Operator: Welcome to the Invesco’s First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today’s call is being recorded. Now I’d like to turn the call over to Greg Ketron, Invesco’s Head of Investor Relations.

Gregory Ketron: Thanks, operator, and to all of you joining us on the call today. In addition to the press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings transcripts provided by third parties. The only authorized webcast are located on our website. Andrew Schlossberg, President and CEO; and Allison Dukes, Chief Financial Officer. We’ll present our results this morning, and then we’ll open up the call for questions. I’ll now turn the call over to Andrew.

Andrew Schlossberg: Thank you, Greg, and good morning to everyone. I’m pleased to be speaking with you today. Before we review this quarter’s results, I’d like to reiterate our strategic priorities and our key performance drivers as highlighted on Slide 3 of today’s presentation. These strategic imperatives focus our efforts guide our decisions and provide a clear framework for navigating a rapidly evolving asset management landscape. Our strategic priorities remain grounded in a simple conviction. Regardless of broader market conditions, geopolitical events or cyclical, structural or fundamental headwinds, executing against these priorities will leverage the best of Invesco, accelerate our key areas of opportunity and drive profitable growth.

And that is exactly what we are seeing in our business. Profitable organic growth is paramount. As such, we are focusing on high demand, scalable investment capabilities like fixed income, and delivery vehicles like ETFs. We continue to drive value through our expansive global footprint with a significant and unique Asia Pacific presence, including a hard-to-replicate Chinese JV and a strong performing and growing EMEA business. Together, these regions represent nearly $700 billion of our client AUM. We are also well positioned to generate increasing value in our private markets business where we have a strong institutional heritage in real asset and alternative credit strategies, which are now leveraging as we bring those products into faster growing wealth management space.

These existing Invesco strategies are being augmented by our recently announced partnerships with Barings and LGT capital. Each of these relationships are progressing well, and we look forward to updating you on developments with additional product launches later this year. We also continue to sharpen our focus and accelerate innovation across products and vehicles, such as active ETFs, SMA, models, customized solutions and digital assets. We are seeing momentum build in each of these areas, and we have launched several new products and partnerships this year already. Our progress on strategic priorities also include continued strengthening of our balance sheet and efficient capital deployment, including returning a portion of it to our shareholders through increasing common share repurchases and dividends.

We continue to prioritize the intersection of market size and secular change where Invesco is uniquely positioned to drive growth in the highest highest opportunity regions, channels and asset classes. This is the guiding principle by which we measure opportunities, deemphasize when needed and focus resources to drive growth across the organization. We will continue to execute with discipline allocate capital and resources accordingly and measure progress against our key performance drivers indicated on the far right-hand side of this slide. So let’s turn to Slide 4 and take a look at how our efforts translated into asset flow results in the first quarter. Markets had strong momentum coming into the quarter, but ultimately gave way to heightened volatility as geopolitical uncertainty, sharp moves in energy prices and changing interest rate expectations weighed on public markets.

It is in this type of operating environment that the benefits of our broad scale, diversified global platform are most evident. With elevated volatility, money was in motion and clients continue to entrust Invesco with significant capital across our global product set. Net long-term inflows were $21.8 billion, marking the 11th straight quarter of net inflows and representing annualized organic growth of 4%. It is also worth noting that we generated $11.6 billion in global liquidity inflows and we ended the period with over $200 billion in AUM. We continue to be encouraged by the breadth of our overall growth. We had solid positive flows across several dimensions including in many of our strategically important investment capabilities across each of our 3 regions in both our active and passive strategies and across wealth management and institutional channels.

The Asia Pacific and EMEA regions again produced very strong net inflows with 17% and 8% annualized organic growth, respectively. We also saw our strongest quarter of active net inflows with nearly $15 billion generated around the world. Additionally, institutional demand has remained strong with our fifth consecutive quarter of annualized organic growth in excess of 5%. So let me spend a few minutes clicking into growth drivers in each of these investment capabilities. Starting with our ETF and index capability, where we continue to meaningfully scale and diversify our platform to meet evolving client demand. Our ending AUM stood at a record $638 billion or over $1 trillion, including the QQQ. We had nearly $19 billion of net inflows during the quarter or 11% annualized organic growth.

Within our ETF range, we garnered net inflows across a diverse set of products in both equity and fixed income. Our [indiscernible] S&P 500 delivered record net inflows, and we saw strong demand for QQQM from investors with long-term horizons. We continue to see strength in our S&P quality and momentum lineup as well. We remain focused on innovation in the ETF space as we launched 4 new active ETFs this quarter, strengthening our market position in this high-demand segment as investors continue to use the ETF wrapper to access active equity and fixed income strategies, particularly in more volatile market environments like we are seeing today. We have built a robust active ETF platform currently managing over $20 billion in assets, which increases to more than $35 [ billion ] when you include index strategies implemented by our active teams.

With our Q2 fund conversion on December 20, we had a full quarter of the funds flows included in our results. The fund continues to attract the demand, but after multiple quarters of very strong inflows, we ultimately had net outflows this quarter. This reflected normal rotation and profit-taking as investors [indiscernible] exposures amidst the more volatile market environment. However, with the [indiscernible] market volatility in April, we have seen strong demand and net inflows returned for this flagship product. Let me take a moment here to address the recent developments that NASDAQ has expanded its licensing to allow 2 additional U.S.-listed ETFs to track the NASDAQ 100. First, we see this as an evolution of a highly successful benchmark, reflecting the global importance of the NASDAQ 100, where we dominate with our flagship QQQ fund, which is one of the world’s most actively traded ETFs and a core exposure vehicle globally for the NASDAQ 100.

As you know, QQQs position is supported by unmatched liquidity with tight spreads deep options in derivative markets and a very large and broad institutional and retail investor base. These critical characteristics coupled with the immense brand recognition that’s synonymous with Invesco QQQ being a one of a kind and a large marketing spend and positive client outcomes built over 25-plus years minimizes the dependence on being the sole licensed product from an index provider. Our installed base is tough to erode, and it’s been proven that switching costs are higher than assumed with taxes being a major factor. By example, the introduction of our own QQQM expanded the NASDAQ 100 ecosystem without cannibalizing the QQQ. NASDAQ has historically been selective in how it licensed the NASDAQ 100 Index and that selectivity resulted in the QQQ being the primary U.S. listed ETF fracking the index for decades.

NASDAQ has publicly reaffirmed its commitment to our QQQ innovation suite as a cornerstone of their NASDAQ 100 ecosystem. Further, NASDAQ’s licensing for these new NASDAQ 100 exchange traded funds is consistent with our QQQ at 8 basis points. meaning any competitor fund will pay the same amount and the existing licensing agreements are not impacted by these filings. Our relationship with NASDAQ remains strategic and long standing. To put a fine point on it, our installed base where we have built a dominant entrenched position over decades will be difficult to displace. More so, we believe that the attention will create an increasingly large pool of assets behind this important benchmarks. So let’s move on to fundamental fixed income were regarded a very healthy $3.7 billion in net long-term inflows or 5% annualized organic growth with strong attribution across geographies and channels.

This only considers the narrow view of our fundamental fixed income capability. Looking more broadly at the asset class across all of our investment capabilities, that net flow number jumps to $14 billion with the inclusion of our related ETF and China-based fixed income assets. Momentum in our fundamental fixed income capability was broadly driven by institutional inflows in investment-grade products. as well as fixed income SMAs where we continue to see strong demand. Our entire SMA platform, which also includes a portion of equity assets, now stands at $37 billion in AUM. We have one of the fastest-growing SMA offerings in the United States, United States wealth management market, generating an annualized organic growth rate of 19% this quarter.

So moving on to China JV, where we produced another exceptionally strong quarter, demonstrating that we are well positioned in this market. We reached a record high AUM of $142 billion and delivered $8.7 billion of net long-term inflows or a 31% annualized organic growth rate. In a volatile global market environment, the China JV demonstrated the benefits of its diversified platform. Looking at the quarter as a whole, net inflows continued to be driven by Fixed Income Plus strategies which have now reached $40 billion in AUM on our JV platforms. We have developed a diversified product lineup in our China JV, which is designed to meet varying client risk appetites and we like the position we have built and the opportunity it presents long term.

To support this growth during the quarter, we launched 14 funds with total AUM of $2.5 billion mostly aligned with the growing demand for balanced and equity ETF strategies. Shifting to private markets, we’ve posted $400 million of net inflows driven by direct real estate. The asset class has gained momentum led by [indiscernible], our real estate debt fund for the U.S. wealth management channel, which continues to gain scale and our U.S. core+ real estate equity fund, which is seeing strong institutional engagement. Assets in [indiscernible] with leverage now total $5 billion after a little more than 2 years in the market. This is one of the fastest ramp-ups in the wealth channel for a commercial real estate credit product and is a reflection of how our innovation mindset is helping drive our results.

Additionally, we continue to prioritize private market product development for the defined contribution channels around the world. During the quarter, we launched the Invesco Core+ Real Estate Trust, which is a collective investment trust designed to provide U.S. defined contribution plans, access to private real estate real estate. Among the first of its kind, this CIT introduces institutional real estate capabilities that support the long-term needs of defined contribution investors. We launched this fund with a mandate from a large U.S. corporate institutional investor as the anchor client, marking a significant win for our business. Our real estate net inflows were modestly offset by net outflows in alternative credit, which were exclusively driven by our bank loan products.

BK, our industry-leading ETF experienced redemptions of $400 million in Q1, instigated by the technology-led selloff. However, the fund remains well scaled and positioned in the market. Regarding the market dynamics in private credit at large, the headlines are oftentimes drowning out the fundamentals and completing various products. Invesco’s alternative credit platform built around broadly syndicated loans CLOs and disciplined direct lending had 0 software exposure, showcasing the diversified nature of the platform that is designed precisely for environments like this one. From a product standpoint, it’s important to note that we are not in the BDC space. We have dry powder, diversification and extensive experience. For managers with their discipline, this volatility may ultimately prove to be an opportunity.

The growth potential in private credit has not fundamentally changed, and manager selection remains key, given the wide dispersion in the sector. The current turbulence has not impacted our long-term views, and we believe we have a very favorable position. We’re excited about the prospects in private markets with organic growth opportunities amplified through our innovative partnerships with Barings and LGC capital to further penetrate the wealth management and defined contribution markets. Moving on to multi-asset capabilities. We also had a strong long-term net inflow during our — driven by our institutional quantitative equity strategies, which generated $4.7 billion of net inflows during Q1. And finally, in fundamental equities, U.S. value equities turned to net inflows during the quarter which was matched by continued positive net flows in global, international and regional equities from clients in Asia Pacific and EMEA.

The ongoing momentum in these markets is headlined by our Global Equity Income Fund, which remains the top selling retail active fund in the Japanese market. This fund posted net inflows of $3 billion during the quarter, rapidly growing to $23 billion in AUM, while generating a very favorable net revenue yield for Invesco. Despite these positive fundamental equity flow highlights this quarter, we did remain in net outflows of $2.4 billion overall in the segment. This included the expected $1.2 billion in net outflows from our developing markets fund albeit a significant moderation from recent history. However, it’s important to highlight that our overall fundamental equity outflows this quarter were the small smallest we have seen in nearly 9 years.

And on a gross sales basis, we had our best fundamental equities flow quarter since the beginning of 2022. So moving on to Slide 5, which shows our overall investment performance relative to benchmarks and peers as well as our performance in key capabilities where information is readily comparable and more meaningful to drive results. Investment performance is key to winning and maintaining market share regardless of overall market demand, and achieving first quartile investment performance remains a top priority for Invesco. Overall, 46% of our active funds are performing in the top quartile of peers on a 3-year time horizon with nearly half reaching that bar on a 5-year basis. Further, over 70% of our active AUM is beating its respective benchmark on a 5-year basis.

So with that, I’m going to take a pause and turn the call over to Allison to discuss the quarter’s financial results, and I look forward to your questions.

Allison Dukes: Thank you, Andrew, and good morning, everyone. I’ll start with the first quarter financial results on Slide 6. Assets under management held up well against market volatility in the first quarter. While volatility drove a $42 billion decline in AUM for the quarter, we were able to mostly offset this with continued strong net long-term asset inflows of $22 billion and $12 billion of net inflows into money market funds. AUM at the end of the quarter was $2.2 trillion nearly the same level at the end of the fourth quarter. Average long-term AUM, which included a full quarter of the QQQ reached nearly $2 trillion, an increase of over $400 billion or 26% and over last quarter, largely due to the Q2. Average long-term AUM is up nearly 50% over the same quarter last year due to the QQQ as well as organic growth of 6% over the last 4 quarters and higher market levels.

While we did see market weakness that negatively impacted our AUM levels later in the first quarter, we subsequently saw a strong rebound. As markets have recovered so far in April, with both key domestic and global equity indices and bond entities holding at recent levels. This has led to our AUM growing into the $2.3 trillion range more recently, an increase of over 5% versus quarter end, with growth across nearly all of our capabilities, led by ETFs in the QQQ and, to a lesser degree, fundamental equity, the China JV and fundamental fixed income. Net revenues, adjusted operating income and adjusted operating margin all showed significant improvement from the same quarter last year. While adjusted operating expenses continue to be well managed.

This drove 500 basis points of positive operating leverage and a 300 basis point operating margin improvement year-over-year with operating margin improving to 34.5%. Adjusted diluted earnings per share was $0.57 for the first quarter versus $0.44 for the same quarter last year, a 30% improved mix. Our focus on strengthening the balance sheet continued during the quarter as we redeemed a $500 million senior note that matured in January. Finally, we increased the amount of common share repurchases in the first quarter compared to prior quarters buying back $40 million or 1.6 million shares. Also in February, our Board authorized an additional [ $1 billion ] in common share repurchases. Moving to Slide 7. Our net revenue yield increased over the fourth quarter, largely due to the QQQ reclassification to fee earnings, partly offset by the impact of the divestitures that occurred in the fourth quarter.

Client demand continues to drive diversification of our portfolio with strong growth in lower fee products such as ETFs and fundamental fixed income capabilities, while the demand for higher speed [indiscernible], such as fundamental equities, particularly global equities, has been weaker. This has resulted in a more balanced AUM profile, which better positions the firm to navigate various market cycles, events and shifting client demand. We’ve seen the impact of the asset mix shift to moderate over the last year, resulting in a more modest decline in the net revenue yield and more recently approaching a degree of stabilization or an inflection point, which we experienced in the first quarter. To provide context, the net revenue yield was 22.9 basis points for the first quarter and the exit yield at the end of the first quarter was 22.8 basis points.

The future direction of asset mix shift will dictate the net revenue yield trajectory. Turning to Slide 8. Net revenue of $1.3 billion in the first quarter was $155 million higher as compared to the same quarter last year. The increase in net revenue was largely from investment management fees mainly driven by higher average AUM and the reclassification of QQQ to fee earnings. Operating expenses increased $69 million versus the same quarter last year. mainly driven by higher employee compensation and marketing expenses. Employee compensation was $43 million higher than the same quarter last year, largely due to a factor that we noted on our prior call. We made incremental changes to our retirement eligibility criteria for long-term awards that will result in a timing change in how retirement-related expenses will be recognized going forward.

and this resulted in a $33 million increase in compensation expense in the first quarter. Marketing expenses were $21 million higher due to the marketing associated with the QQQ now being recognized in marketing expenses upon reclassification. The hybrid investment platform implementation costs were $12 million in the first quarter, in line with our expectations and prior quarters. The incremental operating expense associated with AUM that has been moved on to the hybrid platform was $4 million in the first quarter. We continue to make progress in implementing the hybrid approach with expected completion by the end of 2026. Regarding the hybrid investment platform cost for 2026, we expect onetime implementation quarterly cost to continue in the $10 million to $15 million range per quarter going forward with the push to have implementation completed by year-end.

As we transition more AUM onto the platform throughout the year, the incremental expense related to AUM on the platform will build towards $10 million a quarter later this year. Expenses associated with the platform may fluctuate quarter-to-quarter due to timing. Looking ahead to the impact the hybrid investment platform will have on operating expenses in 2027 and beyond. We expect the cost saves to be at least $60 million in calendar year 2027, including the implementation costs that will roll off after 26 when the project is complete with run rate savings that should build as 2027 unfolds. We’ll provide further updates as implementation progresses. Regarding the overall operating expense outlook for 2026. With the impact of the divestitures and the QQQ related marketing expenses now in our expense run rate, we expect operating expenses for 2026 to be in the $3.275 billion range, under flat markets from the higher April AUM level that we indicated is in the $2.3 trillion range.

We still believe that our operating expense base is approximately 25% variable in relation to changes in net revenue. The effective tax rate for the first quarter was close to 24%. For the second quarter, we estimate our non-GAAP effective tax rate will be in the 25% to 26% range, excluding any discrete items. The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items. [indiscernible] on Slide 9, we continue to make considerable progress on building balance sheet strength and improving our leverage profile. In January, we redeemed the $500 million senior notes that matured. We did in the quarter with $1.1 billion drawn on the revolving credit facility as expected, driven mainly by repurchasing $500 million of preferred stock back in December and the senior note redemption in January.

The benefits gained in financing these transactions through the credit facility are a lower floating interest rate and flexibility to pay down the facility as cash flows beyond our capital priorities allow without prepayment penalties. We expect to reduce the amount drawn on the revolver as the year progresses. Leverage ratios in the first quarter ticked up very slightly due to the higher balance on the credit facility but we expect the ratios will improve the remainder of this year as we reduce the amount drawn on the facility and simultaneously grow EBITDA. We also continued common share repurchases in the first quarter, increasing the amount repurchased to $40 million or 1.6 million shares. We intend to continue a regular common share repurchase program going forward as we target a total payout ratio, including common dividends and share buybacks to be near 60% for 2026.

And as I noted previously, our Board authorized in February an additional $1 billion in common share repurchases. We will continually evaluate our future capital return levels in line with our capital priorities. To conclude, the strength of our net flow performance and diversity of our business continued despite a volatile market environment, and we delivered strong revenue growth as a result. This, combined with well-managed expenses delivered significant operating leverage and a sizable improvement in our operating margin over the prior year. We will also continue making progress in building a stronger balance sheet throughout 2026. We’re committed to driving profitable growth, a high level of financial performance and enhancing the return of capital to our shareholders.

And with that, operator, let’s open up the line for Q&A.

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Operator: [Operator Instructions] Our first question comes from Brennan Hawken with BMO Capital Markets.

Brennan Hawken: Andrew, thanks for that color and the K study with the QQQM. I think it was really helpful in contextualizing now that you’ve managed the Qs in the new structure for a while, what’s a reasonable expectation that we could have for securities funding that you might be able to generate from that product?

Andrew Schlossberg: Securities lending is definitely something we have eligible for the Q2. I mean, given the size and the concentration of some of those positions, the opportunities are there, but they’re not super large. And we’ll continue to evaluate ways, but that’s not — we don’t see that as a huge opportunity.

Brennan Hawken: Okay. Fair enough. And then, Andrew, just hoping to maybe take a step back and ask a bigger quick picture question. 2025 was an eventful year for Invesco for sure. We have the first preferred paydowns, the Q restructuring notable callouts. When you turn the page and look here at what you’d like to achieve in the coming years? What are some of the strategic priorities that investors should be thinking about?

Andrew Schlossberg: Yes. No, thank you. And we did we did get a lot done last year in 2025, and I think really set Invesco increasingly on a course for continued future growth, a much better improved balance sheet and ability to return capital to shareholders, we do still have a lot more to do and execute against. I think there’s 4 principal areas that we’re focused on to continue the organic growth that we’ve been seeing and hopefully accelerate it. I mean one is the enormous shift in personalization that’s going on around the world, but in particular, in the wealth management channels and then even more in particular, in the United States. And so we feel like our $1 trillion ETF platform really sets us up well as that personalization theme continues.

The growth in our SMA platform has been exceptional, but we view that as another winner in the personalization and tax optimization team. And then lastly, we have a models business that we’re going to lean into even more so. So all of those things around personalization. We think the demand for income isn’t going away around the world. And as I highlighted in our remarks, we continue to grow quarter after quarter exceptionally. We have an over $700 billion platform that spans geography and all duration. And as you see income needing to be generated in different formats, whether that’s ETFs or whether that’s SMAs, we’ll be there to participate. The other area is the flow growth expectations that we have because of money in motion, demographic shifts and the like in Asia and in Europe, in particular.

And we’ve been seeing outsized growth there and we continue to have a really favorable position with now something like 1/3 to 40% of our AUM out in those markets. And then we’ve been talking about private markets into wealth management, but I think the less discussed industry-wide, it’s been the opportunity in retirement and defined contribution, not just with some of the things happening in the United States, but what’s happening around the world for wealth and DC for private markets. And then, of course, technology and what it’s going to do to innovate and move at a different pace. All of those things are opportunities we’ve been leaning into, and we’re going to lean into even more in 2026.

Operator: Our next question comes from Dan Fannon with Jefferies.

Daniel Fannon: I appreciate all the comments around expenses for this year and some of the savings into next year. I was hoping to get a little bit further in terms of detail as we think about this year and as it progresses maybe the sequential changes or other things to think about to get to that [ 3 2 7 5 ] as we exit 2026?

Allison Dukes: Sure. I mean, let me see if I can give you a little bit of color. I think that [ 3.275 ] again, I’ll just make sure that’s clear, that’s kind of based on that AUM level of around excuse me, $2.3 trillion towards the end of April, and that’s kind of all things being equal, and we don’t consider market in any of that. So you think about that, I would say to start — from a compensation standpoint, I’d say — as we think about our target has historically been in that 38% to 42% range. I think this year, we’re expecting to be kind of in the midpoint of that range. So maybe that gives you some idea around comp as a percent of revenue and what that could look like. Keep in mind the seasonality that we have in the first quarter.

So we noted some of that seasonality already in terms of the change in our retirement provisions and what that did in terms of the acceleration of long-term awards that was about $33 million in the quarter. We always have about a $15 million seasonality in payroll taxes in the first quarter. We think about comp to rev on a full year basis, not quarter-to-quarter. So hopefully, that gives you a little bit of color. I gave you some of the context around the hybrid investment platform, and we think implementation will continue in that — excuse me, $10 million to $15 million range per quarter, maybe kind of trending towards the higher side as we get closer and closer to full implementation by the end of the year. The incremental cost of running the platform.

We noted that’s $4 million in this quarter. We think that will be kind of fully phased in to the tune of about $10 million incremental by the end of this year. And then, of course, marketing, you’ve got the QQQ fully in this quarter. So there’s not a lot of change there. So this — I know there was a lot of noise coming out of the fourth quarter, but the first quarter is relatively clean with the exception of the seasonality. The only other thing I’d point to is just a reminder that we are entering into our partnership in the Canadian business. We expect that to close with CI at the end of the second quarter. And that is a transition of about $19 billion in AUM, and that has a modestly negative operating income impact for the last — the third and the fourth quarter of this year is that will be a loss of operating income to the tune of kind of $5 million to $10 million, which we expect to improve over time as we continue to really execute the sub-advisory relationship with CI and grow that relationship overall.

And the guidance I gave is inclusive of Canada, inclusive of everything I just mentioned. So hopefully, that gives you a little bit of color and context underneath the full expense guide.

Daniel Fannon: Yes. That’s helpful. And then just in general, for the industry, you’re seeing shelf space on platforms like Schwab or other third parties getting more expensive for ETFs and other products. So can you talk about the economic impact you see as you think about this year and next in terms of operating on some of these third-party distribution platforms.

Andrew Schlossberg: Yes. Maybe I’ll start, and Allison can add to it. I don’t want to — we don’t want to comment specifically on any discussions with any particular wealth platform. But what I can say is that platform fees as a whole, we always look at them as the value of the distribution and the growth that they provide. And I’ll say industry-wide, it’s logical that as continued vehicle shift happens from mutual funds to ETF we’re going to see overall mutual fund platform fees declined. And an element of this shift in some ways is going to go to other product types. But all of that said, any new platform fees. [Technical Difficulty]

Operator: Please continue to standby.

Allison Dukes: Dan, did you catch that on the rest of Andrew’s answer? Or do we need to go over that one again?

Daniel Fannon: It cut out about midway through, I think.

Andrew Schlossberg: All right. Well, Dan, let me start at the beginning a little bit and just make sure everybody caught it I definitely don’t want to comment specifically on any one particular wealth platform. But absolutely, what I can tell you is that we look at the value of distribution and the growth provided. And what I was saying was industry-wide. There’s really been a vehicle shift going on that we’re all familiar with from mutual funds to ETFs. And so essentially, it’s logical that you’re going to see overall mutual fund platform fees decline and an element of that is going to shift to some other product types. What I was also saying is that new platform fees that we would consider are really going to be focused on new assets, not assets that are on the platforms today and that we’re also going to have to account for the composition of the ETF and the relevance of the legacy services that are very much associated with mutual fund sharing that don’t exist in ETFs. And then, of course, the overall cost of ETFs in general.

There’s a lot to look at when this is discussed. But all of this said, to your specific question, we don’t see this having a material impact at all, and we’ll continue to evaluate any changes case by case at the firm levels, at the product positioning levels for outcomes we expect with clients and also long-term economics. Sorry about the technology.

Operator: This question comes from Glenn Schorr with Evercore.

Glenn Schorr: I’m curious if we could drill down a little bit more on your non-U.S. platform. You saw a good growth, you talked about the growth in both Asia and EMEA. But maybe we could drill down on assessing the durability of it by getting you to talk about what changes additions you’ve made on the product lineup and distribution investments that you’re piecing together as we think about growth going forward?

Andrew Schlossberg: Yes. No, thanks for the question. As I mentioned, the non-U.S. profile has just continued to go from strength to strength over several quarters always been a legacy strength of Invesco, but the acceleration has been meaningful over the last few years. I think part of the testament to our strength is that we’ve been in those markets for decades, we never left the markets when there’s been challenges, and that long-standing nature, I think, is really, really critical. We’re also pretty focused on the markets in both Asia and EMEA that we choose to compete in. In Asia, China Japan and Southeast Asia, parts of Greater China are all huge priorities for us, and we’ve made them those priorities. And in a market like India, we chose to enter into a JV through the partial sale that we made last year.

The product development is pretty critical. We continue to innovate. I mentioned some of those innovations in China, but the strength we’re seeing in global equity is innovation we put in place in Japan 5, 6, 7 years ago is starting to pay off the last few years. The distribution is really strong and diverse. It cuts across institutions and private banks. And then in EMEA, same kind of thing. The slower overall growth in the industry and in the economies and parts of Europe and the U.K., we’re not seeing it necessarily flow through into our business meaning we’re taking advantage of some real secular changes that are happening with regulatory reforms in the United Kingdom, more emphasis on retirement in those markets. And so we’re winning really meaningful mandates in parts of fixed income that are very solution-oriented continue to see growth in that ETF platform, where we planted seeds over a decade ago plus.

And also in those markets, the distribution is really strong and really diverse. So they continue to be places where the long-term applications we put in place, coupled with the investments we continue to make there. We believe these markets have outsized growth in terms of asset flow and money and motion for demographic reasons and the regulatory and some societal topics that I mentioned before. We’re really uniquely positioned. And so we’re going to continue to focus there.

Glenn Schorr: Maybe one quickie that kind of goes hand-in-hand with that is I think I saw an article this week on a potential QQQ on the international side. I just got me thinking it was like bottled water, you’re like, well, how didn’t I think of that before? Just curious on where that is in development and how you’re thinking about the rollout and marketing plan.

Andrew Schlossberg: Yes. So we extended the Q lineup last year in Hong Kong, and this year, it’s going to be in Japan. And that’s just one of the innovations that we’re putting forward. I mean, Qs is a very important and asset class and product for us. But also, we’re putting other extensions around the ETF business out in Asia, both last year and this year. So the Qs will be a big flagship in those 2 markets, but it will be the start of even more to come with ETFs in Asia for us.

Allison Dukes: I’ll just underscore the marketing behind that, starting over a year ago has been significant. So getting back to some of the earlier comments, the brand awareness around the QQQ extends far beyond the United States. It’s deep across Europe, but now across Hong Kong and soon to be Japan. And so we put quite a bit of firepower behind that. We feel very good about our competitive positioning there.

Andrew Schlossberg: Yes. I mean we often talk about the QQQ in and of itself, but the broader ecosystem around the QQQ is something like $550 billion of AUM around the world. So that’s what we call our innovation suite, and we’ll continue to look for extensions globally.

Operator: Our next question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein: Just another one around the competitive dynamics in the Qs and also, Andrew, thank you for the color and the background there. I guess the question is less about the back book and more about the forward growth algorithm if competition begins — starts to become more intense. So when it comes to fees, anything you guys would be willing to share and how you would potentially respond if competitors come in at a lower price point? Or you think the product has enough competitive moat around it to sustain the current fee structure?

Andrew Schlossberg: Yes. Just to be super clear, the 8 basis point index licensing fee that we pay for the funds are the same index licensing fee that others will pay. We have a contract around that. So the fee differentials that could get put on these funds, we’ll look at when those funds get launched. But I really want to emphasize what I was saying in the prepared remarks, that the way that ETF owners look at this as sort of a total cost of ownership. And that includes the tightness of the spreads. It includes the liquidity and I think what we’ve learned over time, marginal fee rate differences at the headline level, oftentimes don’t relate to changes of people’s conviction around where to invest. And then I wouldn’t underestimate that at all the 25-year history and the brand recognition that’s had hundreds of millions of dollars invested in it in the last couple of decades, really, we’re synonymous with it.

So of course, we’ll pay attention. And of course, we’ll make sure we remain competitive. But I think some of those extra facts really give us the confidence.

Alexander Blostein: Yes. Totally, that makes sense. I wanted to ask a question about China. Really good growth there. Now for a couple of quarters. Those markets seem to be coming back more and more as you sort of look at your pipeline of additional new products that are out there, what does that look like today? And is there enough there to move the needle on the blended fee rate when it comes to that bucket as well for you guys?

Andrew Schlossberg: Yes. No, thank you. And as we’ve been saying over the last couple of years, because of the growth and the maturity of the platform and because of our leadership, we have a very full product line. But that doesn’t mean that we’re not continuing to innovate. And much of the flow from the last several quarters has come from our existing products, which really wasn’t the feature several years ago. This quarter, just as an example of we’re continuing to innovate we launched 14 new products this quarter, mostly were in ETFs and balanced funds. And those products generated $2.5 billion in flows in the quarter but still 75% of the flows came from our existing product line. Fixed Income Plus has been the key driver.

Remember, that’s kind of like a balanced fund in American terms. And that kind of is a precursor, we think, for people getting — continuing to get more interested in the equity markets. And so as they — and graduate into the equity markets, gain more confidence, these are retail Chinese investors into their domestic market. We have a product line that’s really well set to take advantage of that. But we’ll continue to innovate.

Allison Dukes: And Alex, I would just say, I mean, relative to the fee rates in China and just kind of the range that we see there. As that market continues to evolve and as it continues to be very fixed income and fixed income plus heavy, as Andrew noted, the fee rates of products we launched tend to be probably slightly lower than the range that we disclosed in the presentation as to where the fee rates are running right now. But what I would point you to is the fact that the margins continue to improve there. So as we continue to evolve that market and it matures and the fee rate caps that went in several years ago that you’ll recall it kind of totally washed through. The market becomes more and more mature and the fee rates start to look a lot more like fee rates look around the world as there continues to be real strength and demand for ETFs as an example, as opposed to mutual funds, you see the expected fee rate being a little bit lower than it would for a mutual fund.

So we see fee rates just slightly lower, and it wouldn’t surprise me if that continues to compress a bit over time. But I think our margins, which have been in the high 50s to low 60s, that’s the real — a proof point to look to is to the strength of the overall platform. We have a very scaled business. We’ve got a very hard to replicate business, as we’ve said. And we have the opportunity now to continue to innovate with products across the fee spectrum. And as demand continues to evolve and perhaps as they start to ever move more into equities, which right now, it’s just not a market where the uptake of equities is very high, perhaps you see fee rates move. It’s going to be very much a mix shift kind of story over time, but with really strong margins.

Operator: Our next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell: Maybe just back on the QQQ another angle on this. Can you talk about the institutional usage versus the retail usage. It’s very different dynamics, obviously, and you mentioned, Andrew, the really powerful liquidity that you’ve got in the QQQ product. And I guess what’s the thought around potentially in the future having different price points for institutional versus retail flavors of the QQQ. And on the marketing budget, I think, Allison, the latest guidance was $80 million, something in the midpoint of that $60 million to $100 million range for the marketing budget. Is that still the same? And it sounds like you’re mixing that a little bit more towards international growth in terms of the marketing spend. If you can comment on that.

Andrew Schlossberg: And let me start, and Allison can pick up. With the first part of your question, it’s well owned institutionally, and it will continue to be a focus for us. I mean every single one of our hundreds of Salesforce members carry the QQQ in their bag, so to speak, and they’re going to continue to do so. We think demand in the institutional market is growing both not only here in the U.S. but around the world, and there’s access to it. with people owning it in the U.S. We also have a UCITS version of it where they can own it on that platform. And then some of the things I talked about earlier where we’re listing it into those couple of Asian markets. So there’s plenty of places for institutions to own it. A lot of times, these are not institutional buy-and-hold investors.

These are institutional traders that are using it to take a position. But increasingly, as [indiscernible] comes will be there to participate. In terms of your question on price points, not possible in the ETF space per se, but separate accounts that invest in the QQQ index are things that we have today that could be at different price points for individual institutions. And that’s something we capture and we can continue to capture over time.

Allison Dukes: As it relates to the budget, I mean, yes, I’d say, look, the same guidance that was out there and the proxy that was filed last summer that it’s fully discretionary. We expect marketing to be in the range of $60 million to $100 million, it’s fully in our run rate today. So you’ve got the full marketing run rate not inclusive of the QQQ and the marketing line item for the first quarter. And we expect that to be pretty consistent throughout the year. There may be a little bit of timing differential quarter-to-quarter, but for the most part, that’s pretty much the range that we expect for both the QQQ and our entire marketing budget. I would say in terms of the mix between the United States and the rest of the world, [indiscernible] in the run rate now for a while even when marketing was classified somewhere else, we have been spending quite a bit of marketing money outside of the United States and marketing the QQQ.

And we expect to continue to do so as we see demand. We’ve got the flexibility to choose to market how we want, where we want and what we think is best for the product now, and we feel very good about the opportunities we have from here.

Brian Bedell: That makes sense. And then just one modeling question on the ratio of servicing and distribution fees to average AUM and also third-party distro distribution expense relative to average AUM. It looks like it went down on the servicing additional revenue side went down to about a little less than 6 basis points from 7% in 4Q, and then the expense went up to around 12 basis points from 11 in 4Q. And I suspect this is the dynamics around the QQQ adjustments. But I don’t know if there was anything onetime-ish in those numbers or seasonal in the 1Q numbers? And do you think those ratios that relationship is a good run rate to be modeling for the rest of the year?

Allison Dukes: The relationship I’d point you to is third-party plus distribution fees divided by management fees. That’s your best relationship to look to, given the pass-through nature of some of those third-party and distribution fees. And that one, consistent with the guidance we gave last quarter, we expect to be in the 22% to 23% range with the full impact of the QQQ going forward. So this quarter, it was 22.7% and we expect that relationship of 22% to 23% to hold with the full impact of the QQQ. The one thing I’d point to, just as you see some of the quarter-over-quarter noise and the service and distribution fees is, yes, we had the reclassification and change with QQQ marketing coming out of service and distribution fees and going into marketing also came out of third-party contra revenue.

The other thing to just note in service and distribution fees in the first quarter is you had a little over $11 million reduction that was related to the sale of Intelliflo. So this being the first full quarter without Intelliflo you saw that have a negative impact on service and distribution fees, but also importantly, an even higher magnitude, better impact on expenses. As that was the operating income headwind is now a bit of a tailwind that is fully in the run rate from here. But hopefully, that helps with the relationship on the third party and distribution fees.

Operator: Our next question comes from Bill Katz with TD Cowen.

William Katz: I got disconnected, I think, from the call, so I apologize if some of this was already asked. So just coming back to expenses, Andrew, here a lot of good things around incremental margin outlook, non-U.S. scaling nicely. Seems like all the kerfuffle on the QQQ is not really that bad at the end of the day, the expense guidance you gave today is very good in terms of incremental margin. Can you give us an update on how you’re thinking about maybe the intermediate to longer-term opportunity for margins at this point in time?

Allison Dukes: I’ll take that. I mean, I would say, look, you continue to see the operating leverage that we’re generating quarter after quarter, and we feel very good about the momentum behind that. Just given the work we did last year and the simplification of our portfolio really focusing our efforts on our higher growth, higher profitability aspects of our portfolio, the conversion of the Q. We’ve got a lot of momentum behind that. So we feel like we’ve got the opportunity to continue to generate positive operating leverage. There’ll be some seasonality quarter-to-quarter. You saw a little bit of seasonality as you always do in the first quarter. But absent seasonality, we think there’s pretty significant momentum. We said all along, we needed to get the margin back to the mid-30s on a path to high 30s.

And we feel like we’re starting to see mid-30s here and now we’ve got our sights focused on how do we get back to the high 30s. And we feel good about the momentum behind that. we’re going to continue managing expenses in a really disciplined way. I think I’m glad you found the expense guide helpful today. We know there’s been a lot of noise with the divestitures. We think we’ve got a fairly clean outlook from here. I think it’s really important to note that underneath that, we’re investing in the firm. So it’s not just through the hybrid investment platform, and we’re looking at constant opportunities of where we can invest where we can drive productivity, how we drive efficiency really with an eye towards scale and positive operating leverage.

So it’s a collective effort across our management team, and we think it’s really going to deliver the momentum we need to get the margin back to the high 30s.

Andrew Schlossberg: And maybe just to add to Allison’s comment, I mean, the areas where we’re seeing the greatest growth, and we expect to continue to see the greatest growth, ETFs in China, just as 2 examples. As Allison was noting earlier, these businesses scale well. And we’ll continue to see that growth, I think, translate to strong profit growth.

William Katz: As a follow-up, one of your peers earlier in the quarter sort of described the retail opportunity. So I think the language shifting to now after tax return as a focal point. I think you’ve a little bit mentioned that in some of your commentary. I was wondering wonder if you could expand on that a little bit. And a, how do you sort of see Invesco position as we move from pretax after tax. And b, is there anything in the legislative area or in the tax code that could potentially impair the opportunity to migrate after-tax returns.

Andrew Schlossberg: Yes, we agree.[indiscernible] or tax return focus of individual investors has always been there, but it’s really been heightened. And I think a lot of the tools that are available now to individual investors have increased. And those were the ones I was mentioning earlier, we’re really well positioned to compete in, and those are going to be areas we continue to invest behind to grow. So specifically, ETFs have that feature just built in inherently to be very tax aware and tax efficient we’re a major player, as you know, and we’ll continue to build out the active side of that ETF business. SMAs have been the other way that people have played that. And you’ve seen our growth. We now have nearly a $40 billion platform that’s a major feature of that is tax optimization.

And we’re really winning in fixed income there. And that’s a place that has been smaller historically in the industry. and then model portfolios are taking hold and they’re going to be a way — another way for people to tax optimize. The thing I’d say is this is largely a feature in the United States. And to your question about regulatory changes, nothing that we see specifically on the horizon. But I think the individual investors are are just sort of speaking with their wallets by being hyper focused here, and we think that’s a good thing for Invesco.

Operator: Our next question comes from Ben Budish with Barclays.

Benjamin Budish: Just one for me this morning. I appreciate the sort of clean expense guide, so at risk of upsetting that. I just wanted to ask, you’ve kind of narrowed and trimmed the portfolio a little bit Intelliflo the India JV. Just curious as you look across the business, is there anywhere else that might make sense to trim and continue to focus? Or are you kind of happy with this that you have right now and we can continue to enjoy this cleaner expense guide?

Allison Dukes: The only thing I’ll point back to, and I said it earlier in my comments, just a reminder that our partnership on the Canadian business is set to close at the end of the second quarter, and that’s about $19 billion that was all built into my expense guidance, but that is a part of that, and there’s a modest negative impact to operating income of about $5 million to $10 million per quarter that will improve over time as we grow that sub-advisory revenue. I would say beyond that in terms of our overall portfolio and profile, no, we feel like we’ve actually done a lot of hard work in simplifying where we operate, and we think we’ve got a lot of opportunities to grow from here. So I don’t know that there’s a lot more pruning to be done.

We’re in a lot of the high-growth markets where we want to be, and we’ve got a well-built outset of investment capabilities as we’ve been talking about today. So I think we’re very well positioned to continue to grow from here. And the simplification efforts are going to be continuing to focus on more than anything, just the remixing of our expense base being really disciplined behind that expense base and continuing our efforts around the balance sheet and improving our leverage profile is improving our capital return. I hate to say it’s all [indiscernible] from here, it won’t be. We think what we’re doing is making sure we’re built to operate in any environment and create the momentum and the leverage we need behind that, and we feel good about the efforts that are already underway.

Unknown Analyst: The only thing I’d add, and this maybe takes it back to the beginning of the call, where we really emphasized our strategic focuses in addition to the things. The headline things that we did last year around repositioning the portfolio, divesting and reinvesting we’ve really simplified the company over the last few years, meaning we have 1 fixed income platform now around the world, 1 equities platform around the world, one private markets platform around the world. and really clarify for the organization internally how to operate in a simpler, cleaner way for us to be able to do the things that we did last year. It’s just an example of the benefits from it. So just to echo what Alison was saying, now we can put even more of our focus on growth.

Operator: And that question comes from Craig Siegenthaler of Bank of America. He’s not responding. So we go ahead to Michael Cyprys with Morgan Stanley.

Michael Cyprys: Just a question on AI. I was hoping you could update us on how you’re using AI across the organization today, what use cases have been most impactful so far as well as some of the key learnings you’ve had how you might quantify any of the benefits that you’re seeing? And as you look out over the next couple of years, can you talk to some of the steps that you’re taking to further embed AI throughout the organization and how you’re thinking about the longer-term opportunity set and benefits?

Andrew Schlossberg: Yes, thanks. It’s an important question. We’re really treating AI across the firm as a way to accelerate capabilities that we have today. And it’s really been a focus of augmenting the teams that we have, and we’re applying it in data analysis, things like content creation and of course, creating operational efficiency. One of the main things we’ve been focused on the last year or 2 has been investing in tools for all of our teammates, the 7,500 people that we have around the world, not just investing in the tools but in education and how to apply to process adoption across AI, Gen AI. And it kind of gets then applied to large-scale applications, but also to people’s BAU. We estimate that close to 80% of our employees some way, shape or form are using these tools every day in their business activities.

To your specific question about big use cases, they’re either in use are in development really across the entire company with an emphasis on enabling outputs. And so we’ve got use cases in the investment process. We’ve got use cases around client growth things like investment, research, aggregation, cell signal, adaptation, performance analytics, client communications, all those sorts of things. But we’re really trying to couple that with all the things that our clients expect from us, which is to protect their data, to protect the integrity around it. So we’re moving fast but cautiously, too.

Operator: At this time, I’ll turn the call back over to the speakers.

Michael Cyprys: Okay. Well, thanks, operator. And what I’ll say in closing is that we’re absolutely pleased with the continued strong results this quarter. As we discussed, we advanced several strategically important investment capabilities and vehicles with many reaching record assets under management. We did this with discipline with focus and the benefits of scale, and we’re generating meaningful operating leverage and improving margins. We will continue to stay focused on our highly defined growth strategy with an emphasis on relentless execution, client-focused innovation and teamwork across the firm. So thanks, everyone, for joining the call today, and please do reach out to our Investor Relations team for any additional questions. And we absolutely appreciate your interest in Invesco and look forward to speaking with you all again very soon.

Operator: This concludes today’s conference. We thank you for your participation. At this time, you may disconnect your lines.

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INVESCO LTD

Q1 2026

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