the full year. As we indicated previously, some transitional headwinds, like the phaseout of certain customer programs, will weigh on this year's top line, but this impact is temporary. Therefore, we're continuing to invest in our Lane Model Maps, which are critical for a higher level of automated driving. As a result, free cash flow for 2026 is expected to be negative. As new automotive programs ramp up and newer products gain traction, we expect higher revenues combined with our ongoing cost discipline to drive a further step-up in operating margin in the long term. And with that, we are ready to take your questions. Operator, please start the Q&A. Operator: [Operator Instructions] We will take our first question. And the question comes from the line of Marc Hesselink from ING. Marc Hesselink: Yes. Thanks, Harold, for all the conversations over the years. I would take the opportunity to also look a little bit beyond for the long term on the question. I think when I started to cover TomTom, like more than a decade ago, one of the big promises was always autonomous driving, driving the long term. I think if you're looking at the market today because of all the developments in AI, both on the side of producing the map, but also on using it and now maybe autonomous driving being much nearer than it has ever been. How do you see that next phase? Is that do you really see that we are now at the start of that next phase and we are going to see major differences for how the map is going to be used and the opportunities in the map and how important it is for autonomous driving? Just giving a little bit your long-term view on how this developed over the years and what's coming in the next few years. Harold Goddijn: Yes, Marc, thank you. Yes. So you're right, the self-driving technology has been a big promise for a very long time. And it has always until recently, I would say, failed to live up to the expectations. What we now witness is a new approach to self-driving technology, more based on AI and self-learning, which is much more promising. And at least in the laboratory, we can see sophisticated levels of self-driving technology being deployed in real cars. So I think from a technology perspective, we are closer to solving the problem than ever before. What remains are the economics and also the regulatory framework, which will follow the technology. But I think from a technology perspective, we are motoring now literally. And we see that also in the demand for our products. Carmakers are now asking for higher levels of accuracy, more dynamic data, lane level information to enable self-driving technology and to provide a powerful additional data set next to the Edge processing that's placed in the car based on sensor information. We have seen that coming back also in the orders and the -- so first of all, the interest in our products and the way we produce our products. But we've also seen it coming back in the order book. We had a big win last year with Volkswagen, as you know, which was a significant contract. And that is a product and a contract clearly aimed at higher levels of automation. To what level exactly, remains to be seen. But what we do see is higher degree of automation than we have seen before. And also that technology will enter into the mainstream sooner or later. And we've seen comparable questions and demands from other OEMs. Some of those demands have translated into contracts, but there's also a healthy pipeline in '26, '27 to go further than that. Last thing, I think, is another trend that we're witnessing, is that carmakers want to have -- seem to prefer a unified map offering that is both suitable for navigation and display and map rendering and at the same time, can power the robot of the self-driving system. And the reason for that is that the self-driving system is also looking for a way to communicate with the driver what's happening. And when you do that on the same data set, it's technically an easier problem to solve. So we see a preference developing for united -- unified map that does both the traditional navigation and route planning, traffic information as well as being the sensor for the robot, for the self-driving part of the vehicle. Marc Hesselink: Okay. That is clear. Maybe as a follow-up, I think also there, the debate has been the same for a long period of time, which is, is a map layer needed for this autonomous driving, yes or no? And I think there is still a debate, at least reading through all kinds of articles on that one. I guess there's still the redundancy element of the map. Anything which you can add in the most recent conversations with your clients why a map would be required for functioning autonomous driving in the right way? Harold Goddijn: Yes. So it's a bit of a marketing story as well, I think, from vendors who are offering self-driving technology that is "mapless." We don't know of those systems that are mapless. They don't -- they do not exist other than in the laboratory and are not battle-hardened. The -- I think one of -- the way to think about it is that it makes self-driving technology easier when you do have a map and more reliable and redundant. And the big challenge for software developers is not to fix the first 95% of accuracy. That is kind of a solved problem. The real problem is to solve for the last 5%. That is the hardest bit. And solving that last 5% is a whole lot easier if you have a reliable map underpinning your system than doing it without a map. And we see that also translated in our own interactions with customers, both OEMs, but also providers of self-driving systems that we are closely aligned with and talking to, to see how we can collectively come up with a system that is robust, reliable, but also, I have to say, affordable. One of the reasons that the old HD Map never took off is cost. And cost was a problem because we were driving those roads ourselves with mapping vans. And that's, A, expensive; and B, does not provide for regular updates and a too long cycle time. With the new technology, the new approach, we have solved for both those problems, cost as well as cycle time and freshness. So I think the market opportunity is wide open. And I think that battle will play over the next 2, 3 years, I think, for presence in that self-driving ecosystem. Marc Hesselink: Great. And then final question from my side is, leveraging that one also in the enterprise segment, because I can imagine that the point you just mentioned, cost, freshness, cycle time, eventually also very important beyond automotive. I think at the Capital Markets Day, this point was quite promising, then it leveled off a bit. But maybe now with the progress we've made over the last 2 years, is it time that this one also can see some reignited growth? Harold Goddijn: I think the product challenges on the enterprise side are slightly different. There is some overlap, but the challenges are not the same. The Lane Model Maps is -- the development of that is predominantly driven by the requirements of carmakers and systems providers of automated driving systems. But I do expect overlap in the Enterprise world. And I think given its sufficient time, it will be harder to start distinguishing between what we call SD Map or -- and a lane-level map. So those worlds will come together. There will be some overlap, but growth in the Enterprise sector will come from mostly initially from other initiatives that we are deploying. And I think we're getting on track also a little bit better on the Enterprise side, in filling that pipeline better than we have been able to do in 2025. So I think the initial signs on the Enter sides are encouraging. Marc Hesselink: Okay. Great. Thanks for all the conversations over the years. Harold Goddijn: Thank you. Thank you for covering us. It was a pleasure. Operator: [Operator Instructions] We will take our next question. And the question comes from the line of Andrew Hayman from Independent Minds. Andrew Hayman: Yes, Harold, just maybe one clarification. You just mentioned that the old HD Maps never took off because of cost. Does that mean you've changed the pricing on the lane-level maps? Harold Goddijn: No, we have not necessarily changed the pricing. But the -- I think everybody understood that scaling that Edge-level HD Map, as we did it 10 years ago, was just too expensive and prohibitive. We have seen traction on the HD Map, and we still have customers driving with that HD Map. But everybody understands that if you want to improve the freshness and more importantly, if you want to improve the coverage, and when I say coverage, it's basically beyond motorways, there you end up in an unprofitable business case very, very quickly. So it's not the unit price so much that I'm talking about, but it's more the capabilities of the product. Carmakers as well as systems providers are looking for coverage and accuracy on all roads, not just motorways. And motorways is only, what is it, 5% of the total road network, is motorways. The rest is all secondary and tertiary and local roads. And so if you want to do an accurate product on all roads, including freshness, then the old technology could never deliver that. Andrew Hayman: Okay. And then maybe if I look at the forecast for 2026, it's quite a large range for revenue overall. It's a span of EUR 60 million. And then for the Location Technology component, it's a span of EUR 50 million. What's the thought process behind that range? Is it just that there's so much uncertainty at the moment about car production levels? Taco Titulaer: Yes. It's a bit of that, of course. Currency plays a role as well. So for all the 3 revenue-generating units, there is a bell curve of expectations. We do think that the middle of both revenue ranges is the best guidance that we can give. Andrew Hayman: Okay. Okay. And then on the change in management, I mean, there's clearly considerable continuity because Mike has been with TomTom for a long time and Harold, you're moving up to the Supervisory Board. But any new CEO is going to want to make adjustments or emphasize different areas or components. Do you -- what changes do you see happening under Mike going forward? Harold Goddijn: Well, that's for Mike to talk through, and I'm sure he will do that in -- when it's his turn in 3 months from now and start to give you some of his ideas. What I want to say is this, I think we have [indiscernible]. We've gone through a major product transition over the last years that has led to a competitive product. Based on the product, there is market share to be gained. And I think we're well positioned. That needs to land, and there's all sort of things that can go wrong, obviously. But net-net, I think that is a -- that gives focus and clarity of what we need to do at least in the next 12 to 24 months. And I think that's good. But of course, the world is changing rapidly. It's not only what we see geopolitically in terms of tariffs and in terms of energy and whatnot, but it's also the impact of AI potentially going forward that will have a significant effect on how we do things, how customers are consuming upward. I think the -- our anchor product, the map, is safe, and we will use AI to optimize processes and make it cheaper to maintain it. But that anchor product is good. And AI will have -- and the way we deploy AI going forward will -- and how the world evolves around AI, will affect the company like any other company in the world. So those are the -- I think, for the moment, the 2 big axes where we need to follow progress going forward. Andrew Hayman: And then maybe on a smaller note. On enterprise, it's -- if you adjust for currency, it's growing, but it's not having the easiest time. And if we look back to you joining with OSM, the idea was that you get more detailed maps and that may open up more market opportunities or expand the potential market for your maps, maybe social, travel and food delivery. How is that going? I mean, are you making some progress, but the clients are quite small in those areas that you're getting through? And how do you see that progressing? Harold Goddijn: Well, yes, I think it's a good question, Andrew. I think -- and then 2025 was slightly disappointing in terms of order intake and traction around -- always in the Enterprise market. But I think we have turned the corner, and we see some early green shoots. I think that central promise of having a better map that's easier to maintain is valid also for the Enterprise world. And we are now pitching for contracts and opportunities that we could not win based on the old technology. So the addressable market is -- and I mean, there's tons of examples of that. So it's slightly disappointing that it's taken longer. But I think the central idea of having a better map, more detail, more freshness, more efficient to maintain is still valid. And I hope that we will see that also being translated into Enterprise growth in 2026 and beyond. Operator: We will take our next question. The next question comes from the line of Wim Gille from ABN AMRO-ODDO. Wim Gille: This is Wim from ABN ODDO. Apologies for the noise, but I'm in the train. So I hope you can hear me. First, on the rollout of the lane-level maps, you started off just in Germany. So can you give us a bit of clarity on where you are in the rollout in terms of number of countries? But also, are you still just on the motorways? Or are you basically doing all the other roads as well throughout Germany as well as the other countries that you're rolling out? The second question would be on capitalized R&D. That seems to suggest you're accelerating the investments that you're doing in the rollout. So can you give us a bit more clarity on that decision? Is that based on the demand? Or are you basically just needing to invest more to get to the same results that you were looking for? And what is the reception of clients since you introduced this concept earlier last year? Harold Goddijn: Yes, Wim. Yes, you're coming through loud and clear. So no worries on that side. Yes. So the Lane Model product, our goal is to build it completely automated. So expanding coverage is just a matter of compute and electricity, but no other practical limitations on coverage and speed of production. That's where we want to end up. That's not where we are. There is a certain level of fallout following those automated processes. And that means that manual labor and operator interaction, in some cases, is required to filter out inconsistencies to checks and so on and so forth. So -- and we are in a position now where we are producing, but we are also making investments to reduce that fallout in order to prevent manual labor and improve the speed of the process and the associated coverage. The idea is that by the end of the year, we have a fully lane-level map, both for North America and for Europe. We're producing it now for parts of Germany, whilst improving the processes, improving the factory in the pipelines, if you like. And the aim is to reduce the amount of manual labor we need to produce those maps close to zero. It will probably never get to zero, but it needs to get close to zero because that gives us speed, flexibility and efficiency but also quality. Wim Gille: And what are clients saying about the products? Harold Goddijn: So people are excited that it's possible. We are producing a product that could not be produced before. They're excited that it has been developed with a view to serve security and safety critical applications. So it's an industry strength product. That's also how the quality systems are designed to make sure that we meet those standards. So yes, both carmakers and systems providers are excited that there is a product that can play an important role, and they're looking at progress with interest. We will start doing test driving with integrated systems now or in the next couple of months or something like that where we get for the first time, real-time feedback on how the system, not the map, but the system with the map is behaving in practice and in real-life situations. So those are important milestones. Taco Titulaer: Yes. If I can add to that. Then you also had a question about CapEx. So in the cash flow statement, you see that line investment in intangible assets, that's indeed higher than what it was last year same quarter. I expect that to normalize between "below EUR 10 million" going forward. So it is more -- yes, I wouldn't call a one-off, but it's not a clear trend that it now will go up every quarter. Wim Gille: Very good. And if you are now participating in RFQs, specifically related to HD, I can suspect that most of the RFQs that you're participating in are now HD driven and no longer [indiscernible]. But how is your product [indiscernible] up against the competition? So are you still producing HD Maps in the old way? And what does it do to your competitive pricing advantage? And which parties do you actually engage in these RFQs? I can only assume that here -- is there -- and in some cases, Google. But do you also see newcomers joining in these RFQs? Harold Goddijn: Sorry, Wim, I tried to understand your question. It was not entirely clear, to be honest, the first part in particular. Yes. So in terms of market position, I think we are currently leading in specs in ambition. Of course, we need to deliver all that goodness as well. And our internal target is by the end of this year to have significant coverage on both continents. And I think that will be a leading and it is a leading product both in terms of what it does and how it is produced, which is not a minor point actually. In this case, it really matters how you produce it because it tells you something about economics, quality, repeatability and so on and so forth. And there is significant interest, I think, from industry players, in what's going on. And so we feel good about that. I think Google obviously is an important competitor, but Google has a tendency to leverage consumer-grade products for the automotive world. And this is not typically an area where they're focusing on. Wim Gille: And are you encountering any new competition in RFQ processes? Harold Goddijn: No, no, we do not. It depends how you define competition, but I think there's no one else that I know of that has an integrated approach to both navigation, self-driving, ADAS, all on one product stack. Wim Gille: And with respect to enterprise, I do have a question on kind of the conversion and basically the acceleration that you are seeing at the moment. Can you give us a bit of feeling on kind of what types of, let's say, projects you are now converting or are close to converting? Are these still the smaller projects? Are we also now looking at the bigger clients and the ones that can really move the needle? Harold Goddijn: Yes. Yes, I think I wouldn't say acceleration. I think what I've said, I've used the word green shoots, some -- both contracts but also a pipeline that is building. A couple of areas where we see good traction, insurtech, defense. There are significant opportunities opening up, intelligence, public usage of our data, both traffic planning, intelligence. Those are the sectors where we see the order book and the pipeline really filling up. And some of those opportunities are significant as well, multiple millions per annum. Wim Gille: Thank you. And that leaves me with, yes, basically one last comment. So I would like to thank you for, I think, close to 80 earnings calls that we did together. No doubts. Harold Goddijn: this sounds like an awful lot, Wim. Wim Gille: It is. Harold Goddijn: This sounds like an awful lot. But thank you very much. It's been a privilege and a pleasure. Wim Gille: likewise. Thank you. Operator: [Operator Instructions] Claudia Janssen: As there seem to be no additional questions, I want to thank you all for joining us today. And Heidi, you may now close the call. Operator: Thank you. This concludes today's presentation. Thank you for your participance. You may now disconnect.