Thank you. An audio question, please press *1. Will be announced prior to asking your question. Please pick up your handset when asking your question. To withdraw your request, you may press *2. And 1 moment please for our first question. Our first question comes from Patrick Davitt with Autonomous Research. Line is open. You may ask your question.

Hey. Good morning, everyone. How are you?

Hey, Patrick.

I will start with the QQQs. Now that we know kind of what the fee rates are gonna be for the competitor products, I guess, would like to get your updated thoughts on firstly, your willingness to adjust the fee for the QQQs and two, to what degree could be an expense offset to that, either from marketing or custody that you can squeeze to offset any revenue? Thank you.

Yes, Patrick. Thanks for the question. Let me start and then Allison can pick up on some of the specifics of the second part of it. I wanna reiterate a couple of things. I mean, we have a 25-year history managing the QQQ. It has a very large and entrenched position. It has a ton of brand recognition. And note that it is the one-of-a-kind QQQ. And it also is part of our ETF innovation suite, which now has $650 billion of assets across a ton of products around the world. The QQQ, recall, has a ton of scale, a ton of liquidity, execution benefits, it is the fifth-largest ETF and the second-most actively traded in the world. So I mentioned all that only to say, investors in our funds spend a lot of time looking at total cost of ownership. And that goes beyond the total expense ratio and choose that. Shareholders have benefited from that and will continue to benefit given the size and scale. What I mean by that is really tight bid-ask spreads, deep on-screen liquidity, a really strong trading base, and $500 billion of notional options. Associated with it. So it has a really strong ecosystem around it that is unique. Also, switching costs are something people look at. And given the low relative tax basis of so many, in the QQQ, those switching costs come with the real economic impact. And then I wanna also mention, you know, that we have our own test case of how these additional products around the QQQs impact things. The QQQM, which we launched about five years ago, stands at about $100 billion today. But it did not slow down the QQQ's significant growth during the period either. Over the last three years, that fund is up 2.5 times terms of its size and it attracted $75 billion of net new flows. Despite having a lower-priced product. Alongside it. And then recently, as I mentioned in my comments, there is significant ownership of the QQQ around the world. Indicative of how quickly we can scale up because of our strong brand. We recently listed in Hong Kong and in Tokyo, and those AUM levels are already at $10 billion combined. You know, so we are really gonna focus on differentiating ourselves on the total cost of ownership, We are really gonna accentuate the deeply rooted QQQ brand which is both recognized here in the U.S. and globally. And we are going to continue to innovate through the suite's leadership in new markets and new channels. Allison, do you wanna pick up on maybe some of the more specific questions?

Sure. Anything pricing related. I would say we are we are gonna focus on long-term client outcomes. We are gonna continue to focus on product differentiation, the ecosystem strength. We are not going to have a short-term competitive reaction. Think we have been in this for a long time. We are going to be in it for a long time, and we are really focused on total client experience as Andrew was discussing. We have got that dominant entrenched position. that is worth a substantial amount. And, all of our marketing spend, as we think about that, is really going to be to continue to focus on how do we focus on promoting that QQQ brand, which arguably is probably the best-known ticker out there. And we are gonna continue to focus our marketing dollars on creating that education and aiding in advisor adoption. it is been incredibly effective. there is hundreds of millions of dollars. if not north of $1 billion. it is already been invested against that brand over the last several decades. And it is gonna be hard to match that level of brand strength and awareness or even match the spend that we have already spent against it. And we have really got the flexibility now to choose where we want to market and where we want to market and where we want to direct that spend and in the manner that we think is best. A lot of our marketing spend right now is dedicated outside of the United States. As Andrew said earlier, we are north of a $10 billion in AUM due to the cross-listing of the QQQ in Japan and in Hong Kong. So we feel very good about the level of marketing spend there. Maybe the last part of your question, I think you mentioned custodian fees and any flexibility there. Look. I would say the custodial fee was with Bank of New York, which is the custodian. We could not have gotten the conversion done. Without Bank of New York's help six months ago. Those are long-term contracts that you enter into, so I do not think there is a lot of room on that right now, but I wanna be, you know, really clear. They have been an unbelievably terrific partner, and we could not have done it without the Bank of New York.

Thank you so much. Very, very helpful and detailed. 1 quick follow-up. On the Superstate win. I think that fund was already managed by a firm that is arguably much more established in liquidity management. So could you expand on how that opportunity came together and why you think Invesco was chosen over the previous manager? Thank you.

Yeah. I mean, we have a $120 billion global liquidity franchise. You will be managing funds for decades. So we do have a lot of strength and capability in the liquidity side. So maybe it starts with that. You know, the second thing is that we have made a commitment to innovate through digital assets and through establishing partnerships. And so having the opportunity to take over that $1 billion tokenized US Treasury fund was important to us. I think because of our commitment to innovation, our long-term experience on the global liquidity side, and frankly, the vast distribution that we have. Around the world institutionally, and the retail space, I think created a nice combination for the two of us. Thanks.

Thank you.

Our next question comes from Bill Katz with TD Cowen. Your line is open. You may ask your question.

Great. Thank you very much for taking the questions this morning. Maybe to pick up on the operating leverage, I think it came in well above most people's expectations. Andrew or Allison, I am sort of curious as you think about either the incremental margin or maybe the longer term margin targets, I was wondering if you could update your thinking for us And I think within that, you mentioned in the deck about opportunity to take out some more savings as you sort of migrate down the Aladdin implementation phase maybe update us where those savings could come from? Thank you.

Sure. I think we have been quite consistent in saying had an objective of returning our operating returns back to the high-30s and for a while there, we were focused on getting back to the mid-30s. Now we are squarely focused on continuing to improve this expansion into the high-30s and building a more durable operating margin just through any cycle. And that is the real challenge, in a business like ours where you have got a high degree of beta and revenue sensitivity to the markets. And that is really, behind a lot of the work we have been doing for several years now in trying to create the flexibility we need in the expense base and continuing to diversify our revenue sources with a better balanced AUM profile. I think we are really starting to demonstrate some of the benefits of that. So I would say near- to medium-term operating margin targets is to continue to expand and consistently deliver in the high-30s. that is the focus. As it relates to operating expense guidance relative to the implementation of the hybrid investment platform. I would say our comments are consistent with the guidance we gave at the end of the first quarter. Our focus is on really trying to deliver on the implementation by the end of this year. The implementation expenses, as we said, were $14 million in the second quarter. We are expecting that to be closer to $15 million consistently for the next couple of quarters. And then we also are continuing with the platform fees that we are paying $5 million that was embedded in the run rate and the second quarter. That should be expanding to about $10 million per quarter in the back half of this year. So against that, there is a lot of work underneath trying to make sure we are managing our expenses really thoughtfully. I think you can see the evidence of that. In the second quarter with the really well-maintained expenses And as we get past implementation, we will continue to focus on driving out further operating expenses consistent with our guidance last quarter into 2027.

And Bill, the only thing I would add is the places where we are seeing organic growth ETFs, SMAs, fixed income at large, cash, These are all categories that scale pretty well. And, you know, we are gonna continue to expect to see growth in those segments.

that is helpful. And this is a follow-up, maybe a different thread. So I think about your incremental thought process now on capital return. You have deleveraged pretty significantly. You are generating a lot of free cash flow. I think you mentioned payout, so combined payout came to 60%. Maybe prioritize how you are thinking about capital return. Are you looking to do more deals now? Are you gotten the balance sheet in a better spot? Is there opportunity to continue to work with MassMutual to bring down the preferred towards zero, which I think the market would like to see? How you are thinking about maybe the use of cash flow, that would be helpful. Thank you.

Sure, Bill. I will take that one also. I mean, I have a fairly consistent approach to capital. Yes. We are continuing to target a 60% payout ratio. We are doing that in an expanding sort of EPS environment. So it is almost a little bit hard to catch up to that. But we are continuing to make forward progress and expanding both our buybacks and the modest increase in the common dividend that we announced last quarter. Feeling pretty good about the return of capital to shareholders and certainly have an intention to continue to improve that towards 60%. At the same time, we still have a little bit more to go on the revolver. So we noted very substantial progress in the first quarter. We would like to continue to work that down just a bit before trying to address more of the preferred. That is, as we have said before, a mutual choice between MassMutual and ourselves and a lot of the conditions and circumstances have to be there, including their willingness and the rate environment and the premium that is required. Those are all negotiated conversations, and we are positioned to do more. At some point in time, I think we said earlier this year, we hope to be in a position by later this year, early next year, and I still feel that is probably the right timing for us. Because what we are making sure we continue to reserve a great deal of capacity for is investing in ourselves. And we are doing that as we continue to launch new products. We continue to see great investment opportunities in our own product capabilities. And I think we have demonstrated the shareholder returns behind that with just the organic growth that we have been delivering consistently for several years since now. That is not at the expense of inorganic opportunities, We are always open-minded and looking at what is out there and always evaluating the landscape. But we evaluate that against our own organic growth opportunity. And heretofore, we have been able to deliver better shareholder returns on our own organic capabilities than anything we have seen from an inorganic perspective. So all things are always on the table for us, and we are always evaluating the opportunity set.

I mean, organically, we think we have generated close to $200 billion of net long-term inflows over the last two years. Additionally, we have kind of had we have I think, an ethos of partnership throughout the company as well, which was long-dated. You know, but we have done the two in private markets. We made changes in India and Canada, as I mentioned. You know, we have divested from our fintechs. So, I mean, we have been active and we are gonna continue to be creative both for organic and different forms of inorganic growth that if it presents itself. Thank you very much.

Thanks.

Thank you. Our next question comes from Glenn Schorr with Evercore. Your line is open. You may ask your question.

Thanks very much. there has been a lot of growth on the tax-aware side of the business. I am curious with your brand, your distribution network, I would think it would suit very well. Maybe talk about your current capabilities and where you think that market can grow and if you can just throw in any thoughts on the recent treasury commentary on a smaller subset of that business, that would be Thanks.

Yeah. I mean, the SMA retail SMA space has grown really rapidly, as you said, industrywide, and we have outpaced that growth. We were up to $40 billion of retail SMA you know, a lot of it tax-oriented, tax-aware As you called it. A lot of that growth for us has come on the fixed income side. And in particular, in the muni space, shorter duration, but getting into a little longer dated So we have a real I think, competitive edge in the fixed income space where I think others had focused almost exclusively on equities. You know, we are also seeing growth on the equity side. Both in systematic equity a little less than the fundamental side. But I think as the pivot goes from mutual funds to other formats, active ETFs, and, you know, actively managed tax-aware SMAs, we think the growth could be considerable. That 40 billion we manage today you know, was half that. three or four years ago. So we have had exceptional growth. And quarter-on-quarter growth. We continue to expect that to be the case. Most of it is coming in the U.S.. I mean, I think there may be some opportunity over time. In other parts beyond the U.S.. But the technology is really good. And so my comments before we will continue to invest in technology probably over people. And be able to scale that business pretty extensively, we think. We have all the investment capabilities inside the house. To be able to do it.

Maybe one on real estate to maybe a lesser degree fixed fundamental fixed income, but you know, during the quarter, we had a a switch in rate expectations and it feels like it is paused a recovery on the real estate side. But so it is not broken out explicitly in on your table. Wonder if you could talk about your thoughts on the real estate backdrop demand for your product and if it can, continue without the help of lower rates. Thanks.

Yes. Thanks. So let me start quickly, and then I will hand it over to Allison. We continue to see demand in the debt side of real estate, credit side of real estate in particular. Our real estate credit fund which I mentioned in my comments, is now up to $6 billion with leverage. Know, it has grown kind of routinely every quarter over the last two or three years, and we have not seen that subside really at all. it is going from strength to strength. I think that is a little bit of a function of some of the demand, but also a lot less supply in that space. On the equity side, you know, I think the fundamentals are a bit mixed. And know, maybe Allison can pick up on a couple of the details around that. But you know, all in all, for the quarter, we saw growth, net flow growth, organic flow growth in our real estate franchise.

Yeah. I mean, I would say more specifically, even where we saw really strong growth was INCREF. And that continues to be one of the fastest ramps in the wealth channel for any of our real estate credit products. So that is in about $6 billion in AUM and continues to be a strong driver of flows I do not know that it do not know that it dampens demand. There is more specifically to your question, but perhaps it does not return us to what we were perhaps experiencing 5, 7, 10 years ago when we were in a zero rate, low rate environment for a very long time. But I think largely, the market's been working through a lot of that. We continue now to see just better demand overall. I mean dry powder for us on the real estate side is around $7 billion. So we do still have a lot of unallocated capital. We are seeing a little pickup in transaction activity overall. And so we are still modestly optimistic even with the rate outlook. Thank you.

Thank you. Thank you. Thank you. Next question comes from Daniel Fannon with Jefferies. Your line is open. You may ask your question.

Thanks. Good morning. So Andrew, was hoping you could expand upon your comments around the QQQ franchise and your outlook for expanding.

And I think you have mentioned some of the stats around Hong Kong and Tokyo. Are there other regions or other things you are looking to do from either a marketing perspective or product launch that, you know, should accelerate and or pick up as the year progresses?

Yes. Sure. Thank you. there are two big cross-listings out in Asia. In the last six to nine months. You know, those are two really big markets for us. So not only were they important launches there, but they just amplify the recognition we already have in those markets, and it is a it is a double benefit. You know, we have I think, 20 to 25 sort of QQQ-related or innovation suite as we call it related products. All over the world. And the bulk majority of those have been you know, in the European region and the U.K. and also here in the U.S. Know, so we will look so selectively, not just from a markets different geography perspective, even inside, you know, where we have dominance here in the U.S. We will we will look to selectively expand it. But I think given that the marketing we have done around the QQQ specifically, now can be much more expansive across that whole innovation suite in the large. And there is just such a halo benefit given that we are, you know, the one and only QQQ. So we are we are probably gonna leverage that more than just product launches, you know, over the over the coming quarters.

Great. Thank you. And then Allison, just as a follow-up on expenses. Given AUM levels or I think you said record highs and some of the guidance you have given us. Was hoping you could update us on some of the ranges for comp ratio that you have given historically, where you think you are tracking in terms of that as well as on the net distribution or net service and distribution ratio?

Sure. Let me let me take the distribution ratio first. You know, I think again, I would continue to point to the best relationship to think about there is third-party expenses plus distribution fees. Divided by management fees. That relationship is really the way we think about how to forecast our own expenses there and the guidance I would give you. That was 22.7% for the second quarter. It was also 22.7% in the first quarter. I think going forward, it is fair to think about that as somewhere in that 22.7% to 23% range, maybe even a little bit closer to 23% going forward. The trend towards that 23% is really due to the product mix shift that we continue to see with growth strong growth in the QQQ, the QQQM, RSP, those products that have lower management fees and drive a little bit of that relationship. So, hopefully, that is helpful as you think about the guidance there. On compensation as a percentage of revenue, we are looking at that for 2026 as likely being largely in that 40% context. And as we are halfway through the year, it is been a very strong first half of the year. We are again, cautiously optimistic on the second half of the year, but we all understand how this industry works. I think 40% is probably the right ratio to assume for 2026.

Great. Thank you.

Thank you. Our next question comes from Brennan Hawken with BMO Capital Markets. Your line is open. You may ask your question.

Good morning, Andrew and Allison. Thanks for taking my question. Just a follow-up on the QQQ. So the net revenue yield came in at 6 basis points better than the prior guidance. Can help us understand the primary factors that drove that delta? And it sounds like your outlook for that is unchanged. You are not planning on making any adjustments. Is that the right read on that, or would you course correct? Thanks.

Yeah. I mean, I would say consistent with the conversation a little bit earlier around fee rate adjustments. That is a longer-term thought process, but we are nowhere near just given all of the real strengths we have already been discussing on that. And so around 6 basis points is definitely in line. With where we were expecting and what we have been guiding to the last couple of quarters when you think about the relationship from the effective fee rate to the custodial fees to the licensing fee to the variable expenses associated with marketing, and that all nets out to about a 6 basis point net revenue yield. And then about 6 basis points to operating margin as well.

Great.

Thanks for that. And then I believe you had said that the end-of-period net revenue yield was 22 basis points. Is that 22.0? And could you maybe help us understand how that compressed so much versus the average?

Sure. It was 22.0 was the exit rate at the end of the quarter, and it is really driven by the strong run in the back half of the quarter and some of those lower-fee products of QQQ, QQQM, RSP. Those are probably the biggest drivers to that net revenue yield. And just given both the flows and the market experience and some of those lower-fee product capabilities, you saw an exit rate of 22.0. at the end of the second quarter.

Great. Thanks for that color.

Thanks, Brennan.

Thank you. Our next question comes from Alexander Blostein with Goldman Sachs. Your line is open. You may ask your question.

Hey. Good morning. Just another one on the QQQs. So I think all the reasons you kinda gave around the value the franchise created over time, the liquidity, the tight bid-ask spreads, all that makes a ton of sense. I think the concern is really in the growth going forward. And really kinda wanna zone in on this question from the perspective of the distribution channels, and how reliant are your gross sales in the QQQs from areas that can have just more sensitivity to the actual management fee being lower, whether it is you know, a fiduciary capacity, advisory capacity, or things like that. So how do you think about that? Because, again, the concern is really probably more in the forward growth opposed to the back book.

Yeah. No. Thanks for the question. Maybe I would point you to a few things. 1, the shareholder base is incredibly broad. And it cuts across you know, every aspect you could imagine. So that is point one. The second I point you back to was in the late summer and fall when we were soliciting all those shareholders to vote. And you can look back at the experience we had at their emphasis on fee sensitivity maybe as a bit of an indicator of their focus. Meaning how difficult it was to get them to vote for a reduction in their own fees. And we learned how broad the shareholder base is through that proxy solicitation. So the bottom line is there is no single type of shareholder here. Got it.

Okay. Understood. Also, now I clean up on expenses for you. You gave all the kinda moving pieces for this year. But as you look out into 2027, it is still a little noisy with integration, and that is likely to roll off. So as you think about that $15 million in, implementation fees, how quickly do you expect that to phase out in 2027? So does that all kinda go away in the first quarter, or is that more gradual? And kinda what is likely to be the pace of that?

I would expect and look. We will give more 2027 guidance as we get a little bit closer to it. But I would expect implementation expenses to start to taper off in the first quarter. But there, it is going to be does not all magically go away on December 31. So there is certainly going to be some implementation that bleeds into the first quarter. Beyond that, implementation expenses should be bleeding off pretty quickly. And then as we have noted before, there is a lot of work then to really think about how do we take advantage of the installation of the system and continue to manage our end-to-end delivery in such a way that we can get even greater operating leverage out of our overall platform, and that is going to be our real focus going into 2027. And of course, that will extend into 2028. As I think about expense guidance more broadly going into next year, look, we are very pleased that we are at 37.5% operating margin this quarter and the signal that sends about our ability to get back into the high-30s and operate in the high-30s. Our focus is going to continue to be on positive operating leverage, how we generate profitable growth and positive operating leverage underneath that.

All right. Thanks so much.

Thank you. Thank you. Our next question comes from Brian Bedell, Deutsche Bank. Your line is open. You may ask your question.

Great. Thanks. Thanks for taking my question. I just do one last cleanup on expenses. I do not know. I am not sure if I missed this, but I think in Q1 you said $3.275 billion was the expense target for 2026, and that was predicated on $2.3 trillion in AUM. So just as the market sort of is trending better and that number goes up, or the AUM goes up, can you just talk about the variable the overall variable component of the expenses that we should be considering to that?

You know, I think the most variable component I would point you to is, again, compensation to revenue.

I mean, compensation is two-thirds of our expense base. As you know, I would point you to that 40% comp to revenue guide there. Rather than a total expense-based guide because I think everything else we have given you kind of pieces together, the parts of that and get you to a relatively consistent relationship and expense guide. That guide we gave was because they are just such a sharp turn in AUM from March 31 to the time of the earnings call at the end of April. We wanted to make sure we cleaned up and gave some relative expectations there. But your biggest variable driver is going to be compensation, and that 40%, I think, is the right relationship as we think about this year.

Yep. Yep. Totally. that is helpful. Thanks. And then just on the long-term equity flows, can you just talk about I think you mentioned the idiosyncratic liquidation. Just sort of the impact for the second quarter as you think about the progress that you are making on the long-term equity side globally. Any chance that you can sort of think about when you might turn positive on the equity flows on a you know, on a on a sort of a stable basis or, you know, I should say, a more repeatable, sustainable basis.

Yes. No. Thanks. it is, look, to state the obvious, improving the flow dynamics for fundamental equities is a major feature for the company. And that is gonna come on the back of improved performance and product quality, of course, but also where market demand is. And I think you know, getting positive flows is a little bit of a function of, you know, does the market environment moderate for active equities? And we have seen that happen in several cases and we have been able to outperform. The idiosyncratic comment is literally a couple of large like, three large institutional mandates you know, that obviously will not be recurring. You know, left this quarter. So look, the goal is to get back into positive flows, but some of the dynamics will be what the market can deliver for us as well in terms of demand.

And I would say just adding on to that, I mean, we definitely see positive flows in certain strategies. We have discussed the Henley Global Equity Income Fund that has been selling very well in Japan, in particular. Flows this quarter were $2.6 billion. Our U.S. Value equity fund range had a second consecutive quarter of net inflows. So where there is good investment performance and there is sort of the secular investor demand, we are capturing it. But that returning to positive flows on a consistent basis is a challenge for the industry, as you well know.

Yeah. I mean, we are focused on other things as well around our active strategies, bringing them into other formats like active ETF. So you know, we are not gonna be relying on the mutual fund structure alone to get us into, hopefully, a positive flow trajectory in the future.

Yep. Totally makes sense. Thank you.

Welcome. Operator, we have time for one more question.

We have a question from Benjamin Budish with Barclays. Your line is open. You may ask your question.

Hey, good morning and thank you for squeezing me in here. Maybe just one final one on the expense side. I think given a lot of color there. Just one on the comp side in particular, I am curious, I know in Q1 you had a couple of seasonal items, I think payroll taxes and there was the acceleration of long-term awards you had called out. How should we be thinking about variable comp going to the back half of the year? It just looks like Q2 stepped up a bit more than we would have expected given those seasonal items in Q1. So curious if there is any incremental color you can share there. The 40% is quite helpful, but just you know, how do we think about that in the context of what the market may do? Thank you.

Sure. I mean, I would just say, from a seasonality standpoint, all things being equal, in any given year, you expect comp to revenue to be higher in the first quarter, a little bit lower in the second quarter and then tends to taper off. And that is all things being equal, of course, depending on where AUM and revenue migrate over the course of the year. A seasonality in that Q1 is associated with payroll taxes, also the way our long-term awards are recognized and the deferrals and that is always gonna create a Q1 hit that is gonna drive that comp-to-revenue ratio a little bit low -- a little bit higher. Excuse me. And then some of that bleeds into the second quarter, and a lot of that is washed out by the back half. Again, I would point you to a full-year guide of that 40%.

Okay. Thank you very much.

Great. Thank you. Thanks, operator. So in closing, we are absolutely pleased with the continued strong results this quarter. We advanced several strategically important investment capabilities in vehicles with many reaching record AUM levels. With disciplined focus on the benefits of scale, we are generating meaningful operating leverage and we are improving margins. And we will continue to stay focused on our highly defined growth strategy with an emphasis on the relentless execution, client-focused innovation, and teamwork we have been exhibiting across our firm. Thanks to everybody for joining the call today. And as always, please reach out to our Investor Relations team for any additional questions and we appreciate your interest in Invesco. And we look forward to speaking with you all again soon. Thank you.

This concludes today's conference. We thank you for your participation. At this time, you may disconnect your line.