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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.
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.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Half Year Results Presentation for 2025/ 2026. I'm Sophie Lang, Head of Investor Relations. And today's session will be hosted by our CEO, Hein Schumacher; and our CFO, Peter Vanneste. Our presentation today will start with Hein's initial reflections and observations then Peter will go into the half year results and the outlook. And finally, Hein will conclude with a preview of the Focus for Growth plan. Following the presentation, we'll have a Q&A session for analysts and investors. [Operator Instructions]. Before we start, take note of the disclaimer on Slide 2, and I'd also like to inform you that today's session is being recorded. And with that, I hand you over to our CEO, Hein Schumacher. Hein M. Schumacher: Thank you, Sophie, and good morning, everyone. It's my pleasure to be speaking with you as part of my first results presentation here at Barry Callebaut and I'm now approaching my first 100 days, and I wanted to start by sharing my initial observations and reflections before I hand it over to Peter to cover the results. So far, I've been in a listen and learn mode and spending a lot of time across the business to gather a broad range of perspectives from our people. And I've had the opportunity to visit a number of our factories and offices around the world and gain insights into our operations and the culture of the company. What has stood out most to me is the passion, the expertise and the resilience that defines this organization. I've also met with several of our key customers, which has sharpened my understanding of what truly matters for them and how we can support them on their growth journey. Back in February, we formed the Growth Accelerator coalition, which is a diverse group of around 30 deeply experienced colleagues, talents from around regions, functions and nationalities. And this working group from within is designed to advise, challenge and co-shape our path back to volume growth. And through a series of focus sessions, this group has developed a unified view of where we stand today, identified key bottlenecks that hold us back and is helping define a set of high-impact priority initiatives. And collecting these insights from across our organization is enabling me to shape a clear and decisive action plan that will sharpen our strategic direction and set our key priorities. Now I will come back to that later in more detail. But first, let me share some initial observations. Over the past years, the company has been navigating a very turbulent period marked by transformation, significant industry volatility as well as supply disruptions. The Barry Callebaut Next Level program was launched with all the right intentions. However, the sheer number of initiatives proved too ambitious for the organization to absorb at once and particularly against the backdrop of unprecedented industry disruption. And frankly, without sufficient course correction in priorities, this created a perfect storm. Now that said, several important steps were taken on the Next Level because the program did deliver savings of around CHF 150 million, and these enabled much-needed capability investments in core fundamentals such as digital, quality and supply processes. But at the same time, these savings were more than offset by the impact of volume declines, higher operating costs, particularly from the cocoa market and supply disruption as well as from a more competitive environment. And the combined effect was an organization that it become overstretched and quite internally focused. And with too many quality incidents, the business also began to lose market share. And as a result, we find ourselves in a position today with clear improvement areas that need to be addressed. I'm calling out 3 areas: First, our manufacturing network. We do have capacity constraints in key growth areas with site upgrades that are still work in progress. A lot has happened, but it's still work in progress. It has contributed to quality incidents with longer recovery times due to limited business continuity plans and we have made progress on the Next Level without a doubt, especially in strengthening quality foundations, but more work is to be done. And our service levels are currently below industry benchmarks. We need to improve. Second, our digital transformation. A good direction, but initiatives were decoupled from core business priorities and the scope was very broad. We moved very quickly before co-processes were sufficiently stabilized and before our data and operating systems had reached the required level of maturity. And third, our operating model and the organization. Historically, Barry Callebaut was highly decentralized and the intention of Next Level was to introduce a greater degree of centralization and standardization and that was the right direction. But in some areas, for example, in customer service, we went too far and probably too quick. In others, we ended up with a hybrid central regional model, and that has created an ambiguity in accountabilities. It added complexity to the organization and it limited regional empowerment, where essentially, the customer is where the market is, and where we need to drive local decisions. Because I believe that food is fundamentally a local business. And our region should define the what, whilst global functions should support the how with scale, expertise and obviously, consistency. And that makes the value of the corporation essentially bigger. Now importantly, while there is work to be done, as I said, we are building from a position of strength because Barry Callebaut has strong and solid foundations, and I'm confident that we can return to growth and reinvigorate ourselves as a reliable industry leader. Because we have a truly unique market position with leading relationships, strong customer relationships and a strong portfolio with benefits from our integrated end-to-end cocoa and chocolate model, very important for our group. And in turn, this gives us deep expertise across R&D, innovation, cocoa and sustainability and these are capabilities that are highly valued and appreciated by our customers around the world. And my conversations with CEOs of our largest customers have reinforced this view. And they see Barry Callebaut as an important partner and they want to grow with us. They expect us to step up and play a key role in unlocking and supporting their growth agendas. And let's not forget that we operate in a fantastic category with strong underlying fundamentals. And as a market leader, we are well positioned to capture significant long-term growth opportunities. And underpinning all of this is our people, as I said in the very beginning, people with deep commitment and passion for what we do. And that's critical to ensure that we can fully deliver on the fundamental opportunities ahead. Now bringing all of this together, clearly, we have strong foundations from our unique market position to the depth of our expertise, and that positions us to win in this industry. And at the same time, to fully deliver on the opportunity ahead, we must refocus behind a reduced set of priorities to stabilize key fundamentals as well as to step up execution. And in turn, if we do that well, it will unlock sustained profitable growth and it will reinvigorate Barry Callebaut as a reliable, innovative global leader. And that is the objective of our Focus for Growth action plan. And I will share a preview of the plan later. But before I go there, let me hand it over to Peter to walk you through the first half year results. Peter, here you go. Peter Vanneste: Thank you, Hein. Good morning, everyone. Let me walk you through the half year performance first, and I'll start with a short summary. Cocoa bean prices have decreased strongly in H1 and especially in the last few months, and this is surely positive for the recovery of the chocolate demand. On volumes, we saw a sequential quarterly improvement to minus 3.6% in the second quarter, supported by double-digit growth in Asia and continued momentum in Latin America. Recurring EBIT decreased by 4.2% and strong cocoa profitability was more than offset by the impact of lower volume, supply disruption and a highly competitive overcapacity environment. In Gourmet, margins were pressured with the context of the very rapid drop of bean prices, and I will come back to that a bit later in the presentation. Despite the decrease in EBIT, however, we grew recurring profit before tax and net profit, thanks to lower finance costs and income tax. And very importantly, despite the peak harvest and heavy cocoa buying season, we generated strong free cash flow and further deleveraged to 3.9x [ net ] debt over EBITDA. Let me get into some details now. Starting with the cocoa market. The cocoa bean prices have decreased very, very rapidly, falling by 53% in just 8 weeks in Jan and February and closing at GBP 2,057 at the end of February. And that's driven by good main crop arrivals in West Africa over the past few months, and favorable recent weather conditions that are supporting output for the mid crop. At the same level, the market is still seeing some demand softness. So global stocks have replenished to healthier levels. Overall, this means we expect a surplus this year for the second year in a row. Importantly, the structure of the cocoa futures markets has also improved significantly. We now have a carry structure meaning that the cost of buying spot cocoa today is cheaper than buying cocoa in the future. This means it is less costly for the industry to carry physical stocks and it's indicative for a more stable outlook. In the short term, given that this is demand-driven surplus, we expect bean prices to remain in the GBP 2,000 to GBP 3,000 range. That said, we continue to monitor the markets very closely as the demand recovers and thus we assess potential supplier risk linked to El Nino and potentially speculative volatility as we have seen in the past. Over the medium term, depending on supply and demand dynamics, we believe prices could move back into the GBP 3,000 to GBP 5,000 range. Lower cocoa bean prices are certainly positive for the future recovery of both the cocoa and the chocolate markets. We're seeing indications of this through our forward bookings. As you know, we contract several months in advance for our customers and in recent months, we've seen a greater willingness to book further ahead again. At the end of February, our futures booking portfolio was much, much higher than at the same time last year when cocoa bean prices were spiking. At the same time, our customers have priced through to their end consumer. As a result, consumer pricing and the rate of end consumer volume declines have started to stabilize. In the most recent quarter, Nielsen global chocolate/confectionery volumes decreased by 6.3% with plus 13.7% pricing. And importantly, we're now seeing our customers gradually shift their focus back to its category investments to stimulate growth. And I'll just quote a few examples. In North America, Ferrero launched their Go All In promotion from April 1 backed by a $100 million investment. It marks their first portfolio-wide campaign and largest marketing commitment in the company's history. Another example is Hershey is boosting media investments by double digit this year with the new quarter 1 media campaigns on Reese's and Hershey, the first launches of this nature. We're also seeing increased interest in innovation from our customers. In half year 1, we saw a significant increase in number of projects in Western Europe for ChoViva, our non-cocoa chocolate offering as well as a growing traction on Vitalcoa, our high flavanol solution, especially in AMEA. Beyond these benefits, the magnitude and the pace of the decline in the cocoa bean prices, as mentioned, just now more than 50% down in the last 8 weeks, helps, of course, the demand and the cash front but has also created some challenges on the short term as well and mainly on profitability. And there's 5 key impacts I just would like to highlight. First, in the past few months, we've seen very favorable margin environment for cocoa. In half year 1, this helped to offset some headwinds we saw in chocolate. Looking ahead, we expect this cocoa margin tailwind to normalize in the second half as market conditions have become less favorable. Second, as we just saw from the Nielsen data, demand has been down for some time. And given the high prices that have been put into the market in the past, this has resulted in some industry overcapacity, which is intensifying competition with more aggressive pricing and commercial actions. In this competitive environment, we've seen a temporary margin effect in Gourmet. The Gourmet business typically works with a 3 to 6 month price list where forecasted sales are covered and then a price list is determined. Given the unique speed now we've seen of the cocoa bean price decreases in half year 1, the result was a long position in a declining market, creating a high price list with not all players following the same approach. And this impacted our volume and profitability through the need for some short-term commercial investments. Also, next to that, there's a more technical effect related to the shift between EBIT and profit before tax due to lowering financing costs. The opposite, if you want, of what we've seen last year. This is a reversal of the finance cost pass-through, again, as we saw last year, and we now have lower finance costs as the bean prices come down. And it also means then a lower pass-through at the EBIT level. But it is -- importantly, it is neutral at the profit before tax level. Finally, there's also a BC-specific headwind in supply disruption. We had operational incidents in North America in the St. Hya factory, resulting in some volume losses and higher operating costs. Before we move to the half year 1 figures specifically, I'd like to spend also a moment to highlight potential implications from the Middle East situation. As many, many industries, the primary impact for us is on the supply chain side. It includes shipping disruptions, increased transit times resulting from port closures or limited container availability and of course, as we all know, there's a sharp increase in energy prices. In some markets, fuel rationing has been introduced combined with higher freight and insurance costs and all of that is adding complexity and costs across our supply chain. Next to the supply side, we've also seen some regional demand effects. Within AMEA, the Middle East and North Africa cluster represents about 10% of the volume there. This cluster has a specific high gourmet exposure and is experiencing therefore, disruption to imported premium products. Clearly, HoReCa food service segments are negatively impacted by the tourism levels in those areas as well as the closure of the schools, offices, rules on working from home and so on. Beyond directly in the Middle East and North Africa, we also see an indirect impact in India, where we have an important business where LNG imports are disrupted and constraining the energy availability for food manufacturers, commercial kitchens has been impacting their operations and, therefore, also ours. Overall, this obviously remains a highly dynamic and uncertain situation that we are monitoring, obviously, as per the latest developments every day. Now let me get into the numbers in a bit more detail, starting with volume. Overall, the group saw a sequential volume improvement in the second quarter to minus 3.6%, meaning we landed the first half with a decrease of 6.9%. Looking to the left of the chart by segment, Food Manufacturers continue to be impacted by negative market dynamics with our customers adapting behaviors in the context of high prices and lower demand. And there was the supply disruption in North America that impacted this segment for us. Gourmet, while more resilient, our competitiveness was temporarily pressured by the high price list in a sharply declining bean price environment, as I just explained. Also -- and also here, there was some impact of the St. Hya closure we saw in the first quarter. Global Cocoa declined as a result, mainly of a negative market demand, especially in AMEA and secondly, also due to our choice to prioritize higher profitability segments, which did have its impact on volumes in certain areas. This business, the cocoa business saw early signs of market improvement in the second quarter with a sequential volume improvement of minus 5.2%, so significantly better than in the first quarter. Now moving to the right-hand side of the chart, to global chocolate. Globally, we've seen chocolate volumes decline by 5.1%, which is ahead of the 6.5% decline of the market as reported by Nielsen. In Western Europe, we saw a 4.2% volume decline as demand continues to be impacted by market softness. Central and Eastern Europe declined for us by 3.6%. And way better than the market as our local accounts saw solid growth, especially in Turkey. North America decreased by 12.6% impacted by a strongly declining market as well, but as well as the network supply disruption we've seen from the temporary closure in St. Hya in the first quarter. Importantly, though, North America saw recent months improvements as the business is rebuilding inventories and meeting increasing customer orders. Latin America grew by 1.5%, well ahead of the market, driven by a strong momentum in Gourmet that we've seen multiple quarters in a row now. Finally, volumes in AMEA grew by a strong 8.5% and reached double-digit growth in the second quarter, driven by strong market share gains in China, momentum with key customers in India and additional business that we secured in Australia. Moving to EBIT now. Recurring EBIT decreased in local currencies by 4.2% to CHF 316 million (sic) [ CHF 310.9 million ]. The EBIT bridge on the page shows the respective moving parts. Cocoa, first of all, the green block on the chart saw strong profitability in half year 1, given a more favorable market environment -- margin environment, sorry, and market volatility where we're able to capture the volatility and increases of the prices and the decrease of the prices that we have seen. In half year 1, this has helped to offset some of the other headwinds that we're facing in chocolate. The impact of the half year 1 volume decrease was meaningful. This is clear when we look at our EBIT per tonne as well, which increased by 3%, whereas our EBIT in absolute declined by 4%. So the impact of volume was meaningful in the first half, and this is something that we'll see turning around in the second half. Next, there was an impact of the intense competitive environment and particularly within Gourmet. As I explained earlier, our high Gourmet price list and long position in the context of this very rapid decline of bean prices required temporary commercial investments. In addition, supply disruption resulted in higher operating costs to maintain service and deliver products to our customers. Finally, we also saw the shift between EBIT and profit before tax that I explained as a result of a lower financing cost year-on-year and therefore, a lower pass-through on the EBIT level. And this effect will get bigger in the second half of the year. While our recurring EBIT decreased, it's important to note, we were able to grow the absolute profit before tax and our net profit. And to be more precise. As you can see on the left-hand side of this chart, our recurring EBIT in local currencies was CHF 14 million lower than last year. This is the minus 4%. In the middle, our profit before tax increased by CHF 2 million or plus 1.3% as a result of a CHF 16 million decrease in financing costs in local currencies driven by our actions to reduce debt and, of course, in the lower bean price environment. To the right, our net profit increased even further by CHF 42 million or by 66%, given significantly lower income tax expense compared to what we saw last year. Recurring income tax expense decreased to CHF 29.6 million versus the CHF 69.4 million we saw in half year 1 last year. This corresponds to an effective tax rate of 21.4%, which mainly resulted from a more favorable mix of profit before taxes and much lower nontax effective losses in some of the countries. Free cash. Free cash flow delivered strongly in the half year at CHF 802 million across the 6 months despite the peak buying season that we're having always this time of year. Now when we look, as always, at the moving parts behind this cash generation, we saw -- and that's the dark black bar, we saw CHF 1.5 billion positive impact from the cocoa bean price this half year. Bean prices decreased significantly in half year 1, especially in the second quarter, as I mentioned. And this has benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model as Ivory Coast and Ghana have. There was a, next to that, a CHF 472 million negative impact on operational free cash flow, as you can see in the green bar. This has all got to do with the peak buying season. Half year 1 is always operationally like that with a negative cash out for the bean buying given the timing of the cocoa harvest. This was offset, however, partly by continued operational benefits from actions on the cash cycle reduction that we explained largely already in the previous communications. We continue to do so with our efforts to diversify our origin mix, reduce forward contracting and so on. As a result, actually, our inventory was now this time of year in February, 10% lower than February last year. So that also helped to generate the cash. up to this level. And finally, there was a CHF 183 million CapEx investments, as you can see in the yellow bar in the chart. Leverage. Leverage came down to -- strongly to 3.9x, and that's significantly below the 6.5x we saw in February last year and also well below the 4.5x we saw last August despite, again, the seasonality we always have in half year 1, with an important net debt reduction of CHF 2.5 billion, enabled by the strong cash flow that I've been talking about before. So leverage landed at 3.9x. But in fact, if you would exclude cocoa bean inventories from the net debt, and I'm talking only cocoa bean inventories, so not even correcting for cocoa products or chocolate stocks, our adjusted leverage RMI would be 2.7x. This progress mostly came from a lower inventory value given significantly lower bean prices, which is about 1.3x leverage in this decrease. But also through the actions to reduce our inventory volume, as I talked about, which made up about 0.6x in this reduction of leverage. In terms of gross debt reduction, we repaid EUR 263 million term loan in September '25, so a few months ago and EUR 191 million in February on the Schuldschein. We've also reduced significantly our commercial paper and bilateral facilities over this time. Obviously, all of this has been an important contributor to the lower net year-on-year finance costs that we've seen in the first half already. And we will certainly continue to focus strongly on the deleverage in half year 2. It remains a key priority. We want to end much lower than where we are even today. So with the further actions that we're defining on the cash cycle will bear further fruit going forward. This could be and this will be partly offset to some degree because of the safety stocks that we will be watching and potentially reinforcing a bit in a few key segments. Again, back to the support we need to have on the service levels following some disruptions that we have seen over the last months. So before I conclude the half year 1 section and staying on the financing. Earlier this week, we signed a EUR 2 billion sustainability-linked borrowing base facility. The borrowing base is linked to our underlying inventory asset base and represents an important step in the diversification of our funding sources. The facility strengthens our funding flexibility, particularly in periods of prolonged higher or lower bean price environments. It increases our agility and the agility of our capital structure and our ability to actively manage financing costs more in sync with cocoa price moves. Just to share a few additional details. The facility comprises of a EUR 1.6 billion of committed financing, complemented by an uncommitted tranche of EUR 400 million which is providing additional liquidity flexibility. So moving now to the outlook of the fiscal year. We've updated our guidance, reflecting our focus on volume and deleverage while taking short-term action to protect our market share and drive growth. We have, first, raised our expectations on volume. We now expect a decrease for the group between minus 1% to minus 3%. And this implies a return to positive growth overall in the second half. We've also raised our guidance on leverage. We now expect net debt over EBITDA below 3x using a working mean price assumption of GBP 3,000, so with the continued tight focus on this and further progress despite our updated profit assumptions. At the same time, we have lowered our outlook on EBIT. We now expect a mid-teens decrease on a recurring basis in local currencies. And this reflects short-term actions to protect market share and prioritize growth in the context of the rapidly declined cocoa bean prices. Important to note that a significant reduction in financing costs in half year 2 is an important factor in the reduced EBIT guidance. We expect to recover more than half of the absolute decrease in EBIT at the profit before tax level. Clearly, this outlook is subject to potential impact from the ongoing disruption in the Middle East that I commented on a little bit earlier. Now before I hand back to Hein, I want to take a moment to explain the half year 2 moving parts on EBIT. Our return to positive volume growth will be a clear tailwind for half year 2, of course. However, this will be offset by a number of factors. One is short-term actions in global chocolate. We are prioritizing restoring Gourmet share following this unique and temporary long position impact that I talked about. We're also taking some temporary customer-centric interventions to restore service levels, and Hein will talk about it a bit more later, but action is needed to stabilize supply after a number of incidents that we've seen. Customer centricity is our #1 focus going forward, and we're taking action to reclassify lines, increase spend on staffing, maintenance and quality. Second, as already discussed, cocoa profitability is expected to now normalize in half year 2 following an exceptional half year 1. Third, we are taking further actions to reduce finance costs. This means significantly lower year-on-year pass-through in finance cost at the EBIT level, while neutral on profit before tax. And finally, we have the uncertain and volatile situation in Middle East, which is bringing additional cost and supply chain disruption depending on how it will evolve further. Finally, the uncertain and volatile situation in the Middle East brings additional costs and supply chain disruption. And I will now hand over to Hein to share more on our Focus for Growth. Hein M. Schumacher: Thank you, Peter. Now let's talk about Focus for Growth. And this has been shaped, as I said before, by the insights and learnings from our growth accelerator coalition that I mentioned earlier. And at this stage, me being in the company now for 2 months plus, the plan is directional as we continue to refine and deepen our assessment of the actions as well as the opportunities ahead of us. And I'm looking forward to sharing the full detailed update with all of you in early June. And in the meantime, I wanted to be transparent and therefore, share the direction that we are heading in. Now before we go into details, let me start with why focus is so critical for Barry Callebaut. Because what really struck me when I started engaging with the team on our business portfolio is actually how concentrated we are. As you can see here on the chart, a few examples. So if we look at our top 7, top 7 markets represent 56% of our total volume. And of course, if you would extend that to 10 markets, the concentration increases even further. Similarly, with customers, our top 7 global customers are approximately 1/3 of our volume. In our Gourmet branded business, our top 7 brands or top 7 propositions generate 85% of our volume. And on the sourcing side, 90% of our cocoa is sourced from our 7 origin countries. And finally, although we operate around 30 specialty categories around the world, the top 7 represent approximately 90% of the growth opportunities that we see today. So as we focus on stabilizing the fundamentals, which we talked about and focusing our resources behind reduced priorities, getting these top 7 really right already moves the needle meaningfully. And this is why focus sits at the heart of our growth agenda for the future. Now turning to our Focus for Growth action plan. We do see that compelling need to increase focus across 3 areas. First one is commercially. So concentrating on a defined set of distinct growth opportunities and prioritizing key markets and segments where we see the greatest potential. Second, operationally by restoring fundamentals. I talked about that, and particularly in the areas that matter most for our customers in terms of reliability, quality and service. Customer centricity is absolutely vital. Third is organizationally by prioritizing a reduced number of the most impactful initiatives and restoring that customer-centric winning culture and by driving focus, restoring fundamentals and putting the customer firmly at the center of what we do, our objective is to reinvigorate the company and return to sustained profitable growth, and market share gains and, therefore, unlock strong financial performance going forward. Now let me share some details on each. I'm starting with commercial focus. And we are defining a clear and distinct set of growth opportunities where we will intentionally concentrate our resources and our attention. And this starts with markets. And as we discussed earlier, our top markets truly move the needle, not only in terms of volume but also in profitability. Let me start with the U.S., our largest market, representing approximately 17% of our revenue and ensuring the right level of focus and execution in such markets is critical to deliver growth. But also other markets stand out with clear growth potential, for example, Brazil, where we have a meaningful presence, Indonesia, India, Peter talked about that, and China, where we're experiencing strong growth right now. And it is therefore clear that our resources need to over proportionately support these priority markets, a distinct set. And importantly, this focus must be actionable, value-added defining a set of focus markets within AMEA rather than spreading our attention across that vast region thinly. The same logic applies with Gourmet & Specialties, where we need to concentrate on the right segments and opportunities, and I will come back to that in some detail in the next chart. In cocoa, in itself, we see clear opportunities to unlock growth by increasing our focus on high value-added powders, whilst ensuring that we have the right growth capacity, of course, in place. So across all of these areas, a key enabler will be strong innovation platforms. Not many, but a few strong platforms that will allow us to lead in the market and that we can leverage across the portfolio to drive growth, greater level of differentiation versus our competitors and of course, to support our customers around the world. Now let me talk about Gourmet, such an important segment for our profitable growth, and we are reintroducing here a clear brand hierarchy and customer propositions. Callebaut, Masters of Taste, that will continue to be our group commercial identity. And then we have a clear brand tiering after that to serve the different customer needs with a greater impact. And as you can see here on the top of the pyramid, we anchor the portfolio around our super premium global brands, led by the Callebaut Signature Collection and Cacao Barry. Now Callebaut brings over a century of Belgian craftsmanship and unrivaled bean to bar expertise and Cacao Barry brings 2 centuries of Cocoa Origins mastery and French pastry heritage, important brands on top of the pyramid at a higher price level, strong quality focus. Now beneath that, our core Gourmet portfolio is firmly positioned in that premium segment with the Callebaut core section. And here, the focus is on delivering consistent quality, reliability and strong performance for professional customers in their day-to-day operations. Complementing these, we continue to develop strong regional propositions. Typically, one per region, such as Sicao, Chocovic or Van Houten in Asia, for example, ensuring that local relevance. And across all these tiers, our brands are supported by end-to-end services from the chocolate academies that we have around the world to innovation and technical expertise. These help our customers to succeed. And the objective is simple and clear, a more focused Gourmet portfolio with clearly differentiated propositions and price tiers that enable to serve our customers better, and it will allow us to allocate resources more effectively and drive the profitable growth in this important segment. Now let's turn to specialties. Our plan here is to be a bit more selective, focused on a defined number of margin-accretive specialty categories that we believe we can integrate in the company, and the core of the company and by doing that, scale them first regionally and then globally. And while the final list is currently being defined, we already see clear and compelling opportunities in a number of areas, such as filled and baked inclusions, which you find in products like ice cream, where we have a very strong presence in that segment. But also both chocolate decorations, including toppings for bakery applications and fillings and coatings, for example, solutions with reduced sugar functionality. And once this prioritization is finalized, the intent is to bring these selected specialties much closer to the core on the regional responsibility including, therefore, a tighter system integration. At this moment, they're not that fully integrated in our operating system. And that means we will invest behind them to ensure there is sufficient growth capacity, clear ownership, P&L ownership within the region and stronger category management. And we believe that this more focused approach will allow us to scale what really works. It will simplify the specialty portfolio, and it will concentrate resources where we see the strongest combination of growth, margin expansion and, of course, customer relevance. Now moving to operational focus, where the clear goal is to restore some of the fundamentals. And Peter talked about the disruptions. Our #1 priority is to restore service levels and on-time in full performance that we are now measuring consistently every day, every week, every month. I'm absolutely determined to get us there and to improve on that particular KPI. And as I mentioned earlier, a combination of transformation complexity, industry disruption that we've had and many operational incidents, this has taken our focus a bit away from the basics. And as a result, service levels have been below industry standards. Now that's something that I'm keen to turn around for the company. We have to get this right. Now beyond service, we also need to ensure that our network, our factory network is fit for purpose, both for the portfolio that we operate today, but also where our customers will go tomorrow. And at the factory level, we see currently mismatches between line utilization, so specific line utilization and the overall capacity available in our network. So in the short term, that means we will make targeted and tactical adjustments to unlock available capacity. On the midterm and the long term, we will invest selectively behind those growth capacities that I talked about -- we talked about the focus areas, for example, ensuring that we deploy there for our capital towards the right opportunities. And finally, restoring the fundamentals also means strengthening the core processes and enablers of the organization, very much the intention of Next Level, and we will build on that. We do need better data visibility, more effective end-to-end decision-making on a number of processes. And therefore, the priority for us is to focus on the core process as the company first, get them really right, such as the overall demand and supply planning processes, customer service processes and, of course, the quality and the usability of our data. We made strong progress, but now we need to finish it behind those few big priorities. Going into more detail, there are a few areas where we need to focus operationally. So North America, as I said already, this region contains our largest market in the U.S., and we need to get it right. And as Peter has described, we've seen broad supply disruption across the network, and that resulted in longer lead times for our customers and capacity constraints in several high-demand product categories. Network investments under Next Level were there, but some of them were postponed given the macro backdrop. Now there's an immediate need to stabilize the network and rapidly improve service levels, focusing over the coming months on increasing staffing and adapting shift patterns at relevant sites as well as targeted initiatives to stabilize critical facilities, particularly across maintenance, quality, infrastructure and planning processes. In parallel, we are reclassifying and redeploying existing product lines across the network to better utilize the available overall capacity. We are developing a midterm plan to future-proof the network in order to sustainably support future growth. On emerging markets, here, our focus will be on a select number of key growth markets, large markets, though, but where we have a meaningful presence already and where we intend to invest to support evolving customer needs. Think of countries like Indonesia and Brazil. On this, we will update you in much more detail in June. Service and OTIF, on time in full, we are taking targeted actions not only in North America but also in Europe to immediately improve reliability and to step up our safety stocks in selected categories. Peter talked about that. This will stabilize our key business processes and in turn, it will improve customer service in the months to come. And then finally, core processes. I talked about digital efforts before. We need to focus our digital efforts and investments behind those core processes, such as planning as well as customer service, driving better data visibility and transparency, and this will, therefore, strengthen these processes and, therefore, increase service levels for our customers. Now turning finally to organizational focus. Our objective is to reestablish that winning culture with customers at the heart of everything that we do, while refocusing the organization, as I said, on a set of impactful initiatives that truly matter. And a key priority here is to increase the empowerment and accountability of our commercial regions because these regions are the closest to our customers and our markets, and they should clearly drive what needs to be done to win locally. And of course, supported by global functions. They provide the how. They provide the scale, the expertise and the consistency behind those core processes that I talked about. By doing that, we need to be, therefore, more disciplined on prioritization because the organization, as I said, has been overloaded by a significant number of initiatives during a time of also intense industry disruption. And that, in itself, dilutes the focus and the execution capacity. So by intentionally reducing the number of priorities on the table, we will free up time, energy and resources. And this will allow us to focus on what truly matters. That's what we're going to do in the next couple of months. Before closing, let me briefly highlight some of the initial steps that we have already taken as we start to put the Focus for Growth strategy into action. We've reduced the executive leadership team. I had a team of 20, we've reduced it to 12 members. This creates a smaller, more agile and more importantly, a more commercially focused leadership team in the company, which will enhance the speed of decision-making that we need. We also removed the global transformation office related to Next Level, and we significantly reduced our consultancy spend for the months to come. And this reflects a shift away from a separate transformation office towards a more integrated business ownership and execution. And as such, we have fully integrated the remaining Next Level initiatives into our global functions as well as into our regions. And that has stopped a stand-alone program tracking savings, for example, and therefore, we're now much more focused on the bottom line delivery and therefore, the net impact of these changes. We've also strengthened our global customer account alignment, and the global 7 accounts that I've talked about before are now reporting directly to me. And this is designed to reinforce regional execution actually, but also to accelerate the deployment of global innovation where it matters most for our customers. Now these are early but important steps. Obviously, there's more to come, but the momentum in the company has started. So that concludes my preview of Focus for Growth and we're not reinventing our strategy, as you've seen. What is different is the level of focus, the level of energy and depth supported by clear choices and strong resource prioritization. So to summarize, our priorities are clear: drive focus and discipline and put the customer back at the center of everything that we do. And I'm confident that our unparalleled industry leadership that we have and our truly unique business model will provide that strong foundation to sharpen that customer focus and return to profitable growth. I'm looking forward to coming back to you in early June with a more detailed plan and to share our financial ambitions in parallel. And in the meantime, this concludes today's results presentation, and we are delighted to now take your questions. And with that, I will hand over to the operator to open the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Sloane from Barclays. Alexander Sloane: I'll have 2, please. I guess, overall, you previously guided to double-digit PBT growth in fiscal '26 based on today's guidance. Is it fair to assume you're now expecting PBT in constant FX to decline at sort of mid-single-digit rate for this year? And I guess if that's the case, within that potential 15%-plus downgrade, how much do you see as '26 specific or transitional versus perhaps more structural and put another way, how much of that do you think investors should reasonably expect to sort of bounce back in fiscal '27 would be the first one. And I guess the second one, somewhat related, but in terms of the commercial investments that you've talked about to restore competitiveness in Gourmet, can I just say, does this purely relate to price gaps or -- in Gourmet? Are you also potentially suffering from some of the service level issues highlighted at the beginning of the presentation? Hein M. Schumacher: Thank you, Alex. For the first question on the -- on PBT and this year's guidance, I'll let Peter answer. I'll come back to some of the points on structural as well as take your second question on Gourmet. So Peter, first on PBT. Peter Vanneste: Yes. So Alex, thanks for the question. We will have a significant reduction of finance costs over the year, up to CHF 60 million, so CHF 50 million to CHF 60 million versus last year, which means that a very significant part of the gap that we see on EBIT will be offset towards the PBT level. So profit before tax will be down for the fiscal year, but to a lesser extent than EBIT because of that recovery on the finance cost. Hein M. Schumacher: And Alex, I think a few remarks on the structural nature of the guidance for this year. Look, there are a few things that I would call pretty temporary. These are, for example, the gourmet positions that you talked about. The other one is supply disruptions that we have seen as well as the volume declines that we've seen in the first half. I expect those to -- over time, of course, to come back. Some of that will go faster than others. But more structurally, and Peter talked about that, our finance cost with a lower bean price, overall, the finance cost are not as high as in the EBIT definition, but they will come back and they will be neutralized on a PBT and on a net profit level. So some aspects are structural and some are temporary, but I wouldn't call it overall a rebasing of the company. I think your second question on Gourmet. Yes. So we had long positions out there and -- in Gourmet, which is partially a price listed business. We are seeking to retain market share. Obviously, we're going to drive volume. I think that's super important for us. We have, of course, fixed cost, but also we want to retain our customers after having had some years of disruption. So we're very keen to put the customer right -- front and center for everything that we do. So that's something that we're investing in. But if you look at Gourmet, yes, there have been disruptions also for Gourmet. Some of that in the North American part, but some of that in Europe, obviously, from somewhat longer time ago, but we're still sort of rebuilding capacity, and we're still rebuilding customer service. So this is something that we're now going to do on an accelerated pace. All the key factories are under hypercare. We've added some resources to make sure that we can deliver. We're also pushing some tactical investments through the sites because the customers have evolved their portfolio needs. We were a bit behind. We're stepping that -- we're really stepping that up and going fast after that. And therefore, I'm quite confident that in the second half of the year, overall, as a company, we are going to return to growth, and that will then sequentially improve the volume picture by quarter including Gourmet, which of course, is an important profit segment for us. Next question, please. Operator: Our next question comes from Jörn Iffert from UBS. Joern Iffert: The first one would be, please, on the reinvestment needs to restore customer service levels. For how long do you think it will last that this is more pronounced? And do you think despite these reinvestments, there could be operating leverage benefits for EBIT in fiscal year '27? So just to get a feeling for the time line here? And the second question, please, a technical one. Into the core segment, I assume it is, in particular, the spread, not the combined ratio, which was beneficial in the first half, I mean, what do you expect as a more normalized profitability on the current cocoa bean versus butter and powder spread going forward from here? Hein M. Schumacher: Thanks, Jörn. I'll take the first question. Peter, you can take -- if you would take the second one, that will be good. On the -- yes, on the investments, look, as I said, there's a few different types of investment here. And so the first one as I said, it's around evolved customer needs of what they need in their portfolio. And I think whilst we have an overall capacity that is sort of sufficient given, of course, the volume reductions that we have and the existing capacity that we had, on a line basis, the capacity wasn't always keeping pace with the changes of what customers really wanted. And therefore, we're doing a number of tactical investments predominantly in North America to keep pace and to satisfy the evolving customer needs. Some of that is in compound production. Some of that is in inclusion, for example, we need to step it up there. And so that's part number one. And that's partially CapEx. But of course, with all -- with quite a number of changes that we're doing and these are happening literally to date, that was in North America in the last couple of days and witnessing firsthand of what we're doing to step up that customer service and change portfolio. So that's number one. And that, of course, comes with some extra cost. The second one, given the disruptions that we had, we absolutely want to make sure that food quality and food safety is paramount. So yes, we are investing a bit extra also in manual operations to secure that. We've had incidents over the last couple of years. We simply cannot repeat that. The reputation of the company is essentially what safeguards the value of the company. So I'm very, very keen to focus on that as well. And then thirdly, as I talked about, investments when it comes to the long positions that we -- and we already mentioned that a few times, the long positions that we've had on cocoa and the impact on price listed business. So we're making here the right trade-offs, but we want to stick with our customers and we prioritize volume and we prioritize market share now and that's the third area of investment that we're making. Yes, I mean those are the main ones. But clearly, again, customer centricity and stepping up our efforts to evolve our capacity to that -- to the exact needs of the customer, that for me is really a priority now. And that's pretty short term. But I think in the midterm, that means that we will -- we need to continue to evolve our network, our supply chain through changing needs. And I think we can do that. And obviously, more to come on that in June. Peter? Peter Vanneste: Thanks for your question on cocoa. We've seen a strong EBIT growth on cocoa in the half year 1 year-on-year in local currencies. And very much linked to the fact that we're able to profit in cocoa and benefit from a more favorable margin environment and also the market volatility considering the speed of the market movements we've seen some time ago already with higher butter, higher powder prices, and we were able to capture that. We expect this to normalize in half year 2 going forward because the butter ratios have continued to drop in line with the terminal market evolution. Butter is now below powder and trading at a discount actually to CBE, which means that some of those benefits that we've seen linked to that volatility and the whole market that we captured in half year 1 and to some extent, a bit as well in half year 2 last year is at least, for the short term, not coming back. And then, of course, we'll see how the market evolves further to be more specific about that. Operator: Our next question comes from Ed Hockin from JPMorgan. Edward Hockin: Thank you, Hein, for your preview on your Focus for Growth strategy that I look forward to learning more in June. But on the Focus for Growth strategy, what I wanted to clarify a little bit following on from the last question, is on some of these initiatives you've outlined on capacity investments on focus and scaling of innovations, whether these are a refocus of existing resource or whether these are incremental investments? And within that, how we're thinking about the cash flow? Should we be, therefore, presuming that CapEx is higher for longer? And of your higher safety stocks in H2 that you mentioned, should we also expect that this is something longer lasting. So will you be holding inventory levels as a norm going forward? Or is this specifically an H2 comment? And then my second question, please, is on your volumes outlook for H2 and the return to volume growth. The industry, as you noted, is currently tracking minus 6.5% volumes. So to return to volume growth in the second half of the year, can you try and help me to bridge that? Is it that the industry volumes, you should expect some improvement in the second half of the year? And how significant contribution should the actions you're taking in gourmet have? Is it some reversal of shrink inflations or some reversal of the temporary in-sourcing that you've seen in previous years. Just if you could help me bridge that gap between the current industry volumes and improved picture for your volumes in the second half? Hein M. Schumacher: Thank you, Ed. And let me take first go at it, and Peter, please add where you see fit. So I mean, first of all, this is not about incremental resources. I talked very much in focus for growth around galvanizing and rallying our people, and that is people's component, but also indeed capital expenditure as well as cost behind less initiatives. We're choosing essentially 6 to 8 initiatives in the company right now to focus our resources on. We've been looking at many, many process improvements as a company over the last couple of years, ranging from HR processes to supply chain processes to essentially covering absolutely everything. What I'm really keen now is to focus our resources behind those processes that touch the customer first, and that is planning, so demand planning, supply planning, and making sure that we link up with our customer seamlessly and that we optimize our planning processes. So that means also digital efforts behind that. So that's the number one. Number two, customer service. Over the last year, customer service has been pretty much standardized and, in some cases, has been moved from a decentralized model to a more centralized global shared services model for customer service. That was a decision taken. It didn't always go well. So we absolutely have to nail it now and be there for the customer and make sure that, that customer service process runs extraordinarily well. So this is not about incrementalism. No, it's about everything that we were doing under the Next Level program, it's to choose those things that are meaningful and impactful and putting our people behind those. So that's very much the mantra. Not an extra. We're not going to expand on that. When it comes to capital expenditure, also for this year, we're not increasing the guidance. We have redirected some of the capital expenditure spend through the tactical investments that I talked about. And on the medium term, whether that's going to lead to a higher level, I'm going to come back to in June. However, we are very, very committed to deleveraging the company, as Peter has talked about. So that will remain an important priority. We will live within our means, but at the same time, I want to make sure that we spend the CapEx behind tangible, thought through, thorough growth initiatives, in a select number of markets, in our most meaningful segments. Gourmet, I talked to a few specialty categories, for example, and then, of course, in customer processes related to our Food Manufacturing segment. So more focused, clear and not incremental. So that, I think, hopefully answers your first question. When it comes to the volume picture in the second half, a few comments. Obviously, with lower bean prices, what we're seeing is that customers ordering for longer, that's clear, and that's helping the volume picture for us. We also see that customers, and we said that in the presentation, customers themselves are going for growth. And we've seen a number of initiatives from Hershey's, for example. We've seen initiatives from Nestle. And I think that's really important. We are seeing an enhanced growth picture in some of our key markets. In ice cream, for example, in North America, we're seeing overall an increased demand picture. And again, I think the lower bean prices helped. At the same time, and I think this is very important for us, when I talk about our efforts to restore growth, we believe that, in the very recent months, we are growing a bit ahead of the market with a reinvigorated focus on growth. And if we keep the pace, we make those necessary investments, we restore our processes and our credibility and stability, I'm actually very convinced that we will continue to do that in the very near future. So that's going to help us. So with less disruptions, we should see some growth. There's one important caveat, and that's, of course, the situation in the Middle East. At this moment, I mean, that's the latest one this morning. We believe that in the next week or so, business activity in the Middle East will resume somewhat, but obviously, it's very, very volatile. So that's something that we need to manage. So that's more on a high-level basis. I don't know, Peter, if you want to make some further comment on what we have been doing? Peter Vanneste: I'm risking to repeat a lot of what you said. So no. Hein M. Schumacher: Okay. Operator: Our next question comes from Jon Cox from Kepler Cheuvreux. Jon Cox: I have 2 questions really. One, just on what's happened in the last couple of years and what you're doing now to sort of maybe unwind some of that, maybe it went too far. I think under the first program, you laid off about 20% of your workforce and did a couple of factory closures and that sort of stuff. Just wondering, should we assume that maybe you're going to unwind the staff by about 10%, so maybe going back a little bit, or halfway from what you've done? As an add on that, do you think there's anything more needs to be done in terms of the factory network? Or is it more, as you mentioned, it's all about quality issues and maybe some lines are not working as well as you want to? So that's the first question. The second question, more on the top line outlook. I'm quite surprised that we're not really seeing volumes recover given the fact that cocoa prices have declined. I know there's a lag and so on and so on. But in terms of -- I'd imagine the whole industry is short chocolate in various places. Are you worried that maybe structurally, the chocolate market has changed in the last few years, maybe with GLP-1s and we see various data points suggesting that maybe chocolate demand volume growth won't come back to that on average 1% or 2% we've seen historically, maybe it's going to be closer to flat going forward. Any thoughts on that sort of long-term chocolate market outlook? Hein M. Schumacher: Thanks, Jon. I mean, first of all, on the Next Level program, as I said, in the plan on the Focus for Growth plan, look, I think that the Next Level program, again, the intentions to standardize more in the company, to reduce our cost by progressing our network into fewer, bigger sites into doing more with digital, intentionally definitely the right program. But what I'm saying is, therefore, we will build on that. And I have no intention to unwind necessarily what was going on. But I feel that efforts in the company were quite diluted. We have lost a lot of people. We have had quite some incidents and disruptions, and we have let customers down and customer service. So hey, I'm just very keen now to restore that confidence, go back behind a number of core priorities. So that means that we're not going to unwind, but we're going to phase and pace it. We'll go deeper, we're going to finish a number of initiatives, and we're going to do it well, but always with the customer in mind. So yes, we will continue to evolve our network, and that may end up in less factories. But before you close a factory, you need to make absolutely sure that the volumes that you provide to a customer from that factory are then, of course, transferred to another place, and you can help the customer to succeed. So I'm very keen to progress, but again, in a thoughtful manner. There's no point in adding necessarily resources. As I said, we are making some selective investments now in the supply chain, particularly in North America as well as in quality assurance. But overall, I do not foresee that we're sort of adding cost on a structural basis. That is definitely not the intention. And I don't want to talk about unwinding. I want to talk about focus, and I want to talk about fewer, bigger and better. with a strong focus on operations discipline and customer centricity. I think when you talk about volumes, actually, we are pointing towards a volume recovery in the second half. So of course, progressively, quarter 2 was a little bit better than quarter 1, in terms of volume, still negative. But going forward, as you sort of follow the algorithm, we're guiding to minus 1% to minus 3%. And that means mathematically that we're going to have to see a positive territory in half 2. Now where does that come from? And I talked about that lower bean prices? Yes, from our end, a better competitive position, strong focus and of course, with the caveat that I already talked about in the Middle East. But overall, we are actually seeing good signs of restored volumes. So in that sense, certainly on the midterm, we're looking more positively. On GLP-1, I think yes, I mean, several of our customers have also talked about that. And I just wanted to highlight that quality chocolate, the more premium style chocolate, we believe that's actually benefiting in some cases. We're seeing that also in interest for our Gourmet products. So I think, yes, look, there will be some impact, but at this point, it will not be significant for the company. Peter Vanneste: And maybe just to add, there's some reassurance, of course, from the past on the market rebounding. I mean the market pricing has been significant, of course, this time, but also a few years ago on the back of COVID, there was a 20% pricing up in the market, and you could see the chocolate category bounce up well after that. And maybe last, as you said yourself, I mean, there is this lag, right? We had ourselves for the first time now a quarter in Q2 where our pricing was negative year-on-year. So we had our peak pricing, plus 70% a year ago. We had still plus 25% pricing from us to our customers in quarter 1. Quarter 2 was the first quarter where it started to come down. So there is this lag that the market needs to cycle through before it starts hitting the consumer. Hein M. Schumacher: I think, Peter, there's also -- and I think that on your question or the question before, I want to come back on one point, which are inventory levels. We've obviously seen inventories coming down, and that's partially bean price, but also operationally, our inventories are showing a healthy development. What I do believe towards year-end, again, tactically and particularly on what I call the runners in our portfolio, Gourmet products that are pretty standard, we are increasing the inventory levels somewhat to make sure that we have a very positive start into the new year. I believe by the end of last year, the inventory levels were very, very low, and it hampered us a bit in satisfying customer needs. And again, with the positive signs that we are seeing in the market, we believe there is room, again, tactically and in a few areas to increase the safety stocks a bit to safeguard service. Again, a major priority for us going forward. Operator: Our next question comes from David Roux from Morgan Stanley. David Roux: I just want to come back to Alex's question on the guidance. Can you perhaps quantify how much of the cut in the PBT guidance was attributed to the investments in Gourmet, Middle East conflict and then other factors? And then my second question is on Global Chocolate. On the Food Manufacturer client cohort specifically, do you see any need or any risk here that you need to invest in pricing here? I appreciate there's a mechanical cost-plus model with this cohort of customer. But I mean, how robust are these agreements? And then just my follow-up question on Global Chocolate is, where do you see manufacturer inventory levels at the moment? Hein M. Schumacher: Peter, you take the first. I'll come back on the Food Manufacturing. Peter Vanneste: Yes. So David, the first question on the moving parts on EBIT and then PBT overall versus the guidance that we now put into the market. Overall, as we said, still for the full year, there's a positive on cocoa considering the high and the strong benefit that we took on volatility and the increases of the market in the past, normalizing half year 2, as I mentioned. Now if we look at then where the delta comes from in terms of the negative impact, you could basically argue that about 70% or 2/3 is triggered by this very rapidly declining bean price, which had an impact on, first of all, our financing costs, that pass-through had reversed basically on the EBIT line. Secondly, the impact that we've seen on Gourmet, where our long position and high price list forced us to do some commercial investments to secure the volumes that we have. So 2/3 is really coming from that rapid decline of the bean price. The remaining part, basically, there's 2 components. One is volume that over the year will still be slightly negative. And secondly, some of the increased costs that we are taking to manage through the supply disruption, making sure that we can deliver our customers despite some of those disruptions that we've seen. So this is basically the different blocks that you should be considering within our guidance. Hein M. Schumacher: When it comes to the Food Manufacturing segment, you're right. I mean, most of our contracts, they follow the price of cocoa. So I'm not overly -- from everything that I'm seeing margin-wise and so forth, I don't see major volatility in that. I feel pretty confident about the segment going into the second half. And we will move with customers and of course, based on the contracts that we have. So when I talked about the major impact from the long position, that is more related to price-listed businesses. When it comes to global stock levels, as I said, I think there are some -- we see customers buying a bit longer. I can't comment on exact stock levels. I'm not long enough here to give a really educated answer on that. But it's a fact that at this point, with the current bean prices, there is room for some increases globally. That's all I can say at the moment, unless, Peter, you would have further comments? Operator: Our next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the capacity expansion that you're putting into North America and your comments to the earlier question around longer-term demand. I mean, if you're investing into compounds, which is the majority, I believe, of your Food Manufacturing business, are you not just signaling that there is a permanent reduction in cocoa demand even if it's not chocolate demand and that's coming from compound growth rather than cocoa content, if you like? And then just on Gourmet, where would your gross profit per unit be standing versus 12 months ago? And are you saying that you're going to be cutting that even more? Because if you do have this shift towards more compounds and we're in a sort of excess capacity, I suppose, are we not just going to see a rebasing of Gourmet pricing? And indeed, is it still going down? Hein M. Schumacher: Thanks, Tom. I mean, first of all, in investing in North America, as I said, I think the network overall probably didn't keep sort of the pace with evolving customer needs. So I think it's more that we were a bit behind. And we are very, very keen to fill in some of the blanks. We have very good relationships with many customers. Obviously, in North America, we are the market leader. But I want to make sure that for particular needs, and indeed, there could be compound production, that they don't go to alternative suppliers. So what we're doing is we fill in tactical needs, and I believe that, that will strengthen our position with customers significantly. At this point, with the bean price where it is now, we don't see compound necessarily growing faster than chocolate. We're seeing some movements that chocolate is actually back, and we're seeing some customers going back to chocolate. And again, with the current bean price, I believe that is overall probably even beneficial for them. We're sort of at that inflection point. So no, I don't think that compound will continue to always gain. I think what is more important for companies like us is that we're agile and that we can fill in the blanks of the portfolio that customers need. And they will have a need for compound for particular parts of what -- in their portfolio, and they have a need for chocolate. And of course, there is the volatility of the bean price. So I think what is important for us, given our role in the industry, is that we are agile, that we have the ability to supply what is needed. And that is exactly what we're going to do in North America with a number of shorter-term investments. So that's, I would say, for the next 4 to 5 months or so. I want to come back in June, as I said, with a more midterm picture for North America as well as coping with growth in a select number of large emerging markets, and I'm talking mainly Brazil, Indonesia, for example. India, we have ample capacity that can continue to grow. I mean we've done that double digit, and I feel that going to happen, that's going to go -- that will happen going forward. But I want to choose a few of the bigger markets where we have an emerging presence where I think we can succeed, but where we have some bottlenecks that we need to resolve. So I hope that answers the first question on investments. On Gourmet profit, I wasn't exactly sure on the precise question. But I would say there's no rebasing on profitability as such. As I said, there were long positions out there, and then you need to determine what you do, what is your priority. And we feel that retaining customers is driving growth, whilst at some point these positions will unwind and we will be returning to normalized profitability on Gourmet. That's at least what I'm seeing going forward. But in the meantime, we want to make sure that we keep the customer connection that we can compete in our geographies. And that's what we're doing. Peter Vanneste: And maybe just one addition because I think I might have understood in your message that for compound production, we need an entirely new setup of factories, which is not the case, right? We can produce from our existing factories. There's a few interventions you need to do in terms of tanks. But overall, I mean, we can convert our lines. So it's not that if any move happens to compound, that is an entirely new network that we need. Operator: Our next question comes from Antoine Prevot from Bank of America. Antoine Prevot: I have 2 questions, please. First, on coatings. So within Global Chocolate, I mean, could you quantify the volume growth of coating versus true chocolates and especially considering that now CBE is more expensive than cocoa butter, are you seeing maybe some pressure there overall, especially as a pretty big buffer on volume for the past couple of years? And second, on Gourmet, so could you quantify a bit how much of your chocolate profit comes from the Gourmet side? I mean, it's about 20% of your volume, but I would suspect it's much higher on the profit. And considering the reinvestments and like the price change you're doing into like H2, how quickly do you expect a situation to improve there on volume? Hein M. Schumacher: Thank you, Antoine. So I think Peter takes the second question on the composition of the profit, if I got it right. I think on your first question, overall on compounds, by the way, we call it cacao coatings, we saw flat growth in the first half, but with a double-digit growth for particular super compound products. Don't forget that I'm talking about investments in compounds. And yes, we need to follow the customer, but we are the leader actually globally in cacao coatings. And we have quite a few R&D projects with many of our customers on the way to continue to compete in that well. So if I sort of take a step back, as a company, what we are offering, we're offering the chocolate solution, we're offering the cacao coatings, but also non-cocoa solutions. And in that sense, we are partnering with Planet A Foods. We're working on what we call ChoViva, which is a non-cocoa product, which also has its own cost structure, and we will continue to invest in those type of alternatives. So we're very keen to provide the whole portfolio. Now again, flat growth in the first half with particular double-digit growth in a subsegment what we call super compound products. Peter Vanneste: Yes. And on Gourmet, Antoine, yes, it's about 20% of our volumes and it's over-proportional in terms of our profit split. We're not really disclosing a lot of details on it. But as you mentioned, it's a lot more accretive than the FM business. Volume-wise, 20%, despite the challenges, it's still performing relatively better than the FM business as we speak. And also in H2, I mean, we will invest, as we said, some of that long position, but it doesn't mean that we'll be cutting even more. We expect actually positive evolution in our business in chocolate, both on the FM and the Gourmet side going forward in the second half. Yes, I think that's where we are on the Gourmet side and everything else I think we said before, as it is linked to the very steep decline of the bean price, we do expect this to be a temporary phenomenon. Operator: Our next question comes from Samantha Darbyshire from Goldman Sachs. Samantha Darbyshire: My first question is just around the end markets. It would be really helpful to get some context from you around how you're expecting them to progress from here. You've got pretty good visibility on the order book, it seems. How much of this is kind of because your customers are innovating, having to bring out new products to kind of support that volume growth? And how much of it is that you think that consumers are adjusting to the price levels of chocolate products right now? And kind of along those lines, are you starting to see any appetite from your customers to reduce prices or increase promotions, increase pack sizes to get the volume coming back in the market? And if there's any regional context as well, that would be super helpful. And then just switching to, just thinking about your service levels, can you perhaps contextualize where they are versus history? I know that it's been quite volatile. There's been a lot of disruption. But if we think about where Barry Callebaut used to be, say, 5 years ago, how significantly below that are we? I know that the company is below industry levels. But any kind of indication of the delta would be really helpful. Hein M. Schumacher: Thanks, Sam, for the questions. So first, I would like to talk a bit about the market and our customers and what consumers are doing. Let me just make a few points here. And some of it will be repetitive, I hope you don't mind. But obviously, there are lower bean prices and we're seeing a flattening as well of the futures curve. So there are some early signs, as I said, of market stabilization for our customers. So customers are therefore also willing to book further in advance. As I call it, these are longer positions, and there is some room for higher inventories overall. I think we're seeing that customers are pricing through to some extent. Obviously, that's a customer decision. I don't want to go too deep on that. But I'm very encouraged by what I'm seeing with some of our large customers in particularly North America. Ferrero, and we said it in the presentation, they launched their go all-in promotion lasting from April to July, and that's backed up by significant investments. They've made a very public statement about that $100 million investment. Hershey also making significant media investments in this year with a very big launch around Reese's and Hershey. It's the first launch for them since a number of years that is sort of at this magnitude. So we're seeing restored confidence. Obviously, the margin profile will help given the lower bean prices. So these are, I think, very positive signs for recovery going forward. We're also seeing, therefore, some increased innovation interest from our CPG customers. And as I said, that we do across the whole portfolio. We're seeing -- particularly in Western Europe, we're seeing interest in the non-cocoa solutions for ChoViva, the brand that I talked about before, but also the high flavanol opportunity, the high flavanol innovation in AMEA, and this is gaining really good traction in Japan as well as in China. So if I sort of summarize lower bean prices, so therefore, customers going a bit long. Secondly, a very specific big initiative from some of our large customers that will help the market. And third, we're seeing if we are focusing our efforts behind scalable innovation platforms, we believe that particularly on a regional basis, we're seeing increased interest. So I would say, these are very positive signs. And therefore, we believe that the second half, we can return to a growth picture. On customer service levels, yes, I look back to a number of years ago. And particularly in the last 1.5 years or so, we have been below our historical averages. I don't want to call out one customer service level, because you need to drill down a little bit. And customer service can, for example, become low if your portfolio is not exactly the customer needs. So can you deliver against an unconstrained demand? That's a question. And in many cases, we haven't been able to do so, and that's why we're making these investments. The second one is, due to disruptions, do you need to cancel contracts or cancel deliveries that the customer has asked for. So in some of our key segments, we've seen customer service levels even somewhat below 80%. They are now improving fast. And again, that's where we're laser-focused on to get them to the highest possible level now. And I think that's something that we do progressively well. So without calling particularly percentages too much, I would say we weren't at the level that we were a number of years ago due to disruptions, due to many process changes, due to the whole transformation impact. We're now going back to fewer initiatives, restoring customer service on those areas where we really need it and preparing for a midterm picture. And obviously, I'd like to come back to you in June on what that looks like. I think that concludes the overall -- if I'm not wrong, this was the last question? Operator: Correct. We currently have no further questions. Hein M. Schumacher: Thank you, everyone, for spending time with us this morning. We are looking forward to come back to you in June with a full update on the Focus for Growth program and to have more interactions with you in the next couple of days as well as after the June conference. Thanks a lot, and speak soon. Peter Vanneste: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the ADF Group results for the fiscal year ended January 31, 2026. [Operator Instructions] Also note that this call is being recorded on Thursday, April 16, 2026. And I would like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead. Jean-François Boursier: Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period ended January 31, 2026. I am with Pierre Paschini, President and Chief Operating Officer of ADF, who will be available to answer your questions at the end of the call. I will first update you on our full year results, which were disclosed earlier this morning by press release and then proceed with a quick update about our operations, including our recent new contracts announcement and the recent U.S. tariffs change. This said, let me remind you that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the 2026 fiscal year, which will be filed with SEDAR in the coming days. On this very call a year ago and in spite of exceptional results, we were confirming the significant uncertainties that the then recently announced U.S. tariffs were bringing to our markets and operations. A year later and considering all the tariffs-related turmoil, we can confirm that we, without a doubt, close our fiscal 2026 with exceptional results and in a much better position to face these uncertainties in light of Groupe LAR's acquisition. Revenues for the fiscal year ended January 31, 2026, reached $258.7 million compared to $339.6 million last year. As a percentage of revenues, the gross margin went from 31.6% in fiscal 2025 to 23.1% during the fiscal year ended January 31, 2026. As just mentioned, fiscal 2025 was an exceptionally good year with a favorable project mix. The fiscal 2026 results have been impacted by the U.S. tariffs, both directly with higher raw material costs and indirectly with delays in project signing and fabrication start. As such, and as already mentioned in previous calls, ADF implemented a work sharing program at its Terrebonne, Quebec facility earlier this year, which reduced fabrication hours, but also enabled ADF to reduce the cost impact, although not entirely, considering that the Canadian employment program compensated some of these reduced hours. The Groupe LAR acquisition added $20 million in revenue since its acquisition was finalized on September 18, 2025, and added $2 million to our consolidated gross margin for the same period. Adjusted EBITDA totaled $43.5 million or 16.8% of revenues compared with $91.3 million or 26.9% of revenues a year ago. The year-over-year decrease comes from the previously explained gross margin variances and by the selling and administrative expenses, which at $23.2 million were $1.1 million higher than a year ago, all of the increase being explained by the inclusion of Groupe LAR in our consolidated SG&A. We closed our January 31, 2026 fiscal year with a mostly nonmonetary foreign exchange gain of $2.1 million compared to a $5.6 million loss a year ago. Most of this variance coming from the end of year mark-to-market valuation of our FX contracts on hand at both year-end. Year-to-date, ADF posted net income of $26.3 million or $0.93 basic and diluted per share compared with a net income of $56.8 million a year ago or $1.84 basic and diluted per share. Cash flows from operating activities generated $49.4 million, while we invested $11.1 million in CapEx, mostly for equipment maintenance at both our plants in Terrebonne , Quebec and in Great Falls, Montana. We plan to invest close to $35 million for our 2027 fiscal year, the majority of this amount being for our Groupe LAR plant expansion and modernization. In parallel, we are presently negotiating financing packages for these investments. We will be able to provide further updates on our next call. As of January 31, 2026, working capital stood at $104.8 million, just $4.4 million lower than last year. Also on January 31, 2026, cash and cash equivalents stood at $62.7 million, which is actually $2.7 million higher than a year ago, even considering the conclusion of our NCIB and the acquisition of Groupe LAR. Yesterday, the Board of Directors approved the payment of a semi-annual dividend of $0.02 per share, which will be paid on May 15, 2026, to shareholders of record as of April 27, 2026. We closed the year with an order backlog of $561.1 million as at January 31, 2026, excluding the new contracts totaling $157.3 million announced last week. The ending backlog included $138.2 million of contracts from Groupe LAR, which also excludes last week's announcement. Quickly looking at the fourth quarter results, ADF recorded revenues of $78.8 million, up $1.4 million from the fourth quarter of 2025 fiscal year. Fourth quarter revenues this year did include $13.8 million coming from the -- from Groupe LAR. The gross margin as a percentage of revenues stood at 21.5% for the fourth quarter ended January 31, 2026, compared with 31% for the corresponding quarter of fiscal 2025. The margin decrease between these 2 quarters is primarily explained by the mix of products and fabrication, including lower margins coming from the LAR projects. We recorded a net income of $6.4 million during the last quarter of fiscal 2026 compared with net income of $9.1 million for the corresponding period of fiscal 2025, with minimal impact coming from LAR, which basically broke even for the quarter. Because the corporation carries out contracts that vary in complexity and in duration, upward and downward fluctuation may occur from quarter-to-quarter. In light of this, revenue and order backlog growth must be analyzed over several quarters, not just from one period to the next. As mentioned at the beginning of the call, the situation was bleak a year ago, and we're definitely very satisfied with how everything turned out, including our overall financial results, our ending balance sheet and cash situation and with the conclusion of the LAR acquisition. As we have seen as recently as 2 weeks ago, with the latest tariffs announcement, we are still in a -- we are still in for more surprises and sadly uncertainties. Talking about these last tariff modifications, we can now confirm that for the time being, our U.S. projects fabricated in Terrebonne will now be impacted by a 10% tariff, which is applied on the value of the commercial invoice, including profit. And this in spite that the steel used to fabricate these projects comes from U.S. mills. Although not ideal, we can say that our recent backlog shift from U.S. to Canadian projects, aided by our July 2025 long-term contract and Groupe LAR acquisition reduced what could have been a much higher cost increase for ADF. Additionally, we are working with our U.S. clients to alleviate some of these additional costs. This said, -- what this latest announcement definitely brings is additional uncertainties to our market as it confirms the unpredictability of the overall trade situation. Nevertheless, as we announced last week, we are still focusing on the elements that we do control, and as such, we have been able to further increase our backlog. The largest of the series of new contracts in terms of values and duration is for the fabrication and delivery of various heavy steel structures for a project in the hydroelectric sector in Quebec. This project is a 4-year master contract for Groupe LAR. Since the acquisition, we've been able to grow LAR backlog, and we are still active as the hydroelectric market delivers its expected growth. We are on the verge of breaking ground in Metabetchouan for our Groupe LAR plant expansion and modernization, which is a key step in our continued growth. In light of all of this, we do anticipate revenue growth for our fiscal year ending January 31, 2027, despite the ongoing challenge of finalizing contracts with our U.S. customers that would normally be carried out at our plant located in Terrebonne, Quebec. However, given that the capital investment that I just mentioned will not have a significant operational impact in the fiscal year ending January 31, 2027, we expect margins to somewhat stagnate in the first quarters of fiscal year 2027, especially when adding the recently announced tariff change. This trend will be reversed as the integration of Groupe LAR continues and we complete the projects inherited at the time of Groupe LAR's acquisition. The acquisition of Groupe LAR, the new Canadian U.S. allocation of our order backlog and the optimal utilization of our fabrication facility in Great Falls, Montana allow us to still look forward to fiscal year 2027 with optimism, allowing us to continue our orderly growth despite tariff uncertainties. Thank you all for your interest and confidence in ADF. Pierre and I will now be happy to answer your questions. Operator: [Operator Instructions] First question will be from Nick Cortellucci at Atrium. Nicholas Cortellucci: First thing I was wondering about was the new 4-year contract. What does the timing look like on that for getting started? Jean-François Boursier: Yes. Most of the volume -- that contract will not have much impact in our FY '27. Most of the fabrication will start next year. So it's going to be 4 years, but with limited impact or close to no impact on our revenues this year for FY '27. Nicholas Cortellucci: Okay. And are you guys seeing anything in kind of these growth markets you're going after, maybe being nuclear or data centers, anything like that? Pierre Paschini: Yes. We're looking at a couple of those projects. But like I say, I mean, right now, we're bidding on some stuff, data centers, stuff like that. But with the tariffs right now and that new 10%, well, we need to be a bit more competitive. So it's going to cost us 5% on our margin. So -- but there's a lot of work out there. So I think it's feasible that we should be able to get some work by the end of the year. Nicholas Cortellucci: Okay. Regarding the CapEx plan and operational efficiencies for LAR, how do you see that playing out kind of sequential improvements throughout the year here? Jean-François Boursier: Well, the construction will occur this year. It's really -- so the expansion itself will not really happen this year. So we shouldn't see too much efficiency gain margin-wise in FY '27 because the plant will be up and running only late in the first quarter of next fiscal year. But as I mentioned earlier, we're -- besides the expansion and the new equipment, we are working with LAR on optimizing our -- the synergies between the 2 entities, and we're still in that process. So that, as I mentioned, should start to transpire on our actual margin, probably more so in the second half of the year. And lastly, as I also mentioned, we did -- with the acquisition, there was a backlog that was in place that had a certain margin profile in it. Obviously, you can understand that last year, while LAR was trying to cope with their situation and as we were negotiating, they were still trying to get business and maybe not have the same leverage in negotiating contract that they normally do. So some of the contracts that were signed in the past months might not be as that might not have carried the usual margin. So they are still positive. They're still good. As you saw from the number I'm giving, it's definitely not the same level of margin. So it did have a downward impact on our overall consolidated margin. But this said, it's added volume. The good news is that we are growing. As we had mentioned, we're seeing huge potential from LAR on the hydroelectric side. We've been pretty successful in signing new contracts, actually probably even better than we had anticipated. We're still seeing lots of opportunities going forward. But obviously, for all of that to work out, we do need to have a successful expansion. So we're obviously spending a lot of time on not only finalizing the bid and making sure that the construction starts on time and the project and the entire project is on time so that we meet our deadline. So once that all pans out, FY '28 and the following years are really -- will really start showing the full positive impact of that acquisition, along with what we hope will be a return to normal to our more ADF regular structural work as we see what will come out of the U.S. Nicholas Cortellucci: Right. Okay. So that kind of $2 million gross margin from LAR, that's kind of a backward-looking number and the new contracts from what I get at or that you guys are signing are more up to that ADF standard or getting closer to it? Jean-François Boursier: Well, pushing that way. Obviously, there are things we need to do to further improve, including the actual operations. So obviously, with the new equipment, they'll definitely be able to be more efficient with the work. So that helps. This is something that ADF has been really good at doing over the years is maintain our equipment as efficient as possible and always invest to be as optimal as we could be from an efficiency standpoint. So there are things we can do now. There are definitely things that will further -- there's definitely going to be a huge step with the new equipment and the expansion, but working and definitely negotiating with not only higher margins, but also with more favorable payment terms and overall conditions. So we're really putting -- I think we've been talking for a number of years about how careful we are on contract signing and our risk management. So we're putting all our processes in place so that we bid projects both for LAR and ADF or actually for LAR the same way and with the same due diligence that we did for our ADF bid. So that should all translate into better terms and better margins. Nicholas Cortellucci: Yes, that makes sense. And then just last one here from the tariff commentary you had there. I think kind of the summary is that you guys qualify for the 10% tariff because the steel is purchased from U.S. steel mills, but because it's being applied to the total value, it's a net negative. Jean Paschini: So it's been applied to the fabrication and the material, even though it's from the state. So we're penalized, I mean, $300 a ton basically, which amounts to maybe 5% on the margin depends on the kind of margin, depends on the work. There's a lot of work in the States right now. I mean most of the plants are busy. So we'll be able to charge a bit more and compensate for that 5%. That's what I think. So right now, the bigger guys out there, 5 or 6 of the biggest companies are busy for the next 2 years, which is a good sign for us because they have more work coming up. So we'll see. I mean I think there's an opportunity because cash flow-wise and financial-wise, we're very sound. It's just a question of hitting the right job with the right margin. Jean-François Boursier: Just to further explain on the tariffs, Nick, the -- with the previous -- there were tariffs, but more specifically on the steel and aluminum, if we were buying our steel from U.S. mills, we were basically -- there were basically no tariffs. We had the exemption. Now in spite of buying all the steel, there is that additional 10%, and that 10% applies not just on the material, but on the commercial invoice, including profit. So I think it just highlights the fact that it is still -- nobody knows, and there were no advanced notice -- from all we understood, things were sort of moving along and then all of a sudden, you've got coming out of nowhere that 10% announcement that nobody saw coming. So as I mentioned on the call, we're not thrilled with it. But obviously, the moves we made over the past year are definitely paying off because the same 10% announcement with our old setup, 85% volume and the majority of the Terrebonne fabrication going to U.S., that announcement could have had the potential of being a really significant negative impact on us. Luckily well, luckily, considering the mix, the portion of volume fabricated in Terrebonne going to the U.S. is much lower. And as I mentioned also, we will be working really hard with our clients. I think we think we've got a couple of opportunities maybe to pass some of those costs along to the clients. And for the upcoming contracts, as Pierre just explained, well, we'll have that discussion. And obviously, everybody is in the same boat. This is not something that's just specific to ADF. All the Canadian steel manufacturers have the same tariffs. And actually, all Canadian fabricators doing businesses with the U.S. have the same that have steel and aluminum and their components have the same impact. So as we've always did, we'll negotiate, make sure that it makes sense. It's just that it won't help from the -- it won't reduce the time the negotiation of signing new contracts will take. And it's too bad because we're starting slowly but surely. I think everybody was starting to get used to the setup -- but as I mentioned, the announcement that happened just reconfirm to everybody that we're still in an unknown and uncertain situation. Nicholas Cortellucci: Okay. Understood. Well, I think you guys have definitely made some major improvements, as you said, from where we were at a year ago. So definitely better positioning going into this. And hopefully, it all ends up in your favor. Operator: [Operator Instructions] Next will be Aniss Gamassi at Bastion Asset Management. Aniss Gamassi: Maybe just to wrap up the gross margin commentary. So as I look at the next fiscal year, you've done 23% this year. Do you expect sort of the full year for next year to be similar with the first half being lower and the second half maybe higher? Or do you expect for the full year overall gross margins to be lower than fiscal -- the current fiscal year? Jean-François Boursier: Well, we don't provide guidelines, margin guidelines. But suffice to say that we're not -- we're definitely not expecting huge improvement. So I'd really be satisfied to maintain the same type of margins for the full year with maybe margin being a bit more sluggish in the first half of the year and improving in the second. But it all -- I think, will depend on what happens next, how successful we are in signing new contracts and avoiding these new tariffs. But based on what we're seeing now, based on the backlog, based on the -- I'd be satisfied to maintain or slightly improve year-to-date on a full year basis, what we've been able to do this year, but really in 2 steps. Aniss Gamassi: Understood. Maybe second question, broader picture question here. We're witnessing sort of a significant acceleration in Canadian infrastructure activity. I'm interested in your perspective on sort of how ADF's current capacity and footprint aligns with the demand shift. Are you seeing this momentum translate into your bidding pipeline within your traditional projects and maybe beyond that in Canada specifically? Pierre Paschini: Basically, we're following our customers. I mean, these guys like the [indiscernible] and all the big guys, [indiscernible], I mean they've been chasing us and looking at some work. Right now, we're looking at major work in the Montreal Airport, some work in Ontario also, some work out West. We're looking basically with the oil right now, which is going up, there's going to be some major investments. So we've got our feet in the right place right now. So -- and we know these customers. So I think that probably right now, we got 57% of our work is here in Canada, maybe it's going to be more than 50%. We've got work in the states. But our plant in Montana right now is busy, but we still can add more work in there. So I think infrastructure-wise, we can do bridge work, we can do any type of work with our facility here in Terrebonne. So like I said, the work is there, the bids are coming in, and we'll be looking at getting more work on the Canadian side. Jean-François Boursier: And capacity-wise, we don't have -- and capacity-wise, there's no issue. We've got -- we still have sufficient capacity. So we've got room to add in Terrebonne. And obviously, with Groupe LAR expansion that we'll be doing this year, we will provide them with the additional capacity. So it's not definitely not a problem to grow -- further grow the backlog with the facilities as they are today. Operator: At this time, Mr. Boursier, it appears we have no other questions registered. Please proceed. Jean-François Boursier: Thank you. Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders' meeting on June 9 at 11:00 a.m., and our AGM will be held this year at our corporate office here in Terrebonne, Quebec. Financial results for the first quarter ending April 30, 2026, will also be disclosed during our shareholders' meeting. Additional meeting information will be made available in the coming weeks. Thank you again for your interest towards ADF. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
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: 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.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Half Year Results Presentation for 2025/ 2026. I'm Sophie Lang, Head of Investor Relations. And today's session will be hosted by our CEO, Hein Schumacher; and our CFO, Peter Vanneste. Our presentation today will start with Hein's initial reflections and observations then Peter will go into the half year results and the outlook. And finally, Hein will conclude with a preview of the Focus for Growth plan. Following the presentation, we'll have a Q&A session for analysts and investors. [Operator Instructions]. Before we start, take note of the disclaimer on Slide 2, and I'd also like to inform you that today's session is being recorded. And with that, I hand you over to our CEO, Hein Schumacher. Hein M. Schumacher: Thank you, Sophie, and good morning, everyone. It's my pleasure to be speaking with you as part of my first results presentation here at Barry Callebaut and I'm now approaching my first 100 days, and I wanted to start by sharing my initial observations and reflections before I hand it over to Peter to cover the results. So far, I've been in a listen and learn mode and spending a lot of time across the business to gather a broad range of perspectives from our people. And I've had the opportunity to visit a number of our factories and offices around the world and gain insights into our operations and the culture of the company. What has stood out most to me is the passion, the expertise and the resilience that defines this organization. I've also met with several of our key customers, which has sharpened my understanding of what truly matters for them and how we can support them on their growth journey. Back in February, we formed the Growth Accelerator coalition, which is a diverse group of around 30 deeply experienced colleagues, talents from around regions, functions and nationalities. And this working group from within is designed to advise, challenge and co-shape our path back to volume growth. And through a series of focus sessions, this group has developed a unified view of where we stand today, identified key bottlenecks that hold us back and is helping define a set of high-impact priority initiatives. And collecting these insights from across our organization is enabling me to shape a clear and decisive action plan that will sharpen our strategic direction and set our key priorities. Now I will come back to that later in more detail. But first, let me share some initial observations. Over the past years, the company has been navigating a very turbulent period marked by transformation, significant industry volatility as well as supply disruptions. The Barry Callebaut Next Level program was launched with all the right intentions. However, the sheer number of initiatives proved too ambitious for the organization to absorb at once and particularly against the backdrop of unprecedented industry disruption. And frankly, without sufficient course correction in priorities, this created a perfect storm. Now that said, several important steps were taken on the Next Level because the program did deliver savings of around CHF 150 million, and these enabled much-needed capability investments in core fundamentals such as digital, quality and supply processes. But at the same time, these savings were more than offset by the impact of volume declines, higher operating costs, particularly from the cocoa market and supply disruption as well as from a more competitive environment. And the combined effect was an organization that it become overstretched and quite internally focused. And with too many quality incidents, the business also began to lose market share. And as a result, we find ourselves in a position today with clear improvement areas that need to be addressed. I'm calling out 3 areas: First, our manufacturing network. We do have capacity constraints in key growth areas with site upgrades that are still work in progress. A lot has happened, but it's still work in progress. It has contributed to quality incidents with longer recovery times due to limited business continuity plans and we have made progress on the Next Level without a doubt, especially in strengthening quality foundations, but more work is to be done. And our service levels are currently below industry benchmarks. We need to improve. Second, our digital transformation. A good direction, but initiatives were decoupled from core business priorities and the scope was very broad. We moved very quickly before co-processes were sufficiently stabilized and before our data and operating systems had reached the required level of maturity. And third, our operating model and the organization. Historically, Barry Callebaut was highly decentralized and the intention of Next Level was to introduce a greater degree of centralization and standardization and that was the right direction. But in some areas, for example, in customer service, we went too far and probably too quick. In others, we ended up with a hybrid central regional model, and that has created an ambiguity in accountabilities. It added complexity to the organization and it limited regional empowerment, where essentially, the customer is where the market is, and where we need to drive local decisions. Because I believe that food is fundamentally a local business. And our region should define the what, whilst global functions should support the how with scale, expertise and obviously, consistency. And that makes the value of the corporation essentially bigger. Now importantly, while there is work to be done, as I said, we are building from a position of strength because Barry Callebaut has strong and solid foundations, and I'm confident that we can return to growth and reinvigorate ourselves as a reliable industry leader. Because we have a truly unique market position with leading relationships, strong customer relationships and a strong portfolio with benefits from our integrated end-to-end cocoa and chocolate model, very important for our group. And in turn, this gives us deep expertise across R&D, innovation, cocoa and sustainability and these are capabilities that are highly valued and appreciated by our customers around the world. And my conversations with CEOs of our largest customers have reinforced this view. And they see Barry Callebaut as an important partner and they want to grow with us. They expect us to step up and play a key role in unlocking and supporting their growth agendas. And let's not forget that we operate in a fantastic category with strong underlying fundamentals. And as a market leader, we are well positioned to capture significant long-term growth opportunities. And underpinning all of this is our people, as I said in the very beginning, people with deep commitment and passion for what we do. And that's critical to ensure that we can fully deliver on the fundamental opportunities ahead. Now bringing all of this together, clearly, we have strong foundations from our unique market position to the depth of our expertise, and that positions us to win in this industry. And at the same time, to fully deliver on the opportunity ahead, we must refocus behind a reduced set of priorities to stabilize key fundamentals as well as to step up execution. And in turn, if we do that well, it will unlock sustained profitable growth and it will reinvigorate Barry Callebaut as a reliable, innovative global leader. And that is the objective of our Focus for Growth action plan. And I will share a preview of the plan later. But before I go there, let me hand it over to Peter to walk you through the first half year results. Peter, here you go. Peter Vanneste: Thank you, Hein. Good morning, everyone. Let me walk you through the half year performance first, and I'll start with a short summary. Cocoa bean prices have decreased strongly in H1 and especially in the last few months, and this is surely positive for the recovery of the chocolate demand. On volumes, we saw a sequential quarterly improvement to minus 3.6% in the second quarter, supported by double-digit growth in Asia and continued momentum in Latin America. Recurring EBIT decreased by 4.2% and strong cocoa profitability was more than offset by the impact of lower volume, supply disruption and a highly competitive overcapacity environment. In Gourmet, margins were pressured with the context of the very rapid drop of bean prices, and I will come back to that a bit later in the presentation. Despite the decrease in EBIT, however, we grew recurring profit before tax and net profit, thanks to lower finance costs and income tax. And very importantly, despite the peak harvest and heavy cocoa buying season, we generated strong free cash flow and further deleveraged to 3.9x [ net ] debt over EBITDA. Let me get into some details now. Starting with the cocoa market. The cocoa bean prices have decreased very, very rapidly, falling by 53% in just 8 weeks in Jan and February and closing at GBP 2,057 at the end of February. And that's driven by good main crop arrivals in West Africa over the past few months, and favorable recent weather conditions that are supporting output for the mid crop. At the same level, the market is still seeing some demand softness. So global stocks have replenished to healthier levels. Overall, this means we expect a surplus this year for the second year in a row. Importantly, the structure of the cocoa futures markets has also improved significantly. We now have a carry structure meaning that the cost of buying spot cocoa today is cheaper than buying cocoa in the future. This means it is less costly for the industry to carry physical stocks and it's indicative for a more stable outlook. In the short term, given that this is demand-driven surplus, we expect bean prices to remain in the GBP 2,000 to GBP 3,000 range. That said, we continue to monitor the markets very closely as the demand recovers and thus we assess potential supplier risk linked to El Nino and potentially speculative volatility as we have seen in the past. Over the medium term, depending on supply and demand dynamics, we believe prices could move back into the GBP 3,000 to GBP 5,000 range. Lower cocoa bean prices are certainly positive for the future recovery of both the cocoa and the chocolate markets. We're seeing indications of this through our forward bookings. As you know, we contract several months in advance for our customers and in recent months, we've seen a greater willingness to book further ahead again. At the end of February, our futures booking portfolio was much, much higher than at the same time last year when cocoa bean prices were spiking. At the same time, our customers have priced through to their end consumer. As a result, consumer pricing and the rate of end consumer volume declines have started to stabilize. In the most recent quarter, Nielsen global chocolate/confectionery volumes decreased by 6.3% with plus 13.7% pricing. And importantly, we're now seeing our customers gradually shift their focus back to its category investments to stimulate growth. And I'll just quote a few examples. In North America, Ferrero launched their Go All In promotion from April 1 backed by a $100 million investment. It marks their first portfolio-wide campaign and largest marketing commitment in the company's history. Another example is Hershey is boosting media investments by double digit this year with the new quarter 1 media campaigns on Reese's and Hershey, the first launches of this nature. We're also seeing increased interest in innovation from our customers. In half year 1, we saw a significant increase in number of projects in Western Europe for ChoViva, our non-cocoa chocolate offering as well as a growing traction on Vitalcoa, our high flavanol solution, especially in AMEA. Beyond these benefits, the magnitude and the pace of the decline in the cocoa bean prices, as mentioned, just now more than 50% down in the last 8 weeks, helps, of course, the demand and the cash front but has also created some challenges on the short term as well and mainly on profitability. And there's 5 key impacts I just would like to highlight. First, in the past few months, we've seen very favorable margin environment for cocoa. In half year 1, this helped to offset some headwinds we saw in chocolate. Looking ahead, we expect this cocoa margin tailwind to normalize in the second half as market conditions have become less favorable. Second, as we just saw from the Nielsen data, demand has been down for some time. And given the high prices that have been put into the market in the past, this has resulted in some industry overcapacity, which is intensifying competition with more aggressive pricing and commercial actions. In this competitive environment, we've seen a temporary margin effect in Gourmet. The Gourmet business typically works with a 3 to 6 month price list where forecasted sales are covered and then a price list is determined. Given the unique speed now we've seen of the cocoa bean price decreases in half year 1, the result was a long position in a declining market, creating a high price list with not all players following the same approach. And this impacted our volume and profitability through the need for some short-term commercial investments. Also, next to that, there's a more technical effect related to the shift between EBIT and profit before tax due to lowering financing costs. The opposite, if you want, of what we've seen last year. This is a reversal of the finance cost pass-through, again, as we saw last year, and we now have lower finance costs as the bean prices come down. And it also means then a lower pass-through at the EBIT level. But it is -- importantly, it is neutral at the profit before tax level. Finally, there's also a BC-specific headwind in supply disruption. We had operational incidents in North America in the St. Hya factory, resulting in some volume losses and higher operating costs. Before we move to the half year 1 figures specifically, I'd like to spend also a moment to highlight potential implications from the Middle East situation. As many, many industries, the primary impact for us is on the supply chain side. It includes shipping disruptions, increased transit times resulting from port closures or limited container availability and of course, as we all know, there's a sharp increase in energy prices. In some markets, fuel rationing has been introduced combined with higher freight and insurance costs and all of that is adding complexity and costs across our supply chain. Next to the supply side, we've also seen some regional demand effects. Within AMEA, the Middle East and North Africa cluster represents about 10% of the volume there. This cluster has a specific high gourmet exposure and is experiencing therefore, disruption to imported premium products. Clearly, HoReCa food service segments are negatively impacted by the tourism levels in those areas as well as the closure of the schools, offices, rules on working from home and so on. Beyond directly in the Middle East and North Africa, we also see an indirect impact in India, where we have an important business where LNG imports are disrupted and constraining the energy availability for food manufacturers, commercial kitchens has been impacting their operations and, therefore, also ours. Overall, this obviously remains a highly dynamic and uncertain situation that we are monitoring, obviously, as per the latest developments every day. Now let me get into the numbers in a bit more detail, starting with volume. Overall, the group saw a sequential volume improvement in the second quarter to minus 3.6%, meaning we landed the first half with a decrease of 6.9%. Looking to the left of the chart by segment, Food Manufacturers continue to be impacted by negative market dynamics with our customers adapting behaviors in the context of high prices and lower demand. And there was the supply disruption in North America that impacted this segment for us. Gourmet, while more resilient, our competitiveness was temporarily pressured by the high price list in a sharply declining bean price environment, as I just explained. Also -- and also here, there was some impact of the St. Hya closure we saw in the first quarter. Global Cocoa declined as a result, mainly of a negative market demand, especially in AMEA and secondly, also due to our choice to prioritize higher profitability segments, which did have its impact on volumes in certain areas. This business, the cocoa business saw early signs of market improvement in the second quarter with a sequential volume improvement of minus 5.2%, so significantly better than in the first quarter. Now moving to the right-hand side of the chart, to global chocolate. Globally, we've seen chocolate volumes decline by 5.1%, which is ahead of the 6.5% decline of the market as reported by Nielsen. In Western Europe, we saw a 4.2% volume decline as demand continues to be impacted by market softness. Central and Eastern Europe declined for us by 3.6%. And way better than the market as our local accounts saw solid growth, especially in Turkey. North America decreased by 12.6% impacted by a strongly declining market as well, but as well as the network supply disruption we've seen from the temporary closure in St. Hya in the first quarter. Importantly, though, North America saw recent months improvements as the business is rebuilding inventories and meeting increasing customer orders. Latin America grew by 1.5%, well ahead of the market, driven by a strong momentum in Gourmet that we've seen multiple quarters in a row now. Finally, volumes in AMEA grew by a strong 8.5% and reached double-digit growth in the second quarter, driven by strong market share gains in China, momentum with key customers in India and additional business that we secured in Australia. Moving to EBIT now. Recurring EBIT decreased in local currencies by 4.2% to CHF 316 million (sic) [ CHF 310.9 million ]. The EBIT bridge on the page shows the respective moving parts. Cocoa, first of all, the green block on the chart saw strong profitability in half year 1, given a more favorable market environment -- margin environment, sorry, and market volatility where we're able to capture the volatility and increases of the prices and the decrease of the prices that we have seen. In half year 1, this has helped to offset some of the other headwinds that we're facing in chocolate. The impact of the half year 1 volume decrease was meaningful. This is clear when we look at our EBIT per tonne as well, which increased by 3%, whereas our EBIT in absolute declined by 4%. So the impact of volume was meaningful in the first half, and this is something that we'll see turning around in the second half. Next, there was an impact of the intense competitive environment and particularly within Gourmet. As I explained earlier, our high Gourmet price list and long position in the context of this very rapid decline of bean prices required temporary commercial investments. In addition, supply disruption resulted in higher operating costs to maintain service and deliver products to our customers. Finally, we also saw the shift between EBIT and profit before tax that I explained as a result of a lower financing cost year-on-year and therefore, a lower pass-through on the EBIT level. And this effect will get bigger in the second half of the year. While our recurring EBIT decreased, it's important to note, we were able to grow the absolute profit before tax and our net profit. And to be more precise. As you can see on the left-hand side of this chart, our recurring EBIT in local currencies was CHF 14 million lower than last year. This is the minus 4%. In the middle, our profit before tax increased by CHF 2 million or plus 1.3% as a result of a CHF 16 million decrease in financing costs in local currencies driven by our actions to reduce debt and, of course, in the lower bean price environment. To the right, our net profit increased even further by CHF 42 million or by 66%, given significantly lower income tax expense compared to what we saw last year. Recurring income tax expense decreased to CHF 29.6 million versus the CHF 69.4 million we saw in half year 1 last year. This corresponds to an effective tax rate of 21.4%, which mainly resulted from a more favorable mix of profit before taxes and much lower nontax effective losses in some of the countries. Free cash. Free cash flow delivered strongly in the half year at CHF 802 million across the 6 months despite the peak buying season that we're having always this time of year. Now when we look, as always, at the moving parts behind this cash generation, we saw -- and that's the dark black bar, we saw CHF 1.5 billion positive impact from the cocoa bean price this half year. Bean prices decreased significantly in half year 1, especially in the second quarter, as I mentioned. And this has benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model as Ivory Coast and Ghana have. There was a, next to that, a CHF 472 million negative impact on operational free cash flow, as you can see in the green bar. This has all got to do with the peak buying season. Half year 1 is always operationally like that with a negative cash out for the bean buying given the timing of the cocoa harvest. This was offset, however, partly by continued operational benefits from actions on the cash cycle reduction that we explained largely already in the previous communications. We continue to do so with our efforts to diversify our origin mix, reduce forward contracting and so on. As a result, actually, our inventory was now this time of year in February, 10% lower than February last year. So that also helped to generate the cash. up to this level. And finally, there was a CHF 183 million CapEx investments, as you can see in the yellow bar in the chart. Leverage. Leverage came down to -- strongly to 3.9x, and that's significantly below the 6.5x we saw in February last year and also well below the 4.5x we saw last August despite, again, the seasonality we always have in half year 1, with an important net debt reduction of CHF 2.5 billion, enabled by the strong cash flow that I've been talking about before. So leverage landed at 3.9x. But in fact, if you would exclude cocoa bean inventories from the net debt, and I'm talking only cocoa bean inventories, so not even correcting for cocoa products or chocolate stocks, our adjusted leverage RMI would be 2.7x. This progress mostly came from a lower inventory value given significantly lower bean prices, which is about 1.3x leverage in this decrease. But also through the actions to reduce our inventory volume, as I talked about, which made up about 0.6x in this reduction of leverage. In terms of gross debt reduction, we repaid EUR 263 million term loan in September '25, so a few months ago and EUR 191 million in February on the Schuldschein. We've also reduced significantly our commercial paper and bilateral facilities over this time. Obviously, all of this has been an important contributor to the lower net year-on-year finance costs that we've seen in the first half already. And we will certainly continue to focus strongly on the deleverage in half year 2. It remains a key priority. We want to end much lower than where we are even today. So with the further actions that we're defining on the cash cycle will bear further fruit going forward. This could be and this will be partly offset to some degree because of the safety stocks that we will be watching and potentially reinforcing a bit in a few key segments. Again, back to the support we need to have on the service levels following some disruptions that we have seen over the last months. So before I conclude the half year 1 section and staying on the financing. Earlier this week, we signed a EUR 2 billion sustainability-linked borrowing base facility. The borrowing base is linked to our underlying inventory asset base and represents an important step in the diversification of our funding sources. The facility strengthens our funding flexibility, particularly in periods of prolonged higher or lower bean price environments. It increases our agility and the agility of our capital structure and our ability to actively manage financing costs more in sync with cocoa price moves. Just to share a few additional details. The facility comprises of a EUR 1.6 billion of committed financing, complemented by an uncommitted tranche of EUR 400 million which is providing additional liquidity flexibility. So moving now to the outlook of the fiscal year. We've updated our guidance, reflecting our focus on volume and deleverage while taking short-term action to protect our market share and drive growth. We have, first, raised our expectations on volume. We now expect a decrease for the group between minus 1% to minus 3%. And this implies a return to positive growth overall in the second half. We've also raised our guidance on leverage. We now expect net debt over EBITDA below 3x using a working mean price assumption of GBP 3,000, so with the continued tight focus on this and further progress despite our updated profit assumptions. At the same time, we have lowered our outlook on EBIT. We now expect a mid-teens decrease on a recurring basis in local currencies. And this reflects short-term actions to protect market share and prioritize growth in the context of the rapidly declined cocoa bean prices. Important to note that a significant reduction in financing costs in half year 2 is an important factor in the reduced EBIT guidance. We expect to recover more than half of the absolute decrease in EBIT at the profit before tax level. Clearly, this outlook is subject to potential impact from the ongoing disruption in the Middle East that I commented on a little bit earlier. Now before I hand back to Hein, I want to take a moment to explain the half year 2 moving parts on EBIT. Our return to positive volume growth will be a clear tailwind for half year 2, of course. However, this will be offset by a number of factors. One is short-term actions in global chocolate. We are prioritizing restoring Gourmet share following this unique and temporary long position impact that I talked about. We're also taking some temporary customer-centric interventions to restore service levels, and Hein will talk about it a bit more later, but action is needed to stabilize supply after a number of incidents that we've seen. Customer centricity is our #1 focus going forward, and we're taking action to reclassify lines, increase spend on staffing, maintenance and quality. Second, as already discussed, cocoa profitability is expected to now normalize in half year 2 following an exceptional half year 1. Third, we are taking further actions to reduce finance costs. This means significantly lower year-on-year pass-through in finance cost at the EBIT level, while neutral on profit before tax. And finally, we have the uncertain and volatile situation in Middle East, which is bringing additional cost and supply chain disruption depending on how it will evolve further. Finally, the uncertain and volatile situation in the Middle East brings additional costs and supply chain disruption. And I will now hand over to Hein to share more on our Focus for Growth. Hein M. Schumacher: Thank you, Peter. Now let's talk about Focus for Growth. And this has been shaped, as I said before, by the insights and learnings from our growth accelerator coalition that I mentioned earlier. And at this stage, me being in the company now for 2 months plus, the plan is directional as we continue to refine and deepen our assessment of the actions as well as the opportunities ahead of us. And I'm looking forward to sharing the full detailed update with all of you in early June. And in the meantime, I wanted to be transparent and therefore, share the direction that we are heading in. Now before we go into details, let me start with why focus is so critical for Barry Callebaut. Because what really struck me when I started engaging with the team on our business portfolio is actually how concentrated we are. As you can see here on the chart, a few examples. So if we look at our top 7, top 7 markets represent 56% of our total volume. And of course, if you would extend that to 10 markets, the concentration increases even further. Similarly, with customers, our top 7 global customers are approximately 1/3 of our volume. In our Gourmet branded business, our top 7 brands or top 7 propositions generate 85% of our volume. And on the sourcing side, 90% of our cocoa is sourced from our 7 origin countries. And finally, although we operate around 30 specialty categories around the world, the top 7 represent approximately 90% of the growth opportunities that we see today. So as we focus on stabilizing the fundamentals, which we talked about and focusing our resources behind reduced priorities, getting these top 7 really right already moves the needle meaningfully. And this is why focus sits at the heart of our growth agenda for the future. Now turning to our Focus for Growth action plan. We do see that compelling need to increase focus across 3 areas. First one is commercially. So concentrating on a defined set of distinct growth opportunities and prioritizing key markets and segments where we see the greatest potential. Second, operationally by restoring fundamentals. I talked about that, and particularly in the areas that matter most for our customers in terms of reliability, quality and service. Customer centricity is absolutely vital. Third is organizationally by prioritizing a reduced number of the most impactful initiatives and restoring that customer-centric winning culture and by driving focus, restoring fundamentals and putting the customer firmly at the center of what we do, our objective is to reinvigorate the company and return to sustained profitable growth, and market share gains and, therefore, unlock strong financial performance going forward. Now let me share some details on each. I'm starting with commercial focus. And we are defining a clear and distinct set of growth opportunities where we will intentionally concentrate our resources and our attention. And this starts with markets. And as we discussed earlier, our top markets truly move the needle, not only in terms of volume but also in profitability. Let me start with the U.S., our largest market, representing approximately 17% of our revenue and ensuring the right level of focus and execution in such markets is critical to deliver growth. But also other markets stand out with clear growth potential, for example, Brazil, where we have a meaningful presence, Indonesia, India, Peter talked about that, and China, where we're experiencing strong growth right now. And it is therefore clear that our resources need to over proportionately support these priority markets, a distinct set. And importantly, this focus must be actionable, value-added defining a set of focus markets within AMEA rather than spreading our attention across that vast region thinly. The same logic applies with Gourmet & Specialties, where we need to concentrate on the right segments and opportunities, and I will come back to that in some detail in the next chart. In cocoa, in itself, we see clear opportunities to unlock growth by increasing our focus on high value-added powders, whilst ensuring that we have the right growth capacity, of course, in place. So across all of these areas, a key enabler will be strong innovation platforms. Not many, but a few strong platforms that will allow us to lead in the market and that we can leverage across the portfolio to drive growth, greater level of differentiation versus our competitors and of course, to support our customers around the world. Now let me talk about Gourmet, such an important segment for our profitable growth, and we are reintroducing here a clear brand hierarchy and customer propositions. Callebaut, Masters of Taste, that will continue to be our group commercial identity. And then we have a clear brand tiering after that to serve the different customer needs with a greater impact. And as you can see here on the top of the pyramid, we anchor the portfolio around our super premium global brands, led by the Callebaut Signature Collection and Cacao Barry. Now Callebaut brings over a century of Belgian craftsmanship and unrivaled bean to bar expertise and Cacao Barry brings 2 centuries of Cocoa Origins mastery and French pastry heritage, important brands on top of the pyramid at a higher price level, strong quality focus. Now beneath that, our core Gourmet portfolio is firmly positioned in that premium segment with the Callebaut core section. And here, the focus is on delivering consistent quality, reliability and strong performance for professional customers in their day-to-day operations. Complementing these, we continue to develop strong regional propositions. Typically, one per region, such as Sicao, Chocovic or Van Houten in Asia, for example, ensuring that local relevance. And across all these tiers, our brands are supported by end-to-end services from the chocolate academies that we have around the world to innovation and technical expertise. These help our customers to succeed. And the objective is simple and clear, a more focused Gourmet portfolio with clearly differentiated propositions and price tiers that enable to serve our customers better, and it will allow us to allocate resources more effectively and drive the profitable growth in this important segment. Now let's turn to specialties. Our plan here is to be a bit more selective, focused on a defined number of margin-accretive specialty categories that we believe we can integrate in the company, and the core of the company and by doing that, scale them first regionally and then globally. And while the final list is currently being defined, we already see clear and compelling opportunities in a number of areas, such as filled and baked inclusions, which you find in products like ice cream, where we have a very strong presence in that segment. But also both chocolate decorations, including toppings for bakery applications and fillings and coatings, for example, solutions with reduced sugar functionality. And once this prioritization is finalized, the intent is to bring these selected specialties much closer to the core on the regional responsibility including, therefore, a tighter system integration. At this moment, they're not that fully integrated in our operating system. And that means we will invest behind them to ensure there is sufficient growth capacity, clear ownership, P&L ownership within the region and stronger category management. And we believe that this more focused approach will allow us to scale what really works. It will simplify the specialty portfolio, and it will concentrate resources where we see the strongest combination of growth, margin expansion and, of course, customer relevance. Now moving to operational focus, where the clear goal is to restore some of the fundamentals. And Peter talked about the disruptions. Our #1 priority is to restore service levels and on-time in full performance that we are now measuring consistently every day, every week, every month. I'm absolutely determined to get us there and to improve on that particular KPI. And as I mentioned earlier, a combination of transformation complexity, industry disruption that we've had and many operational incidents, this has taken our focus a bit away from the basics. And as a result, service levels have been below industry standards. Now that's something that I'm keen to turn around for the company. We have to get this right. Now beyond service, we also need to ensure that our network, our factory network is fit for purpose, both for the portfolio that we operate today, but also where our customers will go tomorrow. And at the factory level, we see currently mismatches between line utilization, so specific line utilization and the overall capacity available in our network. So in the short term, that means we will make targeted and tactical adjustments to unlock available capacity. On the midterm and the long term, we will invest selectively behind those growth capacities that I talked about -- we talked about the focus areas, for example, ensuring that we deploy there for our capital towards the right opportunities. And finally, restoring the fundamentals also means strengthening the core processes and enablers of the organization, very much the intention of Next Level, and we will build on that. We do need better data visibility, more effective end-to-end decision-making on a number of processes. And therefore, the priority for us is to focus on the core process as the company first, get them really right, such as the overall demand and supply planning processes, customer service processes and, of course, the quality and the usability of our data. We made strong progress, but now we need to finish it behind those few big priorities. Going into more detail, there are a few areas where we need to focus operationally. So North America, as I said already, this region contains our largest market in the U.S., and we need to get it right. And as Peter has described, we've seen broad supply disruption across the network, and that resulted in longer lead times for our customers and capacity constraints in several high-demand product categories. Network investments under Next Level were there, but some of them were postponed given the macro backdrop. Now there's an immediate need to stabilize the network and rapidly improve service levels, focusing over the coming months on increasing staffing and adapting shift patterns at relevant sites as well as targeted initiatives to stabilize critical facilities, particularly across maintenance, quality, infrastructure and planning processes. In parallel, we are reclassifying and redeploying existing product lines across the network to better utilize the available overall capacity. We are developing a midterm plan to future-proof the network in order to sustainably support future growth. On emerging markets, here, our focus will be on a select number of key growth markets, large markets, though, but where we have a meaningful presence already and where we intend to invest to support evolving customer needs. Think of countries like Indonesia and Brazil. On this, we will update you in much more detail in June. Service and OTIF, on time in full, we are taking targeted actions not only in North America but also in Europe to immediately improve reliability and to step up our safety stocks in selected categories. Peter talked about that. This will stabilize our key business processes and in turn, it will improve customer service in the months to come. And then finally, core processes. I talked about digital efforts before. We need to focus our digital efforts and investments behind those core processes, such as planning as well as customer service, driving better data visibility and transparency, and this will, therefore, strengthen these processes and, therefore, increase service levels for our customers. Now turning finally to organizational focus. Our objective is to reestablish that winning culture with customers at the heart of everything that we do, while refocusing the organization, as I said, on a set of impactful initiatives that truly matter. And a key priority here is to increase the empowerment and accountability of our commercial regions because these regions are the closest to our customers and our markets, and they should clearly drive what needs to be done to win locally. And of course, supported by global functions. They provide the how. They provide the scale, the expertise and the consistency behind those core processes that I talked about. By doing that, we need to be, therefore, more disciplined on prioritization because the organization, as I said, has been overloaded by a significant number of initiatives during a time of also intense industry disruption. And that, in itself, dilutes the focus and the execution capacity. So by intentionally reducing the number of priorities on the table, we will free up time, energy and resources. And this will allow us to focus on what truly matters. That's what we're going to do in the next couple of months. Before closing, let me briefly highlight some of the initial steps that we have already taken as we start to put the Focus for Growth strategy into action. We've reduced the executive leadership team. I had a team of 20, we've reduced it to 12 members. This creates a smaller, more agile and more importantly, a more commercially focused leadership team in the company, which will enhance the speed of decision-making that we need. We also removed the global transformation office related to Next Level, and we significantly reduced our consultancy spend for the months to come. And this reflects a shift away from a separate transformation office towards a more integrated business ownership and execution. And as such, we have fully integrated the remaining Next Level initiatives into our global functions as well as into our regions. And that has stopped a stand-alone program tracking savings, for example, and therefore, we're now much more focused on the bottom line delivery and therefore, the net impact of these changes. We've also strengthened our global customer account alignment, and the global 7 accounts that I've talked about before are now reporting directly to me. And this is designed to reinforce regional execution actually, but also to accelerate the deployment of global innovation where it matters most for our customers. Now these are early but important steps. Obviously, there's more to come, but the momentum in the company has started. So that concludes my preview of Focus for Growth and we're not reinventing our strategy, as you've seen. What is different is the level of focus, the level of energy and depth supported by clear choices and strong resource prioritization. So to summarize, our priorities are clear: drive focus and discipline and put the customer back at the center of everything that we do. And I'm confident that our unparalleled industry leadership that we have and our truly unique business model will provide that strong foundation to sharpen that customer focus and return to profitable growth. I'm looking forward to coming back to you in early June with a more detailed plan and to share our financial ambitions in parallel. And in the meantime, this concludes today's results presentation, and we are delighted to now take your questions. And with that, I will hand over to the operator to open the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Sloane from Barclays. Alexander Sloane: I'll have 2, please. I guess, overall, you previously guided to double-digit PBT growth in fiscal '26 based on today's guidance. Is it fair to assume you're now expecting PBT in constant FX to decline at sort of mid-single-digit rate for this year? And I guess if that's the case, within that potential 15%-plus downgrade, how much do you see as '26 specific or transitional versus perhaps more structural and put another way, how much of that do you think investors should reasonably expect to sort of bounce back in fiscal '27 would be the first one. And I guess the second one, somewhat related, but in terms of the commercial investments that you've talked about to restore competitiveness in Gourmet, can I just say, does this purely relate to price gaps or -- in Gourmet? Are you also potentially suffering from some of the service level issues highlighted at the beginning of the presentation? Hein M. Schumacher: Thank you, Alex. For the first question on the -- on PBT and this year's guidance, I'll let Peter answer. I'll come back to some of the points on structural as well as take your second question on Gourmet. So Peter, first on PBT. Peter Vanneste: Yes. So Alex, thanks for the question. We will have a significant reduction of finance costs over the year, up to CHF 60 million, so CHF 50 million to CHF 60 million versus last year, which means that a very significant part of the gap that we see on EBIT will be offset towards the PBT level. So profit before tax will be down for the fiscal year, but to a lesser extent than EBIT because of that recovery on the finance cost. Hein M. Schumacher: And Alex, I think a few remarks on the structural nature of the guidance for this year. Look, there are a few things that I would call pretty temporary. These are, for example, the gourmet positions that you talked about. The other one is supply disruptions that we have seen as well as the volume declines that we've seen in the first half. I expect those to -- over time, of course, to come back. Some of that will go faster than others. But more structurally, and Peter talked about that, our finance cost with a lower bean price, overall, the finance cost are not as high as in the EBIT definition, but they will come back and they will be neutralized on a PBT and on a net profit level. So some aspects are structural and some are temporary, but I wouldn't call it overall a rebasing of the company. I think your second question on Gourmet. Yes. So we had long positions out there and -- in Gourmet, which is partially a price listed business. We are seeking to retain market share. Obviously, we're going to drive volume. I think that's super important for us. We have, of course, fixed cost, but also we want to retain our customers after having had some years of disruption. So we're very keen to put the customer right -- front and center for everything that we do. So that's something that we're investing in. But if you look at Gourmet, yes, there have been disruptions also for Gourmet. Some of that in the North American part, but some of that in Europe, obviously, from somewhat longer time ago, but we're still sort of rebuilding capacity, and we're still rebuilding customer service. So this is something that we're now going to do on an accelerated pace. All the key factories are under hypercare. We've added some resources to make sure that we can deliver. We're also pushing some tactical investments through the sites because the customers have evolved their portfolio needs. We were a bit behind. We're stepping that -- we're really stepping that up and going fast after that. And therefore, I'm quite confident that in the second half of the year, overall, as a company, we are going to return to growth, and that will then sequentially improve the volume picture by quarter including Gourmet, which of course, is an important profit segment for us. Next question, please. Operator: Our next question comes from Jörn Iffert from UBS. Joern Iffert: The first one would be, please, on the reinvestment needs to restore customer service levels. For how long do you think it will last that this is more pronounced? And do you think despite these reinvestments, there could be operating leverage benefits for EBIT in fiscal year '27? So just to get a feeling for the time line here? And the second question, please, a technical one. Into the core segment, I assume it is, in particular, the spread, not the combined ratio, which was beneficial in the first half, I mean, what do you expect as a more normalized profitability on the current cocoa bean versus butter and powder spread going forward from here? Hein M. Schumacher: Thanks, Jörn. I'll take the first question. Peter, you can take -- if you would take the second one, that will be good. On the -- yes, on the investments, look, as I said, there's a few different types of investment here. And so the first one as I said, it's around evolved customer needs of what they need in their portfolio. And I think whilst we have an overall capacity that is sort of sufficient given, of course, the volume reductions that we have and the existing capacity that we had, on a line basis, the capacity wasn't always keeping pace with the changes of what customers really wanted. And therefore, we're doing a number of tactical investments predominantly in North America to keep pace and to satisfy the evolving customer needs. Some of that is in compound production. Some of that is in inclusion, for example, we need to step it up there. And so that's part number one. And that's partially CapEx. But of course, with all -- with quite a number of changes that we're doing and these are happening literally to date, that was in North America in the last couple of days and witnessing firsthand of what we're doing to step up that customer service and change portfolio. So that's number one. And that, of course, comes with some extra cost. The second one, given the disruptions that we had, we absolutely want to make sure that food quality and food safety is paramount. So yes, we are investing a bit extra also in manual operations to secure that. We've had incidents over the last couple of years. We simply cannot repeat that. The reputation of the company is essentially what safeguards the value of the company. So I'm very, very keen to focus on that as well. And then thirdly, as I talked about, investments when it comes to the long positions that we -- and we already mentioned that a few times, the long positions that we've had on cocoa and the impact on price listed business. So we're making here the right trade-offs, but we want to stick with our customers and we prioritize volume and we prioritize market share now and that's the third area of investment that we're making. Yes, I mean those are the main ones. But clearly, again, customer centricity and stepping up our efforts to evolve our capacity to that -- to the exact needs of the customer, that for me is really a priority now. And that's pretty short term. But I think in the midterm, that means that we will -- we need to continue to evolve our network, our supply chain through changing needs. And I think we can do that. And obviously, more to come on that in June. Peter? Peter Vanneste: Thanks for your question on cocoa. We've seen a strong EBIT growth on cocoa in the half year 1 year-on-year in local currencies. And very much linked to the fact that we're able to profit in cocoa and benefit from a more favorable margin environment and also the market volatility considering the speed of the market movements we've seen some time ago already with higher butter, higher powder prices, and we were able to capture that. We expect this to normalize in half year 2 going forward because the butter ratios have continued to drop in line with the terminal market evolution. Butter is now below powder and trading at a discount actually to CBE, which means that some of those benefits that we've seen linked to that volatility and the whole market that we captured in half year 1 and to some extent, a bit as well in half year 2 last year is at least, for the short term, not coming back. And then, of course, we'll see how the market evolves further to be more specific about that. Operator: Our next question comes from Ed Hockin from JPMorgan. Edward Hockin: Thank you, Hein, for your preview on your Focus for Growth strategy that I look forward to learning more in June. But on the Focus for Growth strategy, what I wanted to clarify a little bit following on from the last question, is on some of these initiatives you've outlined on capacity investments on focus and scaling of innovations, whether these are a refocus of existing resource or whether these are incremental investments? And within that, how we're thinking about the cash flow? Should we be, therefore, presuming that CapEx is higher for longer? And of your higher safety stocks in H2 that you mentioned, should we also expect that this is something longer lasting. So will you be holding inventory levels as a norm going forward? Or is this specifically an H2 comment? And then my second question, please, is on your volumes outlook for H2 and the return to volume growth. The industry, as you noted, is currently tracking minus 6.5% volumes. So to return to volume growth in the second half of the year, can you try and help me to bridge that? Is it that the industry volumes, you should expect some improvement in the second half of the year? And how significant contribution should the actions you're taking in gourmet have? Is it some reversal of shrink inflations or some reversal of the temporary in-sourcing that you've seen in previous years. Just if you could help me bridge that gap between the current industry volumes and improved picture for your volumes in the second half? Hein M. Schumacher: Thank you, Ed. And let me take first go at it, and Peter, please add where you see fit. So I mean, first of all, this is not about incremental resources. I talked very much in focus for growth around galvanizing and rallying our people, and that is people's component, but also indeed capital expenditure as well as cost behind less initiatives. We're choosing essentially 6 to 8 initiatives in the company right now to focus our resources on. We've been looking at many, many process improvements as a company over the last couple of years, ranging from HR processes to supply chain processes to essentially covering absolutely everything. What I'm really keen now is to focus our resources behind those processes that touch the customer first, and that is planning, so demand planning, supply planning, and making sure that we link up with our customer seamlessly and that we optimize our planning processes. So that means also digital efforts behind that. So that's the number one. Number two, customer service. Over the last year, customer service has been pretty much standardized and, in some cases, has been moved from a decentralized model to a more centralized global shared services model for customer service. That was a decision taken. It didn't always go well. So we absolutely have to nail it now and be there for the customer and make sure that, that customer service process runs extraordinarily well. So this is not about incrementalism. No, it's about everything that we were doing under the Next Level program, it's to choose those things that are meaningful and impactful and putting our people behind those. So that's very much the mantra. Not an extra. We're not going to expand on that. When it comes to capital expenditure, also for this year, we're not increasing the guidance. We have redirected some of the capital expenditure spend through the tactical investments that I talked about. And on the medium term, whether that's going to lead to a higher level, I'm going to come back to in June. However, we are very, very committed to deleveraging the company, as Peter has talked about. So that will remain an important priority. We will live within our means, but at the same time, I want to make sure that we spend the CapEx behind tangible, thought through, thorough growth initiatives, in a select number of markets, in our most meaningful segments. Gourmet, I talked to a few specialty categories, for example, and then, of course, in customer processes related to our Food Manufacturing segment. So more focused, clear and not incremental. So that, I think, hopefully answers your first question. When it comes to the volume picture in the second half, a few comments. Obviously, with lower bean prices, what we're seeing is that customers ordering for longer, that's clear, and that's helping the volume picture for us. We also see that customers, and we said that in the presentation, customers themselves are going for growth. And we've seen a number of initiatives from Hershey's, for example. We've seen initiatives from Nestle. And I think that's really important. We are seeing an enhanced growth picture in some of our key markets. In ice cream, for example, in North America, we're seeing overall an increased demand picture. And again, I think the lower bean prices helped. At the same time, and I think this is very important for us, when I talk about our efforts to restore growth, we believe that, in the very recent months, we are growing a bit ahead of the market with a reinvigorated focus on growth. And if we keep the pace, we make those necessary investments, we restore our processes and our credibility and stability, I'm actually very convinced that we will continue to do that in the very near future. So that's going to help us. So with less disruptions, we should see some growth. There's one important caveat, and that's, of course, the situation in the Middle East. At this moment, I mean, that's the latest one this morning. We believe that in the next week or so, business activity in the Middle East will resume somewhat, but obviously, it's very, very volatile. So that's something that we need to manage. So that's more on a high-level basis. I don't know, Peter, if you want to make some further comment on what we have been doing? Peter Vanneste: I'm risking to repeat a lot of what you said. So no. Hein M. Schumacher: Okay. Operator: Our next question comes from Jon Cox from Kepler Cheuvreux. Jon Cox: I have 2 questions really. One, just on what's happened in the last couple of years and what you're doing now to sort of maybe unwind some of that, maybe it went too far. I think under the first program, you laid off about 20% of your workforce and did a couple of factory closures and that sort of stuff. Just wondering, should we assume that maybe you're going to unwind the staff by about 10%, so maybe going back a little bit, or halfway from what you've done? As an add on that, do you think there's anything more needs to be done in terms of the factory network? Or is it more, as you mentioned, it's all about quality issues and maybe some lines are not working as well as you want to? So that's the first question. The second question, more on the top line outlook. I'm quite surprised that we're not really seeing volumes recover given the fact that cocoa prices have declined. I know there's a lag and so on and so on. But in terms of -- I'd imagine the whole industry is short chocolate in various places. Are you worried that maybe structurally, the chocolate market has changed in the last few years, maybe with GLP-1s and we see various data points suggesting that maybe chocolate demand volume growth won't come back to that on average 1% or 2% we've seen historically, maybe it's going to be closer to flat going forward. Any thoughts on that sort of long-term chocolate market outlook? Hein M. Schumacher: Thanks, Jon. I mean, first of all, on the Next Level program, as I said, in the plan on the Focus for Growth plan, look, I think that the Next Level program, again, the intentions to standardize more in the company, to reduce our cost by progressing our network into fewer, bigger sites into doing more with digital, intentionally definitely the right program. But what I'm saying is, therefore, we will build on that. And I have no intention to unwind necessarily what was going on. But I feel that efforts in the company were quite diluted. We have lost a lot of people. We have had quite some incidents and disruptions, and we have let customers down and customer service. So hey, I'm just very keen now to restore that confidence, go back behind a number of core priorities. So that means that we're not going to unwind, but we're going to phase and pace it. We'll go deeper, we're going to finish a number of initiatives, and we're going to do it well, but always with the customer in mind. So yes, we will continue to evolve our network, and that may end up in less factories. But before you close a factory, you need to make absolutely sure that the volumes that you provide to a customer from that factory are then, of course, transferred to another place, and you can help the customer to succeed. So I'm very keen to progress, but again, in a thoughtful manner. There's no point in adding necessarily resources. As I said, we are making some selective investments now in the supply chain, particularly in North America as well as in quality assurance. But overall, I do not foresee that we're sort of adding cost on a structural basis. That is definitely not the intention. And I don't want to talk about unwinding. I want to talk about focus, and I want to talk about fewer, bigger and better. with a strong focus on operations discipline and customer centricity. I think when you talk about volumes, actually, we are pointing towards a volume recovery in the second half. So of course, progressively, quarter 2 was a little bit better than quarter 1, in terms of volume, still negative. But going forward, as you sort of follow the algorithm, we're guiding to minus 1% to minus 3%. And that means mathematically that we're going to have to see a positive territory in half 2. Now where does that come from? And I talked about that lower bean prices? Yes, from our end, a better competitive position, strong focus and of course, with the caveat that I already talked about in the Middle East. But overall, we are actually seeing good signs of restored volumes. So in that sense, certainly on the midterm, we're looking more positively. On GLP-1, I think yes, I mean, several of our customers have also talked about that. And I just wanted to highlight that quality chocolate, the more premium style chocolate, we believe that's actually benefiting in some cases. We're seeing that also in interest for our Gourmet products. So I think, yes, look, there will be some impact, but at this point, it will not be significant for the company. Peter Vanneste: And maybe just to add, there's some reassurance, of course, from the past on the market rebounding. I mean the market pricing has been significant, of course, this time, but also a few years ago on the back of COVID, there was a 20% pricing up in the market, and you could see the chocolate category bounce up well after that. And maybe last, as you said yourself, I mean, there is this lag, right? We had ourselves for the first time now a quarter in Q2 where our pricing was negative year-on-year. So we had our peak pricing, plus 70% a year ago. We had still plus 25% pricing from us to our customers in quarter 1. Quarter 2 was the first quarter where it started to come down. So there is this lag that the market needs to cycle through before it starts hitting the consumer. Hein M. Schumacher: I think, Peter, there's also -- and I think that on your question or the question before, I want to come back on one point, which are inventory levels. We've obviously seen inventories coming down, and that's partially bean price, but also operationally, our inventories are showing a healthy development. What I do believe towards year-end, again, tactically and particularly on what I call the runners in our portfolio, Gourmet products that are pretty standard, we are increasing the inventory levels somewhat to make sure that we have a very positive start into the new year. I believe by the end of last year, the inventory levels were very, very low, and it hampered us a bit in satisfying customer needs. And again, with the positive signs that we are seeing in the market, we believe there is room, again, tactically and in a few areas to increase the safety stocks a bit to safeguard service. Again, a major priority for us going forward. Operator: Our next question comes from David Roux from Morgan Stanley. David Roux: I just want to come back to Alex's question on the guidance. Can you perhaps quantify how much of the cut in the PBT guidance was attributed to the investments in Gourmet, Middle East conflict and then other factors? And then my second question is on Global Chocolate. On the Food Manufacturer client cohort specifically, do you see any need or any risk here that you need to invest in pricing here? I appreciate there's a mechanical cost-plus model with this cohort of customer. But I mean, how robust are these agreements? And then just my follow-up question on Global Chocolate is, where do you see manufacturer inventory levels at the moment? Hein M. Schumacher: Peter, you take the first. I'll come back on the Food Manufacturing. Peter Vanneste: Yes. So David, the first question on the moving parts on EBIT and then PBT overall versus the guidance that we now put into the market. Overall, as we said, still for the full year, there's a positive on cocoa considering the high and the strong benefit that we took on volatility and the increases of the market in the past, normalizing half year 2, as I mentioned. Now if we look at then where the delta comes from in terms of the negative impact, you could basically argue that about 70% or 2/3 is triggered by this very rapidly declining bean price, which had an impact on, first of all, our financing costs, that pass-through had reversed basically on the EBIT line. Secondly, the impact that we've seen on Gourmet, where our long position and high price list forced us to do some commercial investments to secure the volumes that we have. So 2/3 is really coming from that rapid decline of the bean price. The remaining part, basically, there's 2 components. One is volume that over the year will still be slightly negative. And secondly, some of the increased costs that we are taking to manage through the supply disruption, making sure that we can deliver our customers despite some of those disruptions that we've seen. So this is basically the different blocks that you should be considering within our guidance. Hein M. Schumacher: When it comes to the Food Manufacturing segment, you're right. I mean, most of our contracts, they follow the price of cocoa. So I'm not overly -- from everything that I'm seeing margin-wise and so forth, I don't see major volatility in that. I feel pretty confident about the segment going into the second half. And we will move with customers and of course, based on the contracts that we have. So when I talked about the major impact from the long position, that is more related to price-listed businesses. When it comes to global stock levels, as I said, I think there are some -- we see customers buying a bit longer. I can't comment on exact stock levels. I'm not long enough here to give a really educated answer on that. But it's a fact that at this point, with the current bean prices, there is room for some increases globally. That's all I can say at the moment, unless, Peter, you would have further comments? Operator: Our next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the capacity expansion that you're putting into North America and your comments to the earlier question around longer-term demand. I mean, if you're investing into compounds, which is the majority, I believe, of your Food Manufacturing business, are you not just signaling that there is a permanent reduction in cocoa demand even if it's not chocolate demand and that's coming from compound growth rather than cocoa content, if you like? And then just on Gourmet, where would your gross profit per unit be standing versus 12 months ago? And are you saying that you're going to be cutting that even more? Because if you do have this shift towards more compounds and we're in a sort of excess capacity, I suppose, are we not just going to see a rebasing of Gourmet pricing? And indeed, is it still going down? Hein M. Schumacher: Thanks, Tom. I mean, first of all, in investing in North America, as I said, I think the network overall probably didn't keep sort of the pace with evolving customer needs. So I think it's more that we were a bit behind. And we are very, very keen to fill in some of the blanks. We have very good relationships with many customers. Obviously, in North America, we are the market leader. But I want to make sure that for particular needs, and indeed, there could be compound production, that they don't go to alternative suppliers. So what we're doing is we fill in tactical needs, and I believe that, that will strengthen our position with customers significantly. At this point, with the bean price where it is now, we don't see compound necessarily growing faster than chocolate. We're seeing some movements that chocolate is actually back, and we're seeing some customers going back to chocolate. And again, with the current bean price, I believe that is overall probably even beneficial for them. We're sort of at that inflection point. So no, I don't think that compound will continue to always gain. I think what is more important for companies like us is that we're agile and that we can fill in the blanks of the portfolio that customers need. And they will have a need for compound for particular parts of what -- in their portfolio, and they have a need for chocolate. And of course, there is the volatility of the bean price. So I think what is important for us, given our role in the industry, is that we are agile, that we have the ability to supply what is needed. And that is exactly what we're going to do in North America with a number of shorter-term investments. So that's, I would say, for the next 4 to 5 months or so. I want to come back in June, as I said, with a more midterm picture for North America as well as coping with growth in a select number of large emerging markets, and I'm talking mainly Brazil, Indonesia, for example. India, we have ample capacity that can continue to grow. I mean we've done that double digit, and I feel that going to happen, that's going to go -- that will happen going forward. But I want to choose a few of the bigger markets where we have an emerging presence where I think we can succeed, but where we have some bottlenecks that we need to resolve. So I hope that answers the first question on investments. On Gourmet profit, I wasn't exactly sure on the precise question. But I would say there's no rebasing on profitability as such. As I said, there were long positions out there, and then you need to determine what you do, what is your priority. And we feel that retaining customers is driving growth, whilst at some point these positions will unwind and we will be returning to normalized profitability on Gourmet. That's at least what I'm seeing going forward. But in the meantime, we want to make sure that we keep the customer connection that we can compete in our geographies. And that's what we're doing. Peter Vanneste: And maybe just one addition because I think I might have understood in your message that for compound production, we need an entirely new setup of factories, which is not the case, right? We can produce from our existing factories. There's a few interventions you need to do in terms of tanks. But overall, I mean, we can convert our lines. So it's not that if any move happens to compound, that is an entirely new network that we need. Operator: Our next question comes from Antoine Prevot from Bank of America. Antoine Prevot: I have 2 questions, please. First, on coatings. So within Global Chocolate, I mean, could you quantify the volume growth of coating versus true chocolates and especially considering that now CBE is more expensive than cocoa butter, are you seeing maybe some pressure there overall, especially as a pretty big buffer on volume for the past couple of years? And second, on Gourmet, so could you quantify a bit how much of your chocolate profit comes from the Gourmet side? I mean, it's about 20% of your volume, but I would suspect it's much higher on the profit. And considering the reinvestments and like the price change you're doing into like H2, how quickly do you expect a situation to improve there on volume? Hein M. Schumacher: Thank you, Antoine. So I think Peter takes the second question on the composition of the profit, if I got it right. I think on your first question, overall on compounds, by the way, we call it cacao coatings, we saw flat growth in the first half, but with a double-digit growth for particular super compound products. Don't forget that I'm talking about investments in compounds. And yes, we need to follow the customer, but we are the leader actually globally in cacao coatings. And we have quite a few R&D projects with many of our customers on the way to continue to compete in that well. So if I sort of take a step back, as a company, what we are offering, we're offering the chocolate solution, we're offering the cacao coatings, but also non-cocoa solutions. And in that sense, we are partnering with Planet A Foods. We're working on what we call ChoViva, which is a non-cocoa product, which also has its own cost structure, and we will continue to invest in those type of alternatives. So we're very keen to provide the whole portfolio. Now again, flat growth in the first half with particular double-digit growth in a subsegment what we call super compound products. Peter Vanneste: Yes. And on Gourmet, Antoine, yes, it's about 20% of our volumes and it's over-proportional in terms of our profit split. We're not really disclosing a lot of details on it. But as you mentioned, it's a lot more accretive than the FM business. Volume-wise, 20%, despite the challenges, it's still performing relatively better than the FM business as we speak. And also in H2, I mean, we will invest, as we said, some of that long position, but it doesn't mean that we'll be cutting even more. We expect actually positive evolution in our business in chocolate, both on the FM and the Gourmet side going forward in the second half. Yes, I think that's where we are on the Gourmet side and everything else I think we said before, as it is linked to the very steep decline of the bean price, we do expect this to be a temporary phenomenon. Operator: Our next question comes from Samantha Darbyshire from Goldman Sachs. Samantha Darbyshire: My first question is just around the end markets. It would be really helpful to get some context from you around how you're expecting them to progress from here. You've got pretty good visibility on the order book, it seems. How much of this is kind of because your customers are innovating, having to bring out new products to kind of support that volume growth? And how much of it is that you think that consumers are adjusting to the price levels of chocolate products right now? And kind of along those lines, are you starting to see any appetite from your customers to reduce prices or increase promotions, increase pack sizes to get the volume coming back in the market? And if there's any regional context as well, that would be super helpful. And then just switching to, just thinking about your service levels, can you perhaps contextualize where they are versus history? I know that it's been quite volatile. There's been a lot of disruption. But if we think about where Barry Callebaut used to be, say, 5 years ago, how significantly below that are we? I know that the company is below industry levels. But any kind of indication of the delta would be really helpful. Hein M. Schumacher: Thanks, Sam, for the questions. So first, I would like to talk a bit about the market and our customers and what consumers are doing. Let me just make a few points here. And some of it will be repetitive, I hope you don't mind. But obviously, there are lower bean prices and we're seeing a flattening as well of the futures curve. So there are some early signs, as I said, of market stabilization for our customers. So customers are therefore also willing to book further in advance. As I call it, these are longer positions, and there is some room for higher inventories overall. I think we're seeing that customers are pricing through to some extent. Obviously, that's a customer decision. I don't want to go too deep on that. But I'm very encouraged by what I'm seeing with some of our large customers in particularly North America. Ferrero, and we said it in the presentation, they launched their go all-in promotion lasting from April to July, and that's backed up by significant investments. They've made a very public statement about that $100 million investment. Hershey also making significant media investments in this year with a very big launch around Reese's and Hershey. It's the first launch for them since a number of years that is sort of at this magnitude. So we're seeing restored confidence. Obviously, the margin profile will help given the lower bean prices. So these are, I think, very positive signs for recovery going forward. We're also seeing, therefore, some increased innovation interest from our CPG customers. And as I said, that we do across the whole portfolio. We're seeing -- particularly in Western Europe, we're seeing interest in the non-cocoa solutions for ChoViva, the brand that I talked about before, but also the high flavanol opportunity, the high flavanol innovation in AMEA, and this is gaining really good traction in Japan as well as in China. So if I sort of summarize lower bean prices, so therefore, customers going a bit long. Secondly, a very specific big initiative from some of our large customers that will help the market. And third, we're seeing if we are focusing our efforts behind scalable innovation platforms, we believe that particularly on a regional basis, we're seeing increased interest. So I would say, these are very positive signs. And therefore, we believe that the second half, we can return to a growth picture. On customer service levels, yes, I look back to a number of years ago. And particularly in the last 1.5 years or so, we have been below our historical averages. I don't want to call out one customer service level, because you need to drill down a little bit. And customer service can, for example, become low if your portfolio is not exactly the customer needs. So can you deliver against an unconstrained demand? That's a question. And in many cases, we haven't been able to do so, and that's why we're making these investments. The second one is, due to disruptions, do you need to cancel contracts or cancel deliveries that the customer has asked for. So in some of our key segments, we've seen customer service levels even somewhat below 80%. They are now improving fast. And again, that's where we're laser-focused on to get them to the highest possible level now. And I think that's something that we do progressively well. So without calling particularly percentages too much, I would say we weren't at the level that we were a number of years ago due to disruptions, due to many process changes, due to the whole transformation impact. We're now going back to fewer initiatives, restoring customer service on those areas where we really need it and preparing for a midterm picture. And obviously, I'd like to come back to you in June on what that looks like. I think that concludes the overall -- if I'm not wrong, this was the last question? Operator: Correct. We currently have no further questions. Hein M. Schumacher: Thank you, everyone, for spending time with us this morning. We are looking forward to come back to you in June with a full update on the Focus for Growth program and to have more interactions with you in the next couple of days as well as after the June conference. Thanks a lot, and speak soon. Peter Vanneste: Thank you.
Operator: Good morning, and welcome to the 2026 First Quarter Earnings Conference Call hosted by The Bank of New York Mellon Corporation. At this time, participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without The Bank of New York Mellon Corporation's consent. I will now turn the call over to Marius Merz, The Bank of New York Mellon Corporation Head of Investor Relations. Please go ahead. Marius Merz: Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I am here with Robin Vince, our CEO, and Dermot McDonogh, our CFO. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. I will note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement, and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, 04/16/2026, and will not be updated. With that, I will turn it over to Robin. Robin Vince: Thanks, Marius. Good morning, everyone, and thank you for joining us. I will begin with a few broader comments before Dermot takes you through our financial results. Referring to page two of the quarterly update presentation, The Bank of New York Mellon Corporation has started the year with a strong performance in the first quarter. Earnings per share of $2.24 grew 42% year over year, both on a reported basis and excluding notable items. Record revenue of $5.4 billion was up 13% year over year, reflecting broad-based growth across our Securities Services and Markets and Wealth Services businesses. We delivered over 800 basis points of positive operating leverage while making meaningful investments in new products, capabilities, AI, and critically, our people and culture. Taken together, this combination of strong top line growth and significant operating leverage resulted in pre-tax margin expansion to 37% and improved profitability with a return on tangible common equity of 29%. The Bank of New York Mellon Corporation’s position at the heart of global financial markets, with platforms across custody, security settlement, collateral, payments, trading, wealth, investments, and more, supports durable financial performance for our company, enabling us to power our clients' growth as they navigate an increasingly complex landscape. While the path of global markets is difficult to predict with certainty, what is clear is that the underlying trends—higher levels of activity, greater complexity, new technologies, and a resulting need for scale, efficiency, and connectivity—are more relevant than ever for our clients. As I mentioned in my shareholder letter earlier this year, the portfolio of The Bank of New York Mellon Corporation’s businesses is unique, but it is how we are embracing new ways of working, our adoption and integration of new technologies, and our strong culture that allows us to create truly differentiated solutions. Clients are increasingly recognizing the value of holistic solutions that support the full life cycle of their activity, whether it is managing liquidity, optimizing, supporting higher trading volumes, or getting ready for the future of financial market infrastructure. Our work to operate together as one The Bank of New York Mellon Corporation, through both our platforms operating model and our commercial model, better enables us to bring the full breadth of our capabilities together in service of our clients. A good example of this from the first quarter is our work with Allianz Global Investors, one of the world's leading active asset managers. AGI has selected The Bank of New York Mellon Corporation to support optimizing their investment operating model, leveraging the breadth of our global capabilities. This integrated model will help AGI deliver exceptional experience front to back while placing AI and modern data infrastructure at the heart of their operations to enhance productivity, enable faster work, clearer insights, and better outcomes for their teams and clients alike. Another example, PayPal has selected The Bank of New York Mellon Corporation to provide institutional-grade digital asset custody, supporting their digital payments wallets, financial services for millions of users globally. And just last week, the US Treasury Department announced that they have selected The Bank of New York Mellon Corporation as financial agent for Trump accounts, the US government's investment savings initiative for children aimed at building a strong financial foundation for our next generation. The Bank of New York Mellon Corporation will manage the national infrastructure for the program and collaborate with Robinhood, which will provide brokerage and initial trustee services. These examples illustrate our strategic evolution toward deeper integration between our products delivered with the technology and scale of The Bank of New York Mellon Corporation’s differentiated platforms. Over the next phase of The Bank of New York Mellon Corporation’s transformation, one of the most significant enablers of being more for our clients and running our company better is AI, and so we felt that this was an opportune time to spotlight how we are going about AI at The Bank of New York Mellon Corporation. Turning to slide three of the presentation, as a reminder, our work to set the foundation for reimagining our company has included intentional and consistent investments in AI over the past several years. We took a very deliberate approach to AI through the lens of integration, adoption, and importantly, our people and culture. We embraced the platforms approach to embedding AI across the company, creating our AI Hub in 2023, so we could develop the enterprise capabilities, strong governance framework, and training to empower every employee to embrace AI. More than two years ago, in collaboration with NVIDIA, The Bank of New York Mellon Corporation became the first global bank to deploy a DGX SuperPOD, and in the same year, we launched Eliza, The Bank of New York Mellon Corporation’s AI platform. Outlined on page four, our vision for AI at The Bank of New York Mellon Corporation is that it is for everyone, everywhere, and everything. As is the case with many things, the key to making it work is culture. We took a people-first approach. Over the last year, we focused on broad adoption. We made Eliza available to 100% of our employees, and supported advanced learning and development through a series of training programs. This approach to enterprise-wide enablement has already allowed us to develop more than 200 AI solutions and to introduce digital employees, multi-agentic solutions that operate alongside human colleagues. In 2026, we are doubling down on depth, moving from AI point solutions to using AI to enhance end-to-end processes, reducing manual touch points, improving cycle times, strengthening control outcomes, and building more connected intelligence by linking data, workflows, and expertise to enhance the service and value proposition for our clients. On page five, we show just some of the initial outputs—tangible results of AI enablement and impact across improved business and operating performance—driving greater efficiency and product innovation. None of these metrics individually show a complete picture of AI at The Bank of New York Mellon Corporation, but taken together, they show something important: that we are systematically embedding AI in our workflows across the entire company. Already, AI is helping us increase the pace at which we innovate our technology, accelerate onboarding, improve client service, and streamline processes. In combination with our broader efforts to run our company better, AI is starting to contribute to the improved financial performance trajectory at the bottom of the page. Building on our deliberate strategy and the solid foundation we have laid over the past several years, we are confident that AI will enable us to evolve our business model and enhance how we deliver for clients. Our commitment, not just to deep AI enablement but the full reimagination of our company, combined with the role that we play in global financial market infrastructure, the breadth of our businesses, and our trusted and deep client relationships together, represents a powerful competitive advantage. Taking a step back and reflecting on the operating environment, while AI was an ever-present theme in markets over the past few months, the first quarter also presented a dynamic market backdrop. Significant volatility was driven by shifting expectations for the paths of growth, inflation, and interest rates amid geopolitical conflicts and evolving policy outlooks. Within this constantly changing environment, our diversified business model, combined with our strong balance sheet, allows The Bank of New York Mellon Corporation to serve as a pillar of strength for our clients and for global markets. Before I hand it over to Dermot, I want to take a moment to recognize our employees around the world for rising to the challenge to execute on our long-term plan to unlock The Bank of New York Mellon Corporation’s full potential for our clients and shareholders. We have had a strong start to the year, supported by increasing client engagement and continued progress on our strategic priorities. I would like to thank our clients for their trust, our employees for their commitment and hard work, and our shareholders for their continued support. With that, over to you, Dermot. Dermot McDonogh: Thank you, Robin, and good morning, everyone. I will pick up on page six of the presentation with our consolidated financial results for the first quarter. Total revenue of $5.4 billion was up 13% year over year. Fee revenue was up 11%. This included 10% growth in investment services fees, reflecting higher client activity, net new business, and higher market values. Investment management and performance fees were up 6%, primarily driven by higher market values and a favorable impact of a weaker US dollar, partially offset by the impact of the mix of AUM flows. While not on the page, I will note that firmwide AUCA of $59.4 trillion increased by 12% year over year. This reflects net client inflows, higher market values, and the favorable impact of the weaker dollar. Assets under management of $2.1 trillion were up 6%, primarily driven by higher market values and the weaker dollar, partially offset by cumulative net outflows. Foreign exchange revenue was up 49% year over year on the back of higher volumes resulting from elevated market activity and supported by new products and capabilities. Investment and other revenue was $271 million in the quarter, including approximately $135 million of investment-related gains and $50 million of net securities losses. Net interest income increased by 18% year over year, primarily driven by continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $3.4 billion were up 5% year over year, both on a reported basis and excluding notable items. This was primarily driven by our commitment to higher investments in our businesses, higher revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by continued efficiency savings. Provision for credit losses was a benefit of $7 million in the quarter, primarily driven by improvements in commercial real estate exposure, partially offset by changes in macroeconomic and other factors. On the back of significant positive operating leverage of 833 basis points, pre-tax margin expanded to 37%, and return on tangible common equity was 29%. Taken together, we reported earnings per share of $2.24, up 42% year over year. On to capital and liquidity on page seven. Our Tier 1 leverage ratio for the quarter was 6%, flat sequentially. Tier 1 capital increased by $532 million, primarily driven by preferred stock issuance and earnings retention, partially offset by a net decrease in accumulated other comprehensive income. Average assets increased by 2% on the back of deposit growth. Our CET1 ratio at the end of the quarter was 11%, down 89 basis points sequentially. Our CET1 capital remained approximately flat; this decrease was primarily driven by higher risk-weighted assets reflecting a single-day increase in overnight loan balances on the last day of the quarter along with higher client activity in agency securities lending and foreign exchange. Over the course of the first quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 87%, and our Board of Directors authorized a new $10 billion share repurchase program. Our consolidated liquidity coverage ratio and net stable funding ratio were 111% and 131%, respectively. Turning to net interest income and balance sheet trends on page eight. Net interest income of $1.4 billion was up 18% year over year and up 2% quarter over quarter. Like the year-over-year increase described earlier, the sequential increase was primarily driven by the continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 3% sequentially, reflecting 2% growth in interest-bearing and 6% growth in non-interest-bearing deposits, and average interest-earning assets were up 2% quarter over quarter. Cash and reverse repo balances were flat. Loans increased by 6% and investment securities portfolio balances increased by 2%. Turning to our business segments starting on page nine. Securities Services reported total revenue of $2.7 billion, up 17% year over year. Total investment services fees were up 10%. In Asset Servicing, investment services fees grew by 11%, reflecting higher market values and broad-based client activity. ETF AUCA were up 33% year over year, on the back of higher market values, client inflows, and net new business. And our Alternatives [inaudible] 20%. I want to highlight that, consistent with our strategy to deliver the breadth of The Bank of New York Mellon Corporation to our clients, over 50% of the clients that awarded Asset Servicing new business in the first quarter also awarded new business to at least one of our other lines of business. In Issuer Services, investment services fees were up 4%, reflecting growth in both Corporate Trust and Depositary Receipts. I will note that for the first time in our history, Corporate Trust reached $15 trillion of total debt serviced, and we are particularly pleased with our continued market share gains in CLO servicing. Once again, the breadth of our capabilities is a powerful differentiator. Our clients clearly recognize the superior value proposition of a single provider for Corporate Trust, Asset Servicing, collateral, liquidity solutions, and more. In Securities Services overall, foreign exchange revenue was up 44% year over year, reflecting higher client volumes. Net interest income for the segment was up 20% year over year. Segment expenses of $1.6 billion were up 5% year over year, primarily driven by higher investments and revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by efficiency savings. Securities Services reported pre-tax income of $1.0 billion, a 46% increase year over year, and a pre-tax margin of 39%. Investment-related gains added three percentage points to pre-tax margin in the quarter. Next, Markets and Wealth Services on page 10. Markets and Wealth Services reported total revenue of $1.9 billion, up 11% year over year. Total investment services fees were up 10%. During the quarter, we formed our Wealth Solutions business by realigning Archer’s managed accounts solutions from Asset Servicing to Pershing. This integration further strengthens our capabilities to serve wealth advisors by adding Archer’s market-leading distribution and managed accounts expertise to deliver fully integrated end-to-end solutions across the entire wealth ecosystem. In Wealth Solutions, investment services fees were up 6%, reflecting higher market values and client activity. Net new assets were $22 billion in the quarter, representing an annualized growth rate of 3%, and AUCA of $3.3 trillion were up 14% year over year. In Clearance and Collateral Management, investment services fees increased by 19%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.8 trillion increased by 18% year over year, reflecting higher market activity and growth on the back of a robust environment for financing with US Treasury securities, strong money market fund balances, and increasing client demand for non-cash collateral. Ahead of the central clearing mandate for US Treasuries, we are engaging with central counterparties and our clients. We are delivering innovative solutions from across The Bank of New York Mellon Corporation that help them find new ways to access the market, clear transactions, and manage collateral and margin. In the quarter, we also saw strong growth in clearing volumes reflecting net new business wins, particularly in international clearance and from expanding wallet share with existing clients doing more with The Bank of New York Mellon Corporation. In our Payments and Trade business, investment services fees were up 5%, primarily reflecting net new business. Payments and Trade delivered another solid quarter with continued sales momentum, including numerous multi-line-of-business wins, particularly with FX and Global Liquidity Solutions. Net interest income for the segment overall was up 15% year over year. Segment expenses of $937 million were up 6% year over year, primarily driven by higher investments, employee merit increases, higher revenue-related expenses, and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Taken together, our Markets and Wealth Services segment reported pre-tax income of $961 million, up 18% year over year, and a pre-tax margin of 51%. Turning to Investment and Wealth Management on page 11. Investment and Wealth Management reported total revenue of $825 million, up 6% year over year. Investment management and performance fees were up 6%, primarily driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows. Segment expenses of $726 million were up 2% year over year, primarily driven by the weaker dollar, employee merit increases, and higher investments, partially offset by efficiency savings. Investment and Wealth Management reported pre-tax income of $90 million, up 43% year over year, and a pre-tax margin of 11% versus 8% in the prior-year quarter. As I mentioned earlier, assets under management of $2.1 trillion increased by 6% year over year. In the first quarter, long-term active flows were flat, reflecting net inflows into fixed income and LDI strategies, and net outflows from equity strategies. We saw $10 billion of net outflows from cash and $7 billion of net outflows from index strategies. Wealth Management client assets of $339 billion increased by 4% year over year, reflecting higher market values. Page 12 shows the results of the Other segment. I will close with an update on our financial outlook for the year. In light of our strong performance in the first quarter, we are raising our outlook for total revenue, excluding notable items, for full year 2026 and now expect approximately 6% year-over-year growth. That includes our expectation for full year 2026 net interest income to be up approximately 10% year over year. We expect full year 2026 expense growth, excluding notable items, to be at the top of the 3% to 4% year-over-year growth rate range that we provided in January. We continue to expect a quarterly tax rate of approximately 23% for the remaining quarters this year. I want to leave you with three important points. First, we delivered a strong financial performance in the first quarter and continue to serve as a pillar of strength for our clients amid a dynamic market environment. Second, the combination of our unique portfolio of businesses, our role in global financial market infrastructure, our deep and trusted client relationships, our diversified business model, and the strength of our balance sheet represents an exceptional client value proposition and a powerful competitive advantage. Finally, what truly differentiates The Bank of New York Mellon Corporation today is our ability to mobilize all of the above for the benefit of our clients and shareholders. With that, operator, can you please open the line for Q&A? Operator: As a reminder, we ask that you please limit yourself to one question and one related follow-up. We will take our first question from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Good morning. Thanks for taking my questions. I wanted to start with deposits. The deposit trends were stronger than expected. I was hoping maybe you could speak to quarter-to-date trends and around betas. Specifically for the euro and pound deposit betas, given we have hikes now in the forward curve. How should we be thinking about the betas for those currencies? Thanks. Dermot McDonogh: Okay. Thanks for the question, Brennan. Let me start with overall balances and trends. As you will recall from our call on January 13, we finished last year with strong momentum on deposits and, with the macro uncertainty and just how events of the quarter played out, we saw clients holding higher levels of liquidity. As a consequence, you see the overall balance being a little bit elevated, and then you saw the mix between interest-bearing and non-interest-bearing. We attracted more non-interest-bearing than anticipated. Overall, on the US dollar side, it really was the balance and the mix that drove the NII outperformance in the quarter. Within particular businesses, it really was in Issuer Services and Asset Servicing specifically and Corporate Trust that were the two businesses that saw the notable benefit. As it relates to the non-dollar side of things, euro and sterling is really a smaller part of our overall portfolio. It only accounts for roughly 25% of the overall book, so it is not a meaningful contributor to NII. For euros and sterling, the betas roughly peaked at 80% on the way up, and for dollars and non-dollars, we expect betas to perform in a symmetrical fashion going up as well as going down. That is how we see it. Brennan Hawken: Great. Thank you for that. And then on, I guess, the artist formerly known as Pershing, we had really robust year-over-year both DARTs and AUC growth, but the revenue growth was not quite as robust as those two metrics. So could you maybe help unpack the primary drivers of the revenue growth and help us understand how we should model that going forward? Dermot McDonogh: Wealth Solutions, as we now are going to call it going forward, will be as good as the artist formerly known as Pershing. You saw net new asset growth in the quarter of roughly 3%, and I would just like to reaffirm our belief and commitment that we can grow the business’ net new assets at mid-single-digit growth over the coming years. Also, for the first time in a few quarters, it is pleasing that we have not had to talk about a deconversion, so it was a relatively clean quarter with lots of volume. With macro uncertainty, we did see a lot more volume as clients were rehedging and rebalancing their portfolios, so it was more of a volume-driven quarter. To highlight the point about Archer, we really feel that Archer, in Wealth Solutions, will be able to drive more capabilities and more product innovation for our clients. We feel really good about the outlook and what Archer can do in the Wealth Solutions space. Brennan Hawken: Great. Thanks for that color. Operator: We will move to our next question from Alex Blostein with Goldman Sachs. Alex Blostein: Hi, good morning, everybody. Thank you. Obviously very strong performance in the quarter underscoring the benefits of various verticals within The Bank of New York Mellon Corporation, and part of that, I guess, is sort of transitory. I was hoping we could unpack that both on the fee side and NII—perhaps how much of the benefit the elevated market volatility contributed this quarter to think about the right baseline? And then for NII, the non-interest-bearing performance was obviously quite strong, and it feels like in your guide you are largely kind of mean reverting that. It does not sound like you are assuming much of that is going to stick around, but I was hoping you can unpack what is baked into the NII guide and the drivers. Thanks. Dermot McDonogh: Okay. For your first question—that was a lot of questions, Alex—here is what I would say. Robin spoke about it well on Squawk Box this morning. We are setting the firm up for a diversified revenue stream and durable performance. What was very pleasing from a CFO lens this quarter was the diversity of the revenue stream, the mix between fees from balances and fees from volumes. There was a lot of uncertainty in the market over the course of the first quarter, and our clients were doing a lot of rebalancing, so we were there to help and support that. Volatility can be a good enabler for The Bank of New York Mellon Corporation in terms of the business model because it generates volumes. You saw that across all of our platforms, and then you saw the mix was roughly 50/50 between balances and volumes, which was pleasing to see. The balance between equities and fixed income was also pretty balanced. Overall, it was very pleasing to see in terms of the backdrop. To be honest, we hope that continues, and we have scaled platforms that we have invested in over the last couple of years. With the record sales quarter, you are beginning to see the proof points of clients coming to the platforms wanting to do more with us across multiple lines of business. It really is clients doing more against a macro backdrop that was uncertain that generated the volumes. Overall, very pleasing quarter. As I said in my prepared remarks, there are a few one-offs; we particularly highlighted that in Securities Services, which is a 3% contributor to the margin of 39%. But if you back that out, it is a 36% margin—still a pretty exceptional quarter for that segment. Alex Blostein: Got you. And then just a follow-up on non-interest-bearing and what you are assuming is sort of temporary deposits given the volatility that could reverse itself over the next quarter or so, and how does that inform your 10% NII guide? Dermot McDonogh: We expect deposit balances to revert to more seasonal patterns from here. We expect Q2 to be moderately down from Q1. Q3 is usually our weakest quarter, with Q4 being our strongest quarter. Over the balance of the year, we expect balances to be modestly higher relative to 2025. We have run a bunch of scenarios—different rate environments, different levels—take the feedback from the businesses, and that gives us confidence around the 10% guide. Alex Blostein: Perfect. All right, thank you. I will leave it at that. Marius Merz: Thanks, Alex. Operator: We will take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. Maybe, Dermot, following up on your response to the previous question, I want to make sure we get this right. Very clear on deposit and NII outlook. On fees, the guidance implies like 2% to 3% growth for the rest of the year. Is that right? What are the puts and takes—do we need a materially better or worse macro for the 2% to 3% to be much higher or lower? What are the market assumptions you are making in the guidance for the rest of the year on the fee revenue side? Dermot McDonogh: It is a tricky question you ask, Ebrahim. If you go back to January 13, when we gave the guidance for full year, we went with 5% on top line growth. When I was pressed on that, we said a little bit higher on NII, a little bit lower on fees. We are one quarter into it. Under the hood, we said this on the call in January—we continue to believe that we are grinding organic growth higher than where it was. It was 3% in 2025. You will remember way back to 2022 it was flat, and 2023 it was 1%. We are very focused on it and, as Robin said in his remarks, record sales quarter this year in the first quarter and two record sales quarters last year. That is going to drive into the organic growth. We feel pretty good about the outlook for the year, but we are only one quarter in, three quarters to go, a lot of uncertainty, so we are not really changing our outlook on the fee at the moment. Ebrahim Poonawala: Got it. And then a bigger picture question for Robin. You talked about the use of AI and other efficiency improvements at the bank. I would argue there are few banks deploying AI more efficiently than The Bank of New York Mellon Corporation. Is there a risk that you are underinvesting? When we look at the pre-tax margin, could you be doing more in terms of investing in the business using some of these revenue tailwinds? There are a lot more productivity boosts the firm should see due to AI. Why not invest more to further improve the growth algorithm for the firm? Robin Vince: Sure, Ebrahim. Let me split it in two. First, investments versus operating leverage: it is very important to do both. We are investing in growth, and we are driving positive operating leverage and margin expansion. We have said we are going to do that consistently. We are setting ourselves up for peer-leading levels of operating leverage while also investing in the long term. Sometimes people ask whether we are investing enough. The flip side is whether we have full control of expenses if the environment changes. We are very careful about both—leaning in when there is space to do so, but not setting ourselves up with such expense momentum that it becomes problematic if we want to calibrate later. We feel like we are doing that well. On AI, we have been investing for three years in a meaningful way. We have a lot of investment heft with our $4 billion technology spend. Five years ago, that spend was heavily geared toward infrastructure as we rewired our underlying infrastructure to build more modern technology and applications on top. Now we have the gift of AI exactly when we are leaning into those capabilities. We wanted to give you a sense of breadth. We are not going to sit here and talk about all the leading-edge AI things we are doing, but we do want to show the breadth so you can sense it is everywhere. We have 218 AI solutions in production right now across the company—up four times year over year. We have digital employees working side by side with our teams, and we have a lot in pilot. We feel very good about our AI investments. If we felt we needed to do more, we could and we would. Ebrahim Poonawala: Got it. Thank you both. Operator: We will take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess AI is the topic of the day. You brought it up front in the deck—AI for everyone, everywhere, and everything. You talked about doing this for three years and you have 200 solutions. You said you are starting to see the financial benefits. It all sounds deliberate, thoughtful, and clear, but the big question is: what will the financial benefits be? What are the financial benefits now, and in five years what are your financial expectations as the end result of all these efforts? Robin Vince: Sure, Mike. It is a critical topic. We see AI as a catalyst for real transformational change. We have said from the beginning that the technology would move incredibly rapidly and scale in an exponential way. We are seeing that now. Adoption and integration risk being the limiting factors. As a user of AI, it is incredibly important that we embed it and have our people pulling it in, as opposed to pushing it away. Foundational investment in culture and technology allows it to be the superpower that it is and a capacity multiplier for our people. We would like a 47,000-person company to deliver like one many times larger. Our $4 billion technology spend gives us the scale to deploy AI properly, which is incredibly important. If you are a smaller spender, you risk lock-in to someone else’s ecosystem and become subject to token price wars and other unpleasant consequences. To your question, we think the financial outcomes show up in different ways. First, productivity for our people—47,000 people doing more and delivering more for clients—will show up over time in revenue per employee and pre-tax per employee. The progress so far has been driven by the platforms operating model, rewiring, and the commercial model; the next leg of growth is the maturing of those programs, powered by AI wrapped around everything. Second, capabilities and features of our software and platforms as we deliver for clients—we are already seeing that with client wins. Our AGI win in Europe—an inside look at what we are doing on AI made them excited about joining us; they saw AI was not just for our productivity but for theirs, viewing us as an extension of their operating model. Third, there are things we can do in an AI-enabled world that did not make sense before—things at the edge of profit, things clients asked for that did not warrant resources. With AI creating an abundance of capacity, we can start doing things that previously sat below the line. So we see a triple play: capacity creation, revenue enablement, and expanding the firm’s perimeter. Collectively, those excite us for the future. It is early days, and that is fine. Mike Mayo: Understood, and it is clear you are in the debate—are banks, or The Bank of New York Mellon Corporation, an AI beneficiary or victim—obviously you are saying beneficiary. But the other side is the bad actors with these AI superpowers. Bank CEOs have been summoned to DC due to new tools out there and the big risk of cyber. I have a tough time dimensioning the new cyber risk given the new AI tools. How should investors think about this type of risk? How do you think about that? Robin Vince: It is an important question. Cyber defense is something that, as one of the world’s leading financial institutions and a GSIB in the US, we are clearly very focused on. Defending our clients and our role in the financial system has been important for decades. As the technology evolves, so do the defenses. This is a team sport—doing it with AI providers and other technology partners is incredibly important. We have Mithos in-house—we are running it—so it joins the team of defense for us, as does the early access preview capability that OpenAI announced a couple of days ago—again joining the team. AI is a superpower, and it can be used for good or for evil. We are pulling the superpower into our environment to use for good in order to defend ourselves. We view this as an entirely predictable evolution of technology on an exponential curve—there will be step functions. We have accustomed ourselves to this acceleration and work constantly to stay ahead of the curve. It goes back to culture, humility, and being very focused on our role in the system. All of us have to be vigilant. As an investor, think about this across all industries, not just financial services. Bad actors can use AI in bad ways across industries. One of the privileges in financial services is that we have been alert to this topic for a long time. Operator: We will take our next question from Analyst with Morgan Stanley. Analyst: Hey, good morning. Very clear message on AI. It sounds like with the investment spend already in the run rate and a lot more of the benefit to come, there is actually a lot more benefit here on the expense side. You are already at a 37% margin even before the full benefit of the platforms operating model. Is the rationale for keeping the medium-term targets at 38% plus/minus that there may be some of these economics you have to share with your customers, and that will get you more market share in the future? Dermot McDonogh: I will take a stab at that first. It goes back to one of the previous questions about investing in capacity. We just updated our medium-term targets in January. We are one quarter into that. The medium-term targets were based on a three- to five-year horizon, and we feel good about where we are on the decade-long journey. We are continuing to invest, and we are continuing to harvest efficiencies. We think the margin targets and the ROTCE targets that we gave in January were stretch for the firm, notwithstanding the Q1 we have experienced. It is too early to say. If we see opportunities, like Robin said on AI, we may invest more. We are at the high end of our guide for expenses this year. We believe we have earned credibility with the market on being financially disciplined and good stewards of the expense base. It is something that we actively review continuously. If we see more opportunity to invest, we will, and at the right time we will update you on how it is turning out for the medium term. Robin Vince: Let us talk for a second about where the value accrues, because this is quite important. Over the long term, we see great value creation with AI, and it is going to accrue to clients, to employees, and to shareholders as well. We think AI over time becomes table stakes and ubiquitous, and to some extent, you are right—some of it will get priced out through the value chain. But companies that have an edge on using and deploying the technology will have an advantage, and there is a benefit to being a bit ahead in terms of product development and cost of doing business. We see this early-adopter benefit and believe we are one. Strategy matters here—three things. First, culture is an enabler in AI. We have made a lot of investment, and having a team at The Bank of New York Mellon Corporation who see the power of AI and want to use it is a meaningful advantage. Second, our platforms operating model and commercial model laid the groundwork for being a better adopter of AI, because we brought like things together and did the rewiring, data organization, and other work that is incredibly useful when deploying AI. Third, scale. Do you have the ability to manage yourself such that you are not just providing a ton of revenue to the AI companies and losing control of it? Escalation of token usage and costs—same story we have seen before with cloud. If you allow yourself to get locked in and do not have breadth of access, you take a real risk on the pricing power point you raised. For us, the “how” of AI is a strategic advantage. We made a bet on AI three years ago; so far, that has been the right strategy, and we are leaning in. We think this accrues well to our company over time. Analyst: Very clear. Appreciate all the detail. Maybe just on the capital side, given the new rules a few weeks ago, it would seem to me that The Bank of New York Mellon Corporation would benefit on the GSIB surcharge side. It is not entirely clear to me what the benefit would be on the RWA side. Can you comment on that and whether this changes how you are thinking about the capital targets? Dermot McDonogh: Thanks for the question. The recent rule is broadly favorable for The Bank of New York Mellon Corporation. Before, when we talked about it on previous calls, we gave a preliminary estimate of up 5% to 7% based on the original proposals, and now we expect flat to a modest reduction. It reinforces what we say about our balance sheet—the strength of a clean, liquid balance sheet and the low-risk nature of the balance sheet. We feel good about where we are and about the current proposals. Robin Vince: Great. Thank you. Operator: We will take our next question from Ken Usdin with Autonomous Research. Ken Usdin: Thanks. Good morning. Two environment-related questions. Given the real big sharp period-end balances, the capital ratios went down. Obviously, you have plenty of room. Assuming that being temporary, you would not have any change to your outlook for your expected total capital return for this year? Dermot McDonogh: That is correct. It was really spot balance sheet on the last day of the quarter, and that returned to normal levels on April 1. As you will see from my remarks, the Tier 1 leverage ratio—which is what we are bound by—remained steady at 6%. Ken Usdin: Okay. Also, given that it was a very volatile quarter with a lot of benefits from the environmental shift, how does organic growth feel, especially given a little bit more uncertainty out there? You spoke last quarter about trying to be better than the 3% last year. Any changes in terms of business wins and decision-making out there from your client set? Dermot McDonogh: I would reemphasize the point Robin made in earlier answers and in his prepared remarks. We saw three really nice client wins in Q1 across different types of clients, which demonstrated the strength and breadth of the franchise. I highlighted in my prepared remarks that 50% of client wins in Asset Servicing in Q1 also included awards to other lines of business. Clients doing more with us across multiple platforms is becoming more of a thing. With the record sales quarter, we feel good. We are not guiding on organic growth. It was 3% last year; it was zero four years ago, and we have been working the order book higher. We expect it to grind higher over the balance of this year. We are excited about the opportunity. Ken Usdin: Okay. Got it. Thank you, Dermot. Operator: Our next question comes from Glenn Schorr with Evercore ISI. Glenn Schorr: Thank you. When we all look at the banks, there is a lot of focus on the NDFI lending into a bunch of the funds out in private credit land. As the biggest servicer of a lot of these products, how much of lending into the funds is an integral part of the servicing relationship? Do you have any dimensionalizing of size and composition of book and how much it has grown for you? Dermot McDonogh: Our exposure from a balance sheet perspective is de minimis and well managed. We feel very good about our risk in that dimension. I would point you over to our Corporate Trust. As I said in my prepared remarks, we went through, for the first time, $15 trillion of total debt serviced, and that is where we service a lot of those clients. We feel very good about that business, the momentum, and the investments we have made. While it has been noteworthy with other banks in the news cycle over the last several weeks in the private credit space, it has not been materially showing up in our business, and there are no bumps there that I would highlight. Glenn Schorr: One other one that catches my attention is periodically you will see a certain fund or even stock get tokenized. There are a lot of investments and, I do not know, experiments being done, and I think you are investing in part of it too. Maybe update us on where we are and why—what are we doing? Money market funds I get a little bit. Why does the world need everything tokenized? What would that mean for your businesses if we do go down that path? Robin Vince: Thanks. I do not think the world needs everything tokenized. But there is no question that global financial market infrastructure is transforming and moving toward more of an always-on operating model. That is not just about blockchain technology immediately replacing traditional systems; it is about the two working in concert, and in some cases unlocking new possibilities that have not been possible before without the always-on model. We are in the business of moving, storing, and managing money, creating interoperability—all of that is what we do today. We are advising clients to use the right tool for the job. If they want to do real-time payment systems in the United States, we have real-time payments in the US. Same in Europe—they are even more advanced, which is why stablecoin usage in traditional financial markets has not taken up as much in Europe. In some emerging markets with high inflation, a 24/7 dollar-based stablecoin has advantages to sidestep inflationary friction. It is very much about the use case. Our strategy is to be a bridge and be in both places. We are doing business with traditional clients who want help with careful selection of what to do in digital assets—launch new funds, launch a new share class for digital-asset-focused investors, or Bitcoin custody for ETF providers—we announced one recently with Morgan Stanley. We are helping clients bridge to the new. New, digital-asset-native clients also need traditional capabilities—cash management, investment management, custody. A stablecoin provider would need all of those. We have invested across the ecosystem and stood up a bigger team with our head of product and innovation and digital assets to deliver against these use cases. You are right—an S&P 500 on-chain may not add as much value as bringing an asset deeper into the financial system or making an asset a lot more efficient today. S&P 500 equities are pretty efficient; money market funds work well. In loans and commodities, there are opportunities to improve and bring assets deeper into the financial system. Glenn Schorr: Sounds like evolution, not revolution. Thanks. Operator: Our next question comes from David Smith with Truist Securities. David Smith: Hi. You highlighted some big wins with clients working with you in multiple lines of business. Anything you can share on the progress in the percentage of clients with multiple products or lines-of-business relationships at The Bank of New York Mellon Corporation today versus a year or two ago, or the average number of products per client, or any metrics along those lines? Robin Vince: A couple of things, David. We set out in our commercial model to do several things. There are new products to be created; we have a lot of micro-innovation across the company that excites us because those are new opportunities. We have surprised ourselves with the number of new logos we are able to attract to the platform—about 10% of our sales were new logos in recent times, which is exciting. Dermot highlighted that half of our Asset Servicing wins were not just Asset Servicing—they also came to at least one other line of business. The blocking and tackling of delivering more of who we already are to existing clients is a big opportunity. Some stats: We had a record sales quarter in Q1 last year and another in Q2; it was a record sales year last year; we had another record sales quarter this quarter. We have had three consecutive years of year-over-year growth in core fee sales. We have had more than 60% growth in the number of clients buying from three or more businesses over the past two years. We have had a 20% annual increase in sales productivity per salesperson. All of these show traction in our commercial model. Remember, we are only 18 months into that journey; we launched it in 2024. We are excited about that. That is one reason why at the beginning of the year we aimed to grow our organic growth rate from the 3% last year, and we are very focused on growing from that. I want to add one other thing. There is an underlying theme that regular organic growth is somehow completely disconnected from the market. We push back on that for our company because we deliberately aligned our platforms over the past three years to participate in more environments and be a compounder of value largely irrespective of the environment. Of course, there are always some environments that are not great for us, but it is deliberate. We want to tap into megatrends: scaling with trusted providers, sophistication in wealth markets, private markets demand (you can see AUCA growth there), capital markets transformations, participating in digital assets, and connecting traditional ecosystems with new digital ones. Inputs to diversification: equity market values up; fixed income market values up; cash balances; issuance activity; M&A activity; private credit; public credit; volatility; transaction volumes; equity; fixed income; collateral. We have created diversified, global, strategic, recurring, durable attachment to different markets so that we can participate across them—wrapped with AI. For us, that strategy is an “as well as” relative to traditional organic growth. David Smith: Would you say that dampens the upside for The Bank of New York Mellon Corporation in a really strong market environment, or is there a way you can have your cake and eat it too? Robin Vince: We think it gives us better exposure to more markets. Take NII as a proxy—Dermot talks about cutting off the tails in NII. Out of a thousand scenarios, can we create one that is not great for NII? Sure—massively inverted curve or zero interest rates across the curve are not ideal. Those scenarios do not feel super likely right now. The same will be true in other environments. Yes, we give up some growth if equity markets are up 50% and you want to be all-in on that scenario—I would tell you to buy somebody else’s stock over ours because we represent a more diversified long-term compounding durable play. Operator: Our next question comes from Steven Chubak with Wolfe Research. Steven Chubak: Good afternoon, and thanks for taking my questions. A bigger picture question getting more attention that could impact the Wealth Solutions business, pertaining to AI and its growing adoption in the wealth space. There has been talk about the importance of greater control over infrastructure, tech stack, data, and the ability to offer more customized tools. Some believe this may compel more scale firms to transition to self-clearing models over time. Recognizing you service the largest RIAs and IBD platforms, what are you hearing about this potential structural shift that could take place over years, and how do you ensure you can keep those customers within your ecosystem? Robin Vince: It is an important question. Coincidentally, I was speaking with one of our largest clients yesterday about this. They reaffirmed how excited they were to be on our platform for the reasons you listed. They want to grow and have finite investment dollars. They want to spend on roll-ups, organic growth, and advisors—the core of their business. They do not want to spend on cyber defense and platform, nor try to compete at our scale—more than $3 trillion—in investing in core capabilities we provide. If you are a $3, $4, or $5 trillion RIA, you have your own scale. But if you are $50, $100, or $200 billion, you do not. Take AI as an example. If you go it alone, you have to pick a provider, live in their ecosystem, subject to their pricing power and models. You cannot have the cross-platform AI scale that gives you more control over deployment. There is a theme of scaling with trusted providers that applies to Pershing as it does to our other businesses. As we combined Wealth Solutions and aligned pieces for Pershing, clients continue to tell us they like scaling with us. Steven Chubak: Those are great insights, Robin. If I could squeeze in one more—double-click into Glenn’s earlier question on tokenization and implications for the ADR business if tokenized securities become more widespread? Robin Vince: People have been predicting the decline of the Depositary Receipts business for twenty years, but it is a very defiant—and for us growing—business which has performed well. Here it is really about connectivity and services: connections with exchanges and settlement rails. An AI agent cannot just turn up and offer that connectivity because providers do not want to provide that type of access. It is one thing to ask, “What was the price of the ten-year yesterday?” It is entirely different to give an agent full autonomy over how you connect to infrastructure and control assets. We think there is trust benefit we derive that is relevant in places like this. We will use AI ourselves to make the process more efficient across the lifecycle of many of our products. We are not competing with AI; we are competing with other people who use AI better than us. Operator: Our final question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: Hi, Robin. Hi, Dermot. Dermot McDonogh: Hi, Gerard. Gerard Cassidy: Two questions. First, in the Securities Services area, specifically Issuer Services—there was a sequential decline from the fourth quarter in revenues, though up year over year about 4%. What were the factors that caused that? Second, is there an opportunity for the Depositary Receipts business to pick up if international equity issuers come into the US capital markets later this year? Dermot McDonogh: On the quarter-over-quarter, Gerard, Depositary Receipts is a seasonal business. It speaks to seasonality rather than any noticeable trend. Corporate Trust, as I said in my prepared remarks, continues to grow—we are growing the revenues and margin. We are investing in the business, and we have grown the margin quite substantially over the last three years. It is the business where the platforms operating model is most mature—we are beginning to see the most benefits. It is three years in the model. We like what we see in terms of leadership, technology investment, and how we are showing up for clients. It is not an accident that we went through $15 trillion in Q1 in terms of total debt serviced. Overall, great momentum in that part of the world, and we expect it to continue. Gerard Cassidy: Thank you. And then, Robin, coming back to the AI commentary—can you frame out when AI becomes ubiquitous to your business as well as others? If you turn back the clock and look at the introduction of the internet or digital banking after the iPhone, how long does this take to ramp up AI so that five or ten years from now we say it is just normal operating business and something that everybody is doing? Robin Vince: I think the answer is that it has to be a lot less than those time frames for it to become ubiquitous in a company. If you do not make it ubiquitous inside those time frames, I do not know how you are going to keep up and compete. It is such a powerful technology and accelerating so quickly—we are talking about 10x capabilities in many cases. If you are behind the 10x curve by any meaningful period, you will be in trouble, which is one reason we are so focused on it. You have to make it ubiquitous, which goes back to culture, integration, and deep embedding—our principles at this point. We aim to make it well inside those time frames. Gerard Cassidy: Thank you. I appreciate that. Operator: That does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks. Robin Vince: Thank you, and thanks everyone for your time today. We appreciate your interest in The Bank of New York Mellon Corporation. Please reach out to Marius and the IR team if you have any follow-up questions. Be well. Operator: Thank you. This does conclude today’s conference and webcast. A replay of this conference call and webcast will be available on The Bank of New York Mellon Corporation Investor Relations website at 3 PM Eastern Time today. Have a great day.
Operator: Greetings, and welcome to the Prologis Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. Justin Meng: Thank you, operator, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of federal securities laws and including statements regarding our outlook, expectations and future performance. These statements are based on the current assumptions and are subject to risks and uncertainties and that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our first quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I will hand the call over to Dan. Dan Letter: Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level, supported by resilient demand, disciplined execution and the strength and scale of our global platform. Last quarter, we outlined our top 3 priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signings supported by both strong retention and healthy new leasing activity. Occupancy exceeded our expectations, and we are raising our full year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC and subsequent to quarter end, a $1.2 billion joint venture with La Caisse. These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide. Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I'll focus on what we are seeing in our data, what we're hearing from our customers and how we are operating the business. Our lease signings, proposal volume and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April of 2025, the pause in leasing activity was relatively immediate before flowing out in the following weeks and months. At the same time, our customer insights are grounded in direct ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation and they are telling us 2026 business plans are unchanged. The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date. That said, we're operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform and the structural drivers of growth across logistics, digital infrastructure and energy remain firmly in place. And with that, I'll hand the call to Tim to walk you through our results and outlook. Timothy Arndt: Thank you, Dan. Turning straight to our results. We delivered a solid quarter, executing well against our strategic priorities in a dynamic environment. First quarter core FFO was $1.50 per share, including net promote expense and $1.52 per share, excluding this expense, each ahead of our expectations. We ended the quarter with occupancy of 95.3%, reflecting the seasonal drop we telegraphed and typically experience each first quarter. Retention remained very strong at nearly 76%. Net effective rent change was more muted this quarter at 32%, driven primarily by market mix. Our expectation for full year rent change to approach 40% on a net effective basis remains unchanged. Our lease mark-to-market ended the quarter at 17% on a net effective basis. The rate of decline has slowed meaningfully, due in part by an uptick in market rents this quarter, the first increase in 2.5 years. Our lease mark-to-market represents approximately $750 million of embedded NOI at spot rents, which, of course, do not reflect the replacement cost rent upside, which should materialize over time as occupancies improve. Same-store NOI growth was 6.1% on a net effective basis and 8.8% on cash. In addition to the year-over-year occupancy increase and the growing contribution of rent change, the period also benefited from unusually low bad debt. In terms of capital deployment, we had a fantastic quarter. We started $2.1 billion of new development, including $850 million in logistics and $1.3 billion in 2 data center projects. Within logistics, approximately 75% of the starts were speculative, reflecting improving fundamentals and our confidence in the need for new supply across many of our markets. Our data center starts totaled 350 megawatts between 1 ground-up development at an existing campus and 1 conversion out of our portfolio. Both projects are pre-leased on a long-term basis to leading technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional with 1.3 gigawatts under LOI and all of our power pipeline in some level of discussion. We ended the quarter with 5.6 gigawatts of energy either secured or in advanced stages which reflects the stabilization of another 150-megawatt facility during the quarter. Simply assuming a power cell format at $3 million per megawatt, our current pipeline could provide well over $15 billion of investment and multiples of that in a turnkey format, creating significant potential for value creation. Continue to scale our solar and storage business, meaning customer demand and completing 42 projects during the quarter, bringing us to a total of 1.3 gigawatts of installed capacity. In terms of capital recycling, we sold or contributed approximately $1.2 billion of assets during the quarter. This included initial activity within the U.S. Agility Fund announced last quarter as well as seed assets for our new venture with GIC. Before turning to our markets, I'd like to take a moment to highlight that we marked the 10-year anniversary of Prologis Ventures, our corporate venture capital arm. We've now invested $300 million across more than 50 companies providing visibility to emerging technologies and solutions in the supply chain to stay ahead of disruption, drive innovation and discover new opportunities. Overall, we progressed further through the stages of inflection with demand strengthening vacancy topping out and an increase in the number of markets providing positive rent growth. Our U.S. markets absorbed 45 million square feet, a solid result on a seasonally adjusted basis, slightly ahead of our forecast and consistent with our own leasing experience in the quarter. The U.S. vacancy rate was flat sequentially at 7.5%, aided by lower completion levels as the construction pipeline remains favorable at just 1.7% of stock compared to a 10-year average of 2.6%. We still expect a relative balance between supply and demand, which would allow vacancy to drift lower over the year. Globally, market rents grew 30 basis points during the quarter. And barring an economic slowdown, we expect growth to continue, although it may be uneven quarter-to-quarter as conditions firm. In the U.S., the strongest growth remains in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K. and Japan stand out internationally. Southern California is performing in line with our expectations, which is to say it is improving but will lag other markets. We're seeing stronger leasing activity and a more constructive tone from customers and vacancy has increased modestly and rents have declined slightly, again, both consistent with our outlook as the market continues to progress through its earlier stages of inflection. Moving to our customers. Our recent leasing has been supported by a broader mix of transactions across both size category and geography. Even after delivering record leasing in the quarter, our pipeline has not only replenished but in fact, reached new highs reflecting strong underlying and ongoing demand. With large space format now essentially sold out in our portfolio, we're seeing activity broaden into other unit sizes alongside strength in our build-to-suit demand where our pipeline continues to be healthy. From a segment perspective, demand remains strong in essential goods and e-commerce, with increasing momentum among data center suppliers. Decision-making is marginally slower, the leasing activity remains robust, and we have not seen any meaningful evidence of pullback. In capital markets, transaction volumes have increased with an encouraging amount of product currently in the market across core, core plus and value-add strategies and spanning both single asset and portfolio transactions. What stands out is the pricing premium for quality. Assets with strong locations, functionality and credit are attracting the deepest buyer pools with cap rates on market rents around 5% and unlevered IRRs in the mid-7s. Turning to strategic capital. We closed commitments for 3 additional vehicles, including a new venture with GIC, which will develop and hold U.S. build-to-suit opportunities and an expansion of our relationship with La Caisse through a pan-European venture focused on both development and acquisition strategies. We also launched a new acquisition vehicle in Japan. Between these ventures as well as the Agility Fund and CREIT closings announced last quarter, we've raised over $2.6 billion of third-party equity, aligning capital with growing investment opportunities in a more accretive format. And finally, on our balance sheet, we raised $5.5 billion in new financing during the quarter at a weighted average rate of approximately 3.75%. This includes the $3 billion recast of one of our 3 credit facilities at a spread of just 63 basis points, the lowest of any REIT. Turning to guidance, which I'll review at our share. We are increasing our forecast for average occupancy to a range of 95% to [indiscernible]. This increase, together with our first quarter outperformance drives our expectations for net effective same-store growth to 4.75% to 5.5% and cash growth to 6.25% to 7%. And Strategic capital revenue is now expected to range between $660 million and $680 million, and G&A is expected to range between $510 million and $525 million. As for deployment, we are increasing development starts to $4.5 billion to $5.5 billion, this on an own and managed basis with approximately 40% allocated to data center build-to-suits. Acquisitions will continue to range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.5 billion and $4.5 billion, all at our share. Putting it together, our strong start has us increasing our outlook on earnings. Net earnings will range between $3.80 and $4.05 per share. Core FFO, including net promote expense will range between $6.07 and $6.23 per share, while core FFO, excluding net promote expense will range between $6.12 and $6.28 per share an 80 basis point increase from our prior midpoint. In closing, the strength of our business is evident against the backdrop of ongoing volatility. We are anchored by a portfolio of irreplaceable assets generating durable and growing cash flows, a disciplined approach to capital deployment, a scaled asset management platform and a fortress balance sheet. At the same time, we continue to expand in our adjacent businesses in energy and data centers, providing additional avenues for growth. We're excited by the strong start we've had, are proud of our team's execution and are well positioned to deliver excellent results over the balance of the year. With that, I'll turn the call back to the operator for your questions. Operator: [Operator Instructions] And your first question comes from Ronald Kamden with Morgan Stanley. Ronald Kamdem: Great. Congrats on the record leasing in the quarter. And I think I heard you mention that the pipeline is also back at record. I guess my question is just on the leasing spread. That looks like slightly [indiscernible] in the quarter. Just any comments there and how you guys are thinking about occupancy versus pricing going forward for the rest of the year? Timothy Arndt: Ron, yes, the quarter, I mentioned there was some mix going on in the numbers you see about 40% of the role by happen stands happen to be in our West region in the U.S. where we have some softer conditions and lower lease mark-to-market, as you're aware. So that impacted both rent change and things like free rent that you'll see in the SEP. In terms of balancing around occupancy and rent change, it's really not only market by market, it's really deal by deal. I would say out there, we have a pretty wide mix of market conditions, as you know, some exceedingly tight and some still soft, and that can happen at the submarket or even the unit level. So I'd say, in aggregate, we are in a mode of pushing rents in a number of markets and situations. But still preserving for some occupancy. Operator: Your next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Just wanted to ask on the data center development leasing front. It obviously seems like some good news announced in the quarter. But mean is there a worry we've heard things in the news around data center development opportunities around the country, getting shelved the local municipalities pushing back. Is that a risk for this pipeline? Or do you feel for these projects you've got underway even with the secured power that you're able to go forward and lease these and ultimately create that value that you've been talking about? Dan Letter: Michael, this is Dan. So our pipeline in the build-to-suit for data centers is very strong. You saw these 2 starts that we announced this quarter. We've been guiding for the year for the first time on what we expect to see. We've got 1.3 gigawatts of deals under LOI, and we're making further progress converting the pipeline I feel really good about what we have going. And I think that accounts for the next 3 years' worth of business and everything we're hearing from our customers is they need the space. Operator: The next question comes from Craig Mailman with Citi. Nicholas Joseph: It's Nick Joseph here with Craig. I appreciate the added disclosure on the data centers what we assume development margins on the new starts this quarter? I think in the past, you've talked about 25% to 50% margin. So how do these starts compared to that range? Dan Letter: So when you look at our start volume for the quarter, then obviously the blend of both our logistics that includes build-to-suits. It includes spec, where we've more spec going on this quarter than we've had the last several quarters. And then on the data center front, I would keep it within the range that you've heard us talk about the last few years, it's 25% to 50% better or higher than what you see in our typical logistics margins. Operator: Your next question comes from Blaine Heck with Wells Fargo. Blaine Heck: It seems as though average occupancy outperformed expectations during the quarter. I know you guys raised the guidance slightly, but given that the occupancy guidance doesn't lead much upside from Q1, is there anything kind of timing related that happened such that where we could see some more downside in Q2 than was initially expected? Or is there just maybe some conservatism in that guidance since we're still early in the year. And as Dan mentioned, visibility is somewhat more challenged. Timothy Arndt: Blaine, we outperformed average occupancy by around 20 basis points in the quarter. You see a lift in our full year using the midpoint of our guidance of around [indiscernible] points. So in excess of that, that reflects 2 things. There is one, some pulling forward of occupancy, mainly that's going to manifest in the form of surprise renewals, that kind of thing. And then also reflects the strength of the pipeline. As I mentioned, we had a lot of activity both in signings. That's half of it, but then the overall size of proposals standing today is large enough that gives us the confidence for the rest of the piece of that race. Operator: Next, we have Andrew Berger with Bank of America. Unknown Analyst: It sounds like 1Q net absorption was a bit ahead of your expectation. Can you just share your latest views on the fundamental outlook for 2026? Christopher Caton: Sure, it's Chris. So our view is unchanged. We're moving through the inflection phase, as Dan and Tim described in the script. There's very little change to our view. That's net absorption on pace to approach 200 million square feet and completions, 190 million square feet this year. So that will see rents and occupancies, market rents and occupancy is improving over the year. So like you proposed there, like you described, Q1 was modestly better. And -- but we're going to hold our core assumptions. This is a macro landscape that's going to evolve over the course of the year. It will be shaped by the magnitude and duration of the conflict in the Middle East. And so our outlook is balancing that risk against what we see which is resilient customer demand, as Dan described in his prepared remarks, we also leveraged the economic consensus. And they have been marking to market their view, taking it down sometimes 40 basis points in the back half of the year. But look, stepping back, the baseline view is intact, and there is ongoing momentum in the marketplace. Operator: Next, we have Nicholas Yulico with Scotiabank. Nicholas Yulico: I just want to turn back to some of the market commentary on -- which was helpful. Wanted to see if we could get a little bit more details on some of the U.S. laggard markets. I know you already talked about Southern California, but perhaps New York, New Jersey, other markets that maybe aren't outperforming what kind of needs to change to get better rent growth there. And then in terms of the Europe exposure, if you could just also talk about non-U.K. countries and sort of latest feeling you're hearing from customers since there is a lot of questions about how energy prices in Europe could affect the economy over there. Christopher Caton: It's Chris. I'll jump in. So first off, in the U.S., there are 3 or 4 things to reflect on. Number one, there is a growing range of healthy geographies in the U.S. Places like Texas generally, South Houston and Dallas are either strong or healthy, Atlanta and increasingly some of the Midwest markets, something about Columbia, something about Indianapolis. So there's that strength that Tim described in his prepared remarks. Yes, specifically after soft markets, the 2 softest markets are probably L.A. County and Seattle in the United States. Those are areas where vacancy rates are very elevated relative to history. The pace of incoming demand is muted. And so the recovery is yet to play out there. In terms of some core markets, you asked after New York, New Jersey, I'd also throw in San Francisco Bay Area. These are areas where we're upgrading our views. In general now, we're entering a phase where we're upgrading our assessment of markets and New York, New Jersey is a great example of it. Is it time for rent growth there? No, not quite yet. This is a year where we're going through a transition phase like we've talked about, but it's just worth knowing that we have a bias to upgrading areas. Vacancy rates have peaked are beginning to come down toning customer demand is positive. Turning to Europe. So first off, the Western European geographies of like Germany and the Netherlands are leading that marketplace. And we have the dialogue that was described in the prepared remarks, we have it globally, and that includes your Euro and the tone there is positive. Business plans are intact and customers are moving forward with their real estate requirements. Dan Letter: Maybe one thing I would add on here is just focusing on the unit size or building size, anything over, call it, large format, 500,000 square feet or above, we're nearly sold out. We're 98% leased across the globe at that size. So you'll start seeing rent growth there, certainly. Operator: Next, we have Vikram Malhotra with Mizuho. Vikram Malhotra: Congrats on the strong quarter. Just 2 clarifications. So I think last quarter, you had said as we enter the back half of the year, we'd like to see some markets where annualized rent growth could maybe eclipse your rent bumps I'm just wondering if you can give us a bit more color, like what -- which markets are you seeing real rent growth on an annualized basis? And then if you can just clarify on the same-store NOI outlook, the cash outlook, given the number you had in it does suggest a decel. So what's sort of driving that? Or I guess, what drove the big pop in 1Q versus the guide? Christopher Caton: Vikram, I'll start with market rent growth, and Tim will take some of the same-store questions. I like the way you worded the question there trying to get really specific numbers out of me. I don't recall that we would have put it that way. But let me just tell you the healthiest geographies including in Atlanta, Dallas, Houston, Columbus, also outside the U.S. places in Latin America like Sao Paulo and the Mexico City, these are the leading geographies for rent growth. Timothy Arndt: And Vikram, on the cash piece, yes, our guidance reflects our expectations clearly, the first quarter is benefiting from some occupancy comps a bit more favorable in the first quarter about the cadence of 2025. We built occupancy over the course of that year. So those comps get to be a lesser effect and then rent change, of course, is powerful rolling through the portfolio. But on a year-over-year basis, as spreads get a little bit more relaxed, that contributes lesser to quarter-over-quarter -- well, sorry, year-over-year for the same quarters in terms of same-store. Operator: Next, we have Tom Catherwood with BTIG. William Catherwood: Excellent. Maybe going back to the data centers for a second. Even when power is secured, it seems like there's a supply chain crunch on the equipment side, which is creating bottlenecks, especially with turnkey developments. Are you able to get ahead of that by preordering material and equipment similar to what you did during the pandemic? And if so, is it giving you an advantage when it comes to your build-to-suit negotiations? Dan Letter: Thanks, Tom. The short answer is yes, absolutely. Procurement, our fortress of a balance sheet and ability to get out in front of these long lead items is absolutely a differentiator for us. And what I'd say is just overall, this machine we've built and that we focused on so much over the last 3 years around building these capabilities across this company, whether it be procurement, data center expertise we've built in a big way over the last few years. It's leading to this pipeline that you see and the confidence that we have in putting these numbers out there and I'll actually correct something I said earlier on today and an earlier question around margins. Margins are actually 25% to 50%, not 25% to 50% better than logistics. And these are very profitable deals. Keeping in mind, our pipeline is built on the foundation of logistics basis, buildings and land. Operator: Next, we have Caitlin Burrows with Goldman Sachs. Caitlin Burrows: You might have touched on this a bit in the prepared remarks in terms of 3 points of focus. But Tim, you mentioned the new GIC and La Caisse JVs the acquisition vehicle in Japan, the Agility Fund. It just seems like a lot. So I'm wondering if there's some new increased focus on the strategic capital business, are those coincidental timing? Or is there some bigger push kind of on the fund side? And is there any core differences between these new funds and the existing ones? Timothy Arndt: Kate. Look, we're really proud and excited of the number of vehicles. We've launch now in the last 2 quarters, 5 new vehicles, spanning geographies and formats, but also risk appetite. One thing that you see between the U.S. Agility funds launched last quarter, as well as the venture announced here is spanning into some development activities. And it's very purposeful. We're getting ahead of what we see as growing deployment volumes on one part in logistics, you see us ramping up our guidance there as markets are improving. This is a machine that ought to be able to do $5 billion to $6 billion pretty easily, I would say, with our land bank and the size of our platform. But that's being matched up with this incredible data center opportunity that Dan is speaking to. And we are looking at the capital needs there and finding the right ways to get to all of those opportunities. actually in a smarter, more capital-efficient format that can yield fees and promotes. So you're seeing that branching now to exhibited in the announcement of these vehicles. Operator: Next, we have Michael Goldsmith with UBS. Michael Goldsmith: Lease proposal pipelines picked up quite a bit in the first quarter here. So can you provide a little bit more context around it? What's driving it? What sectors is coming from, what sizes and how should that translate to actual leasing in the current quarters. Christopher Caton: It's Chris. So what's underpinning that is customers have been deferring growth requirements sitting through -- sitting on their net needs and they're increasingly responding to the growth in their businesses, the opportunity to invest in their supply chains and as far as slices, it's diverse. So there are a couple of different ways we can look at it, whether it's by size. And so there's growth, say, for example, both above and below 100,000 square foot unit sizes. There's growth, for example, in terms of organizational types. So say international scale customers versus our local scale customers. Those are both growing as well as both renewal and new requirements. So there is diversity there. Operator: Next, we have Vince Tibone with Green Street. Vince Tibone: I wanted to follow up on your comment that data center suppliers are increasingly taking down logistics warehouse I just wanted to get your perspective on how material this demand driver could be in the coming years and also how sustainable? Like is it all tied to construction and this could be shorter-term leases? Or is this about servicing existing data centers as well. So I just -- yes, I'm trying to get a sense of like how -- is this a new structural demand driver for the space, what percentage of new leases maybe it's represented in last quarter or 2, if you're able to share. I just wanted to kind of pick your brain on that kind of seemingly new side of warehouse demand. Christopher Caton: Yes, Vince, you're right. It is a new structural driver of logistics real estate demand. It has gone from, say, less than 5% of new leasing a year ago to now 10% of new leasing, and it's an even greater share of the forward-looking pipeline. So there's absolutely upside over the near term as a consequence of this driver. In terms of the breadth and duration, I suppose, number one, we see them signing deals with really healthy term. There is a shift in their own supply chains going from -- I think you could think about it as unbundling manufacturing and distribution to having distribution, a more regionalized and close than production of the data centers. And so there's really solid momentum here, and you're right to describe it as a new structural driver for logistics real estate. Operator: Next we have Michael Carroll with RBC Capital Markets. Michael Carroll: With regard to the data center opportunity, how do these tenants discussions progress when deciding between pursuing a power base or a turnkey build-out I'm assuming these are different tenants that would want the power base builds. Is that fair? And how much of the opportunity that you kind of quoted in your prepared remarks could potentially be turnkey. Dan Letter: Every discussion, every deal is different, let's put it that way. And different users have different mindsets at different periods of time. So -- what you see from us, we were heavily focused on the powered shell side of this as you start these discussions. And then we've -- you've seen us deliver some powered shell plus really, we're trying to just work through the customer what they need from us and about how we capitalize this business longer term, maybe you see some more turnkey from us over time, but really, it's just a matter of who your -- what customer you're talking to and what's on their mind at the time. And... Timothy Arndt: Yes. And yield, what is their respective cost of capital is the other thing I see us coming up against because the migration up to turnkey can be expensive. Operator: Next up, we have Nick Thillman with Baird. Nicholas Thillman: Tim, I wanted to circle back on some of the commentary you had on the acquisition side and cap rates. Obviously, varying degrees of demand from a fundamental standpoint and the leasing side. understand your comments on just core portfolio transactions and quality buys, but it seems historically relative to historical trends, just cap rates by market or historically tight. I'm wondering if you guys could provide a little bit more commentary on markets where maybe you're seeing cap rates expand a little bit more? Or maybe you're seeing a little bit more compression on the transaction side. Dan Letter: Nick, I would say cap rates certainly expanded over the last few years. They've been holding pretty steady for the last 5, 6 quarters or so. We obviously dive deep into this volumes. Volumes themselves are actually, I would say, normalized. And so -- and those cap rates at a market it's going to be a range between 5% and 5.5% depending on the location quality. You're seeing more of a divergence of Class B and C than obviously that collapsed during the last cycle. And when you look at -- when we look at it, what we are an IRR-based investor, we're not focused necessarily -- of course, we're focused on it, but we're looking at the total return of these assets, quality, total return location. And so cap rates can be a bit confusing at times. Operator: Next, we have Mike Mueller with JPMorgan. Michael Mueller: For GIC and La Caisse. Can you give some color on how you determine what developments will be done in those ventures versus on your balance sheet? Timothy Arndt: Mike, we go through an allocation policy that is long-standing at the company. Now as you can imagine, our 40 years as an asset manager. We've had overlapping vehicles with mandates that need to be managed, so we have an allocation policy in that regard that deals will cycle through. It could find any of those vehicles, including the balance sheet has been the ultimate developer of some of these assets, and it's dependent on a variety of conditions that are run with good governance I think that makes your lives difficult if you were left only that which is a way of saying you're going to be increasingly reliant on the PLD share of these development volumes. So that will cut through all that noise for you because ultimately, that's the thing that's going to matter economically for the company. Operator: Next, we have Brendan Lynch with Barclays. Brendan Lynch: It looks like turnover costs per square foot are coming down, I think now about 7.3% of lease value, but free rent has ticked up a bit. So how should we think about the evolution of concessions going forward? Timothy Arndt: Well, I'll start. Concessions are still a bit elevated right now. We've seen free rent, as you highlight, stepped up. I said earlier, so I'll say it again, some of that influenced by the greater amount of roll out of the west where those conditions are softer and concessions are a bit more elevated. We do expect concessions to normalize as occupancies build, which that's on the free rent metric would be more in the order of something like 3% of lease value versus a little bit of a bulge that you see at the moment. Operator: Next, we have John Kim with BMO Capital Markets. John Kim: On data centers, I wanted to see if there was an update on the timing of your data center vehicle. And also if you can just clarify the 5.6 gigawatt of capacity, is that on growth or leasable power? Dan Letter: Sure. So let me start with the capitalization fees, maybe hand it to Kim -- or Tim, for some color. But bottom line is we've had very constructive conversations with global investors over the last 2.5 quarters or so. And interest remains very strong. We feel like we're in a very good position with multiple options. And we're just taking the time to evaluate what makes the most sense for us right now. Our current model of building on the balance sheet and then selling these stabilized assets has worked really well the last couple of years, and we see it working quite well going forward. I'd like to actually step back at this point and realize what we've done over the last few years, and I already mentioned it at the front end of the call, but the pipeline we've built, the capabilities we've built and the progress we've made since we embarked on this officially call it Investor Day 2023 has been tremendous. So feel great about what we're putting in front of these investors and where we're going to take it from here. But Tim may have some additional color on the capitalization piece. Timothy Arndt: Look, I think you covered it well. Happy to take other questions. I think the second part of your question dealt with clarification on the megawatts that is utility load that we're reporting out, and there's going to be -- probably 2/3 of that will be critical, so you can apply math based on those numbers. Operator: Next, we have Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I just wanted to go back to the discussion on market rent growth, and I appreciate some of the color and good to see the first increase in, I think, 2.5 years, as you said. Do you expect market rent growth to persist just given where conditions are at this point in the cycle? And then I know you touched on SoCal, but can you share a little bit more detail on that market and a bit of a real-time read on what you're seeing and how conditions are currently and how the market is performing relative to expectations so far this year? Christopher Caton: It's Chris. I'll start and Dan may add remarks as well. So first off, on market rent growth, one, underline the word stability. We did have a bit of growth in the first quarter is pretty incremental. And that is really a market-by-market exercise, with most markets enjoying stable to slightly rising. But with there being pockets of real strength like we discussed earlier on the call, as well as some pockets of softness like we also discussed. So I think what you should think about is our call is unchanged, but we're passing through an inflection. Rent growth is still a little bit uneven, and it's just a bit too early for broad-based and sustained growth. I'll offer a few details on Southern California. That is a market that is moving through the bottoming process. We're seeing the demand pick up. Vacancy is near a trough, but it's just a bit too early for rents to increase on a broad base. but there are pockets that are firming. Dan Letter: Yes. Let me just pile on a little bit here in Southern California. I feel like I've said this quite a bit over the last 1.5 years or so in various meetings. But I think it's really important to emphasize just how big of a market Southern California is and what are Os in these markets. We're focused on being close to the end consumer. There are 24 million consumers in Southern California. It's a $2 trillion economy down there and it's just getting more and more difficult to build down there. So the supply backdrop is really shaping up for that market quite well. And so we're -- we feel good about the projection we've made about Southern California kind of tailing the overall market by 2 to 3 quarters. That was the last question. So thank you all for joining the call. Just a big thank you to our colleagues around the world for another exceptional quarter. We look forward to seeing you all at upcoming conferences and speaking again at the next quarterly call. Thank you. Operator: Thank you. And with that, we conclude today's conference call. All parties may disconnect. Thank you.
Operator: Welcome to Marsh's Earnings Conference Call. Today's call is being recorded. First quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thanks, Andrew. Good morning, and thank you for joining us today to discuss our first quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO; and the CEOs of our businesses, Nick Studer of Marsh Risk; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Ted Moynihan of Marsh Management Consultant. Also with us this morning is Jay Gelb, Head of Investor Relations. Let me start by highlighting recent changes to our Executive Committee. Mark was named Chief Operating Officer of Marsh in addition to serving as our CFO. In this expanded role, Mark will take on more responsibility for evolving our strategy and working across our business to drive execution of top priorities, support collaboration and accelerate pace. We also announced Nick as the CEO of Marsh Risk. Nick is a proven growth leader as demonstrated by his record as CEO of Oliver Wyman. His experience advising corporate and public sector leaders on the topics of risk and strategy positions Nick well to deliver on our growth ambitions. Nick succeeded Martin South, who is now our Chief Client Officer. Martin will focus on elevating the client experience across the company and help us better leverage AI to support clients. And Ted succeeded Nick as CEO of Marsh Management Consulting. Ted has more than 3 decades of leadership experience at Oliver Wyman, and he is a respected adviser to business and government leaders. I look forward to him driving continued growth at Marsh Management Consulting. Congratulations to Mark, Nick, Martin and Ted. These leadership changes are all about growth, enhancing the client experience and helping us capture the benefits of Thrive. Turning to results. Our performance in the first quarter reflects solid execution despite challenging market conditions. Overall, we grew revenue 8% in the quarter. Underlying revenue increased 4% despite lower fiduciary interest income and continued downward pricing pressure in insurance and reinsurance. We are seeing strong sales across our business, and we are pleased with the sequential improvement in the growth at Marsh Risk. Adjusted operating income grew 8% from a year ago, and adjusted EPS also grew 8%. Turning to the ongoing conflict in the Middle East. Our primary concern has been the safety and well-being of our colleagues and clients and helping them navigate the challenges in the region. The impact on our business and the broader insurance industry has been limited. The economic issues related to the conflict in the gulf are not about insurance. While certain lines like marine coverage may experience price spikes for war risks, ultimately, the gating issue is the escalation. A sustained conflict in the region will create more uncertainty and risk for the world's economy. Broadly Marsh is advising clients on how to build greater resilience in their business planning, we're helping them address supply chain issues, review their cyber exposure and we are advising on investment decisions. And of course, we are working with clients to manage insurable risks, particularly in marine, aviation and energy. We've also engaged with governments as they work to minimize economic disruption and maintain global trade, particularly in energy, fertilizer and other commodities. Challenging events like this underscore the purpose of our work. It's also why we believe Marsh provides a unique value to clients who need strategy, talent, investment and risk advice in complex times. I'd like to take a moment to discuss our AI strategy and why we believe Marsh will be an AI winner. Our strategy leverages our scale and capacity to invest in AI to drive even greater value from our proprietary data assets and our role as our clients' trusted adviser. We are focused on 3 main pillars. The first is growth. We are building AI-enabled applications and services that are generating new revenue streams as well as enhancing world-class capabilities and data-driven insights in insurance, health, human capital and investments. Examples of these products include ADA, Centrus, UCLI and GC Quotebox, and many more of these applications are in development. We also see significant AI growth opportunity in consulting. Oliver Wyman's AI Quotient team created to help clients deploy their own AI strategies is its fastest-growing practice. We're advising clients in multiple sectors, such as banking, energy, government and manufacturing around AI and workforce transformation. We've already advised on more than $50 billion of capital investment in AI deployment. And Mercer is working with clients to assess and inventory skills and redesign jobs as AI is integrated into ways of working. Our second pillar is productivity, which focuses on deploying AI capabilities to boost the performance of our colleagues. This is showing up in hundreds of different ways across a wide variety of roles. A good example of our work is to embed AI our client management tools and to develop AI agents to help colleagues source and prequalify leads to support sales productivity. The final pillar is efficiency. Across our business, we are starting to see the impact of AI automation. A critical reason for creating our business and client services unit, or BCS, is to exploit the efficiency potential of AI. By consolidating our back-office operations and technology into scalable centers, BCS is accelerating the pace of AI-driven automation and process reengineering. For instance, our document ingestion capability is now handling thousands of documents weekly already improving efficiency in these processes by 20% and enhancing the quality of the data and its usability to further support clients with valuable insights. We are beginning to reduce the cost and time associated with upgrading code to modernize applications. For example, we recently used AI to turn a legacy tool into a newly designed broker workbench in days saving months of team effort. We have deployed agentic AI in our IT help desk, significantly reducing inquiries, improving colleague experience and creating downstream efficiencies in our support centers. And in our policy renewal center, AI has enabled us to transform a traditionally manual e-mail heavy process into a streamlined digital solution in weeks, a project that otherwise would have taken many months. AI-enabled savings will fuel additional growth investments, including in producer talent and new capabilities while building our confidence in continued margin improvement. It's important to remember that Marsh is not selling commoditized products or simply procuring insurance at the lowest possible price. That's not who we are or what we do. AI will help us serve our clients who have bespoke and complex needs even better. It will not replace the trusted advice, expertise and capabilities with which we deliver value to clients. In our risk business, we help clients identify and understand their exposures, implement loss prevention strategies and provide data and insights to make real-time decisions. And after developing the strategy, we help them finance their risk through self-insurance, traditional insurance, capital markets or captive management solutions to achieve their goals. Similarly, in consulting, we provide high-impact services to help organizations confront their biggest strategy and talent challenges. And we service trusted advisers to executive leadership in their company's transformative moments. Our client relationships, data and insights and the expertise of our professionals worldwide built over 155 years of market leadership is why we see AI as a powerful accelerator and enabler in delivering value to our clients, colleagues and shareholders. Now turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q1, driven largely by property. This follows a 4% decline in the fourth quarter of 2025. As a reminder, our index skews to large accounts. Rates in the U.S. were down 1%. Europe, Asia and Canada declined mid-single digits. U.K. and Latin America were down high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 9% year-over-year, which was the same pace as last quarter. Global Financial and Professional liability rates were down 5%, while cyber also decreased 5%. Global Casualty rates increased 3% with U.S. excess casualty up 18%, reflecting ongoing pressure in the liability permit, and workers' compensation decreased 1%. In reinsurance, there is substantial capacity to support client demand as reinsurers pursue growth. Throughout the first quarter, market conditions were generally consistent with what we saw at January 1. The strong reinsurer profitability, high ROEs and increased capital levels have resulted in ample supply of property cat capacity and meaningful rate reductions. It was also another active quarter for cap bond issuance. U.S. property cat reinsurance rates remain competitive for the April 1 renewal period. Rates for non-loss impacted accounts were down 15% to 20%, a slight acceleration from the January 1 renewal season. In U.S. Casualty Reinsurance, we continue to see a range of outcomes depending on loss experience with primary cares demonstrating limit, rate and underwriting discipline. In Japan, April 1 property cat rates overall were down 15% to 20% on a risk-adjusted basis. Early signs for June 1 Florida cat renewals point to similar market conditions characterized by rate reductions and excess supply as seen in January and April. There are early indications that Florida's legal reforms will contribute to further risk-adjusted decreases. Our clients are benefiting from the current market conditions. And as always, we continue to advise them on designing the best risk programs aligned to their goals. Now let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 8% to $7.6 billion, growing 4% on an underlying basis, with 3% growth in RIS and 5% in Consulting. Marsh Risk was up 4%. Guy Carpenter grew 2% and Mercer increased 5% and Marsh Management Consulting grew 6%. Adjusted operating income grew 8% and adjusted EPS was $3.29, up 8% year-over-year. We also repurchased $750 million of our stock. Looking ahead, we are well positioned for another solid year despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing. We continue to expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Our outlook is based on current conditions and the economic and geopolitical environment could change materially from our assumptions. In summary, we're off to a solid start in 2026. Despite challenging market conditions, we remain focused on executing our strategy and continuing our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand and generate greater efficiency. We're excited for AI's potential and committed to being an AI winner through growth, productivity and efficiency gains. Marsh is a resilient business that provides critically important advice and solution particularly in complex times such as these. We have proven our ability to deliver across cycles, and I am confident in Marsh's future. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John. Good morning. Our first quarter results represented a solid start to the year, reflecting strong execution despite a challenging environment. Consolidated revenue increased 8% to $7.6 billion with underlying growth of 4%, which came despite a headwind from fiduciary interest income and declining P&C rates. Operating income was $1.8 billion and adjusted operating income was $2.4 billion, up 8%. Our adjusted operating margin was unchanged at 31.8%. GAP EPS was $2.36 and adjusted EPS was $3.29, up 8% over last year. Looking at Risk & Insurance Services. First quarter revenue was $5.1 billion, up 6% from a year ago or 3% on an underlying basis. Operating income in RIS was $1.3 billion. Adjusted operating income was $1.9 billion, up 7% over last year, and the adjusted operating margin was 38.3%, up 10 basis points from a year ago. At Marsh Risk, revenue in the quarter was $3.7 billion, up 8% from a year ago or 4% on an underlying basis. Growth increased sequentially despite the more challenging market conditions, reflecting solid performances in the U.S., including MMA and across international. In U.S. and Canada, underlying growth was 3%. In international, underlying growth was 5%, with EMEA up 6%; Asia Pacific up 5% and Latin America up 2%. Guy Carpenter's revenue in the quarter were $1.2 billion, up 3% or 2% on an underlying basis, a good result considering the current pricing environment. Growth was impacted by softer reinsurance market conditions and a tough comp to 5% underlying growth in the first quarter of last year. However, Guy Carpenter executed well and drove strong new business despite the tough market conditions. In the Consulting segment, first quarter revenue was $2.6 billion, up 11% or 5% on an underlying basis. Consulting operating income was $525 million and adjusted operating income was $552 million, up 13%. Our adjusted operating margin in Consulting was 21.6%, up 40 basis points from a year ago. Mercer's revenue was $1.7 billion in the quarter, up 11% or 5% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $727 billion at the end of the first quarter, up 5% sequentially and up 19% compared to the first quarter of last year. Year-over-year growth was driven primarily by new wins, the impact of capital markets and acquisitions. Career was down 2%, reflecting continued softness in project-related work in the U.S. partially offset by sustained demand in International. Marsh Management Consulting generated revenue of $897 million in the first quarter, up 10% and or 6% on an underlying basis, reflecting solid demand across most regions and sectors. Fiduciary interest income was $85 million in the quarter, down $18 million compared with the first quarter of last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary interest income will be approximately $80 million. Foreign exchange was an $0.11 benefit in the first quarter. Based on current exchange rates, we expect that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Corporate expense in the first quarter was $74 million on an adjusted basis compared to $81 million in the fourth quarter. Looking ahead to the second quarter, we anticipate corporate expense of approximately $90 million, which includes some one-off timing items. We're making good progress on executing our Thrive program. We remain on track to generate $400 million of total savings, a portion of which will be reinvested for growth and incur approximately $500 million of charges to generate the savings. Total noteworthy items in the first quarter were $521 million, including $37 million of costs associated with Thrive. Noteworthy items this quarter also include a $425 million charge relating to litigation stemming from the collapse of greenfield capital in 2021. As we have previously disclosed, Marsh served as greenfields insurance broker starting in 2014. The charge in the quarter represents the best estimate of our liability in this case, and was influenced by a recent court sponsored mediation among the parties involved. Our 10-Q filed earlier today includes further information on this matter and the charge. As you can appreciate, this litigation is ongoing, so we aren't able to comment further at this time. Interest expense in the first quarter was $240 million. Based on our current forecast, we expect interest expense in the second quarter to be approximately $245 million. Our adjusted effective tax rate in the first quarter was 25.1%. This compares with 23.1% in the first quarter last year, which benefited from discrete items, most notably a meaningful benefit related to share-based compensation. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Turning to capital management and our balance sheet. We ended the quarter with total debt of $20.6 billion. Our next scheduled debt maturity is in the third quarter with $550 million of euro-denominated senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled $1.3 billion, included $440 million for dividends, $89 million for acquisitions and $750 million for share repurchases. We continue to expect to deploy approximately $5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Turning to our outlook for 2026. Despite the challenging environment, we remain well positioned for another solid year. We continue to expect underlying revenue growth will be similar to the levels we generated in 2025 along with another year of margin expansion and solid adjusted EPS growth. For modeling purposes, we expect to generate more margin expansion in the second half of this year than in the first half. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we are ready to begin the Q&A session. Operator: Certainly. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Charles Peters: I wanted for my first question, to focus on our margin results. John, I know we're quite proud of the 18 years of consecutive margin expansion and presumably, you're going to hit your 19th year in 2026. But because of these results, it's caught the attention of many about where the ability to generate future margin expansion will come from? And maybe it's embedded in your AI comments. But with your margin results being so high, curious about the risks of AI disintermediation across the various businesses that you have? John Doyle: Sure, Greg. Let me hit the margin part of that and then maybe I can talk to AI disremediation risk. So sure, AI, and I gave you a bunch of examples right in my prepared remarks around efficiency gains and some that we're already seeing today. Let me remind everybody, of course, we've guided to year '19 of margin expansion this year, and we fully expect to do that. Thrive, of course, is broadly an important lever for us. BCS I think in the broader kind of AI discussion in the economy and amongst businesses and governments, AI often is being used as a term for broad-based automation, but I distinguish the 2. So we're -- we still have real possibilities around and are actively building out our capability centers and using kind of more traditional digitizing strategies to drive efficiency gains. So there's a lot in front of us there. And so we're excited about the path that we're on. As I said in my prepared remarks, we expect to be an AI winner, we moved early on AI, and we're excited about how it's already making us better and how it's going to make us better in the future. And our scale and data and insights enable us to move more quickly. I would say to you, we've competed with early-stage tech-enabled startups for a long time. We've competed with direct insurers for a long time and competed successfully with them. When I think about the attributes that we have is that we're in the early days of what's possible around AI, our trusted client relationships matter. Our data matters, our modeling, it matters, our ability to advise on risk, not just by insurance, really matters. Our ability to connect to a complex ecosystem of risk financing really matters. We don't just buy insurance for our clients. We do so much more than that. So when I think about all the attributes that we have and what our ability is to be an AI winner, I can't think of a better place to be -- to start and to begin the early days of what's possible around AI than here. Do you have a follow-up Greg? Charles Peters: Yes, I do. And I'm going to pivot to capital management. the public brokers, the stock prices, everyone's reset lower, I'm not sure on the M&A side that the prices or valuations of acquisitions have reset lower yet. So I'm just curious on how you're thinking about the allocation or difference between growth through M&A versus repurchase of your own stock considering the reset and value of the stock price? John Doyle: Yes, it's a great question. What I would say is our strategy remains the same, right? We want a balanced approach to capital management. We favor investing in our business, whether it's organically or inorganically. Our goal remains to increase our dividend each year. And buybacks ultimately will depend on M&A. And as I mentioned in my prepared remarks, we did $750 million of buybacks in the first quarter. And we expect to deploy -- Mark mentioned we expect to deploy about $5 billion worth of capital this year. We're active in the market. Our pipeline is strong. So I feel terrific about that. And just as a reminder for everyone, 18 months ago, we closed on the biggest deal in our history, right? So not so long ago. And last year, we deployed about $850 million to M&A. And we did a meaningful deal at MMA in the fourth quarter in Hawaii, as most of you would remember. We did a couple of small deals, 3 small deals in the first quarter. We also actually closed on the sale of an admin business in the Pacific. I'd point that out to you. And we announced the acquisition of AltamarCAM. It's a private market asset manager with about $20 billion of AUM. That's kind of regulatory approval. So we expect that to close sometime later in the year. So we're likely to continue with our string of pearls approach. We do have the capacity to do larger deals, who knows what the marks are PE-backed assets. I will say, over the course of the last couple of quarters and some conversations we've had, there's been growing gaps between bidding -- bid and ask. We'll see how that materializes over the rest of this year. We've seen financial sponsors be a bit more aggressive than strategics. And Greg, we're going to, as always, be disciplined about how we deploy our capital. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Michael Zaremski: Great. Just 1 question on maybe around the AI conversation, specifically on the value-add services that you offer your clients. Curious a couple of your peers have talked about the Claims Advocacy Group, and they've offered some stats around the how the Claims Advocacy Group has made sure your clients get their claims paid in a timely manner. Just curious if you see that as one of the bigger value adds and if yes, if there's any stats or anything you'd like to share? John Doyle: Yes. Sure, Mike. And maybe what I'll do is I'll ask all of our business leaders just to share some thoughts on how we're investing in AI and how it impacts the value that we deliver. But we have the largest claim group -- Claims Advocacy Group in the industry by some measures. So maybe I'll start with Nick. Maybe you could share some thoughts, Nick? Nicholas Studer: Yes. Mike, thank you for the question. Maybe let me start on the claims advocacy question. As John said, we have a very large team plus additional specialists to handle highly complex claims. And the important thing to state, first of all, is that policy drafting and placement that creates contract certainty is the first stepping point here, so that you don't have rejected claims, which then require advocacy. But when you do our advocacy is strong and if you take an example like Claims IQ, which is our AI-enabled toolkit, we've got several thousand colleagues now drawing an AI-enabled analysis of almost $200 billion of loss information, which helps them support much better advice decision-making and advocacy. But if I take a few more examples tapping into John's prepared remarks, this is a bespoke fragmented, highly complex ecosystem from client service and a advice all the way through to placement. And A lot of the focus is on AI, but this is an ecosystem, which is digitizing steadily, and that digitization is critical to deploy the AI. There's lots more work to do just on digitization. And we still see human relationships and human judgment continuing to be central. But the AI investments are, I think, massively enabling of growth and of productivity and of efficiency. So value-added services, as you said, we're investing heavily in our digital client experience. We have a suite of tools, which you may have seen for many years in Blue[i] and Centrus, which we've talked about before, we're evolving these into what we call the Marsh risk companion, which will help clients understand and analyze their risks and their options across a wider range of their activities. But what's really crucial about the suite of tools is they're now all feeding off a new analytics engine. It's built from the ground up to leverage AI at scale. One of the things here is you're able to leapfrog with AI. And we call it the Marsh Risk cortex, but it really pulls together everything we need from our massive data sets and our most advanced models. And the crucial thing, I think, is not what features have we got, but it's the speed and the flexibility with which we can launch new applications because our clients' needs are evolving rapidly, and new needs are emerging. The first application is powered by the risk cortex, including our renewal companion, our captives companion, they're going to be launched in a couple of weeks at RINs. And then you should expect to see more flowing from that data set and analytical tower. And then maybe just to give a couple of more examples, we've talked before about our general proprietary AI suite just within Marsh Risk and up to more than 2 million prompts a month. So that helps productivity across the organization. But I know you're looking for sort of specific examples, too. So if I take something like we've rolled out tools to aid coverage gap analysis and quote comparison across our risk management and the Marsh agency businesses. And in the areas where we pilot that, we see the amount of work that, that takes off our client teams drive a 50% increase in sales velocity in the pilot. And we think some of that gain is scalable across the whole organization. So really lots going on, lots of activity to support our client-facing colleagues and our operations colleagues in work. John Doyle: Thank you, Nick. You're starting to sound like an insurance broker. Dean? Any thoughts from Guy Carpenter? Dean Klisura: Thanks, John. And Mike, you heard John in his prepared remarks, mentioned GC Quotebox, which is an AI-driven document ingestion tool. This is really a game changer for Guy Carpenter in our business. We get huge quantities of unstructured data from our clients, and this tool helps us ingest all of that data and makes it more efficient to match risk and capital through this tool, which will certainly improve turnaround times, make our teams, our brokers more efficient and deliver better turnaround times and more efficiency for our clients. John Doyle: Perfect, dean? Pat, how are you using AI Mercer? Patrick Tomlinson: Let me go 1 of those examples and maybe give you 1 where we're using it directly with clients. So Mercer Fiber is one of the tools where we're leveraging the broader AI stack that we have at Marsh to kind of further enable our existing digital tools. So health consultants leverage fiber when they're working directly with the client. It enables them to have these real-time iterative discussions on all aspects of their benefit programs, an incredibly powerful scenario planning and modeling during strategy sessions. What we do is we use fiber throughout the year as well to help with budget tracking, with updates with benchmarking, other plan management activities. And what it does is it allows us to visually display these insights and the data from across our health and benefits practice and then it combines it with the client's actual population and their actual claims data. And that allows us to understand and show clients directly the geographic differences in health care cost and quality based on their actual data, and we could do that live. And it allows us to really work to identify the most effective health care options for a specific population, right? And this is differentiating us in the market, really by showcasing the capabilities we've got the insights in a single integrated platform to be very client specific because it's very targeted to them and very client-centric. John Doyle: Thank you, Pat. Ted, welcome to the call. You want to share some thoughts on why we're excited about AI at Oliver Wyman. Ted Moynihan: SP26858316 Thank you, John. Thank you. And you mentioned already that our AI platform Quotient is our fastest-growing capability right now. And AI is developing into a very large opportunity for us as a consulting business that works on strategy and transformation. Let me mention a few examples. -- all of our work around performance transformation, where we're helping our clients improve how their businesses work and there's a ton of reengineering of processes and systems around AI. In industries, I would mention like banking, like health care, like advanced manufacturing, we're seeing the volume of work there really start to grow quickly. Growth and strategy work where we're helping our clients rethink kind of customer service and distribution channels. We've -- we've helped a number of clients already build new apps and chat GPT, a very new change to the way commerce is working, and we think going to be very transformational in industries like media, retail, communications, that's really a big deal. And you mentioned, I think, in your introductory remarks, but with governments, with investors, we've been helping to mobilize capital, where governments and investors are investing in AI skills and capabilities and new AI start-ups and new cost. And look, it's also changing the way we deliver our work and it's allowing us to -- AI is helping us deliver more value to clients. And just to give you one example in our private capital business, where Quotient diligence is changing the way we help our clients invest in businesses. And we're using very sophisticated tools to do market analysis, competitive analysis, growth opportunity analysis, and that allows our clients to make better investments and sometimes if they want to quicker investments in the private capital world. John Doyle: Thank you, Ted. Sorry, Mike, for that long answer, I just want to make sure everyone realizes why we're so excited and why we think we're best positioned to deliver greater value than we ever have to our clients and to our shareholders. So do you have a follow-up, Mike? Michael Zaremski: Yes, really quick. That was helpful follow-up. Just on the the pace of Marsh's hiring in terms of the producer level, do you expect that trajectory to change materially in 2016 and has higher or lower? John Doyle: Yes. No. Thanks, Mike. We had a good quarter, attracting production talent to the team in key markets, our brand in the market for town and in the areas where we compete and deliver for our clients is very, very strong. We start with the best talent and the most talent in the markets that we compete with. Would also maybe not your question, but our colleague retention is strong, our colleague engagement is outstanding. And so it's all anchored by a colleague value proposition, which is a really important way in which we try to convince people to stay and to give big parts of their career to our company. So thank you, Mike. Next question, Andrew? Operator: Our next question comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of them here for you, John. First one, I'm just curious, given the level of rate decreases that we're seeing out there. What are you seeing with respect to client demand at Marsh, given this uncertain kind of macro environment, are you using savings to purchase more coverage? Are they kind of holding back right now to see how the year kind of unfolds? John Doyle: Yes. I don't know it's very -- thanks, Brian, for the question. I'm not sure it's a very helpful answer, but sometimes, I guess would probably be the -- some of it. The market obviously got modestly more competitive in the first quarter. I talked a bit about the strong returns on the reinsurance side, but obviously, insurers and reinsurers have posted strong underwriting results. They're all looking for more growth, right, as a result. And so maybe another point I'd make here, Brian, is not directly on your question is, although rates are down, the cost of risk is clearly increasing. And I would think at a magnitude probably 2x GDP with liability inflation, medical cost inflation, cyber risk, certainly accelerating with AI, the frequency of extreme weather and how much more of the economy and society is exposed to those events. So it's maybe a more important driver of demand for us over the medium term. But maybe I'll ask Nick and Dean to just talk about a couple of market observations and what clients are doing in terms of purchasing. Nick? Nicholas Studer: Yes. I mean, as John said, the answer is sometimes. But in general, I think, yes. We've also seen continued trend and a rising trend in new business growth. And if I look at, say, the U.S. and Canada, highlights there include double-digit new business growth, continued strong growth at Marsh Agency, and double-digit growth in the specialties business. So transaction risk and construction, both growing strongly. And all of that with the -- across globally new business trending up for 4 quarters. But we're cautiously optimistic as we go through the rest of the year. John Doyle: Dean? Dean Klisura: Yes. Thanks, John. And Brian, maybe I'll just touch on kind of new business opportunities overall. And despite the property market and everything that John and Mark talked about which was a clear growth headwind for Guy Carpenter in the quarter. We're seeing record new business across our platform. We grew double-digit new business growth in every region in business globally in the quarter. I was really pleased with that. As Mark and John noted, we continue to see a really strong cat bond market and ILS market overall. We issued 7 cat bonds in the quarter, a record for Guy Carpenter. We've seen some $2 billion of new third-party capital flow into the market, just chasing casualty side cars, whole account quota shares and other similar vehicles. We've gotten several new mandates around those, very, very promising. I've talked in prior calls about our capital and advisory business, our investment banking boutique. We've never received more M&A mandates -- M&A advisory mandates, forming new side cars, as I mentioned, raising capital for MGA's Lloyd's platforms, our structured credit business, our MGA business. And in the last call, we talked about data centers, right? And just a couple of headlines there. I mean there's 50 deals that have been in the marketplace looking for more than $7.5 billion of capital to put these together. And all of my clients, Guy Carpenter's clients want to write more data centers, but they all need additional reinsurance protections. And I think the newest element of it, Brian, is clients now are talking about issuing cat bonds and leveraging third-party capital to write more data center business. And so I would say, overall for Guy Carpenter, there's more diverse new business opportunities that we've seen in several years. John Doyle: Thanks, Dean. SP1 Brian, do you have a follow-up? Brian Meredith: Yes, absolutely. So John, it's clear that AI is going to have productivity benefits,, it's going to benefit client experience and growth, et cetera. But 1 of the debates I'm having with investors is how much of the productivity gains is Marsh going to be able to keep and see a benefit from a margin perspective versus protects being competed away or giving back to clients. Maybe give us your perspective on that. John Doyle: Yes. It's a great question, Brian. And I talked about where we see efficiency opportunities -- Productivity opportunities, new sources of revenue generation. So -- we don't think anybody is better positioned to capitalize on these developments in technology than we are. And so I'm quite excited about that. Our fees have been for a long time, stable as a percentage of premium, and they're quite small compared to the cost of risk that we help our clients manage. And so we feel good again about how we're positioned and what that would mean. I think some of us on this call have talked about in the past and I mentioned in my prepared remarks, if you think we're a discounted insurance broker, yes, I might be a little bit worried, but we're not. That's not what we do. And so we feel good about what this technology will meet to our business. Thanks, Brian. Andrew, next question. Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: First question I had for you was just going back to the capital deployment and M&A side. I'm just curious how, if at all, AI is changing the M&A strategy. Are you staying away from certain businesses pivoting towards others and have your technology requirements or anything else changed? John Doyle: No. We -- it's a good question, Rob. We've had some opportunities and have looked at some businesses that have pitched kind of AI as part of their value. And I think there was a very significant gap between how some of those businesses for trade their tech value relative to how we saw their tech value. And so -- but I do -- and I recognize you can't plan around hope. So I say this with that in mind. But I'm hopeful that actually the scale benefits that we bring to investing in AI and the data sets and client relationships and all the advisory work will create opportunities for us to consolidate smaller brokers over time who are going to struggle to compete and to invest in these technologies. And even where they're able to make space for investment, they just don't have the data assets and the other capabilities that we have. And so I'm optimistic over time that will be a driver of M&A for us. Do you have a follow-up, Rob? Robert Cox: Yes, that's very helpful. Just had a follow-up on the MMA business. I understand you guys don't break that out. But just curious if you would characterize that business as a tailwind to organic growth for the RIS business and if it is, like, do you think it could continue to be a tailwind despite more pricing pressure for a commission-based model here? John Doyle: Yes. For -- the answer is yes, right? So MMA has been a tailwind to our growth for most years and most quarters, not all, but for most, as we've talked about in the past, we still have relatively modest penetration into the middle market. And so while Dave and the team have made a tremendous amount of progress, and we couldn't be more excited about the business we've built. In many respects, I feel like we're just getting started. We absolutely have the possibility for much greater growth. What I would say about pricing for for a number of, I think, rational reasons, pricing in the middle market has been -- has been more stable through cycles. That continues to be the case right now. It's one of the areas where we're delivering some of the productivity tools to help make our producers even better. And so we're really excited about the opportunity in the middle market. And by the way, not just in the United States, where we've learned a great deal in the last 15 years in building out that business and from some very talented executives we brought on, and it's helped making us better and capitalize on middle-market opportunities in other economies around the world. Thank you, Rob. Andrew, next question. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: Great. First question for John. I completely get the increasing benefits that you're going to be able to -- or increasing value that you're going to be able to bring to clients and carriers through AI. Are commissions still the right way to be compensated for that? Or do you expect compensation to become more transparently tied to the individual services? John Doyle: Look, Meyer, we have a broad risk of -- or broad range, excuse me, of the way we get compensated today. We have fees, we have commissions. We have success fees, right? I'm sure there are other things I'm not even thinking about. We're very transparent with our clients about how we get paid. And so -- so anyway, I mean, we'll see how those conversations evolve over time. I wouldn't -- I would suggest to you, I see no -- zero trend kind of around that. And so -- but again, we're happy to get paid in any form. We think we created outstanding value for our clients, and we think we get deserve to get paid well for that, assuming we deliver and execute on behalf of them. And as I mentioned before, our commissions and fees are a relatively small part of the overall cost of risk. And as a percentage of premium, they've been quite consistent over a long period of time. Do you have a follow-up, Meyer? Meyer Shields: Yes, just a quick modeling question. Is there any way of teasing out roughly how much of the wealth revenues come directly from assets under management? John Doyle: We haven't disclosed that historically, but it's obviously a range of, as we call it, AUDM or delegated management AUM and advisory fees. We're excited about how we're positioned in the investment advice business globally. We have -- we advise on close to $17 trillion assets around the world. And as a leading adviser in pension and retirement markets for a long time all over the world, we're very, very well positioned. I would also note, we're the largest OCIO, Outsourced Chief Investment Office in the market, and we continue to see a lot of possibilities for growth there. And I mentioned AltamarCAM and, maybe, Pat, you can talk about AltamarCAM and some of the investments we're making in our businesses make us even stronger. Patrick Tomlinson: Yes. Thanks. And listen, quickly on the wealth side in our business. Obviously, Mark had talked about the growth, we're pleased with the growth. It was led by our Investments business, in particular, our OCIO offering. So I understand the spirit of the question. We also will highlight our really seeing solid growth in our investment consulting business, right, which is not based on the AUM, based upon volatility in the market and clients seeing significant demand and need. And we have been to the point you're asking, diversifying our overall business and our AUM away from DB Vence, right? So it has been moving -- but we've been building out actively our deep defined contribution solutions around the world, and we've really been advancing our capabilities around nonpension clients, and that's been a major focus for us. insurers, endowments and foundations, family office and wealth management. And I think that goes into the spirit of the M&A and the AltamarCAM announcement that John kind of teed up from where we agreed to acquire AltamarCAM. They're specialists in private markets from an asset management solution perspective. They've got about EUR 20 billion AUM, we think it's going to significantly increase and expand our capabilities in the private markets platform. It's going to add a certain expertise in secondaries and co-investments, in bespoke accounts in evergreen vehicles, and that's going to allow us to offer much more comprehensive multi-asset private market solutions to clients. right? So we definitely feel that this is an area that we've been investing in heavily, you've seen from our announcements over the deals we've done as a firm over the last several years. And we've also been consciously making organic investments and trying to build out our capabilities broadly around being a main investment player. John Doyle: Thanks, Pat. Thanks, Meyer. Andrew, next question please? Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Guy Carpenter. So you guys were at 2% for the quarter, and I think you did point out, right, the elevated comp at 5% last Q1. I believe you were at 5% right throughout last year. So does the 2% feel like where this business should trend, I guess, at least in the near term, given it sounds like your pricing views or, if anything, right pointing to things getting a little bit worse post the [ 11 ] renewals. John Doyle: Yes. Elyse, as we've talked about, it's a very soft property cat reinsurance market. And so we're confronting that. We're particularly exposed to that in the first quarter. In the second quarter a bit as well with Japan and Florida, as we talked about. What I would say to you, Elyse, is that I'm quite pleased with our execution in spite of the kind of current market headwinds. And again, these market headwinds are good for our clients, right? So we're delivering for our clients in the moment. But client retention was strong, and we had an excellent new business quarter. And so I feel terrific about how the team is executing, what's a challenging market. It's not likely to be Guy Carpenter's best growth year this year, right? And so we've been planning for that and guiding to that. Do you have a follow-up, Elyse? Elyse Greenspan: Yes. My second question is just on capital, right? You guys were more active in the Q1 relative to prior first quarters. Obviously, we've seen a pullback in the stock price and just the group in general. As you guys think about balancing right M&A potential as well as where your stock is, could this be a year, I guess, where you continue to front-load I guess, more buybacks, even a little bit more independent of what's going on, on the M&A side? John Doyle: Sure. Maybe I'll ask Mark to jump in here, Elyse. Mark McGivney: Elyse, as John said earlier, there's no change in strategy. Our strategy of balanced capital deployment with a bias to reinvest and grow the business through high-quality acquisitions remains. But as we've consistently said, two, where our goal is not to build cash on the balance sheet. We're generating a lot of capital these days. And so where we see M&A light, we'll ramp up share repurchase. We did that in the fourth quarter. We bought back $1 billion and we started the year with $750 million. But the pipeline remains active. Our commitment to grow through M&A remains. It was relatively light M&A spending in the first quarter. But as John mentioned, this AltamarCAM transaction, which is a nice chunky deal that will close sometime later in the year. So -- so we did start the year with a heavy amount of share repurchase. But ultimately, what we end up deploying to share repurchase will depend on how the M&A pipeline develops through the year. John Doyle: Thanks, Mark, and thank you, Elyse. Andrew, maybe time for one more here. Operator: Certainly. Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Just had another follow-up question on AI? And maybe just a refresher, John, could you just remind us how much you guys are spending on AI just broadly within the tech budget. And I guess, who are you partnering with? What LLM providers are you partnering with? What tools are you using? That would be helpful. John Doyle: Yes, David. It wouldn't be a refresher because we've not shared that data in the past. We have a healthy tech CapEx budget. We take a hard look at that. It's, I think, another example where our scale matters, we're able to spend more and invest more. So we feel good about the investments we're making. I think, again, AI, I think the broad-based community needs to be careful about what AI even means. So -- but we're investing heavily and improving our tech stack in our utility of and in other parts of our efforts to digitize workflows and digitize how we engage with our clients. And so again, we feel good about how we're positioned there. We work with lots of different providers. So we're -- and I think one of the things about AI is it's of a lot of different things. There are many different possibilities for us to to extract value from these new technologies. So it's not about pick a hyperscaler and plugging them into our data set and it all of a sudden solving every inefficiency or productivity opportunity that exists in the world. And so we're working with a number of different major tech players and trying to pick and choose where we see the greatest value depending upon what it is we're trying to accomplish. Do you have a follow-up, David? David Motemaden: Yes. Maybe just a quick one in the interest of time. In Marsh, I'm just sort of wondering what's your exposure to in terms of revenues from personal lines, brokerage or micro commercial, where like you guys are only placing a single policy or as low dollar value and could be considered less complex? John Doyle: Yes. I'm not ready to concede by the way, that placing somebody's personal insurance isn't complex. If you're -- you have a client that's personally exposed and working with them to help manage risk and advise on their most precious assets. We certainly don't approach the client experience kind of in that way. where people are trying to buy commoditized products, those things exist already. I mean there's direct digital distribution. It's been that way. I would imagine for the direct markets, AI is going to create opportunities for them to improve their client experience with their customers. That's not who we serve. In personal lines, it's almost entirely a high net worth personalized client. It's an exciting area of growth for us. It's not a material part of our business, but we continue to grow. So if you're a restaurant on -- in small town U.S.A. there is a lot of complexity. And I'm not quite sure, by the way, we have very little of this business, almost none of this business. But I'm not ready to concede that it is something that some entrepreneur wants to prompt an app for hours and hours and hope that they get it right. So anyway, -- as I said, we're very excited. We don't think anybody is better positioned to take advantage of the developments on the technology front. We have to execute, but that's been the case for 150 years. And so we're excited about the path we're on and looking forward to accelerating our growth. Andrew, we have run over . Can you wrap us up here. I want to thank everybody for joining us today and thank our colleagues for their dedication to Marsh and our clients for their continued support and confidence in what we do for them. Operator: Ladies and gentlemen, this does conclude today's conference. You may now disconnect.
Operator: Hello everyone, and welcome to the Citizens Financial Group First Quarter 2026 Earnings Conference Call. My name is Ivy and I will be your operator today. [Operator Instructions] As a reminder, this event is being recorded. Now I will turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin. Kristin Silberberg: Thanks, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee, will provide an overview of our first quarter results. Brendan Coughlin, President; and Ted Swimmer, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter presentation located on our Investor Relations website. After the presentation, we will be happy to take questions. Our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand it over to Bruce. Bruce Van Saun: Okay. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We're pleased to start the year off strong, notwithstanding geopolitical tensions and uncertainty in the macro environment. We delivered good financial performance in a seasonally soft quarter with year-over-year EPS growth of 47%, positive operating leverage of 7% and NIM expansion of 24 basis points. Our balance sheet position continues to be robust with CET1 at 10.5% and our allowance for loan losses at 1.52%. Credit trends continue to be favorable across our portfolios, and we continue our loan mix shift towards deeper relationships with lower credit risk. Execution on our strategic initiatives continues to track well. The Private Bank and Wealth business showed further growth in customers, balance sheet and profitability, now accounting for roughly 10% of our pretax income while delivering an ROE in excess of 25%. During the quarter, we opened 3 more PBOs, bringing the total to 9. Reimagine the bank is off to a solid start, and we reaffirm our $450 million P&L target by the end of 2028. We estimate about $100 million in 2026 exit run rate benefits at this point. Our positioning with private capital continues to be excellent. We anticipate a strong year for private equity sponsor activity, which should provide a balance sheet and fee opportunities for us. We've reviewed all of our lending to private credit vehicles at a granular level and we feel good about our credit exposure. The New York City Metro initiative also continues to show further progress. We are growing across retail, small business and middle market. We are in the process of analyzing Citizens' existing branch footprint for net new investment and optimization with New York City likely to see growth in branches in coming years. We should have more details to share with you on this midyear. We're also focused on an initiative we call One Citizens, which is systematically finding ways to work across the enterprise to deliver valuable solutions to our customers. Now that we have stood up the private bank and continued the build-out of our corporate bank, we have the capacity to provide both personal and corporate services to successful business owners investors and entrepreneurs. We will report more on this as the year progresses, but we're already gaining real traction. As we look ahead to the second quarter and the full year, we remain cautiously optimistic that we'll be able to navigate through external challenges and still deliver the strong results we projected coming into this year. So far, markets have behaved rationally despite the war with equity markets holding in and credit spreads only slightly wider. We intend to stay on our investment plan for the year unless the macro takes a meaningful turn for the worst. We're pleased with the regulatory changes we see coming from Washington, D.C., and we look forward to the upcoming CCAR stress test results, which we're hopeful will give a more accurate result for citizens than what we've seen in the past. So to sum up, a good start, well positioned with a great strategy and a great team and optimistic for a strong 2026. With that, I'll turn it over to Aunoy for the financial details. Aunoy? Aunoy Banerjee: Thanks, Bruce. Good morning, everyone. As Bruce mentioned, Citizens has started the year well. Referencing Slides 3 and 4, we delivered EPS of $1.13 for the first quarter with ROTCE of 12.2%. Results were paced by strong NII, reflecting both continued net interest margin expansion and solid loan growth. We also deferred our best-ever first quarter fee result, led by strong performance in our commercial bank. With solid revenue performance and expense discipline drove more than 700 basis points of positive operating leverage year-over-year notwithstanding continued investment in the private bank and our other strategic priorities, along with ramping up our [indiscernible] bank program. The Private Bank continued to grow its profitability, contributing $0.11 to EPS, up from $0.10 in the prior quarter as the business delivered another very strong quarter of deposit growth. Now let me walk through the first quarter results in more detail, starting with net interest income on Slide 5. Net interest income was up 1.6% linked quarter, driven by the benefit of an expanded net interest margin and higher interest-earning assets, including strong loan growth which more than offset the day count impact of about $22 million. As you see from the NIM back at the bottom of the slide, our margin improved 7 basis points to 3.14%, driven primarily by the benefits of the reduced drag from terminated swaps and noncore runoff with a 5 basis point of combined impact. The fixed rate asset repricing benefit of 1 basis point. And lastly, the net impact of 1 basis point related to improved funding cost and mix, largely offset by lower acetyls. We continue to do a good job optimizing deposits in a competitive environment. Our interest-bearing deposit costs were down 16 basis points and total deposit costs were down 12 basis points. The cumulative interest-bearing deposit beta improved to 50% as we benefited from the repricing after the last rate cut. Even with the Fed now expected to hold steady in '26, we are still projecting a high 40s beta for the cycle. Moving to Slide 6. Noninterest income is up 11% year-over-year but down 2% linked quarter. As I mentioned, this was our strongest first quarter fee result ever, notwithstanding heightened geopolitical tensions and an increase in market volatility. Capital markets performance demonstrated the strength and diversity of the franchise with fees up 34% year-over-year and down 4% compared with the strong fourth quarter. M&A delivered a good result in the quarter with our pipeline is strong and continues to build. Bond underwriting was up nicely from the prior quarter. Our equity underwriting performance was stable linked quarter and up significantly year-over-year. Loan syndications were lower given the market volatility. We continue to maintain strong market share ranking fourth in the middle market sponsors book runner deals by volume. This is for both the first quarter and over the last 12 months. Our deal pipelines across M&A, debt and equity capital markets continue to build notwithstanding the unsettled environment. Our Global Markets business was up $10 million linked quarter with increased client hedging activity in interest rate products and energy-related commodities. Our wealth business continues to build with progress in the private bank and strength in our retail network. Wealth fees are up 2% linked quarter and 23% year-over-year. These results reflect higher advisory fees with continued positive momentum in fee-based AUM growth year-over-year. The fourth quarter results reflect positive net inflows partially offset by market impacts on AUM. Mortgage was down 19% linked quarter given a lower MSR valuation, partially offset by slightly higher production and servicing fees. On Slide 7, Expenses were managed tightly, up 2.6% linked quarter, largely reflecting the usual seasonality in salaries and benefits as well as about $6 million of implementation costs to ramp up the reimagined the bank program. On Slide 8, average and period-end loans were up 1% linked quarter. We saw solid loan growth across each of the businesses. Commercial loans, excluding the private bank, were up 1% on a spot basis. This was driven by net new money originations at higher commercial line utilization. This was partially offset by CRE paydowns. We continue to reduce commercial banking CRE balances, which were down about 4% this quarter and 16% year-over-year. The Private Bank delivered good loan growth again this quarter with period-end lows up about $600 million, driven by growth in multifamily and residential mortgage. Growth in retail loans ex noncore on a spot basis was about $300 million, led by real estate secured categories. This was offset by noncore auto portfolio run-up of roughly $500 million for the quarter. Next, on Slides 9 and 10, we continue to do a good job on deposits. with average deposits up 1% or $1.5 billion quarter-on-quarter, primarily driven by the growth in the Private Bank, which reached $16.6 billion at the end of the quarter. This was partially offset by seasonal impacts in commercial. Year-over-year, average balances are up $8.6 billion or 5%, reflecting combined growth in the private bank and commercial of $11.2 billion, partially offset by roughly $2 billion of reduction in higher-cost treasury brokered deposits. On a spot basis, noninterest-bearing balances are up $1.3 billion or 3% quarter-on-quarter and up $4.1 billion or 11% year-over-year, improving the overall mix to 23% of the book. Our total noninterest-bearing and low-cost deposit mix was steady at 43%, and our consumer deposits are 64% of our total deposits. This compares to a peer average of about 56%. Moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 39 basis points, down from 43 basis points in the prior quarter. Nonaccrual loans are down modestly linked quarter, reflecting a decrease in commercial, largely driven by C&I, which was partially offset by an increase in market. Turning to Slide 12. The allowance was essentially stable this quarter with ACL coverage ratios of 1.52%. This reflects the continued improvement in our portfolio mix with noncore runoff, the reduction in CRE and strong originations of lower loss content C&I, residential real estate secured and private loans. The economic forecast supporting the allowance contemplates a mild recession with a slight deterioration compared with the last quarter, reflecting the potential impact of higher energy prices. As we look broadly across the portfolio, the credit outlook remains positive though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.5%. We returned about $500 million to shareholders in the first quarter with $198 million in common dividends and $300 million of share repurchases. Moving to Slide 14. The private bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $16.6 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding about $600 million of loan at a healthy spread of 4% over deposit costs to end the quarter at $7.7 billion of loans. We ended the quarter with $10.1 billion of total client assets with modest net inflows partially offset by market impacts. We have more runway here as we plan to continue adding top quality teams in key geographies. We opened offices in Malmo Park and Laurel Village in the first quarter, and we expect to open at least 2 more offices this year in Weston Beach, Florida and Greenwich, Connecticut. Moving to Slide 15. Our reimagined the bank program is off to a great start. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model. which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. The program is well underway with work commencing on several key work streams. For example, on the technology front, we are leveraging AI to assist in writing code and expect to have material productivity improvements in software development, cutting down cycle times. We are also using AI to improve our interactions with customers, which we expect will materially cut call volumes and improve the overall customer experience. We expect to exist 2026 with an annualized run rate of about $100 million of pretax benefit. Now moving to Slide 16. We provide our outlook for the second quarter. We expect net interest income to be up in the range of 3% to 4%, driven by continued expansion in net interest margin and earning asset growth. Noninterest income is expected to be up 3% to 5%, led by capital markets with some risk if market volatility moves higher. Other fee categories such as FX and derivatives, wealth and card should also provide lift for the quarter. We are projecting expenses to be stable to up 1% and incorporating a step-up in implementation costs associated with reimagine the Bank and continued investment in other key business initiatives. We expect expense saves from reimagine the bank to benefit second half expenses. The charge-off level is expected to be stable to down slightly. And we should end the second quarter with CET1 in the range of 10.5% to 10.6%, including share repurchases of about $225 million. In addition, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity over the course of the year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of pending our net interest margin is an important driver, and we continue to project NIM to be in the range of [ 322% to 328% ] in 4Q '26. And in the range of [ 330% to 350% ] in 4Q '27. Slide 17 provides incremental details on our net interest margin progression to the end of '27. This combined with the impact of successful execution of our strategic initiatives and normalizing credit should drive ROI to our target range. To wrap up, we're off to a good start to with results highlighted by strong growth, net interest income and good fee results in a seasonally soft quarter. Our balance sheet is strong and continue to drive forward our strategic initiatives with strong momentum in growing the private bank and in our reimagine the bank program. With that, I will hand it back over to Bruce. Bruce Van Saun: Okay. Thank you, Aunoy. Operator, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from Scott Siefers from Piper Sandler. Robert Siefers: Maybe I was hoping you could maybe start by speaking to kind of the capital markets dynamics. Obviously, I see the numbers in the first quarter, but curious how you thought the first quarter actually performed given that you had sort of the interplay between one, the environment played out a lot differently than we all figured it might. But two, I know you all had some deals that were pushed from the fourth quarter into the first quarter. So maybe just sort of results versus expectations then if you could speak to the forward look, things like pipelines, confidence and pull-through, et cetera. Bruce Van Saun: Yes. Scott, let me -- it's Bruce. I'll take it first and then hand over to Ted to provide more color. But I would say all things considered. We're pleased with the performance of the capital markets franchise in an environment that had increased volatility and lots of uncertainty, particularly in March once the war kicked in. But we have good diversification across our different services in capital markets. So we have M&A, we have bond underwriting, equity underwriting and syndicated loans. I think that diversity helped us print a good quarter. There was some leakage, I would say, from March that's geared up to go in April, which now that we have more optimistic tone to the market. We're actually starting to see that come through. So we may be in a situation where our pipelines are very well. We're very optimistic given kind of the strength of the franchise the likelihood that people want to transact. But if there's this external volatility ebbs and flows, you could see people pull to the sidelines, wait for the opportune time, for example, to go to market. And hopefully that cleans up. We're certainly not taking our numbers down for the year. In fact, we feel quite good about that given the level of activity that we see and the pipeline strength that we have. So Ted, over to you. Theodore Swimmer: Building on what Bruce just said, we've seen -- we took a couple of transactions in March that we would have launched into the market and pushed them into April, just given the volatility in the overall markets. But during that whole period of time, we continue to sign up new transactions. And I think what's really exciting about the transactions that we're signing up based on the investments we made in Corporate Finance and industry specialization we now are doing more complex transactions and getting signed up on more complex transactions than we ever had before and feel very good about what that pipe -- what those transactions are and how the pipeline is building. And to more to what Bruce just said, the deals that got postponed in March, especially this week, we've seen them back into the market. We are launching several transactions and part of several transactions that were postponed in March that are getting very good [indiscernible] now in April. So we continue to feel very optimistic about the pipeline, especially on the M&A side. And during this whole period of turmoil, we really actually saw a pickup in new mandates, especially on the M&A side of the business. Bruce Van Saun: Yes. And I'd just close by saying it was a record first quarter for us in capital markets fees, that shouldn't go unnoted. Robert Siefers: Okay. Perfect. That's very helpful. And then I was hoping you all would maybe speak to the private credit portfolio as well. I know there's a lot of good detail in the appendix. Just curious sort of not only for an update on credit quality dynamics, but also given your build-out of the team over many years, I know it's been a focus area and just sort of your appetite to continue to grow the portfolio given sort of certain current sort of industry circumstances? Bruce Van Saun: Yes, I'll start again and flip to Ted. But I would say we've been very disciplined in terms of the kind of counterparties that we select usually they're often a private equity sponsor that's migrated to a broader kind of business model that picks up private credit, and they're moving to be more of an alternative asset manager. And so we've helped them grow and get into this business and provide leverage to many of those names. So client selection is always key and then making sure we have the right structures in place so that we're structurally protected from any issues that could arise in the portfolios. And so we've gone through and looked at kind of our exposure and kind of the broad portfolio, looking at all the underlying factors who has liquidity gates for retail investors who's got software exposure at the end of the day, feel very, very confident that we're structurally well protected from a credit loss standpoint. And I think even though this is in the headlines and there's concerns about private credit, the asset class, if you want to call it that, is here to stay, and they provide a certain amount of leverage and deal structures that exceeds what banks have historically been willing to play, and there's certainly a lot of institutional demand folks or private credit managers are continuing to raise new money. So I think we'll just grow selectively with the market. as we have in the past, but we don't see this turning around and being something that starts to shrink. It's just going to grow. And I think every player in the market will be more selective, and we'll continue to be selective, but we would expect this to be an area that we stay committed to. Ted? Theodore Swimmer: Just adding on to what Bruce said in a number of conversations we've had with private credit since this -- the noise has really started. We really haven't seen a decrease in appetite. In fact, in a lot of the conversations and the deals we're getting ready to launch. We're getting inbound calls from the private credit side of the business. So technology and software is certainly something that they're not all that interested in investing in right now. But for the most part, the majority of their portfolio, they're still very hungry and there's a lot of demand out there. Operator: We'll go to the line of Manan Gosalia from Morgan Stanley. Manan Gosalia: Maybe to start on NII. I know you broadly reiterated the guide for the year, including the NII guide and the exit NIM. But you have noted that Citizens SKU is slightly asset sensitive. In a scenario where rates stay higher for longer, we don't get any rate cuts until the end of the year. Where do you think the NII and NIM is trending? And what's the most likely outcome here? Bruce Van Saun: Yes. So we feel really good about our ability to deliver the kind of NII and the NIM that we gave in the beginning of the year guide. So -- but as you say, the environment is going to have an impact to some degree and a bit of a pause by the Fed. So a little higher rate scenario that we came into the year given asset sensitivity is modestly positive for us. And then a little slightly steeper yield curve, we had assumed 425 to 450 is the 10-year, and we're kind of in that zone. But -- to the extent there's -- that moves up and there's a little more steepening, that's also potentially positive to the outlook. But I wouldn't say it's a game changer. These are kind of marginal benefits that give us even more conviction that we can deliver to the numbers or slightly ahead of the numbers. With that, Aunoy, I'll turn it over to you if you want to add any color? Aunoy Banerjee: Yes. I think Manan, to Bruce's point, we are very confident on getting to the NIM and the NII outlook that we gave I think on the NIM side of it, as you saw from our walk in 1Q, a lot of the benefit is coming from the terminated swaps and the noncore runoffs, which is which is not rate dependent, and that's another 12 basis points for the rest of the year. The front bank -- bank book book dynamic as Bruce strategies would be helpful in this environment. So we remain confident on getting there. And as you saw, we have some good loan, but we have good correction and pipeline on that. So we feel confident of getting there. Manan Gosalia: Perfect. And then maybe to pivot over to capital given the new proposals that we got a few weeks ago, if you could give us your initial thoughts on what the magnitude of the benefit is for risk-weighted assets given your specific business mix? And maybe if you have any thoughts on whether citizens would adopt the ERPA. Bruce Van Saun: Okay. Sure. So it's still early days, and we're going through a comment period. But based on what we see now, this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points, call it, 110 basis points or so of CET1 improvement. -- the AOCI phase-in, if it happened right today, it would basically mitigate that. But as it phases in over time, some of that drag will dissipate. And so we would expect to be kind of at least 30 basis points to the good net-net, even with AOCI, maybe as much as 50. So we'll just have to see how the rate curve plays out from here. But anyway, it's a good problem to have, and it's probably early days to say kind of what we'll plan to do with that. There'll be a lot of considerations what is stakeholders' expectations, the market, the rating agencies, the regulators, et cetera. But anyway, it's a good issue for us to think about. The other thing is on this ERBA. There's a modest improvement even over the revised standard approach but there's a lot of work that goes into that. So you'd have to step back and decide do you want to do it? One of the things that sticks out as a difference between the 2 approaches is kind of the lesser risk weights under [indiscernible] for investment-grade credit. And we'll have to see if that gets imported into the revised standard approach, so there's no difference or whether there is a difference that might pull you towards wanting to move over and do ERPA approach. So Aunoy, anything to add? Aunoy Banerjee: Yes. I think as Bruce said, Manan, we are going through all the advocacy on some of these things that Bruce mentioned. We are also looking at all the work that needs to be done on ERBA, which says versus standardized for what's there and now with a lot of new technology, things could be really different in some ways. So there's a lot to do here still. But we are -- as Bruce said, we are -- it's in the right direction, and we feel good about it. Operator: We'll go to the line of Ryan Nash from Goldman Sachs. Ryan Nash: So Bruce, you've had 4 straight quarters of sequential loan growth. If I look at the drivers of growth, clearly, private capital call, private credit have all been contributors. So maybe you could just talk about your confidence in loan growth here and what you see as the key drivers. And then second, I know you referenced higher utilization. What's driving that? I know you're expecting to see more of this. Bruce Van Saun: Yes, I'd say that the really impressive thing, Ryan, is that we're getting the growth in each of the 3 main business areas. So private bank being kind of that start-up phase is growing their book nicely and consistently. And I think that leans a little bit more on the consumer side and multifamily side, that should continue. We had actually low line utilization with their client base, which should bounce back. And so we see private bank contributing. I think in commercial as well, we have the growth in NBFI, but also starting to see a little deal activity pick up across the corporate book, and we have our expansion [indiscernible] don't forget. So we brought banking teams into Florida and California and beefed up our New York Metro team. So that's contributing a bit. And then in the consumer bank, we've been kind of a rock star and HELOCs and also consistent growth in mortgage. So it's nice to see it's pretty broad-based. And then some of the drags of the things that we've had in the past, such as kind of the rundown of noncore, some of the commercial BSO thin relationship exits and things like that, the CRE kind of getting back to par where we want to be on commercial CRE after the investors acquisition all that is starting to abate a little bit, which allows the inherent growth to shine through. I think I'll ask maybe go to Brendan first for some color on Consumer and Private Bank. And then Ted, I'll ask you for some color on commercial. Brendan Coughlin: Yes. Thanks, Bruce. Thanks, Ryan. Adding on Bruce, just give you a little more color and data on the retail side of the business. We're up about 4% year-on-year on core loans, heavily driven by HELOC and mortgage Bruce mentioned, you just got the league tables in from 2025. We're the #1 originator in the United States at home equity lending with an incredibly strong risk profile, low LTVs, strong FICO scores, all depository relationship customers. So we're very proud about that, and we expect that to continue. Mortgage originations in this rate environment has obviously been challenged, but prepay speeds slowed too. So we're seeing net positive growth in mortgage and the balance sheet rotating into higher relationship-based lending fueled by the private bank and the retail bank. With our launch of a new credit card products, we're seeing a 50%-plus growth in new credit card originations. It takes a little bit of time for that to translate into the balance sheet as pain activity gets through, but we should see some modest script in credit card as we hit the back half of the year, too. So broadly in retail, we expect the the growth rate that we're seeing to project forward with a lot of confidence and the mixing of the balance is to get strong with higher return and deeper relationships. The private banking side, we've generally been in the range of about $1 billion in net growth each quarter. We were a little bit lighter than that this quarter with some lower utilization rates on the private equity side. But we that to be temporal. And the underlying originations activity is quite strong. We're very confident we'll end the year in the range that we gave of $11 billion to $13 billion, which projects back to about that $1 billion in that growth per quarter returning in the private bank. So both retail and private banking, I would just broadly describe as continued steady momentum with what you've seen over the last few quarters. Ted? Theodore Swimmer: Yes. Thanks, Brendan and Bruce. On the middle market side, we have seen a pickup in utilization over the last 3 months. I think customers are getting -- our customers are getting more comfortable in the economy and overall spending money on CapEx, which has led to a slight increase there on the mid-corporate -- adding on that, what we built out in Florida, New York and California, we're starting to see some real success there with increased loan demand and some increased customer count, which has resulted in higher growth there. On the mid-corporate side, we've reorganized the division a little bit to be more industry focused, less geographic focus. That has resulted in a nice pickup of new opportunities for us on the mid-corporate side of the business, and that was really [indiscernible] in the first quarter for us with significant growth there. NDFI continues to grow somewhere in the range of 5% a year. There's still good opportunities both on the capital call line, the securitization business and on the lending to the direct funds, and we expect that to continue to go around 5%. And then finally, we have really not seen much pickup in the private equity side of the business. The sponsor business has still been, I would say, flattish year-over-year. So most of our growth has been the traditional mid-corporate and middle market space. Ryan Nash: Got it. And maybe just as my follow-up, Bruce. In the slides, you highlighted some of the things that you're doing with reimagine the bank, including corporate and the LLMs and a handful of things. I guess, given the pace of change we're seeing in the markets in areas like AI, are there opportunities to accelerate any of these initiatives or adjust the timing given, again, just the rapid pace of change that we're seeing? Bruce Van Saun: Yes. I'll start and put it to Brendan who's sponsoring and leading that program. But I think that's a really good call out, Ryan, is that the adoption curve, the innovation curve that we're seeing in AI is really -- it's almost mind boggling. It's very significant. And so I think what we did when we set up the program was we took a very systematic approach to say like here's how we do things today, how would we like to do them in the future, embracing the technology as we have it today, recognizing though that over a 2- to 3-year time frame, there's going to be a lot more innovation and a lot of chance to embrace even better tools. And so maybe that creates a higher level of benefit, maybe that creates an acceleration and maybe it just creates new work streams that we haven't even thought or possible. So it's really a living, breathing program it's dynamic. It will incorporate. We'll have our telescope out looking at all the new things that are coming down the pike and figuring out how we can incorporate those in. But I'd say one thing to leave you with, though, is that we've been -- we've demonstrated over the years an ability to take innovation and take new approaches to how we're running the bank and put them into a program and deliver real financial benefits. So we won't create a lot of science fair projects and kind of use some of this new technology in ways that actually don't deliver real benefits. That's kind of our mindset as we go through this. So Brendan? Brendan Coughlin: Yes. Thanks, Ryan. Your question is principally AI, but one point on the non-AI front, you saw from us in the quarter. the remain the bank initiative was principally self-funded by quick wins that were non-AI based. And so we've already got over $30 million in projected vendor saves for the year in the box with an expectation that, that number goes up. We've closed corporate facilities, smaller facilities that's driving savings. So that has offset the investment already. So you're seeing real tangible impact in the program already this early in the year. On the AI front, to say two things. One is, you're right to point out the risk of speed of execution also is the speed of obsolescence as we put these in place, the idea that the best answer could be different in a quarter is very much front of our mind. So we're architecting all the things that we're building to be even more nimble than you might expect from a tech standpoint in the past. So as new models come up, we can easily plug and play and make sure we're taking advantage of the latest and greatest. So that's very much front of our mind. We very much have real AI use cases in market today. in the call center, as an example, we've told you we expect to get 50% of the calls out by the end of the period. It's already in pilot. In fact, we expect inside of this calendar year, by the end of the year, we should have 25% of our calls answered by non-humans with the expectation that will ramp in 27% to 50%. That really should hit in the summer and into the early fall. So this is very real. This isn't a back-loaded program all coming in 2028. And the tech space, as an example, we've deployed [indiscernible] to our engineers. We're already seeing a very material productivity improvement and leverage we're getting on our capital investment and deployment ranging from 30% improvement in productivity that in some tests we've done, it's been a 5 to 10x improvement in productivity. So now we're working on scaling it and engineering it for real scale. So we are moving very, very fast. We're keeping up with the pace and it's live and in production and our confidence is building. Operator: [indiscernible] UBS. Unknown Analyst: Just a few follow-up questions for me, please. So given everything that you've said about a record first quarter in cap markets and very full pipelines, picking up new mandates while some of these deals were pushed into closing in the second quarter or launching in the second quarter, it sounds like we should still subscribe to the 6% to 8% fee outlook growth for '26? Bruce Van Saun: Yes. We're not coming off any of those ranges the full year guide at this point, Erika. L. Erika Penala: Perfect. And then my follow-up question is, thank you for the expansive answer on NIM and NII relative to the current forward curve. I guess this is a 2-part question. First is, I think, Aunoy, you talked about the noninterest-bearing growth in a seasonally tough quarter for that, maybe where that noninterest-bearing growth is coming from? And to that end, if we do have a scenario where we have no rate cuts can Citizens, keep deposit costs stable in light of more robust growth from you guys on both the consumer and corporate. Aunoy Banerjee: Erika, it's Aunoy here. We were quite pleased with our deposit performance this quarter. And as we saw actually good noninterest-bearing deposit growth Obviously, we have a couple of strategic initiatives. One is being the private bank where you saw the good DDA growth that the DDA percentage in the private bank is 30%. So we continue to see that coming. And as you saw the balanced growth we are seeing the DDAs grow along with it. So that's the, that's 1 thing that's really driving the DDA growth. But even as Brendan mentioned, even on the consumer side, there is a lot of growth that we are seeing in the low-cost NTT as we really build the relationships with our clients. So we are seeing a lot of good traction there. And to your second question about where we go deposits from here. Obviously, deposit volume is going to depend on the overall economy, how the GDP goes, how the loan formation goes in the economy. But with some of the strategic initiatives, we believe that we can maintain in the competitive range about where deposits are going to go from here. And as you saw, our deposit betas our 50% this quarter and we have -- we expect it to be in the high 40s, which is in line with the competition. With that, maybe, Brendan, I'll pass it on to you to see if you have any comments. Brendan Coughlin: I'll add a little color on each consumer and private, but out of the $118 billion or so of deposits that sit in the consumer bank, 52% of them are what we call low cost, which is either DDA or checking with interest. And in the retail bank checking with interest is sort of a sub-10 basis point type of cost. So for all intents and purposes, it's very similar to DDA. The COVID period of all those operating balances reducing is firmly behind us, and we're now seeing net growth. So we're up 130 basis points year-over-year and our low-cost deposit categories. That's versus a peer average of about 50 basis points. So we are very firmly in the top quartile in terms of low-cost growth. for the consumer bank, and we project that to continue with confidence in the outlook, which will really help control interest-bearing. Total cost of deposits when you include the interest-bearing side. And then no pointed this up. But in the private bank, we ended the quarter with very strong spot numbers. It's actually 40% DDA over 50% when you add in the checking with interest in the private bank itself as well. So we're expecting that to be in that sort of range in the same range that we've seen in the past. So we're getting this really strong growth in the private bank without breaking the quality metrics and this far in, that's a real positive to see. And broadly, we expect that to continue looking forward. Operator: We'll go to the line of John Pancari from Evercore ISI. John Pancari: Just on the private bank side, just what -- see if you can give us just a bit more color in terms of what are you seeing in terms of the mix of loan growth? How much momentum are you seeing on the mortgage side versus the commercial capital call type of loan generation. And then if you could maybe give us breakout of like where new money yields are that you're bringing on loans in the private bank, maybe on the mortgage side as well as on the other type of lending capital calls included. Brendan Coughlin: Yes. On the loan side, it has -- the longer-term trend line, it's been pretty evenly mixed between mortgage, multifamily, commercial real estate and private equity capital call lines the utilization rates this quarter on the PE lines were down a little bit, so it sort of artificially suppressed the linked quarter growth was more driven by mortgage and multifamily CRE, which is pretty evenly split between those categories. both of those asset classes where we use the balance sheet comes with deep, deep relationship-based banking. And so the net returns on the customers are actually quite high. When you look at our overall loan yields versus our deposit costs, we remain in the range of north of 400, 425 basis points of net spread between our loan yields and our deposit costs, and that has been consistent since we launched. And so the growth that we're seeing is actually deep relationship based, but even just asset asset yields minus deposit costs, it's net accretive to our NIM position. So the return profile of the business overall remains in the mid-20s because of that with high profitability on the balance sheet, and we see nothing that will take us off that trajectory. John Pancari: Got it. And then on the capital front, Bruce, maybe if you could kind of I think you talked about your capital allocation priorities from organic versus buyback and then maybe on the M&A interest side.[indiscernible] I know you've been historically uninterested in whole bank M&A. Just curious if that's changed for any reason at this point. Bruce Van Saun: Yes. Thanks. I would say the capital and priorities are really unchanged. They've been stable. So we always look to make sure that we have a good dividend on the stock and that we can raise our dividend as earnings grow, which be an objective for this year. The second place objective is to make sure we have capital supporting our clients and supporting the growth of the bank. So organic growth is kind of next up. And then the residual, you can look to do potentially some selective acquisitions. For example, in the first quarter, we bought very small but high-quality M&A boutique to, as Ted indicated, we go deeper into these industry verticals. Do we have everything we need to really serve those clients well. And in some instances, rather than hire people. It's faster just to go out and buy an M&A boutique that doesn't use a lot of capital, but we'll certainly look for things like that or maybe some things in the payment space that can accelerate our growth a little bit, but these are generally going to be small. And then whatever we have as the residual, really goes to buying back our stock. And I still think the stock is very attractive here, as you would expect me to say. But in any case, we're -- we bought a lot of stock in, in the first quarter, $300 million. And we gave in our guide that we're looking to buy $225 million here in the second quarter. So we'll have -- if we keep growing our overall results and our earnings will have lots of flexibility to both grow the bank organically plus buyback stock. Operator: We'll go [indiscernible] from [indiscernible] Unknown Analyst: Back on capital, you mentioned the stress tests coming up and the potential to get some relief there. your buffer is 4.5%, it seems like you could see some pretty significant relief this time around. And if you do, does that at all come into play with how you think about the 10.5% level for CET1, especially in the context of seeing some of the larger banks moving their CET1 ratios lower recently? Bruce Van Saun: Yes. So what I would say on that is that we've managed the capital kind of where we think it's appropriate given the environment and stakeholder expectations. And so we've been at the high side of our range of 10% to 10.5% or slightly over the 10.5% for the last several quarters. the SCB has not really been a binding constraint. And I've said in the past, it's to me, more of a scarlet letter I can't believe that we're getting that high of an SCB, which is completely outsized relative to peers. I do think that the Fed is now kind of taking a hard look at why are there some of these inaccuracies that take place. And so we'll see the models aren't really going into this round, but there's other things that I think the progression coming out of where we were in '23 to the strong balance sheet and jump-off point we have today, higher revenue levels. And then the scenario was particularly severe in the last cycle that is better this cycle. So we would expect to see the notional equivalent SCB even though it won't go into effect, we would expect to see that hopefully quite a bit lower and more in line with peers even before we see some of the model changes like the model changes of not picking up this benefit of swaps was really a big miss. But even without fixing things like that, I think we'll see improvement. So I would say we'll wait and see like how the environment shapes up. Right now, we're in a war with a lot of uncertainty and profitability is still increasing. So I think carrying a little extra capital through the course of 2026 makes sense. But certainly, there'll be opportunities to reassess that if we get a positive outcome to the war and the market conditions improve, and we continue to deliver a higher level of earnings it might be possible to start to ratchet that down, but probably that would be a '27 event and not something that you'd see us do in '26. Unknown Analyst: Okay. And then just switching to the Private Bank. You had some great deposit growth this quarter, and you mentioned some of the spread details on that incremental business, which sounded great [indiscernible] 400 to 425 spread. I was just curious what what the rough cost of those deposits were in terms of the growth coming in this quarter? And if you could just give an update on the talent pipeline in that business, that would be great. Brendan Coughlin: Yes. The deposit cost, looking at now to carts 220-ish basis points. the total deposit cost when you blend in the interest-bearing plus [indiscernible] that. Bruce Van Saun: Yes. So it's going to be somewhere is going to be lower than our commercial deposit funding costs but higher than pure retail is one way to think about that. Brendan Coughlin: And remember, the interest-bearing side is mostly still front book. So you've got a heavy piece of DDA and then the interest-bearing side is front book. So the poly is somewhat barbelled. Over time, we can smooth that out as the business builds. Bruce Van Saun: Yes. And the other thing that I would say is we opened 3 PBO offices this quarter, and we have 2 more geared up on this quarter and 1 later in the year. that will bring us up. I think we're at 9%. That brings us to 11 by the end of the year. So that's an important part of the deposit gathering strategy to have an ability to go out to successful people and walk [indiscernible] we call them 2-legged customers in addition to some of the corporate relationships that we have and we get billboard value from having those new locations opened. I would say over the next 3, 4 years, we could see that PBO count get up to 25% to 30%, if you recall, I think First Republic had maybe 80%. I don't think we're going to go near there. But I think we can get into the key markets and kind of have 25 to 30, which will also kind of keep that deposit machine cranking along. In terms of talent, the main needs we've taken the business from about 150 people at launch up to close to 600 today, including all the support dedicated support people. I think the plan for this year is to kind of continue to build out Florida is one of the things on the PB side, but then continue with the wealth lift-outs. And so we have a pretty good pipeline on private wealth lift-outs. None of them hit in the first quarter. We hopefully will catch up here where we want to be in the second quarter, but that's also a real focal point to make sure that we have the wealth professionals co-located with our private bankers so we can deliver kind of total solutions to the customer. Brendan Coughlin: The only thing I would add is our talent pipeline is really robust and attracting talent to this platform. It's not been a problem we -- over the course of the last few years. held ourselves back candidly a little bit for 2 reasons. One is our commitment to the market to deliver the profitability and the results we committed and then just making sure the platform is ready. We've had a lot of investment we had to make to connect all of our products and deliver the service. Our NPS has gone up from 70 to 76. And growth is obviously really, really strong [indiscernible] we're feeling good about the foundation of the platform. So we're starting to think about how we play some more offense on bringing talent in selectively. We want to maintain a really high bar that's really important to us the banking side, we're searching for a talent and a talent only. And so that's what we're bringing in. Bruce Van Saun: I would have said it [indiscernible] Brendan Coughlin: I'll give you the rounding. Aunoy Banerjee: On the deposit side, I would just add that we are also bringing good quality deposits, the lendability of these deposits are good. So just so that we can use it in the broader franchise Operator: [indiscernible] Bank of America. Unknown Analyst: Just 2 quick follow-ups. Maybe, Bruce, in your prepared in your remarks, you talked about looking at New York brand strategy, I guess you plan to open more branches in New York. Just talk to us, is that more private bank related? Or do you see an opportunity to just open more branches in New York and just the size of kind of what you're thinking there? Bruce Van Saun: Yes, sure. I'll start and flip it to Brendan. But I think I referenced this on a prior call is that we see a real opportunity to kind of double down on our footprint. Some of our peer banks are okay, taking the view that our footprint is pretty saturated and we need to go outside footprint to different regions of the country to get more growth. That's not our strategy that we're arriving at its where we're already well known, we can make some investment in the branch system to really optimize locations, optimize the mix between in-store and stand-alone branches and try to pick up the growth rate of deposits just in our footprint. And then we don't -- we avoid all that top of funnel spend advertising in a different region where nobody knows who we are. People already know who we are. So we think that makes sense. My hope is that when we get to the end and we kind of unveil this program that we'll be spending some incremental dollars on the branch network but we'll pick up that growth rate in deposits maybe by 200, 300 basis points over what the normal GDP growth rate was -- and if you look at that over a 10-year period, that's another $20 billion to $30 billion of deposits and deposits, obviously the lifeblood of a strong bank. So this is really important to us. Stay tuned for more details probably at the middle of the year. but New York is clearly an area where proof of concept, we got in on the back of combining 2 franchises that, frankly, were from a retail standpoint in need of some TLC. We put our best people down there and brought our version of banking into a highly competitive market, and we're having great success. It is our fastest-growing region in terms of households and deposits. But we're still not at the full scale with where we would need to be to really penetrate that opportunity. So as part of that broader effort, you would expect us to open more retail branches in Manhattan in surrounding environments, and we're pretty excited by that opportunity. we probably will open another 1 or 2 PB locations in Manhattan, for example. But the focus here really is to optimize what we're going to do on the retail side. Brendan, anything to add. Brendan Coughlin: I guess a sign of an incredibly aligned leadership team you took almost every word out of my mouth. The only thing I would add is just give you a [indiscernible] in New York and then on the rest of the markets. But in a world post-COVID, it's -- there are a lot of questions on the future of retail branches and the importance of them, but it's still very much truth, if you want outsized operating leverage in retail banking, you need 4% plus share of branch density and despite all of our incredible successes in New York, we're still at sort of, call it, 2.25%, 2.5% branch density. So we do think we can build on our momentum by densifying a little bit. And we'll do that thoughtfully over time. As Bruce mentioned, we'll give you more details as we get towards the middle part of the year. We also have some self-funding dynamics that still exist in the rest of the franchise. We still have lot of in-store branches that we'll be able to reposition a bit to traditional branches in the non-New York parts of the footprint that will free up some expense and capital to densify in New York. So we'll bring everybody through the plan here in short order. But really, as Bruce pointed out, the goal really is to drive sustainable market share gains and outsized deposit growth in retail to fund the rest of the franchise. Ebrahim Poonawala: That's good color. And just a quick follow-up, Bruce, for you on the capital plans, like [indiscernible] should benefit Citizens once that gets mark-to-market. When we look at the benefit from the capital proposals, it's something we've begun to think about do you think the tangible common equity ratio then becomes something that you're more mindful for in a world where the RWA density is coming down? Bruce Van Saun: Yes. That's a really thoughtful question. So I do think while that's not a regulatory ratio, it is something that bank investors have focused on over time. And so as I said, we're going to have to triage when this good news comes in, you have the triage as to what our market expectations, what are regulatory expectations, what are rating agencies' expectations. But yes, I think that could happen. I think that TCE ratio could be something that analysts and investors move up in prominence. Operator: We'll go to Gerard Cassidy from RBC Capital Markets. Gerard Cassidy: You guys have done a good job of expanding the commercial banking business. You talked about it on the call already. Can you share with us when you go into a new market like Florida or California, now clearly, you're building your national brand, but it's I don't think it's yet at Bank of America level in terms of recognition. So how do you balance when you go into these markets that could provide growth on the commercial side, how do you balance the risk with growth? And then second, are you leading your balance sheet? Or are you building out treasury products first and then lending to those customers? How do you guys approach that? Bruce Van Saun: Let me start and I'll flip right to Ted. But I would say we have tried to lever an expanded presence in these new markets where we brought a private banking operation or private wealth operations and then kind of magnify that by also bringing in kind of the corporate banking teams. And what we aspire to is to bring very experienced, high-quality bankers onto the platform who kind of have a growth ambition and who are good team players. And so one of the reasons that we're successful overall in the corporate bank is we worked very collaboratively with a coverage banker who has product partners that they work together to come up with good ideas. We call it thought leadership. But at every touch point with the client, we're showing up. We understand your business. We want to get to know you. We have some ideas about how you can be more successful. And that really resonates with customers. So I think there's always room for market participants who do that well. So it's really a combination of the visibility of already being in the market. And now we have like 400 people in California over 400 people. And that kind of works together to raise our visibility and our presence and then staying committed to really high-quality people and staying committed to that 1 citizens collaborative model where we can deliver solutions to the customer. Ted? Theodore Swimmer: Yes. Bruce, the one Citizens model that we've implemented throughout our bank has really gone to differentiate ourselves as we expand into these new regions. So to your question, [indiscernible] we don't necessarily lead with treasury, don't necessarily lead with credit, but we try to lead with his ideas to our customers and where we differentiate ourselves is as we pick what customers we're going to attract we really look at where do we differentiate ourselves versus our competitors. So is it an industry that we have a specialization sponsor, a private equity group that we know better. We are trying to -- and then how do we bring all the parts of the bank together to give the customer an experience that they wouldn't necessarily get from somebody else. And when you have the private bank and all the great people and all the relationships that they have and the ability to interact with people that we normally, if we were just showing up with a balance sheet, we wouldn't have the ability to address those customers, bringing the private banking and combining all those together has really been what we try to achieve as we've been building out in these markets. Bruce Van Saun: And I would say that, look, kind of companies in the regions we're targeting or the industries we're targeting are very receptive to have a new player with a really strong approach that they're not exactly -- some of the bigger players aren't covering themselves in glory when it comes to how they cover middle market and mid-corporate companies. And so it feels like we're pushing on an open door to some extent when we go into these markets. Gerard Cassidy: Very helpful. I appreciate it. And then pivoting over to AI, Brendan touched on it a moment ago, Bruce, and maybe it's for Brendan as well. When do you think we get to the point where you folks and your peers probably as well, are able to go out and tell investors, we just spent x millions of dollars on AI, and this is bottom line impact. Earnings per share improved 2% or the ROTCE number went up 50 basis points because of the x millions of dollars we just spent on AI. Do you think we can never get to something like that down the road? Or is that just too optimistic? Bruce Van Saun: Yes. I think it's going to be hard. It's going to be a very dynamic process, and there's a lot of cross currents that go through the P&L. I think we'll try to do that with reimagine the bank. We're not kind of detailing any notable items for what the cost is of restructuring and investment and consultants and all of that. But I think will certainly delineate it so that you understand what we're expanding. And so just within that program when we get to the $450 million run rate, that's going to be a very good return on what it took to stand that up. So that might be one way that you can kind of get a sniff of how much are they spending and what benefits are resulting. But I do think it's a dynamic process and a lot of things, there'll be a lot of cross currents in the economy and other things. And so you might not have the cleanliness of connection that you're talking about that you're aspiring to. Operator: [indiscernible] the line of [indiscernible] from Autonomous Research. Unknown Analyst: Just one here on expenses. So the first quarter and then the second quarter guide kind of get us to that 4.5-ish, 5% year-over-year cost growth I know a lot of the reimagined the bank benefit comes in the second half as long -- as well as some of the spending. So can you just help us just understand the cadence of expense growth as we kind of see that benefit. And as you balance performance related and investments against that as we move through the second half? And should we just be kind of thinking about that 4.5% overall guide that you gave us in January. Bruce Van Saun: Yes. Ken, so we're not coming off the 4.5%, and there is a seasonal pattern of expense recognition that the first quarter has the FICA and associated payroll items that go with the bonus, paying the bonus. And then the second quarter tends to be where we would bring in people. And after they get bonus. And so any net adds that we want to have, it's a big period for the net adds. So overlay some reimagine the bank onetime costs in the first half of the year, you're going to kind of peak, I would say, in the upward pressures and your merit happens in the second quarter early -- second quarter. So you're kind of peaking in the first half of the year and then it wouldn't be as much net investment spending on ads in the second half of the year and then some of the benefits coming in from reimagine the bank will flow through in the second half of the year. So you could actually see expenses start to dip a bit in the second half. So we'll obviously give you that guidance as we get to the second quarter, we'll tell you what we think in the third quarter. But just to preview it we're still holding to the 4.5% for the year, and it's kind of -- the build is more front-loaded and then kind of levels off or even declines a little Yes. And Ken, I would just add, we are pleased with the expense discipline that we had in the first quarter. Really the growth quarter-on-quarter was all of our -- the seasonality that Bruce mentioned. And as Brendan mentioned, we have good line of sight to some of the savings that are coming. So we mentioned the vendor sales as well as some of the property closures. And so we feel very good about some of the some of the downtick that we will see and the benefit that's come there. And we have very disciplined returns objective on the private bank, et cetera. And I would just add, like if you should remember the 500 basis points of positive operating leverage for the year and we delivered 700 basis points this quarter. So that still remains very much true for this. Operator: [indiscernible] go to Chris McGratty from KBW. Christopher McGratty: Bruce, you expressed confidence getting into the the 16% to 18% range for the ROTCE by the end of next year. I guess, number one, what could make it perhaps a little sooner get into the range and maybe the factors that might push it out a little bit? Bruce Van Saun: Yes. I think it's hard to pull it forward a whole lot. We have some of the time-based benefits of those legacy swaps running off, which is a driver of kind of moving higher in NII and overall kind of revenue. But if we got into kind of piece dividend from the resolution of the Apron war. And then there's a lot of activity in the capital markets. I think we're as well positioned as anyone certainly amongst our peers, maybe better positioned to really capture that upside if that happens. So I think that's one driver that can maybe hope to get us there a little faster. And I'd say, in the private bank, they're on a steady as she goes by design kind of trajectory. If we did start to see more revenues, maybe we could force feed a little more investment there. And we talked a little bit about the potential for pull forward of RTB benefits if some of the new technologies kick in. So there is a case to make that potentially in a perfect scenario, you can pull it in a little bit, but I'm not promising that. And I'm really just focused on making sure we hit that by kind of the end of '27. And then I guess the converse is true, too. If the kind of environment stays volatile and the war doesn't get resolved quickly and energy prices go up and the economy slows down a bit, there's possibilities that, that could extend a little bit. But A lot of this is actually baked in. So to get kind of from 12 to 15 is really these time-based benefits and some of the trajectory we see on the NIM and then kind of getting all the way there is execution of kind of some of the rest of the initiatives, the normalization of credit cost back to the mid-30s. We had a 39 basis point this quarter. I think we're firmly on that trajectory, again, absent something happening in the economy. And then we'll just continue to buy back our stock fairly aggressively as well. Operator: [indiscernible] question will go to David Chiaverini from Jefferies. David Chiaverini: So I wanted to ask about loan pricing, commercial loan growth has been increasing nicely across the industry. So I was curious about how loan spreads are holding up in a competitive environment. Aunoy Banerjee: Yes. Let me start, David, and then I'll pass it on to Ted. As you saw that we had a diversified loan growth and even in the commercial bank, we had in the mid-corporate space, we were little bit on the subscription lines as well. And we expect -- as you think about the spreads, like it definitely came down as the rates came down. But but we are well within the pack. And the one thing I would talk about loan growth is -- and Ted mentioned this, this is not only just a credit relationships. It's a more holistic relationship. So we look at the returns of this loan on a holistic basis to think about what else are we getting, whether it's the deposit relationship or the business, other business activities, fees, et cetera, that we are getting. So there's a very disciplined process in Ted's business that we go through to ensure that we are just not looking at the spreads. Theodore Swimmer: Just to build on what Aunoy Banerjee said. Overall, in the markets in the beginning of the first quarter, we saw more on the institutional side. And on the bond side, we saw some tightening of spreads that obviously widen back out with what's going on in March. As we get specific to Citizens, we are now -- we look at the relationship holistically. So we try to figure out when we make a loan, what are the ancillary business, and this was all part of our BSO that we really completed through the end of last year. We now feel like we have a very good discipline in place that we do not stretch on loans where we do not get an overall suitable return for our customers. As such, we really haven't seen much of a decline in spreads in the last couple of -- in the last quarter. David Chiaverini: And then shifting over to private credit and NDFI. To what extent are you contemplating leaning in as other banks pull back? Or are you comfortable with your existing exposure? Bruce Van Saun: Yes. I would say -- it's Bruce, and I'll let Ted add color. But we've grown that, as I mentioned earlier, that book by very -- in a very disciplined manner, call it, 5% a year, being very selective about who we want to bank and the type of vehicles that we bank and making sure we have the right structure. So I don't really see us veering off of that. That served us well to where we're positioned today. And I think that's the strategy that we'll have going forward, even if some people step back and there's opportunities to do more we'll see. But our baseline assumption is that we kind of keep to that mid-single-digit growth rate. Ted? Theodore Swimmer: Yes. We're going to continue to support our customers. We look at these relationships, not just on the DFI side, but on the private equity side, on the subscription side and then what their portfolio companies are doing. So -- and if some of our customers are the winners and the survivors, we think that they're not survivors, but the winners and make acquisitions, maybe grow with them, sure. ut we're not going to specifically grow NDF. We're going to just continue to go with where our customers go. Bruce Van Saun: Okay. All right. I think that gets to the end of the question queue. So I really appreciate your interest in citizens. Thanks for dialing in today. Have a great day. Operator: That concludes today's conference. Thank you for your participation, and you may now disconnect.
Operator: Welcome to Marsh's Earnings Conference Call. Today's call is being recorded. First quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thanks, Andrew. Good morning, and thank you for joining us today to discuss our first quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO; and the CEOs of our businesses, Nick Studer of Marsh Risk; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Ted Moynihan of Marsh Management Consultant. Also with us this morning is Jay Gelb, Head of Investor Relations. Let me start by highlighting recent changes to our Executive Committee. Mark was named Chief Operating Officer of Marsh in addition to serving as our CFO. In this expanded role, Mark will take on more responsibility for evolving our strategy and working across our business to drive execution of top priorities, support collaboration and accelerate pace. We also announced Nick as the CEO of Marsh Risk. Nick is a proven growth leader as demonstrated by his record as CEO of Oliver Wyman. His experience advising corporate and public sector leaders on the topics of risk and strategy positions Nick well to deliver on our growth ambitions. Nick succeeded Martin South, who is now our Chief Client Officer. Martin will focus on elevating the client experience across the company and help us better leverage AI to support clients. And Ted succeeded Nick as CEO of Marsh Management Consulting. Ted has more than 3 decades of leadership experience at Oliver Wyman, and he is a respected adviser to business and government leaders. I look forward to him driving continued growth at Marsh Management Consulting. Congratulations to Mark, Nick, Martin and Ted. These leadership changes are all about growth, enhancing the client experience and helping us capture the benefits of Thrive. Turning to results. Our performance in the first quarter reflects solid execution despite challenging market conditions. Overall, we grew revenue 8% in the quarter. Underlying revenue increased 4% despite lower fiduciary interest income and continued downward pricing pressure in insurance and reinsurance. We are seeing strong sales across our business, and we are pleased with the sequential improvement in the growth at Marsh Risk. Adjusted operating income grew 8% from a year ago, and adjusted EPS also grew 8%. Turning to the ongoing conflict in the Middle East. Our primary concern has been the safety and well-being of our colleagues and clients and helping them navigate the challenges in the region. The impact on our business and the broader insurance industry has been limited. The economic issues related to the conflict in the gulf are not about insurance. While certain lines like marine coverage may experience price spikes for war risks, ultimately, the gating issue is the escalation. A sustained conflict in the region will create more uncertainty and risk for the world's economy. Broadly Marsh is advising clients on how to build greater resilience in their business planning, we're helping them address supply chain issues, review their cyber exposure and we are advising on investment decisions. And of course, we are working with clients to manage insurable risks, particularly in marine, aviation and energy. We've also engaged with governments as they work to minimize economic disruption and maintain global trade, particularly in energy, fertilizer and other commodities. Challenging events like this underscore the purpose of our work. It's also why we believe Marsh provides a unique value to clients who need strategy, talent, investment and risk advice in complex times. I'd like to take a moment to discuss our AI strategy and why we believe Marsh will be an AI winner. Our strategy leverages our scale and capacity to invest in AI to drive even greater value from our proprietary data assets and our role as our clients' trusted adviser. We are focused on 3 main pillars. The first is growth. We are building AI-enabled applications and services that are generating new revenue streams as well as enhancing world-class capabilities and data-driven insights in insurance, health, human capital and investments. Examples of these products include ADA, Centrus, UCLI and GC Quotebox, and many more of these applications are in development. We also see significant AI growth opportunity in consulting. Oliver Wyman's AI Quotient team created to help clients deploy their own AI strategies is its fastest-growing practice. We're advising clients in multiple sectors, such as banking, energy, government and manufacturing around AI and workforce transformation. We've already advised on more than $50 billion of capital investment in AI deployment. And Mercer is working with clients to assess and inventory skills and redesign jobs as AI is integrated into ways of working. Our second pillar is productivity, which focuses on deploying AI capabilities to boost the performance of our colleagues. This is showing up in hundreds of different ways across a wide variety of roles. A good example of our work is to embed AI our client management tools and to develop AI agents to help colleagues source and prequalify leads to support sales productivity. The final pillar is efficiency. Across our business, we are starting to see the impact of AI automation. A critical reason for creating our business and client services unit, or BCS, is to exploit the efficiency potential of AI. By consolidating our back-office operations and technology into scalable centers, BCS is accelerating the pace of AI-driven automation and process reengineering. For instance, our document ingestion capability is now handling thousands of documents weekly already improving efficiency in these processes by 20% and enhancing the quality of the data and its usability to further support clients with valuable insights. We are beginning to reduce the cost and time associated with upgrading code to modernize applications. For example, we recently used AI to turn a legacy tool into a newly designed broker workbench in days saving months of team effort. We have deployed agentic AI in our IT help desk, significantly reducing inquiries, improving colleague experience and creating downstream efficiencies in our support centers. And in our policy renewal center, AI has enabled us to transform a traditionally manual e-mail heavy process into a streamlined digital solution in weeks, a project that otherwise would have taken many months. AI-enabled savings will fuel additional growth investments, including in producer talent and new capabilities while building our confidence in continued margin improvement. It's important to remember that Marsh is not selling commoditized products or simply procuring insurance at the lowest possible price. That's not who we are or what we do. AI will help us serve our clients who have bespoke and complex needs even better. It will not replace the trusted advice, expertise and capabilities with which we deliver value to clients. In our risk business, we help clients identify and understand their exposures, implement loss prevention strategies and provide data and insights to make real-time decisions. And after developing the strategy, we help them finance their risk through self-insurance, traditional insurance, capital markets or captive management solutions to achieve their goals. Similarly, in consulting, we provide high-impact services to help organizations confront their biggest strategy and talent challenges. And we service trusted advisers to executive leadership in their company's transformative moments. Our client relationships, data and insights and the expertise of our professionals worldwide built over 155 years of market leadership is why we see AI as a powerful accelerator and enabler in delivering value to our clients, colleagues and shareholders. Now turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q1, driven largely by property. This follows a 4% decline in the fourth quarter of 2025. As a reminder, our index skews to large accounts. Rates in the U.S. were down 1%. Europe, Asia and Canada declined mid-single digits. U.K. and Latin America were down high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 9% year-over-year, which was the same pace as last quarter. Global Financial and Professional liability rates were down 5%, while cyber also decreased 5%. Global Casualty rates increased 3% with U.S. excess casualty up 18%, reflecting ongoing pressure in the liability permit, and workers' compensation decreased 1%. In reinsurance, there is substantial capacity to support client demand as reinsurers pursue growth. Throughout the first quarter, market conditions were generally consistent with what we saw at January 1. The strong reinsurer profitability, high ROEs and increased capital levels have resulted in ample supply of property cat capacity and meaningful rate reductions. It was also another active quarter for cap bond issuance. U.S. property cat reinsurance rates remain competitive for the April 1 renewal period. Rates for non-loss impacted accounts were down 15% to 20%, a slight acceleration from the January 1 renewal season. In U.S. Casualty Reinsurance, we continue to see a range of outcomes depending on loss experience with primary cares demonstrating limit, rate and underwriting discipline. In Japan, April 1 property cat rates overall were down 15% to 20% on a risk-adjusted basis. Early signs for June 1 Florida cat renewals point to similar market conditions characterized by rate reductions and excess supply as seen in January and April. There are early indications that Florida's legal reforms will contribute to further risk-adjusted decreases. Our clients are benefiting from the current market conditions. And as always, we continue to advise them on designing the best risk programs aligned to their goals. Now let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 8% to $7.6 billion, growing 4% on an underlying basis, with 3% growth in RIS and 5% in Consulting. Marsh Risk was up 4%. Guy Carpenter grew 2% and Mercer increased 5% and Marsh Management Consulting grew 6%. Adjusted operating income grew 8% and adjusted EPS was $3.29, up 8% year-over-year. We also repurchased $750 million of our stock. Looking ahead, we are well positioned for another solid year despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing. We continue to expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Our outlook is based on current conditions and the economic and geopolitical environment could change materially from our assumptions. In summary, we're off to a solid start in 2026. Despite challenging market conditions, we remain focused on executing our strategy and continuing our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand and generate greater efficiency. We're excited for AI's potential and committed to being an AI winner through growth, productivity and efficiency gains. Marsh is a resilient business that provides critically important advice and solution particularly in complex times such as these. We have proven our ability to deliver across cycles, and I am confident in Marsh's future. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John. Good morning. Our first quarter results represented a solid start to the year, reflecting strong execution despite a challenging environment. Consolidated revenue increased 8% to $7.6 billion with underlying growth of 4%, which came despite a headwind from fiduciary interest income and declining P&C rates. Operating income was $1.8 billion and adjusted operating income was $2.4 billion, up 8%. Our adjusted operating margin was unchanged at 31.8%. GAP EPS was $2.36 and adjusted EPS was $3.29, up 8% over last year. Looking at Risk & Insurance Services. First quarter revenue was $5.1 billion, up 6% from a year ago or 3% on an underlying basis. Operating income in RIS was $1.3 billion. Adjusted operating income was $1.9 billion, up 7% over last year, and the adjusted operating margin was 38.3%, up 10 basis points from a year ago. At Marsh Risk, revenue in the quarter was $3.7 billion, up 8% from a year ago or 4% on an underlying basis. Growth increased sequentially despite the more challenging market conditions, reflecting solid performances in the U.S., including MMA and across international. In U.S. and Canada, underlying growth was 3%. In international, underlying growth was 5%, with EMEA up 6%; Asia Pacific up 5% and Latin America up 2%. Guy Carpenter's revenue in the quarter were $1.2 billion, up 3% or 2% on an underlying basis, a good result considering the current pricing environment. Growth was impacted by softer reinsurance market conditions and a tough comp to 5% underlying growth in the first quarter of last year. However, Guy Carpenter executed well and drove strong new business despite the tough market conditions. In the Consulting segment, first quarter revenue was $2.6 billion, up 11% or 5% on an underlying basis. Consulting operating income was $525 million and adjusted operating income was $552 million, up 13%. Our adjusted operating margin in Consulting was 21.6%, up 40 basis points from a year ago. Mercer's revenue was $1.7 billion in the quarter, up 11% or 5% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $727 billion at the end of the first quarter, up 5% sequentially and up 19% compared to the first quarter of last year. Year-over-year growth was driven primarily by new wins, the impact of capital markets and acquisitions. Career was down 2%, reflecting continued softness in project-related work in the U.S. partially offset by sustained demand in International. Marsh Management Consulting generated revenue of $897 million in the first quarter, up 10% and or 6% on an underlying basis, reflecting solid demand across most regions and sectors. Fiduciary interest income was $85 million in the quarter, down $18 million compared with the first quarter of last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary interest income will be approximately $80 million. Foreign exchange was an $0.11 benefit in the first quarter. Based on current exchange rates, we expect that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Corporate expense in the first quarter was $74 million on an adjusted basis compared to $81 million in the fourth quarter. Looking ahead to the second quarter, we anticipate corporate expense of approximately $90 million, which includes some one-off timing items. We're making good progress on executing our Thrive program. We remain on track to generate $400 million of total savings, a portion of which will be reinvested for growth and incur approximately $500 million of charges to generate the savings. Total noteworthy items in the first quarter were $521 million, including $37 million of costs associated with Thrive. Noteworthy items this quarter also include a $425 million charge relating to litigation stemming from the collapse of greenfield capital in 2021. As we have previously disclosed, Marsh served as greenfields insurance broker starting in 2014. The charge in the quarter represents the best estimate of our liability in this case, and was influenced by a recent court sponsored mediation among the parties involved. Our 10-Q filed earlier today includes further information on this matter and the charge. As you can appreciate, this litigation is ongoing, so we aren't able to comment further at this time. Interest expense in the first quarter was $240 million. Based on our current forecast, we expect interest expense in the second quarter to be approximately $245 million. Our adjusted effective tax rate in the first quarter was 25.1%. This compares with 23.1% in the first quarter last year, which benefited from discrete items, most notably a meaningful benefit related to share-based compensation. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Turning to capital management and our balance sheet. We ended the quarter with total debt of $20.6 billion. Our next scheduled debt maturity is in the third quarter with $550 million of euro-denominated senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled $1.3 billion, included $440 million for dividends, $89 million for acquisitions and $750 million for share repurchases. We continue to expect to deploy approximately $5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Turning to our outlook for 2026. Despite the challenging environment, we remain well positioned for another solid year. We continue to expect underlying revenue growth will be similar to the levels we generated in 2025 along with another year of margin expansion and solid adjusted EPS growth. For modeling purposes, we expect to generate more margin expansion in the second half of this year than in the first half. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we are ready to begin the Q&A session. Operator: Certainly. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Charles Peters: I wanted for my first question, to focus on our margin results. John, I know we're quite proud of the 18 years of consecutive margin expansion and presumably, you're going to hit your 19th year in 2026. But because of these results, it's caught the attention of many about where the ability to generate future margin expansion will come from? And maybe it's embedded in your AI comments. But with your margin results being so high, curious about the risks of AI disintermediation across the various businesses that you have? John Doyle: Sure, Greg. Let me hit the margin part of that and then maybe I can talk to AI disremediation risk. So sure, AI, and I gave you a bunch of examples right in my prepared remarks around efficiency gains and some that we're already seeing today. Let me remind everybody, of course, we've guided to year '19 of margin expansion this year, and we fully expect to do that. Thrive, of course, is broadly an important lever for us. BCS I think in the broader kind of AI discussion in the economy and amongst businesses and governments, AI often is being used as a term for broad-based automation, but I distinguish the 2. So we're -- we still have real possibilities around and are actively building out our capability centers and using kind of more traditional digitizing strategies to drive efficiency gains. So there's a lot in front of us there. And so we're excited about the path that we're on. As I said in my prepared remarks, we expect to be an AI winner, we moved early on AI, and we're excited about how it's already making us better and how it's going to make us better in the future. And our scale and data and insights enable us to move more quickly. I would say to you, we've competed with early-stage tech-enabled startups for a long time. We've competed with direct insurers for a long time and competed successfully with them. When I think about the attributes that we have is that we're in the early days of what's possible around AI, our trusted client relationships matter. Our data matters, our modeling, it matters, our ability to advise on risk, not just by insurance, really matters. Our ability to connect to a complex ecosystem of risk financing really matters. We don't just buy insurance for our clients. We do so much more than that. So when I think about all the attributes that we have and what our ability is to be an AI winner, I can't think of a better place to be -- to start and to begin the early days of what's possible around AI than here. Do you have a follow-up Greg? Charles Peters: Yes, I do. And I'm going to pivot to capital management. the public brokers, the stock prices, everyone's reset lower, I'm not sure on the M&A side that the prices or valuations of acquisitions have reset lower yet. So I'm just curious on how you're thinking about the allocation or difference between growth through M&A versus repurchase of your own stock considering the reset and value of the stock price? John Doyle: Yes, it's a great question. What I would say is our strategy remains the same, right? We want a balanced approach to capital management. We favor investing in our business, whether it's organically or inorganically. Our goal remains to increase our dividend each year. And buybacks ultimately will depend on M&A. And as I mentioned in my prepared remarks, we did $750 million of buybacks in the first quarter. And we expect to deploy -- Mark mentioned we expect to deploy about $5 billion worth of capital this year. We're active in the market. Our pipeline is strong. So I feel terrific about that. And just as a reminder for everyone, 18 months ago, we closed on the biggest deal in our history, right? So not so long ago. And last year, we deployed about $850 million to M&A. And we did a meaningful deal at MMA in the fourth quarter in Hawaii, as most of you would remember. We did a couple of small deals, 3 small deals in the first quarter. We also actually closed on the sale of an admin business in the Pacific. I'd point that out to you. And we announced the acquisition of AltamarCAM. It's a private market asset manager with about $20 billion of AUM. That's kind of regulatory approval. So we expect that to close sometime later in the year. So we're likely to continue with our string of pearls approach. We do have the capacity to do larger deals, who knows what the marks are PE-backed assets. I will say, over the course of the last couple of quarters and some conversations we've had, there's been growing gaps between bidding -- bid and ask. We'll see how that materializes over the rest of this year. We've seen financial sponsors be a bit more aggressive than strategics. And Greg, we're going to, as always, be disciplined about how we deploy our capital. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Michael Zaremski: Great. Just 1 question on maybe around the AI conversation, specifically on the value-add services that you offer your clients. Curious a couple of your peers have talked about the Claims Advocacy Group, and they've offered some stats around the how the Claims Advocacy Group has made sure your clients get their claims paid in a timely manner. Just curious if you see that as one of the bigger value adds and if yes, if there's any stats or anything you'd like to share? John Doyle: Yes. Sure, Mike. And maybe what I'll do is I'll ask all of our business leaders just to share some thoughts on how we're investing in AI and how it impacts the value that we deliver. But we have the largest claim group -- Claims Advocacy Group in the industry by some measures. So maybe I'll start with Nick. Maybe you could share some thoughts, Nick? Nicholas Studer: Yes. Mike, thank you for the question. Maybe let me start on the claims advocacy question. As John said, we have a very large team plus additional specialists to handle highly complex claims. And the important thing to state, first of all, is that policy drafting and placement that creates contract certainty is the first stepping point here, so that you don't have rejected claims, which then require advocacy. But when you do our advocacy is strong and if you take an example like Claims IQ, which is our AI-enabled toolkit, we've got several thousand colleagues now drawing an AI-enabled analysis of almost $200 billion of loss information, which helps them support much better advice decision-making and advocacy. But if I take a few more examples tapping into John's prepared remarks, this is a bespoke fragmented, highly complex ecosystem from client service and a advice all the way through to placement. And A lot of the focus is on AI, but this is an ecosystem, which is digitizing steadily, and that digitization is critical to deploy the AI. There's lots more work to do just on digitization. And we still see human relationships and human judgment continuing to be central. But the AI investments are, I think, massively enabling of growth and of productivity and of efficiency. So value-added services, as you said, we're investing heavily in our digital client experience. We have a suite of tools, which you may have seen for many years in Blue[i] and Centrus, which we've talked about before, we're evolving these into what we call the Marsh risk companion, which will help clients understand and analyze their risks and their options across a wider range of their activities. But what's really crucial about the suite of tools is they're now all feeding off a new analytics engine. It's built from the ground up to leverage AI at scale. One of the things here is you're able to leapfrog with AI. And we call it the Marsh Risk cortex, but it really pulls together everything we need from our massive data sets and our most advanced models. And the crucial thing, I think, is not what features have we got, but it's the speed and the flexibility with which we can launch new applications because our clients' needs are evolving rapidly, and new needs are emerging. The first application is powered by the risk cortex, including our renewal companion, our captives companion, they're going to be launched in a couple of weeks at RINs. And then you should expect to see more flowing from that data set and analytical tower. And then maybe just to give a couple of more examples, we've talked before about our general proprietary AI suite just within Marsh Risk and up to more than 2 million prompts a month. So that helps productivity across the organization. But I know you're looking for sort of specific examples, too. So if I take something like we've rolled out tools to aid coverage gap analysis and quote comparison across our risk management and the Marsh agency businesses. And in the areas where we pilot that, we see the amount of work that, that takes off our client teams drive a 50% increase in sales velocity in the pilot. And we think some of that gain is scalable across the whole organization. So really lots going on, lots of activity to support our client-facing colleagues and our operations colleagues in work. John Doyle: Thank you, Nick. You're starting to sound like an insurance broker. Dean? Any thoughts from Guy Carpenter? Dean Klisura: Thanks, John. And Mike, you heard John in his prepared remarks, mentioned GC Quotebox, which is an AI-driven document ingestion tool. This is really a game changer for Guy Carpenter in our business. We get huge quantities of unstructured data from our clients, and this tool helps us ingest all of that data and makes it more efficient to match risk and capital through this tool, which will certainly improve turnaround times, make our teams, our brokers more efficient and deliver better turnaround times and more efficiency for our clients. John Doyle: Perfect, dean? Pat, how are you using AI Mercer? Patrick Tomlinson: Let me go 1 of those examples and maybe give you 1 where we're using it directly with clients. So Mercer Fiber is one of the tools where we're leveraging the broader AI stack that we have at Marsh to kind of further enable our existing digital tools. So health consultants leverage fiber when they're working directly with the client. It enables them to have these real-time iterative discussions on all aspects of their benefit programs, an incredibly powerful scenario planning and modeling during strategy sessions. What we do is we use fiber throughout the year as well to help with budget tracking, with updates with benchmarking, other plan management activities. And what it does is it allows us to visually display these insights and the data from across our health and benefits practice and then it combines it with the client's actual population and their actual claims data. And that allows us to understand and show clients directly the geographic differences in health care cost and quality based on their actual data, and we could do that live. And it allows us to really work to identify the most effective health care options for a specific population, right? And this is differentiating us in the market, really by showcasing the capabilities we've got the insights in a single integrated platform to be very client specific because it's very targeted to them and very client-centric. John Doyle: Thank you, Pat. Ted, welcome to the call. You want to share some thoughts on why we're excited about AI at Oliver Wyman. Ted Moynihan: SP26858316 Thank you, John. Thank you. And you mentioned already that our AI platform Quotient is our fastest-growing capability right now. And AI is developing into a very large opportunity for us as a consulting business that works on strategy and transformation. Let me mention a few examples. -- all of our work around performance transformation, where we're helping our clients improve how their businesses work and there's a ton of reengineering of processes and systems around AI. In industries, I would mention like banking, like health care, like advanced manufacturing, we're seeing the volume of work there really start to grow quickly. Growth and strategy work where we're helping our clients rethink kind of customer service and distribution channels. We've -- we've helped a number of clients already build new apps and chat GPT, a very new change to the way commerce is working, and we think going to be very transformational in industries like media, retail, communications, that's really a big deal. And you mentioned, I think, in your introductory remarks, but with governments, with investors, we've been helping to mobilize capital, where governments and investors are investing in AI skills and capabilities and new AI start-ups and new cost. And look, it's also changing the way we deliver our work and it's allowing us to -- AI is helping us deliver more value to clients. And just to give you one example in our private capital business, where Quotient diligence is changing the way we help our clients invest in businesses. And we're using very sophisticated tools to do market analysis, competitive analysis, growth opportunity analysis, and that allows our clients to make better investments and sometimes if they want to quicker investments in the private capital world. John Doyle: Thank you, Ted. Sorry, Mike, for that long answer, I just want to make sure everyone realizes why we're so excited and why we think we're best positioned to deliver greater value than we ever have to our clients and to our shareholders. So do you have a follow-up, Mike? Michael Zaremski: Yes, really quick. That was helpful follow-up. Just on the the pace of Marsh's hiring in terms of the producer level, do you expect that trajectory to change materially in 2016 and has higher or lower? John Doyle: Yes. No. Thanks, Mike. We had a good quarter, attracting production talent to the team in key markets, our brand in the market for town and in the areas where we compete and deliver for our clients is very, very strong. We start with the best talent and the most talent in the markets that we compete with. Would also maybe not your question, but our colleague retention is strong, our colleague engagement is outstanding. And so it's all anchored by a colleague value proposition, which is a really important way in which we try to convince people to stay and to give big parts of their career to our company. So thank you, Mike. Next question, Andrew? Operator: Our next question comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of them here for you, John. First one, I'm just curious, given the level of rate decreases that we're seeing out there. What are you seeing with respect to client demand at Marsh, given this uncertain kind of macro environment, are you using savings to purchase more coverage? Are they kind of holding back right now to see how the year kind of unfolds? John Doyle: Yes. I don't know it's very -- thanks, Brian, for the question. I'm not sure it's a very helpful answer, but sometimes, I guess would probably be the -- some of it. The market obviously got modestly more competitive in the first quarter. I talked a bit about the strong returns on the reinsurance side, but obviously, insurers and reinsurers have posted strong underwriting results. They're all looking for more growth, right, as a result. And so maybe another point I'd make here, Brian, is not directly on your question is, although rates are down, the cost of risk is clearly increasing. And I would think at a magnitude probably 2x GDP with liability inflation, medical cost inflation, cyber risk, certainly accelerating with AI, the frequency of extreme weather and how much more of the economy and society is exposed to those events. So it's maybe a more important driver of demand for us over the medium term. But maybe I'll ask Nick and Dean to just talk about a couple of market observations and what clients are doing in terms of purchasing. Nick? Nicholas Studer: Yes. I mean, as John said, the answer is sometimes. But in general, I think, yes. We've also seen continued trend and a rising trend in new business growth. And if I look at, say, the U.S. and Canada, highlights there include double-digit new business growth, continued strong growth at Marsh Agency, and double-digit growth in the specialties business. So transaction risk and construction, both growing strongly. And all of that with the -- across globally new business trending up for 4 quarters. But we're cautiously optimistic as we go through the rest of the year. John Doyle: Dean? Dean Klisura: Yes. Thanks, John. And Brian, maybe I'll just touch on kind of new business opportunities overall. And despite the property market and everything that John and Mark talked about which was a clear growth headwind for Guy Carpenter in the quarter. We're seeing record new business across our platform. We grew double-digit new business growth in every region in business globally in the quarter. I was really pleased with that. As Mark and John noted, we continue to see a really strong cat bond market and ILS market overall. We issued 7 cat bonds in the quarter, a record for Guy Carpenter. We've seen some $2 billion of new third-party capital flow into the market, just chasing casualty side cars, whole account quota shares and other similar vehicles. We've gotten several new mandates around those, very, very promising. I've talked in prior calls about our capital and advisory business, our investment banking boutique. We've never received more M&A mandates -- M&A advisory mandates, forming new side cars, as I mentioned, raising capital for MGA's Lloyd's platforms, our structured credit business, our MGA business. And in the last call, we talked about data centers, right? And just a couple of headlines there. I mean there's 50 deals that have been in the marketplace looking for more than $7.5 billion of capital to put these together. And all of my clients, Guy Carpenter's clients want to write more data centers, but they all need additional reinsurance protections. And I think the newest element of it, Brian, is clients now are talking about issuing cat bonds and leveraging third-party capital to write more data center business. And so I would say, overall for Guy Carpenter, there's more diverse new business opportunities that we've seen in several years. John Doyle: Thanks, Dean. SP1 Brian, do you have a follow-up? Brian Meredith: Yes, absolutely. So John, it's clear that AI is going to have productivity benefits,, it's going to benefit client experience and growth, et cetera. But 1 of the debates I'm having with investors is how much of the productivity gains is Marsh going to be able to keep and see a benefit from a margin perspective versus protects being competed away or giving back to clients. Maybe give us your perspective on that. John Doyle: Yes. It's a great question, Brian. And I talked about where we see efficiency opportunities -- Productivity opportunities, new sources of revenue generation. So -- we don't think anybody is better positioned to capitalize on these developments in technology than we are. And so I'm quite excited about that. Our fees have been for a long time, stable as a percentage of premium, and they're quite small compared to the cost of risk that we help our clients manage. And so we feel good again about how we're positioned and what that would mean. I think some of us on this call have talked about in the past and I mentioned in my prepared remarks, if you think we're a discounted insurance broker, yes, I might be a little bit worried, but we're not. That's not what we do. And so we feel good about what this technology will meet to our business. Thanks, Brian. Andrew, next question. Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: First question I had for you was just going back to the capital deployment and M&A side. I'm just curious how, if at all, AI is changing the M&A strategy. Are you staying away from certain businesses pivoting towards others and have your technology requirements or anything else changed? John Doyle: No. We -- it's a good question, Rob. We've had some opportunities and have looked at some businesses that have pitched kind of AI as part of their value. And I think there was a very significant gap between how some of those businesses for trade their tech value relative to how we saw their tech value. And so -- but I do -- and I recognize you can't plan around hope. So I say this with that in mind. But I'm hopeful that actually the scale benefits that we bring to investing in AI and the data sets and client relationships and all the advisory work will create opportunities for us to consolidate smaller brokers over time who are going to struggle to compete and to invest in these technologies. And even where they're able to make space for investment, they just don't have the data assets and the other capabilities that we have. And so I'm optimistic over time that will be a driver of M&A for us. Do you have a follow-up, Rob? Robert Cox: Yes, that's very helpful. Just had a follow-up on the MMA business. I understand you guys don't break that out. But just curious if you would characterize that business as a tailwind to organic growth for the RIS business and if it is, like, do you think it could continue to be a tailwind despite more pricing pressure for a commission-based model here? John Doyle: Yes. For -- the answer is yes, right? So MMA has been a tailwind to our growth for most years and most quarters, not all, but for most, as we've talked about in the past, we still have relatively modest penetration into the middle market. And so while Dave and the team have made a tremendous amount of progress, and we couldn't be more excited about the business we've built. In many respects, I feel like we're just getting started. We absolutely have the possibility for much greater growth. What I would say about pricing for for a number of, I think, rational reasons, pricing in the middle market has been -- has been more stable through cycles. That continues to be the case right now. It's one of the areas where we're delivering some of the productivity tools to help make our producers even better. And so we're really excited about the opportunity in the middle market. And by the way, not just in the United States, where we've learned a great deal in the last 15 years in building out that business and from some very talented executives we brought on, and it's helped making us better and capitalize on middle-market opportunities in other economies around the world. Thank you, Rob. Andrew, next question. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: Great. First question for John. I completely get the increasing benefits that you're going to be able to -- or increasing value that you're going to be able to bring to clients and carriers through AI. Are commissions still the right way to be compensated for that? Or do you expect compensation to become more transparently tied to the individual services? John Doyle: Look, Meyer, we have a broad risk of -- or broad range, excuse me, of the way we get compensated today. We have fees, we have commissions. We have success fees, right? I'm sure there are other things I'm not even thinking about. We're very transparent with our clients about how we get paid. And so -- so anyway, I mean, we'll see how those conversations evolve over time. I wouldn't -- I would suggest to you, I see no -- zero trend kind of around that. And so -- but again, we're happy to get paid in any form. We think we created outstanding value for our clients, and we think we get deserve to get paid well for that, assuming we deliver and execute on behalf of them. And as I mentioned before, our commissions and fees are a relatively small part of the overall cost of risk. And as a percentage of premium, they've been quite consistent over a long period of time. Do you have a follow-up, Meyer? Meyer Shields: Yes, just a quick modeling question. Is there any way of teasing out roughly how much of the wealth revenues come directly from assets under management? John Doyle: We haven't disclosed that historically, but it's obviously a range of, as we call it, AUDM or delegated management AUM and advisory fees. We're excited about how we're positioned in the investment advice business globally. We have -- we advise on close to $17 trillion assets around the world. And as a leading adviser in pension and retirement markets for a long time all over the world, we're very, very well positioned. I would also note, we're the largest OCIO, Outsourced Chief Investment Office in the market, and we continue to see a lot of possibilities for growth there. And I mentioned AltamarCAM and, maybe, Pat, you can talk about AltamarCAM and some of the investments we're making in our businesses make us even stronger. Patrick Tomlinson: Yes. Thanks. And listen, quickly on the wealth side in our business. Obviously, Mark had talked about the growth, we're pleased with the growth. It was led by our Investments business, in particular, our OCIO offering. So I understand the spirit of the question. We also will highlight our really seeing solid growth in our investment consulting business, right, which is not based on the AUM, based upon volatility in the market and clients seeing significant demand and need. And we have been to the point you're asking, diversifying our overall business and our AUM away from DB Vence, right? So it has been moving -- but we've been building out actively our deep defined contribution solutions around the world, and we've really been advancing our capabilities around nonpension clients, and that's been a major focus for us. insurers, endowments and foundations, family office and wealth management. And I think that goes into the spirit of the M&A and the AltamarCAM announcement that John kind of teed up from where we agreed to acquire AltamarCAM. They're specialists in private markets from an asset management solution perspective. They've got about EUR 20 billion AUM, we think it's going to significantly increase and expand our capabilities in the private markets platform. It's going to add a certain expertise in secondaries and co-investments, in bespoke accounts in evergreen vehicles, and that's going to allow us to offer much more comprehensive multi-asset private market solutions to clients. right? So we definitely feel that this is an area that we've been investing in heavily, you've seen from our announcements over the deals we've done as a firm over the last several years. And we've also been consciously making organic investments and trying to build out our capabilities broadly around being a main investment player. John Doyle: Thanks, Pat. Thanks, Meyer. Andrew, next question please? Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Guy Carpenter. So you guys were at 2% for the quarter, and I think you did point out, right, the elevated comp at 5% last Q1. I believe you were at 5% right throughout last year. So does the 2% feel like where this business should trend, I guess, at least in the near term, given it sounds like your pricing views or, if anything, right pointing to things getting a little bit worse post the [ 11 ] renewals. John Doyle: Yes. Elyse, as we've talked about, it's a very soft property cat reinsurance market. And so we're confronting that. We're particularly exposed to that in the first quarter. In the second quarter a bit as well with Japan and Florida, as we talked about. What I would say to you, Elyse, is that I'm quite pleased with our execution in spite of the kind of current market headwinds. And again, these market headwinds are good for our clients, right? So we're delivering for our clients in the moment. But client retention was strong, and we had an excellent new business quarter. And so I feel terrific about how the team is executing, what's a challenging market. It's not likely to be Guy Carpenter's best growth year this year, right? And so we've been planning for that and guiding to that. Do you have a follow-up, Elyse? Elyse Greenspan: Yes. My second question is just on capital, right? You guys were more active in the Q1 relative to prior first quarters. Obviously, we've seen a pullback in the stock price and just the group in general. As you guys think about balancing right M&A potential as well as where your stock is, could this be a year, I guess, where you continue to front-load I guess, more buybacks, even a little bit more independent of what's going on, on the M&A side? John Doyle: Sure. Maybe I'll ask Mark to jump in here, Elyse. Mark McGivney: Elyse, as John said earlier, there's no change in strategy. Our strategy of balanced capital deployment with a bias to reinvest and grow the business through high-quality acquisitions remains. But as we've consistently said, two, where our goal is not to build cash on the balance sheet. We're generating a lot of capital these days. And so where we see M&A light, we'll ramp up share repurchase. We did that in the fourth quarter. We bought back $1 billion and we started the year with $750 million. But the pipeline remains active. Our commitment to grow through M&A remains. It was relatively light M&A spending in the first quarter. But as John mentioned, this AltamarCAM transaction, which is a nice chunky deal that will close sometime later in the year. So -- so we did start the year with a heavy amount of share repurchase. But ultimately, what we end up deploying to share repurchase will depend on how the M&A pipeline develops through the year. John Doyle: Thanks, Mark, and thank you, Elyse. Andrew, maybe time for one more here. Operator: Certainly. Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Just had another follow-up question on AI? And maybe just a refresher, John, could you just remind us how much you guys are spending on AI just broadly within the tech budget. And I guess, who are you partnering with? What LLM providers are you partnering with? What tools are you using? That would be helpful. John Doyle: Yes, David. It wouldn't be a refresher because we've not shared that data in the past. We have a healthy tech CapEx budget. We take a hard look at that. It's, I think, another example where our scale matters, we're able to spend more and invest more. So we feel good about the investments we're making. I think, again, AI, I think the broad-based community needs to be careful about what AI even means. So -- but we're investing heavily and improving our tech stack in our utility of and in other parts of our efforts to digitize workflows and digitize how we engage with our clients. And so again, we feel good about how we're positioned there. We work with lots of different providers. So we're -- and I think one of the things about AI is it's of a lot of different things. There are many different possibilities for us to to extract value from these new technologies. So it's not about pick a hyperscaler and plugging them into our data set and it all of a sudden solving every inefficiency or productivity opportunity that exists in the world. And so we're working with a number of different major tech players and trying to pick and choose where we see the greatest value depending upon what it is we're trying to accomplish. Do you have a follow-up, David? David Motemaden: Yes. Maybe just a quick one in the interest of time. In Marsh, I'm just sort of wondering what's your exposure to in terms of revenues from personal lines, brokerage or micro commercial, where like you guys are only placing a single policy or as low dollar value and could be considered less complex? John Doyle: Yes. I'm not ready to concede by the way, that placing somebody's personal insurance isn't complex. If you're -- you have a client that's personally exposed and working with them to help manage risk and advise on their most precious assets. We certainly don't approach the client experience kind of in that way. where people are trying to buy commoditized products, those things exist already. I mean there's direct digital distribution. It's been that way. I would imagine for the direct markets, AI is going to create opportunities for them to improve their client experience with their customers. That's not who we serve. In personal lines, it's almost entirely a high net worth personalized client. It's an exciting area of growth for us. It's not a material part of our business, but we continue to grow. So if you're a restaurant on -- in small town U.S.A. there is a lot of complexity. And I'm not quite sure, by the way, we have very little of this business, almost none of this business. But I'm not ready to concede that it is something that some entrepreneur wants to prompt an app for hours and hours and hope that they get it right. So anyway, -- as I said, we're very excited. We don't think anybody is better positioned to take advantage of the developments on the technology front. We have to execute, but that's been the case for 150 years. And so we're excited about the path we're on and looking forward to accelerating our growth. Andrew, we have run over . Can you wrap us up here. I want to thank everybody for joining us today and thank our colleagues for their dedication to Marsh and our clients for their continued support and confidence in what we do for them. Operator: Ladies and gentlemen, this does conclude today's conference. You may now disconnect.
Operator: Good morning, and welcome to KeyCorp’s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during that time, simply press star 1 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Mauney, KeyCorp’s Director of Investor Relations. Please go ahead. Brian Mauney: Thank you, operator, and good morning, everyone. I would like to thank you for joining KeyCorp’s First Quarter 2026 Earnings Conference Call. I am here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Khayat, our Chief Financial Officer, and Mohit Ramani, Chief Risk Officer. As usual, we will reference our earnings presentation slides which can be found in the Investor Relations section of the key.com website. In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures including non-GAAP measures. This covers our earnings materials as well as remarks made on this morning’s call. Actual results may differ materially from forward-looking statements; those statements speak only as of today, 04/16/2026, and will not be updated. With that, I will turn it over to Chris. Chris Gorman: Thank you, Brian, and good morning, everyone. Our strong first quarter performance demonstrates disciplined execution and significant momentum as we continue to deliver on our commitments. We reported first quarter earnings of $0.44 per share, up 33% year over year. Return on tangible common equity exceeded 13% as we continue to make significant progress with respect to our goal of 15% plus return on tangible common equity by year-end 2027. Revenue grew 10% year over year with revenue growing more than two times the rate of expenses. Adjusted pre-provision net revenue grew an additional $29 million sequentially, marking the eighth consecutive quarter of adjusted PPNR growth. Net interest margin expanded five basis points sequentially to 2.87% as we remain on track to exceed 3% net interest margin by year end. Commercial loan growth was strong and broad-based across industries and geographies, increasing $3.3 billion or 4% sequentially on a period-end basis. We continued to be disciplined with respect to funding cost management. Total funding costs declined by 15 basis points during the quarter with interest-bearing deposit costs decreasing 22 basis points, resulting in a cumulative through-the-cycle down beta of 56%. Asset quality metrics remain strong, with a net charge-off ratio of just 38 basis points. In addition to improving our return on capital, we remain committed to substantial return of capital to our shareholders. During the quarter, we took advantage of the pullback in regional bank stock prices and repurchased nearly $400 million of common stock, well in excess of the $300 million plus commitment we made in January. We are also encouraged by the latest Basel III endgame proposal. Our preliminary estimate shows a 100 plus basis point benefit to our marked CET1 ratio under the revised standardized approach if implemented as currently proposed. This would imply a fully phased-in ratio of around 11%, higher than our peers, and higher than we believe we need to operate our business in the ordinary course. Our capital position gives us flexibility to continue to lean in aggressively this year and in the coming years to support our clients, to support our own organic growth, and to repurchase our shares. Subject to market conditions, we expect to buy back at least $1.3 billion of our shares in 2026, up from the $1.2 billion we previously communicated. While the macroeconomic environment has continued to be dynamic, we will remain laser focused on managing what we can control: the delivery of our differentiated capabilities, acceleration of new client acquisition, and exceptional service to all our clients. We continue to grow clients. Commercial clients were up 3% and relationship households were up 2% from the prior year, in the first quarter. We continue to gain share across our priority fee-based businesses—Wealth, investment banking, and commercial payments. In the first quarter, these businesses collectively grew by 12% when compared to the prior year. This past quarter, we raised nearly $47 billion of capital on behalf of our clients, retaining 19% on our balance sheet. Investment banking pipelines continue to remain elevated, up 5% from year end with M&A pipelines at record levels. While we do currently expect investment banking fees to decline in the second quarter compared to the record first quarter given current market conditions, we continue to feel very comfortable that we can grow investment banking fees in the mid-single digits for the full year. Commercial loan pipelines also remain very healthy, up nearly 20% from year end despite the strong pull-through in the first quarter. Our mass affluent wealth strategy continues to bring in new households. Net flows and client assets to KeyCorp reached 57 thousand households and $7.4 billion of total client assets as of March 31. With a mass affluent household opportunity of 1.15 million customers, we remain less than 10% penetrated, implying a significant runway going forward. We continue to hire frontline bankers. This past quarter, we hired a middle market banking team based in Atlanta, and a family office and private capital team based in Kansas City. We also hire talented investment bankers and wealth managers as our differentiated platforms continue to attract top bankers. We will continue to grow our banker ranks, including evaluating team hires and niche tuck-in nonbank transaction opportunities as they arise, in order to leverage our unique but currently underleveraged platforms. Lastly, we are investing approximately $1 billion in technology this year that will give us new product and service capabilities and deliver better outcomes and experiences for those we serve. As it pertains to AI, we are focused on a few thematic use cases that will enhance client experiences, accelerate credit decisioning, increase technology productivity, and strengthen risk and security monitoring. Given the strong start to the year, and the favorable dynamics we are seeing across loans and deposits, we have increased our full-year net interest income and loan guidance while reiterating each of our other financial commitments. While we enjoy strong momentum, we will remain vigilant as it pertains to a wide variety of potential macroeconomic outcomes. Our updated NII guidance assumes a wide range of interest rate scenarios. Additionally, we have added to our already elevated qualitative loan loss reserves this past quarter in order to account for a wider range of potential macroeconomic outcomes. As it pertains to private credit, we have provided additional disclosures this quarter. The summary here is we continue to be very comfortable with these books of business. Finally, the first quarter was a strong quarter, and our business enjoys a significant amount of momentum. Before turning it over to Clark, I am pleased to announce that Clark has assumed an expanded role to lead our technology and operations organization, in addition to his role as CFO. We look forward to the contributions he will bring to our technology and operations teams at a pivotal and exciting time as we leverage AI to grow our business and better serve our clients. With that, I would like to turn it over to Clark. Clark Khayat: Thanks, Chris. Starting on slide four, we reported first quarter earnings per share of $0.44. Revenue was up 10% year over year, while expenses increased by 4%. Taxable equivalent net interest income increased 11% year over year and was up 1% sequentially, despite impact from two fewer days in the quarter and seasonally lower deposits. Noninterest income increased 8% year over year as our priority fee businesses collectively grew by 12%. Loan loss provision of $106 million included 38 basis points of net charge-offs, a reserve build of $5 million. The net build reflected additional qualitative reserves to account for the macro uncertainty, offsetting improvement in Moody’s economic scenarios and credit migration trends. Tangible book value per share increased 10% year over year. Moving to the balance sheet on slide five, average loans were up $1.4 billion sequentially and increased $2.6 billion on a period-end basis. Average C&I loans and average CRE loans both grew by 3%, partly offset by the ongoing intentional runoff of low-yielding consumer loans. On a period-end basis, C&I loans grew by $3 billion or 5%. Growth was broad-based across industries and regions with both institutional and middle market clients. The largest industry contributors were within our financial services, and utilities, power, and renewables industry verticals. C&I line utilization increased 1% sequentially to 31.5% as loan growth outpaced commitments. Turning to slide six, with the attention that NDFI and private credit have been getting lately, we provided some additional disclosures with respect to our portfolio, and we want to share how we manage the businesses. First, a reminder that the NDFI nomenclature is a regulatory definition. As you know, these definitions have changed and continue to be refined, and we will continue to apply our best efforts to categorize these loans within the spirit of these definitions. In the quarter, we grew NDFI loans by $2.4 billion. A third of that growth is a result of the reclassification of existing loans—so that is not actual loan growth, but rather a refinement of what had previously been included in the category based on further examination of the regulatory guidance. The loans here are real estate non-owner-occupied. The additional growth of approximately $1.6 billion comes from three areas. About half of these are loans connected to real estate debt funds run by sophisticated sponsors with whom we have deep relationships, and where the underlying properties are geographically diversified. We expect to syndicate about 25% of these loans in the second quarter. Second, $400 million of this growth is fairly evenly split between insurance and other high-quality finance companies. And third, our specialty finance business loans grew about $400 million, primarily from AAA-rated CLOs. While we will, of course, continue to disclose NDFI under the regulatory rules, this is not the way we think about these loans. They are a reflection of four distinct businesses that are collectively 90% investment grade: institutional real estate lending, specialty finance lending, insurance and finance companies, and our unitranche funds. Each business is relationship-based and has its own set of credit concentration limits and risk parameters, with de minimis NPLs and much lower criticized loan rates than our other commercial loans. As it pertains to private credit, as the waterfall shows, we estimate approximately $10.9 billion of outstandings as of March 31, with roughly 70% through our specialty finance lending business, which are asset-backed loans made largely through bankruptcy-remote SPE vehicles. SFL loans are 98% investment grade, diversified by industry and geography, with thousands of underlying obligors. We typically underwrite to the counterparty and their underwriting policies and have a long list of collateral eligibility criteria that they must adhere to. First-loss cushions typically range from 30% to 50% and we are very disciplined when it comes to ongoing collateral and liquidity monitoring with structural protection if performance deteriorates. Through the first quarter, all of our facilities are performing as structured and required. In short, we think these are great businesses. They are relationship-based with excellent credit profiles, and require the focus and expertise that make them excellent examples of our targeted scale strategy. Turning to slide seven, average deposits decreased by 2% sequentially, reflecting typical seasonal patterns and the intentional runoff of $1.6 billion in higher-cost brokered CDs. We expect deposits to trough in early May and grow from there through year end. Reported average noninterest-bearing deposits decreased 5.5% sequentially, but remained stable at 24% of total deposits when adjusted for our hybrid accounts. Total deposit cost declined by 16 basis points to 1.65%. Our cumulative interest-bearing deposit beta increased to 56%. We continue to take proactive actions in repricing deposits through limiting our incremental funding needs by remixing loans from consumer to commercial, gathering low-cost commercial deposits—particularly in payments—while allowing certain rate-sensitive excess commercial deposits to leave, and by actively rotating maturing CDs into money market deposits and consumer. Overall interest-bearing funding costs decreased by 21 basis points, bringing our cumulative funding beta to 68%. Slide eight provides drivers of NII and NIM this quarter. Taxable equivalent NII was up 1% and net interest margin increased five basis points from the prior quarter to 2.87%. The increase was driven by remixing lower-yielding consumer loans into higher-yielding commercial loans, swap repricing, and proactive deposit beta management, which more than offset the impact of seasonally lower deposits and two fewer days in the quarter. Our balance sheet position continues to be fairly neutral to changes in interest rates as we move through 2026. We would see some modest benefit from reductions in the short end of the curve, as well as from increases in three- and five-year reinvestment. On slide nine, noninterest income increased 8% year over year. Investment banking and debt placement fees were $197 million, an increase of 13% year over year and a new first quarter record. Growth was driven by M&A, equity issuance activity, and commercial mortgage debt placement activity. Our pipelines remain elevated, and were up about 5% from year end. M&A pipelines were at record levels. Still, as Chris mentioned, given uncertain market conditions, we are planning for second quarter investment banking fees to be in the $175 million to $180 million range, with upside if geopolitical and other macro risks subside. We continue to feel very comfortable that investment banking fees will grow mid-single digits in 2026. Trust and investment services income also grew 13% year over year, reflecting positive net flows and higher market values. Assets under management remained stable at $70 billion. Service charges on deposit accounts and corporate service fees increased by 129% year over year, respectively. The increase in service charges was driven by growth in commercial payments, which grew fee-equivalent revenue at 11%, while corporate services income was driven by higher loan commitment fees and client FX activity. Commercial mortgage servicing fees were $62 million, down $14 million year over year, largely driven by lower deposit placement fees as well as resolutions in special servicing. At quarter end, we were named primary or special servicer in approximately $720 billion of CRE loans, of which about $265 billion is special servicing. Active special servicing third-party assets were $10 billion, about half in office. This is down from $12 billion a year ago as the commercial real estate industry continues to recover. We continue to expect commercial mortgage servicing fees to run about $50 million to $60 million per quarter for the remainder of the year. On slide 10, first quarter noninterest expenses of $1.2 billion improved 6% sequentially when excluding the prior quarter’s FDIC special assessment and increased 4% year over year. Compared to the year-ago quarter, the increase was driven by higher personnel expenses related to our frontline banker hiring, incentive compensation associated with the strong fee performance, and higher benefits costs. Sequentially, expenses declined due to lower incentive compensation, seasonally lower professional fees and marketing expenses, and fewer days in the quarter. Expenses are expected to increase through the balance of the year, reflecting our ongoing investments in people and technology, incentive compensation associated with expected continued revenue momentum, and other seasonal impacts. We continue to feel very comfortable with our full-year expense growth guide of 3% to 4%. Turning to the next slide, credit quality remains solid. Net charge-offs were $101 million, down 3% sequentially and were an annualized 38 basis points of average loans. Nonperforming assets increased by $65 million sequentially, back to third quarter 2025 levels, and remain below historical levels at 63 basis points. The increase was driven by two credits in utilities and multifamily real estate industries, respectively. We are confident we will resolve these credits in the coming quarters, and we are well reserved against them today. Lastly, criticized loans declined by $3 million sequentially. Moving to slide 12, our CET1 ratio was 11.4%, and our marked CET1 ratio was 10% at quarter end. Our preliminary assessment of the updated Basel III endgame proposal is that our risk-weighted assets would decline by approximately 9% under the revised standardized approach, resulting in a 100 basis point plus improvement to our marked CET1 ratio. RWA relief would come primarily from lower risk weight associated with off-balance sheet commercial loan commitments, residential mortgages, and corporate loans. As we wait for rules to be finalized, we will continue to manage our marked CET1 ratio in the 9.5% to 10% range under current RWA methodology. We expect to repurchase at least $300 million of our shares per quarter for the balance of the year, which implies at least $1.3 billion for the full year. We remain focused on supporting our clients and growing our business, and as Chris mentioned, delivering a return of capital and a return on capital for our shareholders. Moving to slide 13, we are positively revising our 2026 guidance given the strong start to the year. We now expect full-year net interest income growth of 9% to 10%, compared to our prior guide of 8% to 10%. We now also expect to exit the year with a net interest margin of approximately 3.05% on a stable earning asset base relative to the first quarter. This guidance holds under a fairly broad range of interest rate scenarios. As of today, our base case assumes no cuts this year. We also improved our loan guidance. Average loans are expected to increase 2% to 4%, compared to our previous guidance of 1% to 2%. And average commercial loans are now expected to grow 6% to 8% this year. All of our other guidance remains unchanged, although, as you would expect, we continue to monitor macro conditions closely. In summary, subject to the usual macro caveats, we are confident that we will deliver another year of outsized organic revenue and earnings growth for our shareholders. With that, I would like to now turn the call back to the operator to provide instructions for the Q&A session. Operator? Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove your question or your question has been answered, please press star followed by two. If you are streaming today’s call and would like to ask a question, please dial in and enter star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to register. Our first question will go to the line of Erika Najarian with UBS. Erika, your line is open. Erika Najarian: Thank you, and good morning. The first one is for you, Chris. Given the strength that you showed this quarter on both lending and fees, maybe talk a little bit about client sentiment and how they are balancing sort of the geopolitical volatility with, you know, some of the, you know, positive on-the-ground, you know, big beautiful bill stimulus and, you know, everything else that is happening domestically. And, additionally, thank you so much for the NDFI in quotes breakdown. I am wondering what you are seeing in terms of, you know, sponsor activity, what you are seeing in terms of your private credit clients. And one of your peers, David Solomon, mentioned, in the private credit space, widening spreads. I am wondering if KeyCorp is seeing something similar. Chris Gorman: Well, sure. And good morning, Erika. Let me start, if I could, with the consumer because that is a little less complicated. The consumer is in great shape. If you look at all of our credit metrics, if you look at the fact that these tax refunds from the big beautiful bill will exceed what they did last year, you look at spending, spending is up kind of mid-single digits year over year. Online spending is up maybe double digits. The other thing that is interesting with our client base is the wealth effect. And I think this is something that has been underreported. So when we talk about mass affluent, we are talking about our customers with between $150 thousand and $2 million to invest. Eighteen months ago, we thought that universe was 1 million of our 3.5 million customers. We went back and redid it based on market activity. We now believe it to be 1.15 million, so up 15%. So on the consumer side, the consumer—our consumer—is in good shape. Now on the commercial side, there is obviously some puts and takes. You saw for the first time—and Clark detailed—our utilization went up, which is a good thing. We are starting to see people actually invest more in CapEx with some of the benefits from the big beautiful bill that you pointed out. And then, of course, the flip side of it is just the macro uncertainty. And so what we did see in the quarter is some people pulled some deals forward. So think about—you were going to go to the investment grade credit markets, and the activity started—you probably pulled that forward. Conversely, on M&A deals, what is happening is they are not going away. But people are kind of slow-playing it, doing a lot of due diligence because there is so much volatility kind of day to day, week to week. So we sort of saw both sides of that. Having said that, as we said earlier, our pipelines remain very, very strong. So I am very optimistic about where we are from our commercial businesses. But, obviously, it is not without impact from the near-term volatility. Second part of your question as it relates to NDFI is a very great question because this is kind of a developing area. And so we have seen a steady march down in terms of spreads for a long time because there has just been too much capacity in the market with respect to commercial loans. What we are seeing just as of late is a firming there. And part of the firming of that is that some of the private credit players—obviously in light of redemptions—are not in the market the way they have been. And I actually think as you look forward, there is a lot of discussion around private credit. I personally do not think there is a credit problem, but these redemptions are real. And if you have a bunch of redemption requests, the first thing you do is stop shoveling it out the front door. I think that will give the banks, in some instances, an opportunity to reintermediate some of those activities. That is my perspective. Anything else on that, Erika? Operator, we will take the next question. Operator: Yes, of course. Thank you, Erika. The next question will go to the line of Ken Usdin with Autonomous. Ken, your line is open. Ken Usdin: Thanks a lot. Appreciate it. I want to ask a question on deposits. I know the first quarter is seasonal. It had a decline in brokered CDs. Just wondering how you think that deposits will trend from here and if you think you are getting close to the bottom of that NIB mix, which I know was part of that seasonality in the first quarter. Clark Khayat: Yes. Ken, it is Clark. Thanks for the question. So you hit on, I think, the bigger drivers—broker deposits coming out at about $1.6 billion, seasonal decline. So first, I would say, as we did decline, we are actually slightly better in the first quarter than we would have planned, so I think just consistent with our expectations. On NIB, you did see that come down on a reported basis. I think if you put our hybrids in there, we are stable. So those continue to be a very good vehicle to work with commercial clients and maintain those high-quality operating deposits. And I think, as usual, we would expect to trough mid-May and then build up through the quarter. So I would say first quarter to second quarter average balances will be stable to maybe slightly up, but I would expect ending balances June 30 to be higher, and those to continue to rise through the course of the year. So we feel very good about the liquidity we have. If loan growth continues or picks up, we have low loan-to-deposit ratio on a relative basis. We have brought our market funds down, so we have a lot of third-party capacity if we need it. And then we have great access to client excess deposits and new operating deposits. So if we need to fund more loan growth, that is a high-class problem that we feel very confident about. Ken Usdin: Yep. And as a follow-up, on the cost side, you put in the slides about the cumulative down beta has been great at 56%. With rate cuts presumably on hold for a while, can you just talk about deposit competition—how much room do you have, if any, to continue to bring down deposit costs—and just, you know, the environment out there across the businesses for deposit taking? Clark Khayat: Yeah, sure. So, look, I think you hit it. With no cuts—and that is our base case—we would expect deposit pricing in general to sort of stabilize. Now, if loan growth really kicked in, some of the dynamics Chris talked about, if banks really step back in, we would expect some intensification of that deposit pricing. Right now, our view is that those will be fairly stable. Our deposit price will be fairly stable at this point. And as I just outlined, we will get back some balance on things like NIB and others. So I think we have some puts and takes. We will continue to drive down broker deposits through the first half. But if we needed more funding and we had to dip into that market to not hit more pricing across the book, we can do that. So I think we continue to have a lot of avenues at our disposal. I think if there were cuts, our deposit betas will probably drop a little bit in-year just given the timing component of that. Again, our base case is stable, and I think we can hold serve in the mid-50s as we move forward. But that is all premised on the loan growth we are guiding to. So if that came in stronger, we might see a little bit of a dip there, but I think we would make that trade-off as long as it is good-quality relationship growth. Ken Usdin: Okay. Thanks, Clark. Operator: Thank you. Sure. Thank you, Ken. Our next question will go to the line of Analyst with Evercore ISI. John, your line is open. Analyst: Good morning. Chris Gorman: Good morning, John. I guess just similarly on the competitive front on the lending side, I mean, one or two of your peers have cited a bit more aggressiveness out there on the lending front, particularly on structure. For the most part, also to a degree on pricing. Are you seeing this showing up in your markets and maybe if you can talk about how it has influenced loan spreads that you are seeing as you are pricing new originations? Chris Gorman: Yeah, John. So the phenomenon you are talking about has been a prevailing phenomenon for some time. What I was describing in my answer to Erika is sort of real-time some adjustment that we are seeing. But there is no question there has been excess capacity for some time, and I have talked about this at length—that a properly graded commercial loan cannot return its cost of capital. And there has been just a constant pressure on spreads and on structure. I think we may be—and I emphasize the word may—be at an inflection point on that trend. Mohit Ramani: And just from a risk management perspective, we have not adjusted any of our credit boxes or underwriting standards. We are still maintaining, again, the same standards that we have always had. Chris Gorman: Yeah. Moe, I think that is a good point. I mean, we never give unstructured. Obviously, it is a market out there and we price where we need to price. The advantage we have, John, is we can do a lot of other things for these clients—whether it is payments, whether it is strategic advice, hedging, etcetera. That is how we run our business. And, frankly, if the capital markets have a better deal, we will place it, as we did 80% of the time this last quarter. Analyst: Got it. Okay. Very helpful. Thank you. And then you gave some pretty good color here on the capital front in terms of buyback expectations. I guess, if you could just remind us of your allocation priorities there, and if anything could impact that pace of buyback? How do you think about any potential inorganic opportunities? Chris Gorman: So, I mean, obviously, what could impact it more than anything is if we had a severe macroeconomic downturn and started having credit losses. We do not see that. We feel really good about our credit book. Our capital priorities remain unchanged. It is first to support the growth of our clients, which we were pleased to see that we got in this last quarter. The next thing is to invest in our business. And when we talk about investing in our business, it is really people and it is technology. So we will continue to invest heavily in our business. We also, as I mentioned in my remarks, will continue to hire a lot of individual bankers. We will hire groups of bankers. And, opportunistically, we would look at small acquisitions of kind of boutique type operations, which are really just an extension of hiring a group of people. The next priority, of course, is to pay our dividend, which we do not talk about a lot, but it is $0.205 per share, which is not inconsequential as you look at the yield. And then, lastly, repurchase our shares. And we said earlier in our comments, John, we plan to repurchase $1.3 billion worth of stock in the year. Operator: Thank you, John. The next question will go to the line of Ryan Nash with Goldman Sachs. Ryan, your line is open. Ryan Nash: Hey, good morning, everyone. Chris Gorman: Hey, good morning, Ryan. Ryan Nash: So, Chris, if I look at the high end of the loan growth guidance, you know, it does not imply that much growth from the 1Q end-of-period levels. Now, I know you mentioned some moving pieces in one of your other answers, some syndications that could be coming in 2Q. But curious on the drivers of loan growth from here—what will drive the slowdown and can there be some upside from current expectations? Thank you. Chris Gorman: Well, thanks for the question. I will start with—I guess, the premise of your question is the loan guide is conservative. And that if we did not book a whole bunch more loans, we will basically grow at 6% for the year. And I would say there probably is some appropriate conservatism in the number, given the macro uncertainty out there. But let me give you the pieces and parts. Utilization, actually, for the first time in a long time, spiked up. I would not necessarily imagine that that will continue to spike up. We waited a long time for it to start moving. We do have broad-based growth across all geographies and industries, which should play forward. I mentioned in my remarks that we have a 20% increase in our backlog—obviously, would expect some of that to, in fact, pull through. Utilities and power continue to be an area of huge opportunity when you think about both renewables and the massive build-out that is required for GenAI. There are two other areas where we are starting to see some traction. One is health care—we are starting to see consolidation; it is necessary, by the way, in the health care industry. And then lastly, for the first time in a long time, we are starting to see this backlog of commercial real estate transactional activity. We have been refinancing a lot of commercial real estate, but what we are starting to see is people are starting to trade as the bid and the ask comes in and everybody sort of gets comfortable that we are going to be in this kind of an interest rate range for a while. So that is kind of the puts. Oh, and then also, I just would remind you we are going to continue to run off $500 million to $600 million of commercial residential mortgages per quarter. So that is kind of the puts and takes, Ryan. Ryan Nash: Gotcha. No, that is super helpful, Chris. And maybe as a follow-up to something that was talked about before—you know, within the investment banking business, if I look at the mid-single digit guide, it implies low single digit growth for the remainder of the year. And I feel like coming into the year, you were upbeat on the potential return of M&A to drive outsize, as historically it has been a bigger part of your business. So it sounds like from your comments earlier that M&A has not been as robust as you would have expected. But are there other parts of the business that are trailing? And what will we need to see for some of those parts of the business to begin to outperform expectations? Thank you. Chris Gorman: Sure. So with respect to M&A, what is interesting about M&A, Ryan, is there have been a lot of headline numbers. And as you well know, the G-SIBs have reported some incredible numbers with respect to advisory. I think deal volumes in total are up, like, 46%. Transaction volumes, however, are down 26%. And so we put all that together and we are still waiting for this huge surge of middle market M&A activity to come through. And so that is something that we are keeping a close eye on. Those transactions are binary. What we are guiding to right now is 5% to 6% growth year over year. So we did about $780 million last year. So the middle of the range, that would be something like $825 million off of a record year last year. So I feel really good about the business. But, admittedly, while we have record backlogs, we are not seeing as much come out of the pipeline right now as we would hope. I think when some of the geopolitical things are resolved, it will be a little better environment for that. Thanks for your question, Ryan. Operator: Thank you, Ryan. Our next question will go to the line of Scott Siefers with Piper Sandler. Scott, your line is open. Scott Siefers: Good morning, guys. Thanks for taking the question. Wanted to return for a moment to the capital discussion. You know, it seems like there really should be good capital management runway for a while, especially if you elect to put to work some of the additional excess you would have should the Fed’s NPR pass as proposed. I guess I am curious to hear how you would decide when and how aggressively to deploy that additional excess if those proposals in particular do advance. And, you know, what other considerations are there, whether it is rating agencies, investor expectations, etcetera, just as you think about the appropriate capital levels to sort of land on? Clark Khayat: Hey, Scott. Thanks for the question. So, one, we guided on the fourth quarter call that we would try to get to 10% marked by the end of the year. We actually arrived there a few quarters early in this quarter, so we feel very comfortable there, and would feel comfortable over the course of the year dipping into that 9.5% to 10%. And that is under the current regime. So, again, no issues there. To the extent the NPR passes as proposed, we expect, as we said, 100 plus basis points of additional marked capital there. So I think that gives us more room to continue to both invest in growing client activities but also to continue our share repurchase. So on the one hand, I know we are guiding to $1.3 billion for the year. Short of some more extreme situations, I would expect that to be more like the floor for buybacks for the year. I do not know how much more we will go over that. We will play that by ear. But we certainly believe over time, as you know, we have more capacity to lean into capital return. The other point that I would just make is I do not think anybody should expect one big swing at this. I think you should expect from us thoughtful, orderly, kind of methodical capital management over time where we are sharing as much visibility as we have given conditions and kind of marching down to that range over some meaningful and manageable period of time. But we are not going to do anything dramatic in any quarter or two. Scott Siefers: Gotcha. Okay. Perfect. Thank you. And then maybe switching gears for just a second. You know, appreciate the refresh and the color you guys have given on the full-year investment banking expectations. Clark, was hoping maybe you could kind of provide some thoughts on how you see some of the other key areas—whether it is wealth, payments, some of those other focus areas—projecting through the year. Clark Khayat: Sure. So, one, as Chris noted, we continue to get gains in our wealth business. So, to the extent the market cooperates, we would expect to see investment management fees continue to grow, and I think that is a mid- to high-single digit number for the year. That is tracking pretty well even despite a little bit of volatility in the first quarter. Our payments business, particularly on a fee-equivalent revenue—which, as you know, Scott, is the gross fees—continues to be very strong. If you unpack, for example, what happened in the quarter on deposit service charges, those numbers would have been mid-teens year over year. So we continue to get really good activity from our payments team, either selling additional services into existing clients or anchoring with new clients as they come in. No reason to think that that is going to stop. We continue to add new capabilities in payments, whether it is in our portal, our information reporting, or things like embedded banking. I think all of those are on very good trajectories, and we would continue to expect to see those grow—so that is again on a gross number, kind of low double digits; on a net number, high single digits. Then corporate services, which is really FX and derivatives and other hedging—the oil volatility has created some tailwinds there. If that settles in, derivatives tends to follow with loan growth, so that has been very positive. And we have seen some good traction in FX as well. So I think all of those categories continue to look up and have been consistently strong. The one place that we called out in the fourth quarter call—and will continue to be year-over-year down, but that is not a reflection of the quality of the business—is our commercial real estate servicing business. And, again, that is a function of advance rates coming down, clients paying us with deposits versus fees, and some recovery in the industry that causes special servicing and other resolutions to likely be down year over year. So, again, nothing negative to say about that business. That is just the market trends that are affecting it right now. In summary, expenses and fees, we expect to be relatively close. We would like to be a little bit better on fees, but we are really looking at reported fees to be, again, pretty consistent with expense growth over the course of the year, and then adjusted fees being in that mid-single digit range and priority fee businesses high single digit. Scott Siefers: Excellent. Alright. Good. Thank you very much. Operator: Thank you, Scott. Our next question will go to the line of Mike Mayo with Wells Fargo. Mike, your line is open. Mike Mayo: Chris, you have already answered part of the question about your investment banking and debt placement business. And I know you have built that business—big organic grower. But when you said you are looking for mid-single digit growth this year, like, that is, like, not so exciting, right? Like, waiting this long for cap market to come back, and I know it has been skewed towards the large mergers, and you say it is not really back yet, and so I guess that mid-single digit guide—is that just, like, what it is? Or is that what it is given your thoughts that activity will be delayed maybe until next year? Thank you. Chris Gorman: Well, first of all, good morning, Mike. That is what it is based on where we are right now in the market. I do take a lot of comfort in that our first quarter was a record. It was a record after last first quarter was a record. Last year was our second best. Our pipelines are at record levels. If we could get some stability out there in terms of rates and in terms of people’s perspective going forward, I think there is a huge opportunity here. But right now, as we look at it, what we are comfortable with is guiding 5% to 6%, understanding that the business has a lot of momentum. Mike Mayo: What do you think the difference is for the very large mergers and what we heard from the biggest banks is that dereg and pent-up demand and still very high stock prices and liquidity—that is all transcending the conflict. And you are seeing these pipelines get replenished and all that. With more of your middle market companies where the activity is still subdued? Chris Gorman: Yeah. So I think it is a couple things. One, those are transactions that obviously require a lot of approval, and there is no question that regulatory approval has improved geometrically. So that is the first thing. Second thing is many of those deals are stock-for-stock or a huge component of stock and, therefore, do not require nearly as much financing. And then the third thing is, typically, I have always noticed as you come out of a rut—and we have been in a rut in M&A—the first deals to start coming out are really large high-quality deals, and I think that is what you have seen. And I think it will matriculate to the entire market. Clark Khayat: Hey, Mike. One other element we are seeing more consistently also on the middle market end, which is heavily sponsor-backed: we are seeing more continuation vehicles as an option versus outright sales. And those obviously do not always translate to the same level of activity. Mike Mayo: That all makes sense. Would you say that some of the same factors, though, that could drive more loan demand due to CapEx could also drive merger? In other words, to the extent that middle market CEOs become more comfortable, then they are more likely to spend for CapEx and maybe, therefore, they are more likely to do mergers. So what is the demand for CapEx-driven financing? Chris Gorman: I do not think there is any question. I think as people get comfortable with the forward view and get comfortable with where they think rates are going to be, I think that will be an impetus to transact. And I think having gone through a bunch of market disruptions, once people see that sort of the coast is clear, I think there are probably a lot of people that are gearing up to go, and we have many in our backlog. Mike Mayo: Alright. Thank you. Operator: Thank you, Mike. Our next question will go to the line of Manan Gosalia with Morgan Stanley. Manan, your line is open. Manan Gosalia: Hey, good morning. So Chris, Clark, since you gave the ROTCE guide, NII and loan growth are trending better. You noted 100 basis points or so of benefit from 15% or so exit route, say, for 2027? Chris Gorman: Well, clearly, I think as the rules get finalized, we will have greater flexibility. We mentioned to the tune of—if you just look at the standardized approach—100 basis points or so. So we will have more to say about that after we have final rules come out and we make final decisions with respect to standardized approach or ERBA. Manan Gosalia: Got it. Okay. Great. And then you noted that, I guess, the balance sheet should stay fairly flat in 2026, which would mean that the LDR moves a little bit higher. How should we think about that going into 2027? Is there still more room to take the LDR up and, as we think about deposits and maybe some of the higher-cost deposits, at what point does it make sense from a relationship perspective and a franchise perspective to keep and pay up for them rather than let them leave? Clark Khayat: Yeah. Hey, Manan, it is Clark. So I think you hit that right. I mean, on a general basis, that last point is probably the most important here, which is—as we have talked about before, I will just talk to commercial for the benefit of this answer—80% of those deposits are operating accounts and 95%–96% of the deposits come from clients with operating deposits. Meaning, these are strong relationships. We know where the dollars are. And we are making often name-by-name decisions month by month about where the bid is on those excess deposits and whether we want to fund with those or not. So in the first quarter, we let some of those go. We did that last year in the first half and then brought them back in the second half. I would not be surprised if that happened again this year. And as we go forward, past 2026, and we start to see some balance sheet growth, we will have the opportunity to make those calls as we do today. And my guess is if we are starting to grow the balance sheet, we will look to fund with client deposits wherever we can as long as it makes sense on the margin. The nice thing about those commercial deposits is they are, at some level, individual decisions, and we are not sort of repricing the whole book across the board. This is why—as I mentioned with the hybrid accounts earlier—we have gotten real benefit out of that because we get advantageous rates there and we get deeper client relationships as we provide them with more and more payment services. Chris Gorman: And just to add to that, Manan, we would not let these excess deposits go if we thought it put our relationship at risk. These are excess deposits with people that are very good customers of ours. As Clark said, 81% of our commercial deposits are core operating. This goes back to our focus on primacy going back a decade. So we really have the flexibility to move those in and out as we need to. Clark Khayat: And I would say there is one last point just worth making because we talked about, in commercial mortgage servicing, some clients paying us with their deposits instead of hard fees. So we took deposits back on balance sheet in the first quarter. We also then, just to manage the deposit base, took some deposits off balance sheet, and those can be brought back if we needed additional funding. So we have a fair bit of levers to fund as it grows, and we are not sitting here overly concerned, to Chris’s point, about the marginal dollar funding if a quality loan is available. Manan Gosalia: Got it. Thank you. Operator: Thank you, Manan. Next question will go to the line of Ebrahim Poonawala with Bank of America. Ebrahim, your line is open. Ebrahim Poonawala: Thank you. Good morning. I guess just two sort of macro level questions, but, Chris, you should have a great perspective on this. When we think about the AI data center loans that are being made right now, is it your understanding that most of that is being distributed in the capital markets, or when we think about loan growth at the banks, is some of that being syndicated to banks and it is coming on bank balance sheets? And who knows how to think about AI two years from now and these investments? But is there risk tied to this data center spending that is being put on bank balance sheets at KeyCorp, and just broadly, across the industry? Chris Gorman: So it is a great question. The answer is the funding for these data center buildouts are in the capital markets and also at some of the banks. And, you know, we have been in the power business for a long time. And as a consequence, I think we do it pretty well. There are all kinds of nuances in these deals. Who pays for the cost overruns, for example, etcetera, etcetera. Who has the right to do what under a bunch of circumstances. We feel very good about the loans that we have. But these loans are both in the capital markets and in the banking system. Clark Khayat: Yeah, and, Chris, I just might add that our data center exposure is fairly de minimis. We have also looked at what we have called AI-adjacent type exposure and worked with our board on that as well. And, again, very, very well controlled and monitored. We are really not chasing a lot—again, these larger projects or hyperscalers. And so, again, it is very well managed. Ebrahim Poonawala: Got it. And just one quick follow-up, Chris. I think you talked about this. When we think about investment cycles are far longer than political cycles, are you actually seeing some element of manufacturing reshoring showing up in your footprint or across your businesses leading to longer-term domestic CapEx, which creates loan growth opportunities, not just this year, but thinking about the next two to five years? Chris Gorman: So we are starting to see that. I could give you some specific examples of people that are—and typically, it plays out like this: it is people expanding existing facilities in lieu of having contract manufacturers that are overseas. The other thing that we are seeing is people relocating from the Far East to Mexico and really shortening their supply lines and taking control that way. So we are starting to see it, but I would not say it is the biggest driver at all of, say, loan growth. It is very early days on that front. Ebrahim Poonawala: Got it. Thank you. Chris Gorman: Thank you. Operator: Thank you, Ebrahim. Our next question will go to the line of David Giaverini with Jefferies. David, your line is open. David Giaverini: Hi. Thanks for taking the question. I wanted to ask about credit quality. You mentioned the NPL increase was driven by two credits in utilities and multifamily. Are you able to point to any emerging trends by sector or geography that you are watching more closely? Chris Gorman: Well, we are always looking at certain sectors. As it relates to those two, when you have it kind of bumping along the bottom, there will always be one deal or two. Neither of those do we look at as systemic in any way. You know, we are watching a few areas as we always are—things like agriculture, things like transportation. But there is nothing—each of those are idiosyncratic in their nature. Clark Khayat: And, again, just a reminder, that slight uptick was not private-credit related. But, again, just—again, to Chris’s point—just idiosyncratic. David Giaverini: Thanks for that. And then shifting over to when thinking about expenses—and you mentioned the hiring of frontline bankers. Curious, is there more to come there? And how is pipeline looking? Chris Gorman: So last year, we talked a lot about the fact that we grew our sales forces by 10% collectively in our investment banking, in our wealth business, and our payments business. We continue to hire people in all of those businesses. Those are our targeted fee businesses where you will see in our report out today, we grew about 12% in the aggregate. We track all of this very, very closely. And we are pleased with the trajectory of the people we have been able to hire. And as a consequence, we will continue to do that. David Giaverini: Very helpful. Thank you. Chris Gorman: Thank you. Operator: Thank you, David. Our next question will go to the line of Gerard Cassidy with RBC. Gerard, your line is open. Gerard Cassidy: Hi, Chris. Chris Gorman: Hey, Gerard. Good morning. Gerard Cassidy: Chris, can we circle back to—you pointed out about the emerging affluent, how it grew 15%. I think you said to 1.15 million out of a total customer base of 3.5 million. How can you guys embrace AI to penetrate that client base and make it even more profitable because you are using AI? Chris Gorman: That is a great question, and it is very timely because I spoke to our big producers in this business as recently as Tuesday morning at their sales conference. I think there is a huge opportunity to use AI. We are already investing heavily in our wealth platforms. And I think as you think about serving that many customers, there is huge opportunity for AI. We will have more to say on that in the future, but that is a perfect application. Many of these customers are rather homogeneous in their needs. And I think we are armed with perfect information because it is all running through the bank. And I think harvesting more detailed information so we can do a better job of serving these customers that already know and trust KeyCorp and have their money on some other platform where, as you can imagine, they are not getting incredible service—just because it used to be that if you had $5 million, you got incredible service everywhere. Now, as you know, the number is a lot higher. And so this is a huge opportunity for us. Gerard Cassidy: And then to put Clark on the spot, but following up with this AI, do you think we will ever get to the point where outsiders like folks on this call could actually measure, you know, for your dollar of spending in AI, it actually incrementally led to a 50 basis point of ROTCE improvement? Will it get to that kind of metric some point in the future? Clark Khayat: Well, we would have to get to that first, and then share it because, as you know, Gerard, these are pretty hard to measure. I would say where we—and I think others—are seeing benefits is in efficiency and capacity, but it is really showing up more in avoidance of future investments. And so that is hard for me to come and say, “Hey, Gerard. I did not spend these dollars I may have otherwise spent.” The way I think we really need to demonstrate that is to scale some of these platforms, which has been a theme of Chris’s now for—I do not know—as long as I have known him. If we can do that, then you start to see the scale of the platform and the benefit of that cost avoidance in a real way. Then we can come back and say, we spent these dollars, we created these improved processes, and they drove this level of margin expansion. Gerard Cassidy: Great. And then just as the follow-up question, Chris, obviously, KeyCorp is well positioned as a commercial lender, and it looks like commercial lending for the industry and for you specifically is picking up. You obviously have your industry verticals that are national—that drives this commercial product—along with, as you point out, it is not just a loan, but it is multiple products. Outside of those seven verticals, is there much opportunity for commercial lending in, you know, the Pacific Northwest or the Midwest or New England? How do you look at that kind of commercial lending, or do you really not do it and it is just in those seven verticals? Chris Gorman: No, we do both. Our seven verticals give us what we think is a unique competitive advantage because our middle market bankers—who are also our payments representatives—call with our investment bankers, and that is something that others cannot do. So in those seven verticals, we have a huge advantage. But we also are out there looking for great payments and commercial banking customers just like everybody else. And, yes, there are significant opportunities outside of our seven industry verticals. And we compete effectively there as well. Clark Khayat: And, Gerard, just as a reminder, over the last couple of quarters, we have seen not just great industry vertical growth, but we have seen very consistent broad-based geographic middle market growth. So it has been a combination of both. We have been adding bankers in verticals and markets. And, as we have talked about before—whether it is Chicago, Southern California, recently Atlanta, or this family office business—we are adding bankers in new geographies with new capabilities in the middle market because we see exactly what you are referencing, which is really good opportunity to grow in specific geographies. Chris Gorman: And our uniqueness is not limited to just the investment banking area. In our payments area—which Clark at one point ran, by the way, and now Ken Gavrity runs both our commercial business and our payments business—we feel like we have a competitive advantage there as well, Gerard. Gerard Cassidy: And speaking of payments, and here is a layup maybe for Clark since you used to run payments. We all know about the risk in credit, and you guys have been very clear how you manage your credit risk, and it is quite good. What is the risk in payments? And as you grow new commercial customers, is it an increasing fraud risk we have to watch out for? I mean, which is totally out of the risk questions that we normally ask. But what do you guys think about that part of the equation—that as payments, and not just for you folks, because every commercial bank seems to be telling us the whole relationship includes a payment part of it—do we have a risk here that none of us are really focusing in on yet? Clark Khayat: Yeah. I mean, there is a little bit of credit risk in things like ACH and merchant, but those are very manageable and I think well understood. To your point, I think you see probably two versions of risk. The biggest pull is going to be operational. This is a technology business. So whether it is fraud or security—and often the easiest doors in are through clients who are not necessarily educated enough to manage the risk—so we do a lot of proactive client outreach on how to better secure their own platforms. But, you know, it is clearly a technology and software business, and that is why you need to be very dialed in on that level of risk. And then the other one is just reputation. Right? You are getting into clients. You are offering services. I used to joke, but I think it is true, that when we make a loan to a client, they sign the paperwork, they get the money, we talk to them in a couple weeks or months. When you sign a payments contract with the client, the work begins because you pop open the hood and you start rewiring the enterprise. So that comes with a lot of potential client friction. You have to manage that onboarding and servicing relationship very carefully and very thoughtfully. And it is a bit of an offensive lineman game where they expect things to work and when they do not is when you hear from them. So there is a lot of very important proactive communication and management of that process. And so I really think about it in the obvious operational risk you raise, which we spend an enormous amount of time thinking about and managing, and then the reputational piece because, as we say at KeyCorp, our payments business is about helping clients run their business better every day—because they use it every day—which means there is an opportunity for something to go wrong every day, and we have to manage that. Gerard Cassidy: Thank you. Very insightful, Clark, and good luck with the new responsibilities. Clark Khayat: Thanks. Operator: Thank you, Gerard. Our last question will go to the line of Analyst with KBW. Christopher, your line is open. Analyst: Hey. Good morning. This is Chris O’Connell filling in for Chris. Oh, okay. I just wanted to circle back to the margin discussion. And just given the overall shift in the rate environment this past quarter towards higher-for-longer environment, what impact do you think that might have on the margin improvement story? Clark Khayat: Yeah. So as we noted, our base case would be no cuts. So that is incorporated in this, and we did improve the margin guidance a bit. So what I would say—maybe alternatively—is we feel very good about managing to that guidance under a variety of circumstances. We would likely feel a little stress if there were hikes. And we have got some upside potentially if there were cuts—assuming those cuts, as we would expect at least at this point, with a little bit of steepening of the curve. So, right now, the reflected slight improvement in that margin guidance incorporates a flat, no-cut scenario. So hopefully that is responsive to your question there. Analyst: Okay. Great. And then, you know, you guys provided a ton of color on private credit and the specifics—both in the discussion, the deck, and overall credit quality relatively stable for the quarter. But just wondering if you could kind of stack rank or update us on, you know, your wall of worry on maybe more hot-button credit pockets. And then where private credit—either as a whole or within the parts that you disclosed and discussed—falls within that stack ranking. You know, I guess, in particular, with context of your view versus the overall markets. Chris Gorman: Sure. So I would be happy to address that, Chris. So I would not put private credit in my basket of things that we are really focused on right now. A few areas that we spend time thinking about: first is the oil and gas producers. Depending on how they are hedged, they actually could be making more money in this environment—particularly if they are unhedged. We have a couple billion dollars of exposure there. We have another $2.5 billion or so exposure in transportation. And to the extent people do not have escalators with their customers, obviously, costs are a significant issue. There is no issue yet with respect to consumer discretionary. But if we remain in an inflationary environment and people are spending a lot more for gas, the theory is that they will have less money to spend on discretionary consumer, which I agree. On the other side of it, we have seen some interesting recovery in that we had been worried a bit about health care. Health care is firming up nicely, so we feel good about that. We also were really focused on some materials and construction products—those areas have also firmed up nicely. So that is kind of where we are worried—where we look. Anytime I focus on areas of concern, it is where there is leverage, and we frankly have very little. If you look at our leverage book, it is about $2 billion, and it has been $2 billion for as long as I can remember. So I am not too worried about that. So that is kind of the around-the-horn on our portfolios. Analyst: Perfect. Appreciate all the color. Thank you for taking my questions. Chris Gorman: Happy to do so. Operator: Thank you, Christopher. With no additional questions waiting in queue, I would now like to pass the conference over to our CEO, Chris Gorman, for any closing remarks. Chris Gorman: Well, thank you, Megan, and thank you all for joining our call today. We appreciate your continued interest in KeyCorp. If you have additional questions, please do not hesitate to reach out directly to Brian or others on the Investor Relations team. Thank you, and have a great day. Operator: This concludes today’s call. You may now disconnect.
Operator: Good morning, and welcome to the NextNRG, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Following management's remarks, we will move to a pre-submitted Q&A. This call is being recorded. Before we begin, I'll turn it over to Sharon Cohen for the required forward-looking statements disclosure. Sharon, please go ahead. Sharon Cohen: Thank you. I'd like to begin by reminding everyone that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially. Please refer to our most recent SEC filings for a full discussion of relevant risk factors. Today's call will also reference adjusted EBITDA, a non-GAAP financial measure. A full reconciliation of this measure to net loss, the most comparable GAAP measure is available in our earnings release located in the Investor tab of our website. Non-GAAP financial measures should not be considered as a substitute for GAAP results. On the call today is Michael D. Farkas, Founder and Chief Executive Officer; as well as Joel Kleiner, Chief Financial Officer. Michael, the floor is yours. Michael Farkas: Thank you, Sharon, and good morning, everyone. I want to begin with some numbers that will frame everything you're about to hear. In 2024, NextNRG generated $27.8 million in revenue. While in 2025, we generated $81.8 million. I want to repeat that. $27.8 million to $81.8 million. That is about 195% growth in 1 single year. Our on-site mobile fueling business was the driver of this growth. Following the completed merger of NextNRG and EzFill, we integrated 2 acquisitions, [ shelf tap ] up assets and [ Yoshi ] mobility. These acquisitions allowed us to enter into 4 new major markets: Phoenix, Austin, San Antonio and Houston, ending the year operating coast to coast, and results reflected that. We posted 7 consecutive months of record revenue. And by May, our year-to-date revenue has already surpassed all of 2024. Most critically, our margins improved as we scaled. Our full year gross margin in fueling was 8.4%. By Q4, it declined to 10.4%. That is the direction we're moving towards as we continue to optimize our operations, implement smarter customer acquisition, greater route density, increase of fuel mix deliveries and less wasted time. In that curve, we are still early. I want to call out our fourth quarter specifically because it tells you where this business is headed. Q4 revenue was approximately $23 million. October, $7.4 million; November, $7.5 million; December, $8 million. December loan represented 253% year-over-year growth in revenue and 308% growth in fuel volumes, and that is the momentum we're carrying into 2026. I also want to take a moment to highlight something specific because I believe it speaks to the quality of what we are building. Right now, our largest commercial fleet customer, the largest global online retailer is actively cutting other fuel vendors in certain markets. and replacing them with us, NextNRG. That does not happen by accident. That happens when service is cleaner, more reliable and more integrated than the alternatives. This is precisely what we design our products and services to do. And it means that the opportunity with this one customer alone has not even reached its whole potential. I want to talk about our Energy Infrastructure segment because this is where the next chapter of next energy is being written. We closed our first power purchase agreement, Sunny Side into [ Pengatarifs ] rehabilitation and subacute care centers, both in California. Under these agreements, NextNRG will design and build fully integrated on-site smart microgrids combining rooftop solar, battery storage, gas generators and our patented AI-driven controller. These are long-term structured agreements with annual escalators built in. This is not equipment sales, but as contracted energy relationships that generate annuitized revenues over the long term, some as many as 3 decades. We believe finalizing these agreements validates the model. The market exists, customers are ready to commit and NextNRG is ready to execute. Our pipeline of planned smart microgrid projects stands at approximately $750 million, spending municipal, tribal, healthcare, multifamily and commercial facilities. All in various stages of development. We are now converting that pipeline into executed contracts. Before I turn it over, I want to explain something about how this part of the business operates. Because I think context matters when you're looking at our numbers. We are deploying multimillion-dollar energy infrastructure projects to large operational entities which require engineering studies, permitting, utility interconnection approvals, project financing and organizational decision-making that can spend years. The contracts we are closing today are the result of development work that started 18 to 24 months ago. Therefore, when you look at the business, you should be looking at what we've already closed what's in the pipeline and how that builds from the year because each contract represents millions of dollars in revenue and a proven track record accelerates the pipeline behind it. The fuel business funds the operation today, the energy business is where the exponential growth will come from. That is the architecture of this company, and to 2025 was the year we demonstrated that both sides of the business can work. I will now turn it over to Joel to break down what is behind the numbers. Joel? Joel Kleiner: Thank you, Michael. I want to walk through 2025 financials plainly because there is an important story inside these numbers that does not see in the headline loss figure. Revenue for the full year came in at $81.8 million compared to $27.8 million in 2024, an increase of $54.1 million or 195% year-over-year. Cost of sales was $74.9 million, up from $26 million rising proportionally with expanded volume and geographic footprint. Gross profit reached $6.9 million versus $1.8 million in 2024, nearly 4x higher year-over-year. Revenue scaled, gross margin improved and gross profit grew, that is the business working. Gross margin expanded quarter-over-quarter throughout fiscal 2025, demonstrating the company's ability to drive operational efficiency while continuing to grow its revenue base. Our GAAP net loss for 2025 was $88.2 million. I want to walk through the major components because the bulk of that figure is not cash out of the door, and it's important that you understand the distinction. The largest driver is stock-based compensation. which is totaled at $42.6 million. This is entirely noncash. This figure represents the equity cost of attracting and retaining the talent to execute a merger, integrate 2 fleet acquisitions entering 4 new states and close the company's first energy infrastructure contracts, all in a single year. It is also the primary reason for adjusted EBITDA -- that our adjusted EBITDA as a fundamental different story than our net loss. Interest expense was $17.3 million. This includes $9.6 million in noncash amortization of debt discount, a GAAP accounting charge that does not represent current cash paid. The remainder reflects interest our outstanding borrowings used to fund the company's growth in working capital. We are committed to reducing our reliance on high-cost short-term debt as operating cash flow continues to scale. We also recorded an $8.5 million impairment charge. This is a onetime nonrecurring noncash accounting adjustment related to assets recorded in connection with our merger [indiscernible]. As part of the year-end process, those assets are evaluated under GAAP, and we recorded a write-down based on that assessment. This does not reflect any deterioration in customer relationships, contracts or operating assets. and impact the reported net loss, but has no effect on cash or how the business operates going forward. When you strip out these items, the noncash stock compensation interest inclusive of that discount amortization, depreciation, amortization and the onetime impairment, you get to adjusted EBITDA loss of [ $7.1 million ] for 2025 compared to $8.9 million in 2024. Net cash used in operating activities was $16.7 million in 2025. We continue to the company's growth through operating cash flow and equity capital market activity and debt facilities. Our February 2025 equity raise of $50 million provide critical working capital that supported the execution you see in these results. We are a growth company in intensive industry, and we continue to invest into expanding our energy infrastructure pipeline. Fuel business provides operational momentum. The energy business provides long-term upside. Net, they represent a company that generated [ $8.8 million ] in revenue and $6.9 million in gross profit in its first full year as a combined entity. I will turn it back to Michael for closing remarks. Michael Farkas: Thank you, Joel. I want to close with this. The energy market in the United States is fragmented, inefficient and expensive. Businesses that consume enormous amounts of energy, commercial fleets, logistics operators, hospitals, distribution centers are managing that energy the same way they have for over 20 years working across multiple vendors with very little integration, visibility or control. We built a platform that changes that, on-demand fueling with real-time dispatch optimization, on-site microgrids that eliminate fragmented utility dependence and replace it with intelligent integrated infrastructure, a unified operating system that let's say, business team, manage and optimize all of its energy needs in one place to our proprietary NextNRG dashboard. The fuel side of the platform works. We established that in 2025. The energy side is just now starting to convert pipeline into contracts, and those contracts are long-term, high-value and destined to compound. The progression is already starting to show up in the numbers and in what we have executed so far. $27.8 million to $81.8 million in revenues in 1 year. Gross profit nearly quadrupled 7 consecutive months of record revenue. Our first energy infrastructure contracts signed and a pipeline at over $750 million. This is the year we just had. We are more focused on the next one. Thank you for all being here. I'll now hand it back to Sharon to take us through the Q&A. Sharon Cohen: Thank you, Michael. We'll now move to questions that were submitted in advance. The first question is for Joel. You recorded $42.6 million in stock-based compensation in 2025. Who received that compensation? What was it tied to? And how should investors think about dilution going forward? Joel Kleiner: Well, 2025 was not a normal year for this company. We did a merger brought 2 suites, built an executive team and Advisory Board and launched an energy infrastructure business. I remind you all in the same year. The equity issue was tied to that buildup. A lot of that work was compensated in equity, and that's what's reflected in that figure. It's not something you should expect to see at this level going forward. As things stabilize, those numbers have come down. And yes, we're very aware of what dilution means to our shareholders, and that's always a part of the conversation and the decisions we make. Sharon Cohen: Okay. Thank you, Joel. Here's another one for you. Cash at year-end was $384,000 and the working capital deficit since approximately $25 million. The company has been relying on high interest instruments to fund operations. How does NextNRG get through this next year, 2026? And what does the financing plan look like? Joel Kleiner: Look, the cash position at the end -- at year-end does not tell the whole story of where we are liquidity-wise. Our cash position reflects the timing of debt facilities and operating cash flows working capital, and it doesn't give the full picture of available liquidity. We have active debt facilities in place, and we continue to have access to capital markets and as we have demonstrated, like in our February 2025 equity raise. As the infrastructure contracts close and move towards construction, they bring project level financing structures that are standard in the industry and don't rely solely on corporate balance sheet funding. We are not managing this business on $384,000. We're managing it on a combination of operational cash flow, debt facilities and the capital markets act as we've consistently demonstrated. The goal for 2026 is to reduce our dependence on high cost short-term debt by growing operating cash flow, increasing working capital and closing contracts that carry their own financing. That's the plan, and we're going to execute against it. Sharon Cohen: Thank you, Joel. Michael, the following questions I will direct to you. The Energy Infrastructure business is described as a long-term growth engine of the company. When those contracts do start generating revenue, what does the margin profile actually look like? And how does it compare to the fueling business? Michael Farkas: It is a completely different margin profile. The fueling business operates on fuel margins. We buy fuel, we deliver it and we earn the spread plus the service fee. Those margins are in the high single digits to low double digits and they improve as we optimize routes and density. The energy infrastructure business operates on a contracted rate over a multi-decade agreement. Once those assets are deployed and operating, the ongoing cost structure is largely fixed. You have maintenance, monitoring and debt service on the project financing and the revenue is locked in by contract with annual escalators. We expect the margin profile on a stabilized microgrid to be significantly higher than what we generated fueling. The fueling business is a strong, scalable cash generator. The Energy business is a different kind of assets completely. And when those contracts start producing revenue, we believe it has the potential to meaningfully change the financial profile of this company. Sharon Cohen: Thanks, Michael. Here's the next question. Given the current cash position and working capital deficit, what does the path to cash flow breakeven look like? And what are the 2 or 3 things that need to happen operationally to get there? Michael Farkas: There are 3 things. First, the fueling business needs to continue scaling its gross profit and it is. We went from $1.8 million in gross profit in 2024 to $6.9 million in 2025. In Q4 margins tell us there is more improvement ahead. Second, we need to close and monetize NextNRG infrastructure contracts. Each one that closes and moves towards construction is expected to represent significant revenue and significantly improve our cash position. And third, we need to rightsize our operating expenses relative to where the business actually is today, not where we are building to. We've been spending ahead of this revenue on the energy side. And that's just the nature of how the business works. But as those contracts start closing and revenue comes in, that ratio flips. That's what we're focused on. Sharon Cohen: Great. For our final question, as the fueling business matures and energy contracts begin to close, how is management thinking about capital allocation? Where does investment get prioritized and what guardrails exist to prevent a company from overextending on either side of the business? Michael Farkas: Great question. The fueling business funds itself at this point, it generates positive operating cash flow and the capital requirements are largely tied to fleet expansion, which we can pace based upon demand. So the capital allocation question is really about the energy side, and there, the discipline is built into the structure of how we develop projects. The capital to build each project comes with the project through project financing, not from corporate balance sheet. What we invest corporately is in the development and sales process, engineering work, permitting customer relationships. And that's a deliberate contained investment. It's not open ended. The more projects we close, the cheaper and faster the next one gets. The guardrail is the model itself. Sharon Cohen: Okay. Thank you. That concludes our Q&A. Michael, any final words from you? Michael Farkas: No. I just want to say thank you. We are hedged down and focused on execution, and we're looking forward to seeing you next quarter. Operator: Ladies and gentlemen, thank you so much. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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