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Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Welcome to the Dominion Energy, Inc. First Quarter 2026 Earnings Conference Call. At this time, each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. I would now like to turn the call over to David McFarland, Senior Vice President, Investor Relations and Treasurer. David McFarland: Good morning, and thank you for joining Dominion Energy, Inc.’s First Quarter 2026 Earnings Call. Earnings materials, including today's prepared remarks, contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, for a discussion of factors that may cause results to differ from management's estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate, are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review the webcast slides as well as the earnings release kit. Joining today's call are Robert M. Blue, Chair, President and Chief Executive Officer; Steven D. Ridge, Executive Vice President and Chief Financial Officer; and other members of senior management. I will now turn the call over to Steven. Steven D. Ridge: Good morning, everyone. Since the conclusion of the business review over two years ago, we have remained steadfastly focused on three top priorities. First, consistent achievement of our financial commitments. Second, continued achievement of major construction milestones for the Coastal Virginia Offshore Wind (CVOW) project. And third, constructive achievement of regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to benefit both customers and shareholders. As we will discuss today, we continue to demonstrate success against these priorities as we build our track record of high-quality and consistent execution. Turning to first quarter results, as shown on slide 3, we are off to a strong start to the year with first quarter operating earnings of $0.95 per share. First quarter GAAP results were $0.69 per share. As a reminder, a summary of all adjustments between operating and GAAP results is included in Schedule II of the earnings release kit. We are affirming all financial guidance provided on our fourth quarter earnings call including operating earnings, credit, dividend, and long-term growth guidance. We continue to guide to annual earnings growth at the midpoint of our 5% to 7% range with a bias, starting in 2028, toward the upper half of the range. Our confidence in that outlook reflects disciplined financial management, attractive business fundamentals, and the strength of our growing regulated investment profile. First and foremost, this is about our customers and meeting their needs affordably and reliably. We are monitoring catalysts that could enhance and/or extend our long-term growth rate. We continue to see incremental opportunities to deploy regulated capital on behalf of customers, most recently supported by legislation in Virginia to expand grid-scale energy storage targets. House Bill 895 and Senate Bill 448, which are now signed into law, require that we petition for 20 gigawatts of short- and long-term storage projects by 2045, a significant increase from the current requirement of 3 gigawatts by 2035. We will reflect this new multiyear opportunity, as well as other regulated investment opportunities, in our capital update early next year. And as Bob will discuss in his prepared remarks, we expect increasing clarity later this year around the opportunity to recontract Millstone. Turning to data centers on slide 4, we now have over 50 gigawatts of data center capacity in various stages of contracting, including approximately 10.4 gigawatts of capacity contracted under electrical service agreements. Since our last update, we continue to see accelerating and durable demand from our differentiated, high-quality, low-risk data center customers. Large load provisions ensure those customers will fund the infrastructure required for their growth, protecting existing customers from cost shifts and mitigating stranded cost risk. Quickly on the financing plan and credit. Year to date, we have issued approximately $1.2 billion of common under the ATM, leaving $400 million to $600 million for the remainder of the year, consistent with our Q4 call guidance. As mentioned previously, there is no change to our credit-related targets. Full-year 2025 and Q1 LTM FFO-to-debt metrics are both above 15%, demonstrating our commitment to credit strength. And we continue to derisk CVOW as we achieve major milestones such as first power in March. In closing, we are off to a good start to the year, aligned with our guidance and capital plan, and confident in our ability to execute. Our financial plan strikes the right balance of appropriately conservative, but not unreasonably so. With that, I will turn the call over to Bob. Robert M. Blue: Thank you, Steven. I will begin with safety on slide 5. Our employee OSHA injury recordable rate for the first quarter of the year was 0.42, which remains well below the industry average. Safety is our first core value, and we are continuing our efforts to drive to zero workplace injuries. I will start our business updates with the Coastal Virginia Offshore Wind project on slide 6. The project is now over 75% complete, and as Steven mentioned, in March, we achieved a very significant milestone with the delivery of much-needed power to customers. General fabrication and installation continue to proceed very well. We have now completed installation of all 176 transition pieces that connect the monopile foundations to the turbine towers. All three substations are installed, and commissioning is proceeding as planned. Deepwater export cables are installed, and inter-array cable installation is on track. All of the remaining cabling is now fabricated, and the majority has landed in Virginia. And we are making excellent progress on turbine fabrication. Over 86% of towers, approximately 69% of nacelles, and about 45% of blades have been fabricated. This progress tracks well relative to our schedule. With regard to wind turbine generators, we are seeing materially positive improvements in the installation cadence as shown on slide 7. We affirm our previously communicated timeline for project completion, with the majority of turbines expected to be placed in service by 2026, and the remainder in early 2027 prior to June. As of this morning, we have completed nine turbines. During the first quarter, we successfully calibrated our procedures and equipment and navigated winter weather. Since then, we have been able to ramp the installation rate markedly, including averaging approximately two days per installation for our last four turbines, which supports our existing timeline for project completion. We continue to see paths to optimize the process resulting in improved installation times. In addition, we are moving into better weather windows for the next several months. Please note the current project budget includes turbine installation schedule contingency for weather delays through July 2027 as needed, including Charybdis charter costs. I will also reiterate our general rule of thumb: if the project extends beyond July 2027, we estimate that each additional quarter to complete turbine installation would add between $150 million and $200 million to the project cost, a portion of which would be allocated to our financing partner. We will continue to include data from additional installation iterations in our quarterly updates. As shown on slide 8, the project budget now stands at $11.4 billion, which is approximately $100 million lower than our last update. We have updated the budget to reflect changes in tariffs as a result of recent judicial and administrative actions. Unused contingency stands at $123 million. Looking forward on project costs, we are monitoring the potential of two recent events. First, certain regional transmission projects were captured in both the PJM transition cycle, which resulted in network upgrade costs allocated to CVOW, and the subsequent broader RTEP award package. As a result, we would expect the overall network upgrade cost allocated by the PJM transition cycle across all generation queue projects, including CVOW, to be reassessed and reduced. Second, recently updated steel and aluminum tariffs, which are pending additional information from suppliers and guidance from the applicable agencies. As shown on slide 9, the project's cost sharing and risk sharing continue to work as intended to protect customers and shareholders with no change to either levelized cost or customer bill impacts. CVOW remains one of the most affordable sources of energy for our customers. Our updated analysis indicates that the project is expected to generate fuel savings of approximately $5 billion for customers during the project's first ten years of operations. Taking a step back, an all-of-the-above approach to energy supply, including CVOW, is critical to ensuring continued reliability amidst real-time growing demand in our service areas. Building new energy generation is a core competency of ours, as demonstrated in recent years with our successful development of thousands of megawatts of renewable generation, as well as combined-cycle plants in Greensville, Brunswick, and Warren County. We continue to advance the development of new generation capacity consistent with our update last quarter. In addition to producing much-needed energy for our customers, these projects will be an economic benefit for Virginia, generating thousands of new jobs, billions of dollars of economic investment, and meaningful local tax revenue. Turning to slide 10, I will reiterate that we view customer affordability as central to our public service obligation, and accordingly, we have a long record of maintaining competitive rates, which continue to compare favorably to the national average. Even while executing one of the largest regulated investment programs in the sector, we expect our customer bills will continue to grow at rates comparable to inflation over the long term, demonstrating disciplined capital deployment and our regulatory construct working as intended. We recognize, though, that customers are feeling the pressure of higher costs for housing, groceries, and other essentials including their electric bill. We have a number of programs designed to help our customers manage their bills, including budget billing, energy savings programs, and financial assistance programs such as EnergyShare. Late last year, we also launched a new online platform to put all our programs in one place so customers can more easily find the best options to meet their needs. In addition to providing tools to help manage payments, we are also working to ensure fair and reasonable rates. For instance, the commission approved our recently proposed large load provisions in the 2025 biennial to ensure that our smaller customers are not at risk of subsidizing our largest customer classes nor be left with stranded costs. We also plan to pursue fuel securitization in Virginia for unrecovered fuel costs to minimize the rate impact on customers. We work continuously to improve the efficiency of our operations while meeting high customer service standards and reliability needs. In recent years, we have driven out costs through improved processes, innovative use of technology, and other best practice initiatives. On the technology front, we are focused on implementing technology initiatives that accelerate our mission, and we have recently deployed a range of AI tools. For example, in our contact center, AI enables clear visibility into customer needs at scale and real-time insight into customer sentiment, allowing us to respond with greater precision and efficiency. Looking ahead, we are intently focused on ensuring our service is not just reliable, but that it remains affordable as well. Now I will turn to other business updates as shown on slide 11. In South Carolina, DESC’s electric rate case continues to progress. Staff and other intervenors filed their testimony on March 31. We filed our rebuttal testimony on April 21 and expect surrebuttal testimony on May 5, consistent with the procedural schedule. Hearings are scheduled for mid-May, and we expect a decision in late June with rates effective in July. Yesterday, we filed an electric rate case application and testimony for Dominion Energy North Carolina to support the approximately $400 million investment placed in service by the company attributed to North Carolina since the 2024 rate case and ensure that we can continue to provide safe, reliable, and cost-effective service to our North Carolina customers. We expect a decision in February 2027 with interim rates effective December 2026, subject to true-up and finalization in March 2027. Recall, DENC represents about 4% of the company's investment base. Finally, on Millstone, I will start by noting Governor Lamont's comments last week highlighting the hundreds of millions of dollars that the current Millstone contract has saved customers, which is now resulting in a material customer bill reduction in Connecticut. In March, the facility submitted its bid in the Connecticut Department of Energy and Environmental Protection's zero-carbon energy request for proposals. Per DEEP's published schedule, solicitation decisions are expected in the second quarter, with negotiations with the local state utilities to begin in the third quarter. Contracts will be submitted to the Connecticut Public Utilities Regulatory Authority for approval thereafter, the timeline for which is up to 180 days. In addition to state-sponsored procurement, we continue to evaluate the prospect of supporting incremental data center activity as well. We remain focused on achieving a constructive outcome for the facility, and we will continue to provide updates as things develop. With that, let me summarize our remarks on slide 12 by reiterating where Steven began the call: with a focus on our top three priorities—consistently achieving our financial commitments, continued on-time achievement of major construction milestones for the Coastal Virginia Offshore Wind project, and achieving constructive regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to deliver results that benefit both customers and shareholders. We are 100% focused on execution. We remain committed to delivering reliable, affordable, and increasingly clean power for our customers. With that, we are ready to take your questions. Operator: We will now open the call for questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone now. Our first question comes from Nick Campanella with Barclays. Your line is open. Nicholas Joseph Campanella: Hey. Good morning. Thanks for taking my questions. Steven D. Ridge: Good morning, Nick. Nicholas Joseph Campanella: So I just wanted to ask on the HPE 896 that you brought up on the battery side. Can you just talk about what is embedded in the plan currently for battery storage, what your recovery mechanisms would be for this new opportunity, and then when you think about supply chain, labor, the company's own balance sheet capacity, what does that enable in terms of a gigawatt installation run rate? And what could we expect here if you have any thoughts? Thanks. Steven D. Ridge: Yeah, Nick. Great question. So the $65 billion five-year capital plan, which we produced as part of the Q4 call in February, already includes about $2 billion, or about 3%, related to battery storage, subject to regulatory approval. And what the recent legislation means for us is that, in order to achieve the updated targets, we are going to need to work diligently to accelerate the ramp of that capital. Things to watch going forward: there is going to be a State Corporation Commission technical conference this year on the topic; we will, of course, update our IRP in the fall to reflect our most recent thinking on the ramping of the battery storage; and then we will update our capital plan in line with our normal cadence on the fourth quarter call. General rule of thumb, a gigawatt overnight installed, including transmission, network upgrades, etc., we put into the $2.5 billion to $3 billion per gigawatt range. Obviously, the increase to 20, which includes short and long term, represents a meaningful opportunity over a long period of time. So we are excited about the opportunity. We already are working on the pipeline for this. As mentioned, with the $2 billion in the plan, this gives us an opportunity to potentially accelerate that. We will provide those updates and would recommend folks pay attention to those public data points that will happen later this year. Nicholas Joseph Campanella: Okay. Looking forward to it. And then maybe just moving to CVOW, two questions there. I just wanted to clarify, the PJM upgrade costs—are they included or not in the figures you are putting out there today, or is that still downward pressure? And then how are you thinking about the potential 232 steel tariffs? Thanks. Steven D. Ridge: Yeah, Nick. Another really good question. Today's mark does not reflect the potential for certain transmission costs that were allocated to CVOW being potentially reallocated, and Bob mentioned the process whereby that occurs and why that might occur. So that would be something to watch as we move forward into the year. And then on tariffs, we are also taking a mark on that, which is we are awaiting some additional interpretive guidance from the agencies. We are evaluating with our partners, many of whom are the importer of record, to completely finalize that. We estimate that has the potential to be in the approximately $200 million range, which, as I mentioned, would have the potential of being offset by some of the reallocation of transmission costs. We do not have exact precision on how those two will balance; they seem to be generally in the same area. Those are the two things to watch going forward. Thank you. Operator: We will take our next question from Shar Pourreza with Wells Fargo. Your line is open. Shahriar Pourreza: Hey, guys. Good morning. Robert M. Blue: Morning. Shahriar Pourreza: So just real quick on Millstone. Obviously, you highlighted Governor Lamont recently touted the savings generated for ratepayers by Millstone. How much headroom do you have to recontract at higher prices? Maybe just elaborate a little bit further on the alternative paths you may have outside of the DEEP process. This is obviously something we are all monitoring given the affordability rhetoric and Connecticut necessarily has not been very open to data centers. Are we talking about a virtual deal here? Thanks. Robert M. Blue: Hey, Shar. First of all, it is great that we can talk about Millstone with you again. You are right, we are very pleased with the Governor's comments. Commissioner Dykes also talked about the value of the existing PPA. Just as a reminder, we are currently contracted for a little more than half through August 2029. The process at Millstone today in Connecticut would be for procurement after the expiration of the existing PPA. There is not, in that process, a limit on how much could be potentially contracted with the state. As we have talked about in the past, other states in New England have also expressed an interest, and we are certainly happy to work with them as well, because they recognize the value of Millstone the same way that we do. As to data centers, we continue to have some interest from data centers to contract there, but I want to reiterate what we have said in the past, which is our view is any outcome there needs to have the support of stakeholders in Connecticut. We think that is the smart way to pursue it. What is in front of us right now is this RFP, and we will continue working on that. Shahriar Pourreza: Got it. Appreciate it. Thanks for that, Bob. I have been waiting years for you to answer my question. And then just on nuclear, on the topic, obviously Dominion in the past has really focused on SMRs, but there seems to be momentum building from a consortium of utilities looking to build new AP1000s with some cost inflation protections from the off-takers being the hyperscalers and maybe some backstop from the U.S. government. Would you be willing to participate in this consortium and an AP1000? What are the puts and takes on SMRs versus the AP1000s? You do have an early site permit with North Anna. Just curious there. Thanks. Robert M. Blue: Yeah, Shar, we do have an early site permit at North Anna, and we have also been exploring SMRs. Stepping back, as we have talked about before, we are in a very pro-nuclear state in Virginia—I think arguably the most nuclear-friendly state in the U.S.—and you can see that from the support of the Governor. Both Senators Kaine and Warner have expressed support for nuclear. The General Assembly a couple of years ago passed legislation allowing us to recover some costs for nuclear project development. We filed with the SCC and got an approval for that. We have a lot of the nuclear supply chain here, the nuclear Navy here, and the units at Surry and North Anna. As we think about nuclear development in any sense, we are going to continue to be guided by three principles that are resolute: first, any structure has to address first-of-a-kind risk—so if we are talking about SMRs, we need to address that; second, it has to address cost overrun risk so that our customers and our shareholders are not bearing that burden; and third, we need to protect our balance sheet and our business profile. We will continue to investigate and explore alternatives on the nuclear front, but we are going to be guided by those principles, and we will continue to work with policymakers. Shahriar Pourreza: Got it. Appreciate it, guys. Fantastic results. See you in a few days. Operator: We will move next to Paul Zimbardo with Jefferies. Your line is open. Paul Zimbardo: Hi. Good morning, team. Thanks for having me on. Robert M. Blue: Morning, Paul. Paul Zimbardo: Thank you. First, on PJM—obviously, you have a unique position in PJM—just thoughts on the backstop procurement, the auction feature, and if there are any ways that you can accelerate generation or spread the cost more broadly across PJM? Overall thoughts on that process? Robert M. Blue: Yeah, Paul, thanks for that question. We support PJM's effort to develop a backstop auction or process to get additional capacity for load-serving entities that are not developing generation or lack a state-regulated framework to do that. We are different—we are vertically integrated—so it does not change our existing process. We do not expect a change to our plan. We have an integrated resource plan that is designed to meet policy goals in Virginia and the incredible demand growth that we are experiencing, and that includes, as you know, incremental generation. It is also important to note the difference between the DOM Zone, which we serve as a transmission operator, and our load-serving entity that we serve from a generation standpoint. We will take a look at the process that PJM ultimately finalizes, but the plan that we have is through our state-regulated utility, vertically integrated, and we are going to need to build generation to serve load in Virginia regardless of the outcome of the PJM process. Paul Zimbardo: Very clear. And then if I could follow up on the battery bill, the successful one there. Any way to frame the cadence of that? Should we think about the megawatt deployment target as ratable or more back-end loaded or front-end loaded? Any shaping would be useful. Steven D. Ridge: Yeah, Paul. We probably do not have great guidance on how to model exactly what that cadence will look like. We will take steps to start accelerating that spend, which we recover via a rider mechanism in Virginia, as quickly as we possibly can. So I think there will be some upward bias in our five-year capital plan associated with that. Then in the 2030s, you will likely see a higher run rate associated with that. I would say stay tuned for the IRP because that will show where the model selects those installations coming in. Operator: We will move next to Steve DeBrissey with RBC Capital Markets. Your line is open. Steve DeBrissey: Hey, Bob and Steven. Thanks very much for taking my questions. Just had a quick one. You talked about—we have talked about the battery storage—but you added on slide 3 the line monitoring catalysts that could enhance or extend the growth rate. Can you talk a little bit about what that means and what the buckets are? Presumably, it is storage, Millstone, potentially an acceleration of data center activity, but which of those could either drive an enhancement or an extension, and how are you thinking about adding that language to the slides? Steven D. Ridge: Thanks, Steve. I am glad you noticed that language. It was pretty deliberate. As we mentioned in the script, first and foremost, our growth is about meeting our customers' needs quickly, affordably, and reliably. We feel like we have positioned the company to be ideally situated to meet accelerating needs across generation, transmission, and distribution. That is why fortressing our balance sheet as part of the business review was so critical as we saw the need for incremental capital coming. You have seen this trend reflected in our most recent Q4 call update. The most recent was an increase of 30% over the five-year plan, and the one before that was about 15% higher than the prior. We continue to see opportunities to deploy regulated capital to serve our customers, and the battery storage legislation is just an example of that, but it definitely expands beyond that across other forms of generation, transmission opportunities, and broadly distribution. Certainly, battery storage is a potential catalyst. More generally, regulated capital across other applications is a catalyst that we see in the potential five-plus-year plan. And you correctly ascertained Millstone, which we view as a potential for another win-win for customers. We will be in a position to share more on that later this year. We feel like we have been appropriately conservative in our plan around Millstone, and to the extent that we are successful in finding a win-win for customers, that would have the dual benefit of continuing to hedge that exposure for Connecticut customers—much like the first contract has done—and also potentially recognize the increased value across nuclear capacity in the United States. Steve DeBrissey: Great. That is helpful. And then on the Millstone point, I think previously we have the very visible DEEP process. Can you talk about potential interest from surrounding states and if there are any formal processes, and if you would be willing to contract more than the 50% that you have done historically? Robert M. Blue: Yeah. The answer to the second question is yes, we would be willing to contract more than the 55%. Other states do not have a formal process in place the way Connecticut does, but we have certainly been talking to them, and they have expressed interest. Operator: Next question from Misty Galois Crowdell with Mizuho. Your line is open. Anthony Crowdell: Hey, thanks for taking my questions. Just a couple here. On the CVOW installation cadence, you are averaging about two days per turbine on recent installations. What gives you confidence this pace is sustainable as you move through the project? Robert M. Blue: Great question, Anthony. Let us take a step back for a second. We have been building projects on time and on budget for a long time—whether it is Cove or the combined cycles we built in 2010 or big transmission projects. Building infrastructure well is one of our strengths. For CVOW, we got first power to the grid in March, which was in line with the original timeline. That was a big milestone. As for turbine installations, we noted upfront we have been able to ramp installation productivity meaningfully. If you think about some of the other parts of this project—transition pieces or monopiles—when we started off, those were modest. I think we did four monopiles in May 2024, the first month we were doing those; we did something like 13 transition pieces in January 2025, which was the first month we did those. Then by the time you got to the end, we were doing 21 monopiles in a month and 38 transition pieces. So a really dramatic improvement as we went along. We are seeing that same dynamic playing out here where we start with a measure-twice-cut-once approach that we have learned in doing big projects over the years. That rate is accelerating. We have a lot of opportunities to optimize that process more. We also started in the winter—the worst weather months. Now that we are in the summer, that will give us more opportunities to refine our process and improve cadence. Taking all that together—the productivity progression and improving weather windows—that is what gives us confidence in hitting the timeline. Most important, three things: one, it is the fastest source of new power for our customers; two, it is the most affordable option; and three, we have great confidence in our financial plan to be durable and resilient as we work through construction. Anthony Crowdell: Great. And if I could just throw in a follow-up on the balance sheet. I believe the target is above 15%. As the CVOW construction winds down, I think rate base investment accelerates. Are there any key risks that you would highlight to maintaining above the 15%? Steven D. Ridge: No, Anthony. We put out a financing plan as part of the Q4 call that is 100% supportive of maintaining that cushion, which we think is adequate in order to safeguard from unintended headwinds that we may face. I am really pleased with where the balance sheet is as a result of the business review. As I mentioned earlier, pleased with where we printed in 2025 over 15% and LTM above that as well. Take everything together, and we are in great shape on the balance sheet. We are already at that cushion level. It is not a situation where we are ramping over time to get there. Operator: We will move next to Richard Sunderland with Truist Securities. Your line is open. Richard Sunderland: Hey. Good morning. Thanks for the time today. Circling back to that slide 3 commentary and the addition at the bottom—appreciate the buckets and what are some of the pieces there—and you have already expressed a bias on the growth rate. But thinking more about how these opportunities aggregate, is it still about working in the range of that 5% to 7% growth, or do you see the potential for structurally higher growth over time? Steven D. Ridge: That is a very clever question, Rich. I think we have said it exactly as we want to say it, which is our plan is appropriately conservative—not unreasonably so—but we are focused on building a track record of successful high-quality execution quarter after quarter, year after year, with the strength of the balance sheet. We feel very well positioned with the tailwinds we have to be in a position to monitor catalysts that will enhance or extend our long-term growth rate range. Richard Sunderland: Very clear. Thank you. And then, on the battery side, I am curious on the long-duration component. How do you think you might address that? Any thoughts on technology and timing? Any opportunity there around long duration in the next five to ten years, or is that more going to be in the out years? Robert M. Blue: A little early on giving specificity on that. We have a couple of pilots on longer-duration storage underway right now evaluating technologies. As a result of this legislation, we will continue to ramp that up, explore more opportunities with more vendors, but we are not in a position to identify specifics on that today. Operator: We will move next to Carly Davenport with Goldman Sachs. Your line is open. Carly S. Davenport: Hey, good morning. Thank you for taking my questions. I just had a quick follow-up on Anthony’s question on the cadence of the turbine installation. I know you mentioned the pace has picked up as you have honed best practices. Should we think about that two days per turbine as the target, or are there identifiable items that could get you toward maybe that day to day-and-a-half range that has been quoted for some other projects? Robert M. Blue: We are always interested in getting that number down, and we will continue to push for that. The main message is the really impressive improvement that the team has made each time with the pace they have been able to install. There is obviously a limit on that curve, but we are going to continue to push our way down that curve. We will update on installation cadence on every call and will have an opportunity to talk about the ways that we have improved. I expect we are going to continue, like we did with monopiles and transition pieces, to get the pace faster as we go along. Carly S. Davenport: Got it. That is super helpful. Thank you. And then just on the data center pipeline, I know you are uniquely positioned in PJM. Are you seeing any shifts in terms of the cadence of load development or progression through your pipeline due to some of the broader uncertainty on the constructs in PJM governing pricing of capacity and cost allocation? Robert M. Blue: No. We continue to see incredibly strong demand for new data centers in Virginia. We noted in our prepared remarks we have added commitments in all stages of contracting since December. That interest has not waned at all in recent months. So, short answer is no detectable change. Operator: And one moment. I would now like to turn the call to Bob Blue for closing remarks. Robert M. Blue: Thanks, everyone, for taking the time to join the call today. Please enjoy the rest of your day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron Corporation's first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron Corporation. Please go ahead. Unknown Speaker: Thank you, Katie. Welcome to Chevron Corporation's first quarter 2026 Earnings Conference Call and Webcast. I am the Head of Investor Relations. Our Chairman and CEO, Michael K. Wirth, and CFO, Eimear P. Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron Corporation's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on slide two. With that, I will now turn it over to Michael K. Wirth. Michael K. Wirth: Thank you, and welcome to your new role. This quarter, Chevron Corporation delivered solid performance driven by disciplined execution and a resilient portfolio. Despite market volatility and heightened geopolitical tensions, our people remain focused on safely delivering the reliable energy the world needs. Our approach remains consistent. Maintain capital and cost discipline, generate strong cash flow, and deliver superior shareholder returns. Chevron Corporation’s fundamentals are strong. We have a world-class portfolio of upstream assets with peer-leading cash margins, and we are carrying strong momentum into the second quarter, with U.S. production over 2 million barrels of oil equivalent per day, Gorgon and Wheatstone LNG running at full rates, 1 million barrels of oil equivalent per day, and U.S. refineries operating at record crude throughput. The unique combination of Chevron Corporation’s industry-leading refining complexity and our diverse waterborne equity crudes from TCO, Guyana, the Permian, Venezuela, and Argentina creates opportunities for value capture through integration. Our high-quality upstream and downstream portfolios delivered significant integration benefits during the quarter. We maintained strong supply into tight markets and maximized margins across products, including fuel oil, sulfur, and other secondary products which saw significant price dislocations. We continue to optimize flows across our value chains to maintain high utilization and reliable supply into the market. In the second quarter, we expect global equity crude throughput to more than double year over year to 40%. In Asia, we anticipate over 80% refinery utilization. Moving to Venezuela, we continue to leverage our deep expertise and long-standing position to create an option for the future. Two weeks ago, we announced an asset swap with PDVSA. The agreement increases our position in the Orinoco. Ayacucho 8 expands our contiguous acreage position with PetroPR, offering operating and development synergies along with long-term growth potential and optionality. PetroIndependencia is a joint venture we have been in for more than 15 years, where we have increased our equity stake to 49%. Current operations are running smoothly. We are still in debt recovery mode and expect Venezuela to continue to represent 1% to 2% of cash flow from operations. This transaction is expected to improve resource depth and integration upside, supporting potential growth into the future. Now over to Eimear P. Bonner to discuss the financials. Eimear P. Bonner: Thanks, Mike. For the first quarter, Chevron Corporation reported earnings of $2.2 billion, or $1.11 per share. Adjusted earnings were $2.8 billion, or $1.41 per share. Included in the quarter was a $360 million charge related to a legal reserve. Foreign currency effects decreased earnings by $223 million. Organic CapEx was $3.9 billion in the quarter, consistent with historical CapEx trends of lighter spending in the first half of the year. Inorganic CapEx was approximately $200 million. We expect to finish within full-year capital guidance. Adjusted first-quarter earnings were $440 million lower than last quarter. Adjusted Upstream earnings increased due to higher realizations, lower DD&A, and favorable OpEx and tax impacts. Adjusted Downstream earnings decreased primarily due to unfavorable timing effects, which were partly offset by higher refining margins. Unfavorable timing effects totaled around $3 billion for the quarter, reflecting a steep rise in commodity prices in March. The effect was evenly split between inventory valuation and mark-to-market accounting on paper derivative positions linked to physical cargoes. We anticipate approximately $1 billion of the paper positions to unwind in the second quarter, with the majority of related cargoes delivered in April. Looking forward, we would expect additional timing effects when prices are rising, and further unwinds when prices are falling. Chevron Corporation generated cash flow from operations, excluding working capital, of $7.1 billion in the quarter. This includes unfavorable impacts from special items and timing effects totaling approximately $3 billion. Adjusted free cash flow was $4.1 billion for the quarter and included a $1 billion loan repayment from TCO. Share repurchases were $2.5 billion, in line with guidance. Working capital was impacted by sharp commodity price increases as well as a build in inventory. Consistent with historical trends, we expect an increase in working capital in the first half of the year and a release in the second half, the extent of which will be primarily driven by prices. Over the period, more than $5 billion in commercial paper was issued to manage liquidity and general business needs. About half has already been paid down in April, and we expect these short-term balances to decline further throughout the second quarter. First-quarter 2026 oil-equivalent production increased by approximately 500 thousand barrels per day compared to 2025. This reflects the integration of legacy Hess assets in addition to continued organic growth across the portfolio. The conflict in the Middle East had a limited impact on production in the quarter, with less than 5% of our portfolio located in the region. In the Partitioned Zone, we are operating at near minimum rates to manage storage. In the Eastern Mediterranean, both Tamar and Leviathan are operating at full capacity. During the quarter, we continued to execute key expansion projects, completing the offshore scope for both the Tamar optimization project and the Leviathan third gathering line. Let me close by reinforcing that despite changes in the external environment, we are executing our plan with discipline, consistent with our long-standing financial priorities. This disciplined approach gives us resilience during periods of volatility, and the ability to invest and return cash to shareholders through the cycle, all while ensuring we maintain a balance sheet built for the long term. Chevron Corporation’s business is strong, and our 2026 guidance is unchanged. Capital spending and production outlooks are consistent with previous guidance, and we are on track to deliver our $3 billion to $4 billion structural cost reduction target by year end. This consistency underpins our 2030 targets shared November 9, including over 10% growth in adjusted free cash flow and earnings per share and 3% improvement in ROCE, all at $70 Brent. These are not aspirational goals. They are grounded in assets that are operating today, a more efficient organizational model, and continued capital discipline. I will now hand it back. Unknown Speaker: That concludes our prepared remarks. Thank you, Mike and Eimear. As a reminder, additional guidance can be found in the appendix of the presentation, as well as in the slides and other information that is posted on chevron.com. We will now open the call for questions. We ask that you please limit yourself to one question, and we will do our best to get all of your questions answered. Katie, please open the lines. Operator: If your question has been answered or you wish to remove yourself from the queue, please press 2. If you are listening on a speakerphone, please lift your handset before asking your question to provide optimum sound quality. Again, if you have a question, please press 1 on your touch-tone telephone. Our first question comes from Neil Singhvi Mehta with Goldman Sachs. Neil Singhvi Mehta: Janine, you know, Mike, I would love your perspective on the current conflict in the Middle East and if you could share how you think about this in the context of your four-decade history in oil and gas and how significant of a moment this is. What do you think the long-term implications are of the current conflict? And I know at the Analyst Day in November, we talked about a flat nominal $70 Brent as a mid-cycle planning assumption, but does this event change the way you think about mid-cycle pricing? Michael K. Wirth: Thank you, Neil. This is clearly a very significant disruption to the global energy system. It is a scenario that we have thought about and included in some of our planning exercises for many, many years. It is early to have firm conclusions about how the energy system will change in the long term. I do think there will be changes, but we have to see how things play out over the coming weeks, hopefully not longer than that, as this comes to some sort of a resolution and the energy system begins to be reconstituted and reach some new equilibrium. I think that new equilibrium will look different than what we have known before, but I could not argue with a lot of confidence that I could describe exactly what that looks like. One thing you can expect from us is consistency. You will see capital and cost discipline no matter what. You will see us invest in highly competitive assets with scale and longevity, no matter what—assets that are low on the cost curve. You are going to see us invest to drive strong returns and free cash flow, and maintain a strong balance sheet so we can create predictable and growing shareholder distributions. We have great visibility through 2030. Eimear just reiterated our guidance, and we have assets online now that deliver predictable, visible cash flow growth for the balance of this decade, and we have a full hopper for beyond that. The things that Eimear talked about—consistency, discipline, the strength of our portfolio operating today—are all characteristics that will underpin our strategy going forward. As we see how this is resolved and what the energy system begins to look like post-conflict, if we want to fine tune that at all, we will come back and talk to you about it. It is early for anything concrete other than to reiterate the things that in my 44 years have stood us in good stead through unexpected events and cycles. Thank you. Operator: Thank you. We will take our next question from Arun Jayaram with JPMorgan. Arun Jayaram: Mike and Eimear, it feels like one of the key themes from the print is the opportunity for Chevron Corporation to optimize margins from the refining system as well as your increased exposure to waterborne crudes post the Hess merger. I am looking at slide four and wondering if you could help us think about the value-capture opportunities and maybe the experience in 1Q. How should we think about this integration favorably impacting your go-forward earnings power? Michael K. Wirth: Thanks, Arun. As part of the organizational changes we made last year, we set up a global enterprise optimization team. They have the remit across all of the upstream and downstream to be sure that we are getting maximum value out of the entire set of assets, and we are integrating where it makes sense. They did a really nice job in the last quarter of keeping our system operating at high degrees of utilization and capturing good margins through volatility. Our portfolio provides options to move things around in times like this. Our refineries in Asia are all in various types of ventures. We expect those to run over 40% Chevron Corporation equity crude in the second quarter, much higher than under normal market conditions, and probably much higher than we will see in some of the other refining assets in that region, because we have the ability to direct equity flows to those refineries at a time when access to crude is very important and very difficult. In the U.S., we are operating over 50% equity crude throughput, some refineries much higher than that. We used the Jones Act waiver to move crudes from the Gulf Coast around to the West Coast. In Asia, in the first quarter, we ran CPC Blend, Mars, and WTI, all in our GS Caltex refinery in South Korea. For reference, when I used to run our downstream business, we were about 15% equity crude into our refining system and 85% crudes from the market. As I said, we expect to be over 40% in Asia, north of 50% and much higher at some refineries in the U.S. That is a significant change from our history. At a time when margins are likely to move back and forth across the value chain, whether in the upstream or the downstream, we are going to be able to capture those with a much higher degree of confidence. Importantly, in a world that is getting very tight on products, we are going to keep our assets very full and be able to provide significant supply into markets that dearly need it. We are not going to quantify the value that we are capturing, but I think you will see it flow through in the numbers. It is meaningful and continuing already into the second quarter and likely beyond. Thank you. Operator: Thank you. We will take our next question from Devin J. McDermott with Morgan Stanley. Devin J. McDermott: Good morning. Thanks for taking my question. Eimear, in your prepared remarks, you highlighted Chevron Corporation’s long-standing and consistent financial priorities. I wanted to build on that a bit and get your latest thinking on capital allocation at higher prices and the balance between shareholder returns, building cash, and growth. You left the buyback range unchanged quarter over quarter, which makes a lot of sense. On the growth spending side, what would you need to see to shift spending, maybe add some capital in the Permian and move away from the plateau back toward growth in that asset? Eimear P. Bonner: Thanks, Devin. It comes back to staying consistent with our four financial priorities and being really disciplined through volatility. Today, we are not changing any of our capital allocation framework. We are not changing ranges, and we are happy with where we are. To recap: first, growing the dividend. This year, we grew it for the 39th consecutive year. Second, investing in the business in the most capital-efficient way. Our budget is $18 billion to $19 billion for the year, and we are on track. Our capital performance is really strong. With that capital, we are going to grow 7% to 10% production this year, so we are reconfirming that growth. Third, the balance sheet. It is in great health and will get stronger with higher cash generation. Fourth, the buyback, staying within the $2.5 billion to $3 billion per quarter range. With only eight weeks into the conflict, as Mike said, it is too early to have a different view on the fundamental outlook around price or to see whether it is structurally changing. When it comes to capital allocation, we are comfortable with where we are, and we are staying consistent and disciplined. Thanks, Devin. Operator: Thank you. We will take our next question from Doug Leggate with Wolfe Research. Doug Leggate: Thank you. Good morning, everyone. Mike and Eimear, I wonder if I could follow up on Devin’s question and ask for a little bit more color around two specific assets. You had some changes in Venezuela, Mike. My understanding is that has been essentially recycling cash flow to maintain the business and pay down legacy debt. Are you at a point now where the fiscal terms have changed, the security situation is different, and you would be prepared to incrementally put more capital to work? I would ask the same question of the Permian, where you had a growth story, then stabilized it. In both areas, there might be a call for incremental oil production longer term, and you are in a strong position to deploy capital if you did. So it is a capital increase question, but specific to those two assets. Michael K. Wirth: Doug, number one, we are operating now, as I mentioned in my prepared remarks, with TCO greater than 1 million barrels a day, the Permian solidly above 1 million barrels a day, the Australian LNG facilities running at full capacity, and the Gulf of Mexico. The big pistons in the engine are firing, and as we come into the second quarter, we have tremendous momentum across the system. Production in the second quarter is expected to be higher than in the first. Eimear reiterated 7% to 10% production growth guidance for the year. We have strong growth in the business right now, and we have a portfolio that presents options. As Eimear said, it is early into this conflict to be making big changes. We do not know how things will be resolved. You could build a scenario where things get resolved quickly, the strait reopens, and we get back into a market that is well supplied. You can build another scenario where this goes on, the market is tighter, and it looks different on the other side. We are not going to make rash or immediate changes to a system that is running at a high degree of capital and operating efficiency today. It is really important to stay focused on reliability and safety at a time like this. Specific to Venezuela, your understanding is right. We are still recycling cash flow. We still have debt to recover. We are recovering at a faster rate in this kind of price environment, and there are indicators of positive developments in the country, but there are still questions. Fiscal terms are not clear. There are ranges they have indicated for taxes and royalties. There are still things that need to be addressed relative to dispute resolution, etc. We will continue to operate in the mode we are in now, which has yielded some growth over the past couple of years and in fact this year. We need to see further progress before we would put more capital to work. We have a lot of resource there and could grow it. In the Permian, we are running to deliver strong free cash flow right now. We could accelerate and begin to grow it again, but I do not know what the future looks like. The value we are seeing in improved asset reliability and reduced loss production to downtime is very real, and we get that because we are so focused on it. A quick shift to more production growth might dilute that focus. We will update you over time if our view changes. For now, it is steady as she goes. Operator: We will take our next question from Stephen I. Richardson with Evercore. Stephen I. Richardson: Thank you. Mike, I was wondering if you could talk a little bit about the exclusivity agreement with Microsoft on the power projects. You have been at this for a while with a different type of counterparty in a different industry. Could you update us on time to clarity on contracts, FID, and those items? Michael K. Wirth: It has been reported—and we have confirmed—that we are in exclusive discussions with Microsoft right now. We are very pleased to be in those discussions with such a high-quality customer. It is a company we know well. They have been a partner of ours for a long time, our primary cloud provider, and a key technology provider to us for many years. We have a deep and very good relationship. The project we are advancing in West Texas is progressing well. We have submitted an air permit. We have secured not only the large turbines that we have talked about before, but also small block generation that is useful in early scale-up and for reliability. We have selected an EPC who is doing engineering work. We have agreed with a water provider, etc. We are advancing the project with a lot of pace, and we are beginning to take delivery on turbines this year. Subject to definitive agreements—which we are negotiating—we will move towards FID later this year. We expect to deliver a project with speed and scale that is differentiated. We will remain disciplined on returns. The negotiations thus far look like we can find a place to meet where Microsoft’s expectations on power prices and our expectations on return on investment can both be satisfied. We will likely have more to say on the next call. Operator: Thank you. We will take our next question from Biraj Borkhataria with Royal Bank of Canada. Biraj Borkhataria: Thanks for taking my question. I wanted to follow up on Venezuela. The situation is evolving quite quickly. At the start of the year, comments from the U.S. administration were essentially around all the companies not looking backwards at the receivables balance and looking forward. More recently, you and some of your peers have been talking about the potential to get some of that paid back. How should we think about a reasonable timeframe to assume you get your couple-billion-dollar receivables balance back? Michael K. Wirth: Biraj, we came into the year with, in round numbers, something close to $1.5 billion in a receivable. The rate at which that gets paid down is a function of price, and we are receiving it faster this year than last year. I think we will still carry some sort of balance as we get to the end of this year, but much lower than where we are at present. I think that would probably be fully paid off at some point in 2027. Subsequently, we would update you on the model for cash distributions going forward. By the time we get to 2027, some of the open questions I referred to—tax, royalty, contract terms, etc.—are likely to be clarified, and we will be able to give more guidance on potential capital investment. In any scenario, we remain the advantaged incumbent with people on the ground, operations, supply chains, and contract resources that put us in a very good position to be a big player there, presuming we see further progress. Operator: Thank you. We will take our next question from Sam Margolin with Wells Fargo. Sam Margolin: Good morning. Thank you for taking the question. In the near term, there are extraordinary things happening. Localized shortages could start to become an issue in some of the places that you operate. Chevron Corporation is exposed to these kinds of idiosyncratic market and volatility events, not just in operations but also in the way you manage the supply chain. In the context of the timing effect in 1Q and the derivatives exposure, has anything changed, or are you adjusting your operating posture within this highly volatile environment? Michael K. Wirth: Sam, it is an unusual environment. We have experience working in unusual environments. In 2020, we saw the inverse with the collapse of demand and excess supply. In 2022, we saw a version of this when the conflict in Ukraine began. We have a playbook to deal with these things. You work on optimizing supply into these markets, look at financial exposures and counterparty circumstances, and manage risks. The timing effects that were reported are the kinds of things you expect in a market like this and the kinds of things we have seen before. There was a big run-up in crude over the course of the quarter. Things that normally do not really appear relative to derivatives become very evident in a market like that. In a market that goes the other way, you see those effects reverse. I would not overreact to anything in our numbers. We are very focused on supply in the markets. In Asia, where there are clearly near-term stresses, we are working to keep our refineries running at what I would argue is the highest degree of utilization out there because we can direct crude into those refineries. We can take crudes that would normally go into our U.S. refineries—we have good substitutions—and move other crudes we have access to into Asia. We are very sensitive to trying to maintain supply into tight markets and to implications for customers and counterparties. It is a dynamic situation, but we have an organization that is very experienced in managing through these unpredictable and dynamic markets, and I am very confident we can manage those exposures well. Operator: Thank you. We will take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning, Mike and Eimear. Thank you for taking my question. I want to ask about TCO. In your prepared remarks, you mentioned that TCO is producing above 1 million BOE per day, so that is above nameplate capacity and coming back from disruptions in 1Q. Can you speak to where that asset is performing, what is driving that outperformance, and maybe the debottlenecking opportunities? While on this topic, could you give us an update on the renegotiation contract conversations? Michael K. Wirth: Sure, Betty. TCO returned to full service in March following repairs on the electrical system in February, and there were some adverse weather dynamics in the Black Sea in early March. We have two out of the three single-point moorings available at CPC, with the third one later this year. With two, we can handle full flow on the pipeline. The pipeline is running full. The plant is running full. We have done a lot of maintenance work over this last period, and we expect the plant to be near full availability for the remainder of this year. You mentioned the debottlenecking work we did late in 2025. We have that running in its new configuration. Early performance has been very encouraging. We do not have enough run time yet to give specific guidance. We need more operational data, but you can expect an update on the next call. At times like this, when the market signals are to run assets as strongly as possible, that is what is happening at TCO. We continue to see the benefits of a centralized control center optimizing all the different generations of processing capability and finding white space to squeeze more production through those assets. It is a very complex optimization, and we have new tools to do that in ways we never had before. On the concession, we are making good progress in the discussions. We are working closely with all partners in the venture and the Republic. Technical and commercial teams have been established, and all partners and government representatives are actively participating. This has ensured we keep everyone aligned and proceeding on the same path. It is moving along, and at some point later this year, we will give you an update. This is a venture creating enormous value for all stakeholders—partners and the Republic—over the last 33 years. We are looking for a solution that will continue that history. Final point on TCO overall: our guidance of $6 billion in free cash flow this year at $70 Brent is unchanged, and that accounts for the operational issues in the first quarter and what we are seeing today. At higher prices, we will see stronger than that. Thanks, Betty. Operator: We will take our next question from Lucas Oliver Herrmann with BNP Paribas. Lucas Oliver Herrmann: Thanks very much. Touching on the LNG business briefly, the market is tighter. How much flex do you have across your portfolio to take advantage of arbitrage or other opportunities that may be emerging, and how much production is not effectively committed? Michael K. Wirth: Thanks, Lucas. We ended last year with an LNG portfolio of about 16 million tons per year, the majority out of Australia. We have 40 Tcf of resource and access to strong and growing demand in Asia. Globally, our portfolio is about 80% long-term oil-linked contracts and about 20% exposed to the spot market. We like that over time. Coming into this year, with expectations for length in the LNG market, people would have said that is a good place to be. When spot prices get very strong, you would like to have more spot, but we have to look our way through cycles. Our oil-linked contracts have a lag, so they do not show a lot of the current market environment in the first quarter. You can expect in subsequent quarters that you will see that flow through into pricing on about 80% of our volume. The 20% sold under spot contracts is seeing the kinds of prices you have observed. We just sold our first U.S.-based cargo, and that will grow by 2030 to another 4 million tons per annum, taking us up to 20. That cargo was sold into Europe on spot-based prices. Our portfolio is running very strongly—Wheatstone and Gorgon at full rates, same in West Africa. We are seeing the benefits of this, with the proportions as described. Operator: Thank you. We will take our next question from Manav Gupta with UBS. Manav Gupta: Good morning. I wanted to shift to chemicals. Globally, we are seeing naphtha crackers run dry because there is not enough naphtha. Your portfolio is very U.S.-centric, with a bit in Korea at GS Caltex, but mostly capacity is in the U.S. We are hearing pushes for a $0.20 per pound polyethylene price hike. We ended fourth quarter at record low historic margins, but February could be over mid-cycle. Can you talk about that and how you benefit? Michael K. Wirth: Sure, Manav. Our exposure to petrochemicals is primarily through Chevron Phillips Chemical, and also some through GS Caltex in Korea. CPChem is tilted toward ethane-based cracking in North America and some in the Middle East. GS Caltex’s liquids cracking is derived from its own refining flows and is not reliant upon naphtha supply out of the Middle East. We have seen strong price moves, particularly in the olefins chain, which is where most of our exposure is. Those price moves are predominantly here in the second quarter, so you do not see much of that in the first quarter. Chain margins have significantly improved from very low levels last year to what now are likely better-than mid-cycle chain margins. For assets up and running in parts of the world where you are cracking advantaged feedstock—certainly North America ethane fits—you should see pretty good margin capture in those businesses. Operator: We will take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi, good morning. I wanted your latest thoughts on the Bakken—whether initiatives to lower costs have given you more conviction that it is core in your portfolio, and whether higher oil prices have increased interest from others in owning that asset. Michael K. Wirth: The Bakken assets have been running well. We have said you should expect to see a couple of hundred thousand barrels a day production there at a plateau. First quarter was a little bit below that, primarily due to weather effects. We brought down the rig count, running three rigs now versus four previously. We are drilling longer laterals, and we think we can sustain production that way, fully utilize existing infrastructure, and drive strong free cash flow. We are applying best practices from our portfolio and bringing in some from Hess, like we did from Noble and PDC. This is a more liquids-weighted position in shale, and with strong liquids pricing, it performs very well. We have had interest from others since we announced and closed the deal. We want more operating data and to really understand the asset. We underestimated the quality of the DJ when we acquired Noble; thankfully, we did not sell it quickly. Here, we want to fully appreciate the value we have in the Bakken. For example, we are testing advanced chemicals to improve recovery in the Bakken—things we have been doing in the Permian and DJ. Early response looks good. To the extent we can improve recovery and value on that asset and do some things that are not available to others, we should be able to drive more value than a buyer potentially could. It is performing very well. We are in no hurry to do anything other than improve it. In due course, like every asset, we ask how it fits for the long term, but it is premature to ask that today. Operator: Thank you. We will take our next question from James West with Melius Research. James West: Good morning, Mike and Eimear. I wanted to dig in on your Eastern Mediterranean assets. Given the conflict near that region, those assets are much more valuable at this point. As we think about Leviathan, Tamar, which you operate, and Aphrodite, which you are involved in, how are you thinking about those assets going forward, given the need for natural gas in the region for energy security and other reasons? Michael K. Wirth: Broadly, I agree. We have liked these assets from the start. That is why we are investing in expanding production at both Tamar and Leviathan, making good progress on those projects, with some ramp-up this year of another 600 million cubic feet per day of production on a 100% basis, and a longer-term expansion of Leviathan underway—we took FID in January and are excited about that. We have begun FEED work at Aphrodite. This is high-quality, clean, biogenic gas. Demand in the region continues to grow. Supply reliability everywhere is a priority. The markets we are feeding are growing, and the quality of the resource is very high. The quality of the assets—credit to Noble—continues to impress us as we look at expansions and the way they were engineered and designed. We view the Eastern Med as an area with growth potential. We have exploration activity there. Think of it as a big gas hub with a lot discovered and more to be discovered. We are pleased with our position and you can expect us to continue with exploration and development opportunities over time. Operator: We will take our next question from Bob Brackett with Bernstein Research. Bob Brackett: Good morning. You mentioned that Chevron Corporation has a playbook to deal with supply shocks. Governments also dust off playbooks during supply shocks. What policies are helpful during a supply shock, and which are perhaps unhelpful? Michael K. Wirth: You are right, Bob. There are policies that are helpful in responding to a circumstance like this, and those that are not. Broadly, we have a supply challenge in the world, so policies that encourage, enable, and facilitate the ease of supply are helpful. Examples: releases of strategic reserves put oil into the market that would not otherwise be there. In the U.S., the waiver of the Jones Act allows ships that otherwise could not trade to move supplies from where they exist to where they are needed. Relaxing specifications can enable movement of products that are needed and otherwise could not be moved. Another example is the use of the Defense Production Act to enable some offshore California production to come into service and get into the market. We are working with the operator of that asset to get it to our El Segundo refinery to meet local needs. California is where the supply pinch is being felt first and most acutely, and it has flowed through to the street. A number of actions have been taken that are very positive in creating supply and flexibility in the system. Actions that can be unhelpful are price caps, which distort signals to use energy efficiently and can discourage the creation of supplies, even if well intended. Export bans can constrain supplies that would otherwise flow to where they are needed and make the situation worse. Taxes on profits generated during periods like this historically do not generate as much revenue as advertised and can send unhelpful signals about future investments, slowing the supply response in the medium term and creating future vulnerabilities. We are engaged with governments around the world to encourage policies that help respond to the situation and to caution about those that may not help. A company like ours, with a large, diverse portfolio, is not overly exposed to a potential bad policy decision in any particular market because of our broad footprint. Thanks, Bob. Operator: We will take our next question from Phillip J. Jungwirth with BMO. Phillip J. Jungwirth: Thanks. A lot is going on in the world right now, but I wanted to ask about U.S. climate litigation because that has been an overhang. We might get some clarity with the Supreme Court taking up the issue with the Colorado case. How much do you think this could settle the question around state versus federal jurisdiction and advance the climate debate in the U.S.? Michael K. Wirth: We are not a party to that litigation, Phil, so I cannot comment too specifically. We are party to another case that was just heard by the Supreme Court and concluded that a case that had been heard in state court really should be removed to federal court. The principles are somewhat analogous. This is a matter for federal courts to decide in our view. In fact, it is truly a matter for elected officials to decide and establish climate policies that appropriately reflect public sentiment and national interests. Cities, counties, and states are not the appropriate places for climate policy to be established nor for climate issues to be subject to litigation. We are hopeful that the case that makes it to the Supreme Court provides some clarity at the federal court level. We have seen mixed views come out. This is a matter that would benefit from clarity from the highest court in the land. Thanks, Phil. Operator: We will take our next question from Nitin Kumar with Mizuho. Nitin Kumar: Back in November, you gave us an update on your exploration program setting up the company beyond 2030, including potential options in new countries. Given the events in the last eight weeks, any change to the pecking order of those priorities or anything you are prosecuting faster to get oil to market? Michael K. Wirth: No, it really has not changed. Exploration is a longer-cycle activity. We have a diverse portfolio; that is valuable in current circumstances. We have some opportunities in the Middle East region, but we also have a number of opportunities outside the Middle East that we are highly interested in. The world needs energy supply long into the future, so we need to continue to look for resource around the world. We are pleased with the portfolio we have built and with new talent that has joined the company. We have a different model for making decisions now and are using new technologies to improve both cycle time and success rates. You can expect those things to continue. We have increased our financial commitment to exploration as well. This is a discussion over the next number of years. If we are not changing activity levels in the Permian in response to the last few weeks of disruption—a place where you do have shorter-term levers—then something like exploration, which is longer cycle, does not get affected by this in the short term. Thank you. Operator: We will take our next question from Jason Daniel Gabelman with TD Cowen. Jason Daniel Gabelman: Thanks for taking my question. You have guided to your equity affiliate distributions being at about 70% of the full-year guide by the end of 2Q. I am assuming some of that is related to higher oil price. Is the relationship between equity distributions and oil price linear? Do you have a rule of thumb to help the market think about the potential upside as a result of what we are seeing? Eimear P. Bonner: Yes, Jason. As Mike talked about, we are coming into the second quarter with very strong momentum in our affiliates—starting with TCO back at full rates and testing the upside of capacity. CPChem is also contributing, and Angola LNG is full. Those are examples of tailwinds and strong momentum. That is why we were able to increase our affiliate distribution guidance today. It is over $2 billion more relative to the first quarter because of the confidence we have in performance. Another thing I would mention is TCO has already changed its distribution schedule and is now giving us dividends monthly. We already have the first in the bank in April. Those actions, coupled with operational momentum, are why the guidance is raised. The guidance is at $60 Brent, so there is a lot of upside depending on how prices unfold. Thanks for the question. Operator: Thank you. We will take our final question from Geoff Jay with Danielle Energy Partners. Geoff Jay: Hi, everyone. A follow-up to Bob Brackett’s question about California specifically. There has been a lot written about its reliance on imports and its low inventory levels. As an operator of refineries in the state, have there been other relief valves? Has the Jones Act helped? Have there been other operational changes to ensure that market is adequately supplied? Michael K. Wirth: You referred to a couple, and I will as well. The ability to bring new production offshore from Platform Hidalgo (Sable field) onshore and make sure that is getting into the California market—California oil through a California pipeline to a California refinery to California customers—was not happening just a few months ago. Same thing with the Jones Act. We can bring crude oil or products from the Gulf Coast that are needed in California. There are special specifications you have to hit, so maybe blend stocks come around. We are very sensitive to our customers in California and the circumstances there. You are well aware of what California’s policies have delivered to the state, which is an oil industry in decline—upstream production and refining—where we have seen a couple of refineries shut down this year. That has constrained supply capability. At a time when the world is feeling these constraints, California is reliant upon supplies from other parts of the world which may be needed to keep their own economies going. It is a real dilemma for the state. We are doing everything we can to meet our supply obligations there, but it does point out the vulnerabilities that have been created in California as a result of decades of poor energy policy. Okay, Katie. It sounds like that was the last person in the queue. Is that correct? Operator: That is correct. No additional questions in queue at this time. Unknown Speaker: I would like to thank everyone for your time today. We appreciate your interest in Chevron Corporation and your participation on today’s call. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron Corporation's first quarter 2026 earnings conference call. You may now disconnect.
Operator: Greetings, and welcome to the Civeo Corporation First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Anyone requiring operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead. Regan Nielsen: Thank you, and welcome to Civeo Corporation’s first quarter 2026 Earnings Conference Call. Today, our call will be led by Bradley J. Dodson, Civeo Corporation’s President and Chief Executive Officer, and E. Collin Gerry, Civeo Corporation’s Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. These forward-looking statements speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these statements except as required by law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q, and other SEC filings. I will now turn the call over to Bradley. Bradley J. Dodson: Thank you, Regan, and thank you all for joining us today on our first quarter 2026 earnings call. I will start with some key takeaways for the quarter and summarize our consolidated and regional performance. After that, Collin will provide further financial and segment-level detail, and I will conclude our prepared remarks with our outlook for 2026. We will then open the call for questions. There are four key takeaways from the call today. First, we delivered a strong start to 2026, outperforming our expectations. For the quarter, consolidated revenue was up 20% and adjusted EBITDA was up 78%. Revenue growth was driven by a mixture of improved occupancy across the Canadian assets in both the oil sands and LNG markets, continued growth in our Australian Integrated Services business, contributions from acquired villages in Australia, and improvements in our mobile camp fleet utilization. We also benefited from foreign currency improvements. This was all complemented by strong incremental margins in Canada as a result of the cost reduction initiatives that we took last year. The second key takeaway is we continue to execute on our disciplined and balanced capital allocation strategy, returning capital to shareholders while enhancing Civeo Corporation’s financial flexibility. Third, we remain confident in the revenue trajectory of the business as a whole and are raising the lower end of our revenue guidance. The midpoint of the revised guidance implies 8% revenue growth for the year. Our confidence stems from continued momentum in the Australian Integrated Services platform and an increasingly robust bid pipeline from North America asset and service deployment. As of today, we are actively bidding on projects with total contract values in excess of $1.5 billion, which is the strongest we have seen to date. While much of this growth is dependent on customers reaching final investment decisions, which is outside of our control, we are excited about the opportunities that these present for later in 2026 and going into 2027. The last key point: the cost impacts of the ongoing conflict in Iran and associated dislocations with global energy and raw materials trade will likely have an impact on our margins. Australia is highly dependent on normalized global seaborne energy trade for diesel and other fuels. As a result of this and the potential associated impact on inflation, energy prices, and the impacts of those variables on our customers’ activity, we are anticipating temporary inflationary impacts to our adjusted EBITDA. Thus, we are maintaining our initial guidance of $85 million to $90 million of adjusted EBITDA for 2026. I will start with some operational results for the quarter. On a consolidated basis, our first quarter results reflect strong year-over-year growth, with revenues increasing 20% and adjusted EBITDA increasing 78% compared to the prior-year period. In Australia, performance was strong for the first quarter, supported by the full quarter contribution from the villages we acquired in May 2025, as well as continued revenue growth in our integrated services. In Canada, we delivered strong year-over-year improvement with higher occupancy across key lodges and meaningful margin expansion. Importantly, this reflects both improved activity levels and the continued benefit of structural cost improvements we implemented last year. From a macro perspective, our operating environment remains dynamic. Commodity prices, including oil and metallurgical coal, have been volatile, and customer spending remains disciplined in both Australia and Canada. We are focused, therefore, on maintaining our flexibility as conditions continue to evolve. In Australia, met coal prices are currently in the $230 per ton range, which is up approximately 25% from the second half of last year. Last quarter, we were optimistic that healthy commodity prices would drive higher occupancy in our villages in 2026. However, the ongoing disruption to global supply chains as a result of the war in the Middle East has likely shifted the timing of any such uplift into 2027. On the oil side, prices are undoubtedly higher. Activity levels have not changed, as our customers’ planning requires much longer-term perspectives in terms of improved oil prices to adjust their activity levels. Said differently, there is too much uncertainty in the oil market for our customers to change spending plans at this time, and as such, cost discipline remains their priority. From a timing perspective, we will likely see a deferral of turnaround activity in Canada from what normally occurs in the second quarter into later in this year. Turning to capital allocation. During the quarter, we repurchased approximately 500,000 shares, representing approximately 4% of Civeo Corporation’s shares outstanding at year-end 2025. We have now completed approximately 96% of our current authorization and remain committed to completing it as soon as practical. As a reminder, upon the completion of this current authorization, we have an additional authorization in place for repurchase of up to 10% of the company’s outstanding shares. We amended and extended our credit agreement also during April, increasing the company’s total revolving capacity and extending the maturity of our bank agreement to April 2030. This further enhances Civeo Corporation’s liquidity and provides additional flexibility as we evaluate capital deployment opportunities going forward. Stepping back, before I turn it over to Collin, I want to reiterate my tremendous confidence in Civeo Corporation’s future. The bid pipeline in North America is robust, with levels of inbound inquiries for beds and services that I have not seen since the oil sands days of the early 2000s. Like then, this demand is highly project dependent, meaning dependent on positive final investment decisions. However, unlike the 2015 to 2020 time frame when North America growth almost exclusively depended on one major LNG project, this time it is especially exciting given the variety and volume of different projects. While we recognize growth will not be linear, we are confident in our ability to weather the changes as they arise, just as we are navigating today’s energy dislocation. I am confident that our values of service, quality, and excellence coupled with our world-class asset base and asset availability position Civeo Corporation well for the opportunities ahead. What we do best is take care of people. If the industry demand materializes to even a fraction of what is outstanding today, there will be a lot more people for us to take care of. This is an exciting time for Civeo Corporation. We are more confident than ever in our actions, positioning, and prospects for growth and value creation. With that, I will turn it over to Tom. E. Collin Gerry: Thank you, Bradley. Thank you all for joining us this morning. Turning to the income statement, today we reported total revenues for the first quarter of $172.7 million compared to $144 million in 2025, an increase of approximately 20%. Net loss for the quarter was $3.8 million, or $0.34 per diluted share, compared to a net loss of $9.8 million, or $0.72 per diluted share, in the prior-year period. During the quarter, we generated adjusted EBITDA of $22.5 million compared to $12.7 million in 2025, an increase of 78%. Operating cash flow in the quarter was negative $9.7 million, primarily reflecting expected seasonal working capital outflows in the first quarter. The year-over-year increase in revenue was primarily driven by higher activity levels in both Australia and Canada, including the contribution from the villages we acquired in May 2025 in Australia and higher occupancy across key lodges in Canada. The year-over-year increase in adjusted EBITDA was primarily driven by higher occupancy and improved margins in Canada, as well as increased contributions from the Australian villages acquired in May 2025. Looking at Australia specifically, first quarter revenues were $123 million, up 19% from $103.6 million in the prior-year quarter. Adjusted EBITDA was $21.8 million compared to $19 million in the prior-year period. The increase in revenues was primarily driven by the contribution from the villages acquired in May 2025 as well as continued growth in our integrated services business. These gains were partially offset by modest softness in portions of the legacy owned village portfolio. The increase in adjusted EBITDA was primarily driven by the contribution from the acquired villages, partially offset by modest softness in portions of the legacy owned village portfolio. Australian billed rooms in the quarter were approximately 676,000 compared to approximately 626,000 in 2025. Our daily room rate for Australian owned villages was $83 compared to $75 in the prior-year period, with the increase primarily reflecting the strengthening of the Australian dollar relative to the U.S. dollar. Turning to Canada. First quarter revenues were $49.6 million compared to $40.4 million in 2025. Adjusted EBITDA was $5.2 million compared to negative $0.8 million in the prior-year period. The year-over-year improvement was driven by higher occupancy across key lodges, as well as the continued benefits of cost reductions implemented during 2025. Canadian billed rooms totaled approximately 434,000 compared to approximately 359,000 in the prior-year quarter. Our daily room rate was $99 compared to $93 in the prior-year period. Now I will turn to our capital structure. As of 03/31/2026, total liquidity was approximately $68 million. Total debt was $215 million and net debt was $199 million, resulting in a net leverage ratio of approximately 2.2 times. As Bradley mentioned, during the quarter, we amended and extended our credit group, increasing total revolving capacity to $285 million and extending the maturity to April 2030. This enhances our liquidity profile and provides additional flexibility to support both shareholder returns and potential high-return growth investments. Turning to capital allocation. Capital expenditures for the quarter were $4.1 million compared to $5.3 million in the prior-year period and were primarily related to maintenance. During the quarter, we repurchased approximately 500,000 shares at an average price of $28.06, or approximately $14.4 million. We will continue to take a disciplined and opportunistic approach to capital allocation, balancing shareholder returns with maintaining flexibility to support the business. As we think about the market in front of us today, we are seeing opportunities to deploy capital at attractive returns and will prioritize preserving dry powder to pursue those while maintaining a strong balance sheet and a balanced approach to shareholder returns. With that, I will turn it back over to Bradley. Bradley J. Dodson: Thank you, Collin. I would now like to turn to our outlook for 2026. For the full year 2026, we are raising the low end of our revenue guidance to $675 million to $700 million from our prior range of $650 million to $700 million. This increase reflects continued momentum in the Australian Integrated Services platform and continued recovery in our Canadian business. While we are encouraged by the strong start to the year and the underlying revenue trajectory of the business, we are maintaining our adjusted EBITDA guidance of $85 million to $90 million for 2026. This reflects the impact of higher input costs, particularly diesel, as well as broader inflationary pressures associated with ongoing disruptions in the global energy markets. In addition, customer focus on cost continues to influence activity levels and the timing of certain projects. As a result, despite the improved revenue outlook, we are maintaining our adjusted EBITDA guidance and we feel that is appropriate at this time. We also continue to expect capital expenditures in 2026 to be in the range of $25 million to $30 million. I will now provide additional color on our expectations by region. In Australia, from a macro perspective, metallurgical coal prices remain at healthy economic levels. However, the recent increase to diesel prices has driven customers to focus more on cost efficiency, which has tempered what we might otherwise have expected in terms of incremental upside to our initial occupancy guidance. As a result, activity levels continue to reflect a more conservative operating posture by our customers, similar to what we would have expected in a sub-$200 per ton met coal environment. Importantly, we have not experienced any material operational impact from diesel supply dynamics to date. While diesel prices have moderated some, we expect these dynamics to continue to limit near-term upside in activity levels relative to what we had initially contemplated when establishing our guidance range for 2026 and may delay any meaningful upside in occupancy. Based on current customer discussions and our contracted room nights, we continue to expect generally stable occupancy across our owned village portfolio through the balance of the year. In our Australian Integrated Services business, we continue to see a solid set of growth opportunities as we advance towards our goal of A$500 million in annual services revenues by 2027. In Canada, we are encouraged by the strong start to the year with improved occupancy and continued benefit from the structural cost actions implemented during 2025. As we look to the remainder of the year, we are continuing to refine our expectations around Canadian turnaround activity. At this point, we are seeing some activity that we had previously expected would occur in the second quarter shift to later in the year. As a result, we expect a more back-half-weighted cadence of activity relative to our initial expectations, though overall activity levels remain consistent with our full-year outlook. We also began mobilization under our previously announced contract supporting correctional facilities in Ontario in April, and we are pleased with the early execution on that contract. Importantly, this award represents a meaningful milestone for Civeo Corporation, marking our first integrated services contract in Eastern Canada and our entry into a new end market. We believe this is a strong proof point for the scalability of our integrated services platform in North America. We are actively pursuing additional opportunities to build on this momentum, further expanding and diversifying our revenue base. More broadly, oil sands activity remains stable, though customer focus on cost discipline continues to influence commercial dynamics across the region. Looking ahead, we remain encouraged by the level of business development activity tied to North American infrastructure projects. Our team continues to see strong engagement across LNG, power, and data center-related projects, and we believe that we are well positioned to capture these opportunities as they progress. Civeo Corporation is well positioned to capitalize on opportunities that a potential infrastructure construction boom represents. We have 2,500 mobile camp rooms strategically located in Western Canada in both Alberta and British Columbia that are immediately ready to deploy. We also have the ability to redeploy approximately 7,000 of our oil sands lodge rooms for the appropriate infrastructure project. Given their location and configuration, which were purpose-built for colder climates, these are best suited for projects in the Northern U.S., Canada, and Alaska, where transportation from Alberta and British Columbia will be less of a factor. As the U.S. market for workforce accommodations absorbs and fully utilizes existing capacity, our assets will become even more attractive than new-build assets. That said, these projects remain dependent on final investment decisions, and we continue to expect that any meaningful financial contribution will occur in 2027 and beyond. Overall, our outlook reflects a strong start to the year combined with a continued focus on disciplined execution and maintaining financial flexibility while positioning the business for long-term value creation. We will now open the call for questions. Operator: Ladies and gentlemen, to ask a question, please press star then 1 on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Stephen Gengaro with Stifel. Please proceed. Stephen Gengaro: Thank you, and good morning, everybody. Bradley, hey. Hi. How are you, Bradley? So when we think about the U.S. market, and in Canada as well, one of your competitors—at least one of the big accommodations players in North America—just lost a bunch of capacity, and it seems like the data center demand is extremely strong and the supply is extremely low. So I am curious how you are thinking about that opportunity. Anything you can share on traction of maybe mobilizing assets in the U.S. market and starting to gain traction in that market? Bradley J. Dodson: In terms of the U.S. market and both data center opportunities as well as adjacencies to data centers around power, we continue to be extremely active in terms of bidding into those markets. As I made comments in the materials, all of our available assets are in Western Canada. So proximity to where the assets are now helps our bidding posture, because transportation costs to move assets into where the customer needs them is a material portion of delivering a room ready for occupancy. So where I was alluding to, we continue to be, we believe, better positioned in the Northern U.S. and Canada and Alaska to redeploy those assets. In terms of overall activity, it is as busy as we have seen it. I mentioned we have 2,500 mobile camp rooms. We have bid those out multiple times, and we are seeing increased interest in our multistory lodge rooms to be redeployed as well. Stephen Gengaro: Thanks. And have you seen from customers yet— I might have asked you this last quarter—any kind of concerns about availability? We are seeing it clearly on the power side around data centers, and pricing becomes less important than access to power; in your case, accommodations. But are you seeing any of that concern from your customers yet? And if not, do you think it is close? Bradley J. Dodson: I think you summed it up well at the latter part of your question. I think it is an incredibly dynamic market right now. And as we have in our IR deck, we see 35,000 to 50,000 room demand across North America, and right now there is not that much capacity. So I would say that it has not tipped over into that fear of availability broadly. There is certainly—with certain customer projects, particularly on the U.S. side of things—expediency, being able to meet time frames and for first beds, is more important than price, although price continues to be a consideration. So having available assets has a lot of value today. And to your point, the market is starting to tighten up, and concerns about availability are starting to come out in customer conversations. Stephen Gengaro: Thanks, Bradley. And then maybe just one more, and this might be a little bit harder. If we go back in time and you built out the oil sands—and I forget the exact numbers—but if you needed 1,000 folks to construct the facility and develop the asset, the operating personnel was something less than that—I do not know if it is 50% or 60%—I do not remember correctly. But when your account business seems to be pretty baseload right now, when you think about these other opportunities, is there any way to think about that dynamic? Like, if you deploy 2,000 rooms, there is three, four, five years of demand, and then the operating side is X, or is it too early in the process to get that set? Bradley J. Dodson: Let me frame it this way. The opportunity set in North America right now is construction-related. Construction work is great. It does have a finite life. I see the next three to five years, with the current bidding pipeline or opportunity set, looking strong for three to five years. But to your point, whether it is a data center, an LNG facility, an oil sands mine, or a pipeline, once construction is complete, there is not a need for accommodations. So construction work is great. It is a great shot in the arm. We have an opportunity set, as we said in our prepared comments, that is as large by a factor of two or three as we have seen since the early 2000s. And it is going to be construction-related. So it is deploy assets and earn a return on those assets, and then, should the construction projects start to space out, we could see a longer-than-three-to-five-year period of demand for accommodations in North America for construction. And that would be favorable for longer-term utilization, particularly the mobile camp. Stephen Gengaro: Right. Thank you. Everything seems to be extending longer than we think, which is a positive, but that is great color. Thanks for taking the questions. Operator: The next question comes from the line of Stephen Michael Ferazani with Sidoti and Company. Please proceed. Stephen Michael Ferazani: Hi, good morning. This is Alex on for Steve. Thanks for taking questions. You alluded to this in the prepared remarks, but maybe I could follow up a little bit just for clarity on how much of the strong Canadian 1Q performance you would attribute to customer timing, aka pull-forwards? Bradley J. Dodson: I would say very little was a pull-forward. There was one in the first quarter. A customer had an unexpected situation, which added some occupancy during the quarter. April has started off pretty strong; we are done with April, but April was a pretty strong start to the second quarter. What we tried to allude to in the prepared comments was: look, oil has gone from $60 to $65 to, at times, close to $100. That is great for our customer base. They are focused on producing as much as they can into that price dynamic, which has two implications. One, Q2 and Q3 are usually the time period in Canada when the customers do planned annual maintenance. As we mentioned in the comments, we see that likely pushing out into later in the year, as opposed to being stronger in the second quarter, as they focus on production. It also has them continue to be focused on cost containment, because they are not making—other than trying to push production—changes to spending activity as if it is a $90-per-barrel market. Stephen Michael Ferazani: Very helpful context. And then one more from us on Australia. You know, you have continued to report strong and growing Australian services revenue. Could you talk a little bit about what the labor market is like there now—any challenges with staffing, or any room to expand? Bradley J. Dodson: Labor availability continues to be a struggle across our Australian business. Our HR team down there is hyper-focused on recruitment and retainment. It is one thing to get people hired; it is another thing to keep them in the business long term. Labor availability and therefore cost—because we have to use temporary labor when we do not have a full complement of full-time employees—are something that we are focused on. We are recruiting—one of the tough positions for our business is your head chef at each location. We are recruiting foreign chefs to come in and work rotations for us, and that has helped some. But we are still not to the labor cost that we would like to have there. Stephen Michael Ferazani: Understood. Thanks for taking ours. Operator: And the next question comes from the line of David Joseph Storms with Stonegate Capital Partners. Please proceed. David Joseph Storms: Sorry about that. I wanted to hold on Australia for a second here. We have talked in the past about $200 met coal being an important benchmark. I know you mentioned the challenged cost environment. Can you help us maybe understand a little better about how that push and pull looks now? Is $225 or $250 met coal a better benchmark going forward in the current environment? Or maybe just help us understand the push and pull there? Bradley J. Dodson: It really depends customer by customer—both their inherent cost structure as it relates to production costs as well as where their balance sheets are. I think where you are headed is generally correct. The old $200 is probably $225 in this market. The other factor that you have to keep in mind from a customer standpoint—it is not a factor for us, and I will explain why—is that they sell their commodities in U.S. dollars, and they have largely all Australian dollar costs. So diesel costs are more impactful to our customers’ cost structure than they are to ours, coupled with if the Aussie dollar continues to appreciate, for instance, against the U.S. dollar, our customers will have effectively a cost structure increase without a revenue increase because it is Aussie dollar costs and U.S. dollar revenues. For us, we are naturally hedged. We are all Australian dollar revenues down there and Australian dollar costs. So the concern really is how do fuel prices impact customer activity levels. I would say it is early on. We have had effectively two months, and I expect that Australia will continue to see inflationary pressures for the balance of the year. David Joseph Storms: Understood. That is great color. Circling back to the U.S.—and recognize that this is maybe a bit of a crystal ball question—but you mentioned there is a large volume of different types of contracts that could be gained in the U.S. between LNG, power, data centers. When you are looking across that universe, is there maybe a field or a geography or a type of contract that you would expect to drop first, maybe in early 2027, or are they all just super different and kind of hard to judge? Bradley J. Dodson: We always have to go off what our customers tell us the timeline is. And I think embedded in your question is: do we think that they are going to hit the timeline? These are major investment projects, which historically have always had a tendency to push to the right. We continue to believe that there is a fair amount of work that will be let in 2026, so that will be announceable in 2026 but may not—as we said in our prepared comments—materially hit us financially until going into 2027–2028. The FID time period as we understand it now, the time to mobilize, the time to first meals and first beds—some of it could hit in 2026, but as we sit here on May 1, that has to hit pretty soon. Mobile camps can typically be deployed within 90 days and start earning money, but if it involves multistory, that is going to take longer. David Joseph Storms: Understood. Appreciate that. And then maybe just one more. You have mentioned some of the turnaround activity in Canada being pushed out due to commodity prices. Just looking across your customers, is there a potential for that to be pushed out again further should commodity prices remain elevated, or is there maybe a hard backstop in Q3, Q4 that would require customers to bring in that turnaround activity? Bradley J. Dodson: It is a tough question to answer. It is always possible for turnaround work to be pushed out. It is always a variability. Even when you do not have the dislocations we are experiencing today—even in a more normalized market—customers can have various idiosyncratic reasons to either accelerate or defer turnaround work. I think we feel good about what is embedded in our guidance. Canada is going to face a smoother year this year in terms of the cadence of occupancy than we would historically have seen. The rule of thumb that we have given the market in the past multiple times was that 60%–65% of annual EBITDA for us would happen in Q2 and Q3, largely driven by turnaround activity ramping up in Canada. I would say this year it is going to look a lot more smooth—just flatter throughout the year—as it relates particularly to Canadian occupancy. David Joseph Storms: Understood. I think very fair answer. Thank you for taking my questions, and good luck in the next quarter. Operator: The next question will come again from the line of Stephen Gengaro with Stifel. Please proceed. Stephen Gengaro: Thanks. Two follow-ups. One, to the question you just answered. When we think about the difference between the high end and low end of guidance, is that primarily related to the turnaround activity? Bradley J. Dodson: It would be turnaround activity. It would be inflationary pressures—in Australia more so than Canada—and then, to a prior comment, it would also be if a project kicks off this year. We have won a little bit of work for our mobile camp business, which we had budgeted for later in the year. That speculative amount of work that we had budgeted, we feel much better about now. That project will kick off here in the next 60 days. That work is in Alberta. So I would think it is Canadian turnaround activity, Australian inflation, and whether we get any benefit from infrastructure projects that are won this year that may mobilize this year, and then, as I mentioned, set up for a stronger 2027. Stephen Gengaro: Great. Thank you. And the second question—I am not sure if you can answer this directly—but when we think about the types of projects you are bidding on in North America in aggregate, Canada and U.S., are there types of projects that would tend to be longer term in nature, and how do you balance the term of the contract versus maybe something which could be a little more profitable for two or three years versus a longer-term relationship and/or contract? Bradley J. Dodson: The term of deploying assets for a construction project is a material consideration, and obviously we would prefer to win work that has a longer duration. I would say generally what we are seeing today is two- to four-year projects. Some are a little bit longer, but I have not seen a lot that are over five years. So these are construction projects, and the need for accommodations is typically in that two- to four-, two- to five-year time frame. Stephen Gengaro: Great. This is very helpful color. Thank you, Bradley. Operator: Thank you. Ladies and gentlemen, this concludes the Q&A session. I would like to hand the call back to Bradley J. Dodson for closing remarks. Bradley J. Dodson: Thank you so much, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo Corporation, and we look forward to speaking to you on the second quarter earnings call, which we expect to happen late in July. Have a good day. Operator: This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, everyone, and welcome to the Mohawk Industries, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Nicholas Manthey, Chief Financial Officer. Please go ahead. Nicholas Manthey: Thanks, Jamie. Good morning, everyone, and welcome to the Mohawk Industries, Inc. quarterly investor conference call. Joining me today on the call are Jeffrey S. Lorberbaum and Paul De Cock. Today, we will update you on the company's first quarter performance and provide guidance for 2026. I would like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including, but not limited to, those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-Ks and press release in the Investors section of our website. I will now turn the call over to Jeff for his opening remarks. Jeffrey S. Lorberbaum: Thank you, Nick. Our performance for the first quarter was in line with our expectations despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year. Our results include benefits from productivity, restructuring, and product mix, offset by inflation and volume. Last year was impacted by the system conversion and had four fewer days. Our net sales were approximately $2.7 billion, an increase of 8% as reported or a decrease of 2.6% on a constant basis. Across our regions, the commercial sector continued to outperform residential, new home construction remained soft, and consumers continued to defer home purchases and remodeling projects due to economic uncertainty. We are implementing productivity actions and executing our previously announced projects to enhance our results. During the quarter, we repurchased 607 thousand shares of stock for $64 million as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise. In February, the conflict in the Middle East intensified, increasing uncertainty in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas. Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions and are contributing to a more cautious consumer outlook. Energy prices as well as the cost of oil and natural gas derivatives are also increasing, which affects the costs of many of our products. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. U.S. natural gas prices have been less impacted due to significant domestic production, though oil prices in the U.S. have risen as they follow worldwide trends. In the U.S., 10-year treasury yields have increased, creating a corresponding rise in mortgage rates. The European continent will be more affected due to the dependence on oil and gas from the Middle East. We have made forward purchases to limit our exposure. European governments are reviewing initiatives to lessen the impact on businesses and consumers, such as cutting energy taxes, implementing fuel price caps, and coordinating European gas storage. The energy markets will remain volatile until the global supply normalizes. We are implementing price increases across many products and geographies and further price increases could be required. The impact of higher cost of raw materials will be greater in the second half of the year due to our flow-through of inventory. We are continuing to launch new product collections with industry-leading designs and features to enhance our sales and margins. We are implementing operational strategies that we have used to navigate past disruptions, prioritizing adaptability and cost control. We are maintaining flexibility to align with evolving demand, supply availability, and volatile costs. We are focused on the controllable parts of our business, including sales initiatives, inventory levels, and discretionary spending and investments. Now Nick will provide the details of our financial performance for the quarter. Nicholas Manthey: Thanks, Jeff. Our Q1 2026 financial results: Net sales for the quarter were $2.7 billion, up 8% as reported and a decrease of 2.6% on a constant basis. Our Global Ceramic segment delivered stronger mix, and we lapped the impact of the order management system conversion in Flooring North America, which partially offset the slower market conditions across our markets. Gross margin was 23.5% as reported and 24.8% on an adjusted basis. This is up 70 basis points from prior year, as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of $20 million offset the increased input costs of $28 million. SG&A expenses were 19.4% as reported and 19.3% excluding charges, in line with prior year levels. That gave us operating income as reported of $112 million, or 4.1% of net sales. We had $38 million in nonrecurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million, or 5.5% of sales. That is an increase of 70 basis points versus prior year. The benefits of lapping the prior-year order management system conversion of $30 million and our restructuring and productivity initiatives of $36 million were partially offset by increased input costs of $38 million. Lower volumes given the weaker market conditions were offset by extra days in the quarter. Interest expense was $2 million, a decrease to prior year due to the reduction in short-term debt and the benefit of increased interest income. Our adjusted tax rate was 19.4%, and we are forecasting the full-year 2026 tax rate to be between 19% and 20%. That gave us earnings per share on both a reported and adjusted basis of $1.90. Turning to the segments. Global Ceramic had net sales just under $1.1 billion. That is a 10.4% increase as reported and basically flat on a constant basis. The ceramic business delivered positive price/mix given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel. Adjusted operating income was $55 million, or 5% of sales. That is an improvement of 20 basis points compared to the prior year, as the combination of productivity initiatives of $21 million and positive price/mix of $13 million only partially offset an increase in input costs of $30 million. Flooring North America net sales were $880 million. That is a 2% increase as reported, or a 4.1% decrease on a constant basis as sales were impacted by slower conditions in both new residential construction and residential remodeling. We had adjusted operating income of $35 million, or 4% of sales. That is an improvement of 100 basis points compared to prior year, as we lapped the impact of the order management system conversion of $30 million, which was partially offset by increased input costs of $13 million and the net impact of lower volumes. In Flooring Western World, we had sales of $751 million as reported. That is a 12.2% increase, or a decrease of 4.4% on a constant basis, with the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses. Adjusted operating income was $74 million, or 9.8% of sales. That is an improvement of 70 basis points compared to prior year as the combination of productivity gains and lower input costs of $14 million were more than enough to offset negative price/mix. Corporate expenses and eliminations were $14 million in the quarter, and we estimate full-year 2026 expenses to be between $52 million and $55 million. Looking at the balance sheet, cash and cash equivalents ended the quarter at $872 million with free cash flow of $8 million in the quarter, which is in line with seasonal trends. Inventories were just shy of $2.7 billion, up less than 1% compared to prior quarter due to inflation. Property, plant, and equipment ended the quarter at just under $4.7 billion. CapEx spending in the quarter was $102 million, and we plan to invest approximately $480 million in 2026, focused on cost reduction initiatives, product innovation, and maintenance. The balance sheet remains in a very strong position with net debt of $1.2 billion and a net debt to EBITDA ratio of 0.9. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers. Now Paul will review our Q1 operational performance. Paul De Cock: Thank you, Nick. Our Global Ceramic segment delivered improved sales and profitability year over year. All regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial. Our premium collections increased our mix with advanced technologies that enhance the visuals. Across all regions, productivity improvements and restructuring actions are improving our results. In the U.S., we benefited from stronger commercial sales and increased retail partnerships, which offset ongoing weakness in the builder channel. In March, we introduced our spring collection, which emphasizes higher-end decorative wall tile and large polished floor tile to enhance our mix. We announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation cost. We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher value products. The U.S. International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production, and the Commission is determining tariffs and quotas to safeguard the industry. In our European ceramic business, we delivered solid sales and margin improvement with investments in sales personnel, showrooms, and new collections. In the region, we have greater participation in the commercial channels, which is outperforming the residential markets. The industry has announced limited price increases at this point given the market softness. We have purchased a portion of our natural gas requirements this year, which will reduce the impact of higher energy prices. Our Latin American ceramic businesses have been less impacted by the conflict. We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs. In Mexico, our volume improved as we expanded distribution, improved service times, and grew sales with large-sized polished porcelain collections. In Brazil, our new product introductions are improving our mix, with growth in the higher value porcelain category. U.S. reciprocal tariffs on Brazil significantly reduced, which will improve our export volumes to the United States. Brazil's economy remains sluggish and the Central Bank is now cutting interest rates to stimulate growth. Our Flooring Rest of the World segment's results were driven by productivity, cost improvements, and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation. With the war in Iran, consumer confidence declined as fuel and energy costs increased. We are implementing price increases to offset the higher costs impacting our business. In the quarter, our laminate sales benefited from growing retail partnerships and the success of our new collections, which combined elevated style and performance. We updated our LVT designs, added offerings at new price points, and expanded our retail distribution. Our sheet vinyl sales to the Middle East were disrupted, and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products, and we implemented price increases. We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs. Our insulation business performed well and improved our costs by reengineering our products. We are growing our insulation sales in Germany and Eastern Europe to support the start-up of our manufacturing facility in Poland. Our businesses in Australia and New Zealand improved results with favorable pricing, mix, and cost. Our new carpet collections, national promotions, and increased participation in the new construction channel enhanced our performance. Our Flooring North America segment remained slow during the quarter given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring, system improvements, and additional days in the period, partially offset by lower volume and inflation. Commercial continued to outperform residential, and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material, energy, and transportation increases. Mortgage rates rose almost half a point in March, leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders. We improved our hard surface mix with our best-in-class laminate, hybrid, and LVT collections. Our proprietary accessories coordinate with our hard surface offering, increasing complementary sales. Our new carpet introductions are being well received, with a focus on our premium polyester and SmartStrand collections. In February, we launched the industry's first carpet collections certified by the Asthma and Allergy Foundation to significantly reduce household allergens using natural probiotics. Our commercial order backlog has seasonally improved, with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers and are creating additional specification opportunities for our other commercial products. I will now return the call to Jeff. Jeffrey S. Lorberbaum: Thank you, Paul. One month into the second quarter, we continue to adapt our business to changes caused by the Middle East conflict. Thus far, we have announced price increases across much of our portfolio due to inflation, and our order backlog has continued to grow. Across our regions, the commercial channel remains solid, while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high-end collections are performing better in the market, and our new products are enhancing our mix. We are maximizing our flexibility to react to changes in our supply chain, operating costs, and market demand. Presently, we are containing costs, reengineering products, and limiting capital expenditure. We will not see the full impact of our pricing actions and rising costs until the third quarter. The degree to which the Middle East conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure. Given these factors and one less shipping day in the second quarter, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one-time charges. We are managing all aspects of the business we can control and responding to market changes as they arise. In the past, Mohawk Industries, Inc. has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for the long term. Increased new home construction is necessary to satisfy growing household formations, and we expect deferred remodeling of aging housing stock across our regions will significantly increase flooring demand. As we navigate the current conditions, we are prepared to capitalize on the rebound in our industry that lies ahead. We will now open the call for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to a single question and a follow-up. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Trevor Scott Allinson from Wolfe. Please go ahead with your question. Trevor Scott Allinson: Hi. Good morning. Thank you for taking my questions. Jeff, I appreciate there is a lot of uncertainty in the market right now. At times in the past, you have given a range of outcomes for your business. Can you talk about what that range of outcomes looks like here as we move through 2026 and into early next year? What drives the high end versus the low end? And how are you running your business today to account for the uncertainty and prepare for either end of that spectrum? Jeffrey S. Lorberbaum: There is a lot of uncertainty in the marketplace, and we are preparing for multiple options and staying flexible. We look at the best case as we think forward. The supply of the Middle East could open up in the near term and could return the supplies to normal over the next six months. This would remove the economic uncertainty and would improve the category and the flooring industry in the second half. We would expect the inflationary pressures to remain, though, throughout the year. The alternative view is that the disruption in the Middle East stays for a significant period of time. The inflation continues to increase, and it could result in a pullback by both consumers and businesses. In this case, we have alternative plans to adjust our business strategy to manage through at lower rates. Our strategy is to remain flexible and to adapt to the changes that occur. As a reminder, most flooring projects being initiated today are really to meet the changing needs because they have been down since 2022 and should limit some of the downside if it gets worse. We expect a significant recovery given these four years of postponed flooring purchases. Trevor Scott Allinson: Okay. Thanks for that. That was very helpful. And then second question, perhaps related to those comments. Last quarter, you talked about expecting both sales and adjusted earnings to be up on a year-over-year basis in 2026. Given all the macro uncertainty, should we still think that it is a good base case for you to be able to grow those sales and adjusted earnings this year? Jeffrey S. Lorberbaum: In February, we had expected the category to improve, so we are really focused on maximizing opportunities this year. With the war interrupting things, the environment has really changed, and we are managing the inflation's impact on our margins. At this point, as we just went through, the potential impacts are really unpredictable, and it is too early to tell where it is going to end up. We will have to see how the conditions evolve. Operator: Thank you for all the color, and good luck moving forward. Our next question comes from John Lovallo from UBS. Please go ahead with your question. John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is, can you provide some additional color on just maybe the magnitude of the price increases across regions and some of the key products? And what type of realization are you expecting given some of the challenges from a volume standpoint in the market? Jeffrey S. Lorberbaum: The conflict in the Middle East has really dramatically increased our material, energy, and transport costs across all the different product categories. We are seeing some differences in each region and product categories given different dynamics, and as you would expect, Europe is more affected given their energy dependence on the Middle East. Some of our products are also delivered over long distances, so we have to increase the prices to cover the freight cost as well. We have announced increases across the businesses, generally in the mid to high single digits, with significant variations by both product and geographies. And just to note, the imported products that we and the industry have had really long supply chains, and the price increases due to that will lag some of the others. John Lovallo: Got it. And then maybe to push a little bit more on this, if I can. Let us just say that things stay as they are today. Do you believe that you have enough pricing in the market to offset the current level of inflation, or would additional pricing be needed just to offset what we know today? Nicholas Manthey: Yeah, John. Thanks. I think if you look at Q1, our price/mix and productivity offset the impact of inflation. We expect similar dynamics in Q2. As Jeff outlined, we announced some more price increases in response to the inflation, and we will really see the full impact of both the inflation and the pricing in the second half, and we will adjust as necessary as the environment evolves. John Lovallo: Okay. Thank you, guys. Operator: Thanks, John. Our next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead with your question. Susan Marie Maklari: Thank you. Good morning, everyone. My first question is around the benefits of the new products. Can you talk about how the momentum you are seeing there is helping you to enhance the mix and incrementally perhaps offset some of that inflationary pressure that you are seeing? And do you also think that you are continuing to gain share with these new products? Jeffrey S. Lorberbaum: Each of the different businesses has new product introductions. There is a significant portion of them that are higher-value products with more differentiation and command higher prices in the marketplace. With that, each of the different businesses is introducing unique products with different features and benefits. Ceramic is driven a lot by technologies of different sizes, as well as different visuals with different decorating technologies to be able to create them. On the other side, we are introducing LVT collections with all the latest technologies and multiple alternatives for PVC in the marketplace, with better performance, better scratch resistance, and other characteristics. The carpet categories are introducing premium products in polyester, and the anti-allergen carpets have never been done, which is a concern by many consumers. In each of the categories, there are different products to provide reasons for the consumers to trade up and spend more money. Susan Marie Maklari: Okay. Thank you for that. And then turning to the margins, you have done a lot in terms of cost cutting and you are realizing some nice productivity across the business despite the headwinds. Can you talk about the ability to continue to see further productivity? And then any thoughts on how we should think about second quarter margins just across the three segments? Nicholas Manthey: Yes, Susan. On productivity, we generated over $200 million of productivity and restructuring savings last year. This year, we have another $50 million to $60 million of restructuring savings that we should realize. In addition to that, over the last few years, we have had additional productivity ranging from $80 million to $100 million. We will continue to evaluate different ways to rationalize our cost structure as we go forward and the environment changes. On Q2, we are assuming the present demand trends continue through the second quarter and there is somewhat of a limited impact from the conflict. The market volumes have been declining. We have seen oil and gas prices increase, which will begin to impact our cost in Q2. We do expect price and mix will improve and help address that higher inflation. Jeffrey S. Lorberbaum: And then, back to your original point, productivity and restructuring will continue to lower our costs similar to Q1. Susan Marie Maklari: Okay. So is it reasonable to assume that you see a fairly normal seasonal sequential lift in the margins? Nicholas Manthey: Yes. Typically, Q2 is our strongest quarter of the year. So going from Q1 to Q2, that is what you would expect. Susan Marie Maklari: Okay. Alright. Thank you. Good luck with the quarter. Operator: Thanks, Susan. Our next question comes from Adam Baumgarten from Vertical Research. Please go ahead with your question. Adam Baumgarten: Hey. Good morning, everyone. Just a question on input cost headwinds. Can you maybe size, as it stands today, what you are thinking about for the back half? As you said, you are going to kind of see the peak levels at that time frame? Nicholas Manthey: I think we are seeing inflation across the different materials, energy, and transportation. We are not going to quantify a precise impact given it is changing pretty much daily. In terms of cadence, the impact will begin in Q2 and ramp up into Q3. Jeffrey S. Lorberbaum: If you look at each of the different product categories, they are all driven by different things. Our carpet, LVT, and insulation are all oil-based and energy intensive, so the materials are being driven by the changes in gas and oil and the materials as well. In the ceramic business, it is really heavily caused by natural gas and transportation costs, and the transportation costs are both for raw materials as well as for shipping our products. The other businesses are wood-based, which is laminate, wood, and panels. They have significant chemical costs in them to put them all together, as well as energy and transportation costs. As we said before, inflation in Europe is higher, and we purchased a portion of the natural gas ahead to limit the volatility. We do see that the U.S. and Mexico have more stable natural gas prices and are less affected by it. We have announced price increases to cover all this as we go through. Adam Baumgarten: Okay. Great. That is helpful. And then just, I believe you guys and maybe your competitors had some price increases out on certain products earlier in April, and it has been about a month. Just curious how those are going as it pertains to that. Paul De Cock: Yes, that is correct. We have recently announced more price increases of mid to high single digits. With these levels of inflation, the industry must pass them through. Jeffrey S. Lorberbaum: In the marketplace, all the prices are going up. The market seems to be understanding it, and we think we are going to have to push them through because we need it. It is possible, given what is going on with the energy markets, we could need more. Operator: Got it. Thanks. Our next question comes from Stephen Kim from Evercore. Please go ahead with your question. Stephen Kim: Thanks very much, guys. Appreciate it. I think I heard you say in Flooring Rest of World that inputs were a positive, even though I think for the company as a whole, it was a headwind of, I think, $38 million. So just trying to understand, can you give us some context around that? I imagine you are anticipating that will probably flip negative again based on your comments. But could you just provide some context around the input in Flooring Rest of World? Nicholas Manthey: Yes, Steve. We did see some positivity in Q1 on a year-over-year basis. You are right. Given the conflict, we are seeing the natural gas and oil prices go up in Europe, and so we would expect that inflation to begin in Q2 and ramp up in the back half. Stephen Kim: Okay. That is helpful. Secondly, and maybe a little more broadly, I want to touch on the innovation comments that you made. There was a comment in your press release about reengineering products, and I wanted to get some understanding of what that meant. Are there certain products that you particularly want to call out? And then at a higher level, there is a lot about the wars, the lingering impact of the war that we do not know. The one thing we do know is that it has put a pause on shipments, and yet innovation is continuing, I would assume, uninterrupted. So what I am curious about is do you actually have a situation where that delay, this pause, if you will, in production and shipping could actually be a positive for you as you continue to work on innovation and R&D? Is this something that could actually lead to a competitive advantage for you as you develop new products such that when the conflict ends, when consumer confidence improves, you could actually capitalize on the R&D that was done during, let us say, a more quiet period? Is that a reasonable way of thinking about it, or is that not? Jeffrey S. Lorberbaum: It is a continuous process, and when you bring new products to market, depending on which market, it takes anywhere from nine months to a year and a half to flip them into the marketplace and then to mature over time. So it is not an immediate impact to get them pushed through the marketplace as normal. The big piece is that the industry and category started going down in 2022. It started with consumers pushing out things, housing sales going down around the world, and there is a huge pent-up demand and need for people in housing. The housing stock continues to get older, and when more confidence comes back, we are expecting many years of catch-up from what has not been spent the last three or four. Stephen Kim: And the role of new products in that, particularly in areas like the hybrid products in North America, for example. I am curious as to whether or not you think that category will be a little more settled and allow you to scale up production better than if, let us say, the consumer response had occurred last year. Is that a reasonable way of thinking about it? Jeffrey S. Lorberbaum: I do not think there is going to be that much difference relative to the new products because we have the capacity to support whatever is needed in the marketplace and react to it as we go through. I think the bigger impact is helping us increase the margins as the business increases and you get leverage in all the fixed costs over the business as it occurs. Stephen Kim: Okay. Great. Thanks very much. Operator: Thanks, Stephen. Our next question comes from Rafe Jason Jadrosich from Bank of America. Please go ahead with your question. Rafe Jason Jadrosich: Hi. Good morning. Thanks for taking my question. Paul De Cock: Good morning. Rafe Jason Jadrosich: Just to start, can you give an update on the Russia business? Just how big it is and how it has been performing? Jeffrey S. Lorberbaum: We do not break it out in that detail, but the Russian business has been performing well. There have been no impacts on the business and how we operate it. We continue to generate cash in the business. The business has slowed down with the general economy over there, and we are adapting to it. We have a leadership position in the category, and we are complying with all the regulations. Rafe Jason Jadrosich: That is helpful. And then I think last quarter you gave a little bit of color on what you were expecting full year for inflation. Obviously, the environment is moving around a lot. Is there any way to quantify the level of inflation in the first half relative to what you are expecting in the second half? Nicholas Manthey: Yeah, Rafe. The inflation will really begin to increase in Q2 and ramp up into the second half. Our pricing and other actions are intended to pass through those costs. As Jeff outlined, it really varies by product and region, and we will adjust our pricing as the levels of inflation change. Rafe Jason Jadrosich: Just asking another way, for the first half, do you have an aggregate—what is the inflation embedded in the first half? Nicholas Manthey: We are not going to break it out in that detail, but we do have inflation in the first half of the year, given the different aspects of our input costs. Rafe Jason Jadrosich: Okay. That is helpful. Thank you. Operator: Thanks, Rafe. Our next question comes from Philip H. Ng from Jefferies. Please go ahead with your question. Philip H. Ng: Hey, guys. I think it is more of a recent practice, but any color on how much you buy ahead in Europe on the gas side of things? And were you able to lock in some of that price before the war? And then, Jeff, I think in 2022, some of your competitors in Italy had some issues on the energy side of things, and Italy is a big import of LNG. Are any of your competitors having trouble sourcing energy? Are they hedged? I was a little surprised with the comment that pricing in Europe for ceramics was a bit more muted. Jeffrey S. Lorberbaum: Yes. We did buy gas before it went up. We continue to buy gas, and we continue to make decisions of what to buy on a going-forward basis to reduce the volatility of the European gas prices. We will have to see what happens in the marketplace with the inventories, gas prices, and the volatility. If the gas keeps going up, the industry will have to respond to it as we go through. There are other areas around the world like India where they do not have enough natural gas. That cut back the industry, and ceramic production we believe is off almost by 80% because they do not have the gas to do it. That should also create opportunities as we go around. Philip H. Ng: Okay. That is helpful. On the North American carpet, I believe you and your biggest competitor have a large concentration in share. There are a bunch of smaller guys. Give us some perspective on how the cost curve looks for carpet in the U.S. between the two of you. Does that drop off pretty hard? And just given where raws are shaping up in the back half, if you do not see much traction, are some of these smaller guys cash flow negative, operating at a loss, and how would you stack up in that situation as well? Paul De Cock: Thank you for the question. The market is soft in carpet in general. Remodeling and new construction sales have slowed. We have announced price increases to cover the inflation. We are introducing new products to also improve our mix, and we are taking further actions to cut our costs. Carpet volumes should improve as the market recovers. Jeffrey S. Lorberbaum: There has been some limited capacity taken out of the industry by us and others. There have been some smaller ones to go out, but not enough to change anything. Operator: Okay. Thank you so much. Thanks, Phil. Our next question comes from Richard Samuel Reid from Wells Fargo. Please go ahead with your question. Richard Samuel Reid: Thanks so much, guys. I just wanted to circle back to the prepared remarks. I heard a comment about your order backlog growing. I am just curious, is that restricted to any particular end markets or categories? We would love some additional context there. And then I also heard a comment about some of your channel partners reducing inventories. So perhaps two things that might be a little diametrically opposed there. Just want to flush those out. Thanks. Jeffrey S. Lorberbaum: As we came into the new year, the expectations for we and the entire industry were greater than they have turned out with the war. So we came into the year, and there were channels that started lowering some of their inventories as we started into the year. The backlog, as we have gone through, the trends of our business from March to April have not changed. The incoming orders are similar to those. The backlog has actually increased in April. We do not see any dramatic change in it now. On the other side, when you have price increases like we are having, there is some pull-forward, but we do not have enough view into the inventories of our customers to know how much that is. Richard Samuel Reid: That is helpful. Maybe switching gears, it is great to hear the commercial end market strength. Restricting the question to the U.S., in the past you have called out institutions and hospitality as areas where you have been growing. What is the latest on commercial end markets, and where are the areas where you are seeing the most strength? Paul De Cock: Around the world, we see the commercial channel continuing to outperform residential. The segments that are performing better would be hospitality, education, health care, and government. To increase specifications, we are expanding our showrooms, product features, and specialized sales forces to go after those segments. Richard Samuel Reid: All helpful context. I will pass it on. Thanks. Operator: Thanks, Sam. Our next question comes from Collin Verron from Deutsche Bank. Please go ahead with your question. Collin Verron: Great. Thanks for taking my question. I just want to follow up on the backlog building. Is that across the portfolio, or are you seeing pockets of weakness and strength just given what is going on in the Middle East? I thought it sounded like there was probably a little bit of caution, so maybe some downside in volume trends into April, but it sounds like they are building. Any clarification there would be helpful. Jeffrey S. Lorberbaum: It is generally across all the businesses. The backlogs are generally higher than they were a month or so ago. We are having difficulty separating the ongoing business trends from inventory changes in the customers. We are not going to be able to know that for a while. Collin Verron: Okay. That is helpful. And then just following up on natural gas, is there any way to understand how much of the gas you have already hedged for this year versus how much you would need to buy just to service production levels for the remainder of the year? Jeffrey S. Lorberbaum: It is different by business and different by country. In some countries, you cannot do it; the country purchases it and the price is the same. In other countries, we can purchase ahead. So it is not as simplistic an answer as you would like to have. Collin Verron: Understood. Thank you, and good luck. Operator: Thanks, Collin. Our next question comes from Michael Glaser Dahl from RBC. Please go ahead with your question. Michael Glaser Dahl: Hi. This is Mike. Just a follow-up on the near-term demand comments. What are you guys specifically assuming in the 2Q guide in terms of demand trends? Is it more of the same from what you have seen in April? And then on that order backlog comment, the sequential increase, is there any way you could help frame that on a year-over-year basis? Nicholas Manthey: Thanks, Mike. Again, we are assuming that the present demand trends continue through the second quarter, and there is limited impact from the conflict. Market volumes have been declining for a little while, and so we do not expect a big change in Q2. Jeffrey S. Lorberbaum: At this point, we have not seen a decrease in the sales and order trends. We are going to have the impact of the increase in prices as we go through, starting in the second quarter and ramping up in the third quarter. We will have to see how things evolve. The question we all have to answer is what is going to happen to the consumer confidence and spending patterns given the inflation that is coming through the marketplace and how the consumer is going to react. We are all going to get to find out together. Michael Glaser Dahl: Fair enough. From all the pricing that you have announced, are there regions or products where you could rank order where you think you have the most pricing power versus the least? Or if it is easier, just by segment, when we think about modeling the pricing tailwind. Jeffrey S. Lorberbaum: I am not sure there is a dramatic difference in any of them. The biggest differences would be the amount of inflation based on how big the cost increases impact each product category. It may sound different, but the ones with the highest inflation may be the easiest because the industry has to force through more. The imported products with long supply chains—those product categories—it is going to take a while before the chemical costs flow through, but they are going to flow through. Michael Glaser Dahl: Understood. Appreciate the color. Operator: Our next question comes from Michael Jason Rehaut from JPMorgan. Please go ahead with your question. Michael Jason Rehaut: Thanks. Good morning, everyone. First question, I just wanted to circle back to the price increases relative to the cost inflation that you expect to see in the back half. I just wanted to be sure of two things. First, when you talk about the cost increases, it is the ones that you have already announced in April—mid to high single digits—if that is really, at this point, what we are talking about. And second, as you see the cost inflation today, are the price increases sufficient to offset the back half cost inflation? Nicholas Manthey: Mike, our pricing that we have announced along with other cost actions are intended to offset the higher cost. We have announced mid to high single digits across most of our categories. Inflation is changing daily and weekly. We will adjust and adapt as we go through the second half of the year, and our intent is to pass them through. It is possible we will have to announce additional price increases if things keep inflating. Michael Jason Rehaut: Right. Okay. And the second question, just on mix. If you are seeing any green shoots of mix—I am really thinking about North America here, ceramic and North America flooring. How would you characterize the mix trends in residential? Have they improved at all? And could this be any help as well in the back half as you combat some other margin pressures? Jeffrey S. Lorberbaum: The higher-end consumer has more money and is spending more. That is helping on one side. On the other side, the middle is either postponing or trading down. There is huge pressure in the builder market to put in low-cost products in order to keep the prices of homes down. So you have both things going at the same time. I think that the people with money will continue to spend. We talked to some of our retailers. Some of them say the traffic is slower, but the people coming in are spending more money. We will have to see how the whole thing evolves. A lot of it is around consumer confidence and how they react to all this. Michael Jason Rehaut: Alright. Thank you very much. Operator: Thanks, Mike. Our next question comes from Keith Brian Hughes from Truist. Please go ahead with your question. Keith Brian Hughes: Thank you. The last time we saw this kind of inflation, a couple years ago during COVID, you saw some pretty significant hit on mix. Is there anything that has changed in the industry? Any reason we would feel less of that pressure? These are pretty significant price increases you are talking about. Jeffrey S. Lorberbaum: It is possible that we could see some declining mix in a piece. We are raising all the product categories to cover it, but it is not abnormal that some customers trade down. The higher-end customers have money, so it is not going to affect them. The higher end of the business has been doing better. But it is possible there will be some mix decline as people try to maintain budgets. Keith Brian Hughes: Okay. And we talked a lot about price increases and cost increases on this call. Is carpet where you are seeing the biggest inflation coming right now just based on the fibers that you use? Paul De Cock: No. We see inflation across the board in all the different categories. We have all the chemical input costs going up with similar levels, and as that filters through, we will have to take up the prices. In Europe, we see higher increases like we said. The impact of energy in Europe is much more significant, and so in some of our product categories, we see much higher impacts than on the flooring side, and we are acting appropriately. Jeffrey S. Lorberbaum: If I had to pick one that was highest, in Europe our polyurethane insulation business has a chemical component, and there are some shortages in the marketplace. We are putting through really significant increases in the category along with the competitors in the marketplace. Keith Brian Hughes: Okay. Thank you. Operator: Our next question comes from Matthew Bouley from Barclays. Please go ahead with your question. Matthew Bouley: Good morning. You have Anita Dahlia on for Matt today. Thank you for taking my questions. First off, we have seen industry peers announce price increases over the past few months, but as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry? Or is there evidence of share gain coming at the expense of price, either for Mohawk Industries, Inc. or competitors across LVT, carpet, and ceramic? Jeffrey S. Lorberbaum: The increases are flowing through the marketplace. It takes a while to go through. We will not see the full impact of them for another few weeks or even more. So we will have to see. So far, we are seeing more discipline than normal given the amounts of the increases. Everybody needs more to cover the cost. Matthew Bouley: Okay. That is helpful. Thank you. Then second, I wanted to talk a little bit more about the setup in Europe. You mentioned Europe has understandably become more impacted following the Middle East conflict. Any color on the trends you are seeing since last quarter? Specifically, are consumers deferring projects, or is it more a function of mix down? Paul De Cock: The market was showing some improvements in January following the multiple rate cuts that the European Central Bank had executed. But after the start of the war, consumer confidence declined, and that reduced the discretionary spend in the market. As we discussed, energy prices are higher in Europe. They are causing greater inflation, and we will have to push up the prices more. But consumers have record savings, and mortgage rates are much lower in Europe, and that should support growth as confidence comes back. Matthew Bouley: That is helpful. Thank you. Operator: Our next question comes from Brian Biros from TRG. Please go ahead with your question. Brian Biros: Hey. Good morning. Thank you for taking my questions today. How quickly can you pass on price in today’s market relative to previous price increases? Inflation pressures are well known, but the demand side is not really there. So I am curious how those conversations go and how quickly that can be reflected in today’s market once you announce an increase. Jeffrey S. Lorberbaum: The entire world knows this is going on. Our customers know what is going on. Our competitors have the same pressures we do. So the marketplace understands that it has to happen. In some cases, it may feel a little easier up to this point or not, but we are not through fully implementing it. On the other side, there is a concern that there is more to come, and so all of those things are affecting the way the industry is acting. Brian Biros: Okay. And then margins expanded in Q1. I think that might be the first time in maybe five or six quarters. Nice to see some level expansion even after all the restructuring efforts, and that was on lower volume still. It feels like there are still going to be pressures for the rest of the year, but do you guys look at Q1 as some type of indicator of what financials you can put up when things start to turn? Putting that in context would be helpful for thinking about Mohawk Industries, Inc. beyond the next few quarters. Thank you. Nicholas Manthey: Q1 market conditions were still very pressured. Looking forward, in the near term, our margin will depend on how the conflict evolves. We will have the inflation, and we are taking price to mitigate it. As Jeff mentioned, consumer confidence could be lower and could impact volumes. We are really focused on our productivity and restructuring efforts to lower our costs, and we do believe that over the long term, there is potential for margins to grow from here. Jeffrey S. Lorberbaum: As we said earlier, we talked about potential good outcomes and bad outcomes. Either one is still possible, and we have to be prepared to adapt to either one, hoping for the best. Operator: Our next question comes from David MacGregor from Longbow Research. Please go ahead with your question. David MacGregor: Thanks for taking the questions. I wanted to focus on the commercial business for a moment, and maybe it is a strategic question, Jeff. Given the relative resilience of the commercial businesses, as well as a different competitive structure and more opportunities for growth in that market segment, have you considered allocating capital to the expansion of that side of the business and bringing the residential/commercial mix more into balance? Jeffrey S. Lorberbaum: The commercial business is much smaller than the residential business. The opportunities are much less. So achieving the same market shares, the commercial business is dramatically smaller than the other. With that, we continue to invest more money in product innovation in the commercial market. It is easier to sell and promote features and benefits that are differentiated. We continue to invest to create differentiated offerings that we can specify in the marketplace. We are investing in more showrooms and investing in our sales organization to create more specifications. We agree with you. It is a good place to be. David MacGregor: I was asking the question more from an M&A standpoint. Jeffrey S. Lorberbaum: From M&A, we would consider the right commercial businesses that fit with ours and we think we can add value to. There will be opportunities as they arise over time in both the U.S. markets as well as the world markets. David MacGregor: Got it. Second question is the obligatory tariff expense question. A lot of noise and moving parts on this, but what is your current expectation for 2026 gross tariff expense prior to mitigating actions? Nicholas Manthey: The tariffs were reduced from a few months ago. Jeffrey S. Lorberbaum: But with the inflation occurring because of the conflict, the net effect is our costs are going to increase, and that is why we are taking the pricing adjustments to mitigate the higher cost. David MacGregor: Okay. You have not quantified that for the street? Nicholas Manthey: No. The tariff environment is changing, and we will see how it evolves. David MacGregor: Understood. Thanks very much. Operator: Thank you. And with that, ladies and gentlemen, we will be concluding today's question and answer session. I would like to turn the conference call back over to Jeffrey S. Lorberbaum for any closing remarks. Jeffrey S. Lorberbaum: We have managed global turmoil many times in our history, and it is always followed by an industry recovery. We expect multiple years of above-trend growth when it happens this time. As that occurs, in our industry the pricing and margins increase, our mix improves with people buying higher-value products, and we get significant leverage off of our cost structures and all the actions we have taken over the past few years. We appreciate you taking the time and being with us today. Thank you very much. Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning, and welcome to Camden Property Trust First Quarter 2026 Earnings Conference Call. I am Kimberly Callahan, senior vice president of investor relations. Joining me today for our prepared remarks are Richard J. Campo, Camden’s executive chairman; Alexander Jessett, chief executive officer; Laurie A. Baker, president and chief operating officer; and Unknown Executive, chief financial officer. D. Keith Oden, executive vice chairman, and Stanley Jones, senior vice president of real estate investments, will also be available for the Q&A portion of our call. Today’s event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available shortly after the call ends. Please note this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today’s call represent management’s current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden’s complete first quarter 2026 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures discussed on the call. We would like to respect everyone’s time and complete our call within one hour. So please limit your initial question to one, then rejoin the queue if you have a follow-up question or additional items to discuss. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or email after the call concludes. At this time, I will turn the call over to Richard J. Campo. Richard J. Campo: Good morning. Our theme for today’s pre-call music is change. We recently announced some important changes to Camden’s executive team. With the promotions of Alexander Jessett, Laurie A. Baker, and Ben Fraker, we continued our longstanding commitment to succession planning featuring Camden’s homegrown talent. This will ensure the continuity of Camden’s family values, institutional knowledge, and unique culture. Alex, Laurie, and Ben each bring 25-plus years of tenure at Camden to their new leadership roles. And in the words of REO Speedwagon, I will be here when you are ready to roll with the changes. These promotions will ensure that Camden will be ready to roll with the changes in the years ahead. But one thing that never changes is Camden’s commitment to workplace excellence, which was recently reinforced by our place on the Fortune Best Place to Work list in America for the nineteenth consecutive year, ranking number 13 this year. 96% of our employees say Camden is a great place to work, which has led to the highest customer sentiment scores that we have ever seen. The macro case for improving apartment fundamentals continues to be strong. New supply has peaked and has been cut in half in most of our markets. First-quarter apartment net absorption was one of the best since 2016 despite slow job growth and tepid consumer sentiment. Apartments provide consumers with a compelling low housing cost alternative to owning a home. I want to give a big shout-out to Camden team members for continuing to improve the lives of our teammates, our residents, and our stakeholders one experience at a time. Next up is no stranger to you, but our new CEO, Alexander Jessett. Alexander Jessett: Thanks, Rick, and good morning. As Ben will cover in detail, we had a strong first quarter. Much of the outperformance was timing related, and we are looking forward to seeing how our peak leasing season unfolds throughout the remainder of this quarter and next. In the first quarter, we recorded our lowest bad debt level since the onset of COVID-19, at less than 40 basis points. We attribute this in part to income tax refunds received by many of our residents, combined with their continual financial strength and the impact of our enhanced resident credit screening. For middle and higher income earners, 2026 tax refunds are up approximately 10% over last year, creating enhanced spending power. Despite headline reports of declining consumer sentiment, the data illustrates the financial health of our target demographic remains strong, with spending up 3% year-over-year primarily on services and retail. Our renters pay a low 19% of their income toward rent, allowing them additional discretionary funds often not seen in the more expensive coastal markets. On the demand side, our markets remain strong. CBRE’s latest headquarter relocation study, which covers 725 public announcements between 2018 and 2025, shows activity accelerating in 2025 and concentrating on a short list of metros. Dallas–Fort Worth remains a top destination with more than 100 headquarter relocations since 2018. In 2025 alone, the metro added another 11 interstate or international headquarters from higher-cost markets, including Los Angeles, the Bay Area, New York, and Chicago. Additionally, for the twelve months ended January, Dallas led the nation in absolute job growth, followed by Houston at number two, and Austin at number four. On a percentage basis, Austin led the nation with most of our markets in the top 30. The Houston metro area led the nation last year in population growth, with just under 127 thousand new residents added in the twelve-month period ending 07/01/2025. That equates to one new resident every 4.1 minutes, or 347 new residents each day. Among the top 10 metros with the largest population gains, only the Dallas–Fort Worth metro came close, with roughly 124 thousand new residents. No other metro added even half as many. This disparity highlights Texas’s appeal to workers and families supported by relatively strong job markets, lower cost of living, and the absence of a state income tax. Beyond Dallas–Fort Worth, the CBRE relocation study showed a group of Sunbelt and growth markets emerging as consistent headquarter winners. It highlighted Miami, Austin, Charlotte, Nashville, Phoenix, Tampa, Atlanta, and Raleigh–Durham as rising contenders with a pro-business climate, including tax advantages, labor availability, and lower costs. The decades-long trend of domestic migration to the Sunbelt normalized in 2025, not disappeared. In fact, WIN’s migration tracker shows domestic migration reaccelerating in 2026 as compared to 2025 in most of our markets, with sequential annual increases over 10% in Austin, Dallas, Houston, Orlando, Phoenix, and Tampa. Camden is in the right high-demand markets ready for the upcoming lower supply environment. Turning to the real estate front, our California sales process is progressing on schedule. As we shared previously, we have had strong interest, with over 230 companies signing confidentiality agreements. We are currently in the diligence process with one buyer for the entire portfolio, with an anticipated close date in late June or early July. If it does not work out with this buyer, there are other strong buyers who could step in, although with a later closing date. At this point, we are not going to comment further on the potential buyer or the sales price other than to say it is in line with expectations. We continue to assume approximately 60% of the sales proceeds will be reinvested through 1031 exchanges into our existing high-demand, high-growth Sunbelt markets. The remainder of the proceeds, modeled at $650 million, has been used for share repurchases in late 2025 and year-to-date 2026. During the first quarter, we disposed of a high CapEx 40-year-old community in Dallas for $77 million, generating an approximate 12% unlevered IRR over an almost 30-year hold period. After quarter end, we acquired Camden Alpharetta, a 269-home apartment community in the Atlanta, Georgia metro area, and Camden at Lake Nona, a 288-home apartment community in the Orlando, Florida metro area, for a combined $170 million. We are actively underwriting several other acquisition opportunities and remain confident we can effectively deploy the 1031 proceeds from the California sale. However, as I previously noted, the timing of the exchanges can add considerable variability to our 2026 earnings, as we do not receive the sales proceeds until we complete the exchanges. I will now turn the call over to Laurie A. Baker, our president and chief operating officer. Laurie A. Baker: Thanks, Alex. Camden’s operating performance to date is generally in line with our expectations. While our first-quarter results were slightly ahead of budget, the outperformance was mainly driven by timing-related items. Overall, and as expected, we saw slow but steady improvements across our portfolio as we moved through the first quarter and into the beginning of peak leasing season. Our preliminary results for April are on track, with modest improvements in both occupancy and blended lease-rate growth compared to the first quarter. Turnover remains exceptionally low and our first quarter 2026 annualized net turnover rate of 30% was one of the lowest in our company’s history. This is in part due to minimal move-outs related to home purchases, which accounted for 9.2% of our total move-outs this quarter. But it also reflects record levels of resident retention, which are a testament to Camden’s unwavering focus on customer service and providing living excellence to our residents. We will continue to focus on renewals and retention going forward, helping us protect and maintain occupancy and to mitigate expenses related to unit turnover. Renewal offers for May, June, and July were sent out with an average increase in the mid-3% range. Our team at Camden remains committed to this year’s rallying cry of smarter, faster, better, which means smarter in leveraging data, insights, and AI to drive better outcomes, remove repetitive tasks, and improve our margins, faster with AI to enable quicker, more efficient service for our customers and teams, and better by amplifying our people and improving the customer experience as reflected in our highest customer sentiment score to date in the first quarter. I will now turn over the call to Unknown Executive, Camden’s chief financial officer. Unknown Executive: Thanks, Laurie, and good morning, everyone. I will begin with our capital markets activity from the quarter, followed by a review of our first-quarter results and our outlook for the second quarter and remainder of the year. During the first quarter, we continued to take disciplined actions to further strengthen our balance sheet and enhance our long-term financial flexibility. We proactively recast our $1.2 billion revolving line of credit, extending its maturity four years while preserving attractive covenant terms and lowering all-in pricing by 15 basis points. The recast enhances our liquidity position and reflects the continued support we receive from our bank partners. During the quarter, we also issued $600 million of 10-year unsecured bonds at an all-in effective rate of 5%. This issuance allowed us to lock in long-term fixed-rate financing, extend our weighted-average debt maturity, and reduce near-term refinancing risk. As Alex previously mentioned, we were active with our share repurchases during and subsequent to the quarter, with share repurchases of $423 million at an average price of $104.08 per share. These repurchases, along with $271 million in repurchases completed in 2025, reflect our disciplined and opportunistic capital allocation approach as our shares trade at a significant discount to NAV. While we will continue to monitor our share price performance, our updated full-year 2026 guidance assumes no other share repurchases. As a result of these actions, we ended the quarter with strong liquidity, well-laddered maturities, and leverage metrics that remain comfortably within our long-term targeted range. Turning to our first-quarter results, we delivered a solid start to the year. For the first quarter, core FFO was $1.70 per share, which exceeded the midpoint of our guidance by $0.04 per share, which we can attribute to the following items. The outperformance compared to guidance was driven by $0.01 from higher revenues from our operating properties, primarily attributable to lower-than-anticipated bad debt and higher collections on delinquent rent. Another $0.02 resulted from property expense savings, which were largely timing related and not indicative of a change to our full-year expense outlook. The remaining $0.01 of the beat was due to the timing of third-party construction fee income, which we had previously expected to earn later in 2026. Operating conditions during the quarter tracked our expectations for lease trade-out and occupancy. Additionally, outside of our core operating results, we recorded $58.2 million of non-core FFO charges, most of which were related to the previously disclosed $53 million class action lawsuit settlement detailed in the 8-K furnished on April 9. The remaining charges were primarily due to $4.9 million of anticipated investment losses from two climate technology funds. Turning to full-year 2026 same-store guidance, while we experienced better-than-expected bad debt and delinquency results during the first quarter, we believe it is premature to extrapolate one quarter’s performance into a full-year trend, particularly given market variability. As a result, we are reaffirming the midpoint of our full-year same-store revenue guidance at 0.75%. Similarly, the first-quarter expense outperformance was largely timing related, so we are reaffirming the midpoint of our same-store expense guidance at 3%. With the midpoints of both revenue and expense guidance unchanged, the midpoint of our same-store NOI guidance remains unchanged at negative 0.5%. Our same-store guidance continues to assume improving lease trade-out fundamentals as we enter peak leasing season, along with moderation in new supply pressure as the year progresses. With no change in our expected same-store results, and transaction volume and timing in range of our original plan, we are keeping the midpoint of our full-year core FFO per-share guidance of $6.75. We also provided guidance for the second quarter of 2026. We expect core FFO per share for the second quarter to be within the range of $1.65 to $1.69, representing a $0.03 per-share sequential decline from the first quarter at the midpoint. This anticipated decline is driven by a $0.04 sequential decrease in same-store NOI as higher expected revenues during our second quarter are offset by the seasonality and timing of certain repair and maintenance expenses and the timing of our annual merit increases. This $0.04 same-store NOI decrease is partially offset by $0.01 of additional non-same-store NOI from our completed and projected net acquisitions. In closing, Camden remains in a strong financial position. Our balance sheet strength, ample liquidity, and disciplined capital allocation provide us with meaningful flexibility as operating conditions evolve. At this point, we will open up the call for questions. Operator: We will now open the call for questions. The first question comes from Eric Wolfe with Citi. You may go ahead. Eric Wolfe: I think you said that April blends were modestly better than the first quarter, which I came in at, I think, around negative 1.4%. But you also said that April was generally in line with your expectations and what you had in guidance thus far. Could you maybe just talk about sort of the ramp that you expect for the rest of the year? I guess, it would seem like based on your guidance that you expect a pretty big ramp. I was just curious when you expect to see that, and if you see any early signs of that increase in spreads based on your Street data. Thanks. Alexander Jessett: Yeah, absolutely. So let us sort of frame it. Let us first talk about occupancy. April occupancy is right around 95.4%. That compares to 95.1% in the first quarter, so that is a pretty considerable increase. And then when you look at blended rates, blended rates for us in April—certainly not giving interim data because I do not want our peers to smack me—but we are seeing blended rates up about 100 basis points in April as compared to what we saw in the first quarter. So all of that is in trend and absolutely positive. If you look at how we are thinking this is going to lay out for the rest of the year, what we are anticipating is a pretty strong third quarter, with the hope that at that point in time, we have got enough of the new supply absorbed, and then that leads into sort of an atypical better fourth quarter than what you would normally see because you have got supply coming down so dramatically. So that is what is built into our numbers. I will tell you at this point in time, we are feeling pretty good about how April is shaking out, and we are certainly seeing several of our markets that I would classify as showing green shoots. The markets that are jumping out to me would be Atlanta, Dallas, Orlando, Nashville, Raleigh, and Southeast Florida. And we think those are going to be the markets that are really going to lead us in this sort of return to normalcy as all that excess supply is absorbed. Operator: The next question comes from Jamie Feldman with Wells Fargo. Jamie Feldman: Great. First, congratulations, everyone, on all the changes. Excited to see what comes next. I guess as we think about going back to those comments, can you talk about concessions? How have they been trending, and then as you think about the ramp you expect to see for the rest of the year, your expectations for concessions coming in and how that helps? Alexander Jessett: Yeah. I mean, as you know, we do not offer concessions. And so what we are doing is we have to look and see what is out there in the marketplace. And the good news is that we are seeing concessions come down fairly meaningfully in most of our markets. And once again, that is really tied to supply. If you look at the vast majority of our markets, new supply is down 50% since peak. And because of that, you are no longer in a situation where you have got a lot of developers that are trying to go from 0% occupied to 95% occupied and offering every single concession possible to get you there. So we are seeing concessions come down, as I said, pretty considerably in most of our markets. And really the easiest way and sort of the best comp that I have for that is the one asset that we have got in development, which is our Village District community in Raleigh. In that particular community, remember that we always assume that you are going to give one month free in a new lease-up, and that is to compensate for the fact that there is construction activity, etcetera, going on. And we are offering a concession there, but it is not much over that one month. And so what that really does tell you is that concessions are starting to get into check in our markets. Operator: The next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Please go ahead. Austin Todd Wurschmidt: Yeah. Laurie, I think you indicated asking rates on renewal leases are going out in the mid-3% range. I think last quarter you were sending out around 3% to 3.5% and achieved closer to or just below, I think, 3% was the number. Just curious what the take rate has been from the asking versus achieved, and do you think that starts to narrow a little bit as you get into the peak leasing season as it sounds like things have picked up a bit? Laurie A. Baker: Yeah. So we saw that in the first quarter—we were going out with the range in the mid-3s, and I think we reported that last quarter—and what we saw is just a little bit of price sensitivity in the first few months of the year, but we are now starting to see in our May, June, July lease renewals that are going out that we are able to get a little bit more of an increase in those numbers. And with our renewals being so high, we are feeling pretty good about kind of landing right around the same range of usually 50 basis points below where we send offers. And so as we have the opportunity to push in markets where we are getting a little more pricing power, we will continue to do so. In the markets where there are more concessions and supply, we may not be able to get to those top-line numbers that we are going out at, but we feel pretty good about the conversations we are having out there. And just know, it has a lot to do with how well we take care of our residents and explaining to them the costs that are associated with moving and the product we provide and the service level we provide. Those conversations typically go pretty well. So we are feeling good. Our teams are very focused on explaining what the concession market is and how our net pricing equates to that. So I think we are feeling good about, as we said earlier, going out with the mid-3s and a little higher as we get into our peak summer. Operator: The next question comes from Stephen Thomas Sakwa with Evercore ISI. Please go ahead. Stephen Thomas Sakwa: Thanks. I guess I wanted to ask maybe kind of a size/portfolio question. Obviously, there have been some stories about industry consolidation. And I am just wondering, at your portfolio size, as you think about the data you gather from your existing assets, do you think that data would be better if you were two, three, 4x bigger? And how are you using other data sources to think about pricing today? Alexander Jessett: Yeah. So the first thing I will tell you, we try not to comment on rumors about mergers and acquisitions that are out there. So that is point number one. Point number two, we are very fortunate, and the investor community is very fortunate, that leadership at all companies are really good. And so, whatever decisions other companies make, we have got to believe are right for them. For us, the way we sort of think about this is that bigger is not better. Better is better. And if you look at long-term trends, there is absolutely no correlation between the size of the company and total shareholder return. So that is the big-picture way of looking at it. And then when you look at data, here is what I will tell you. With the scale we have, we have got enough information. We have got enough data to make the appropriate decisions across every aspect of our business. And I do not think that if we were in a situation where all of a sudden we were two or three times the size we are, that we would see any type of significant increase in our ability to collect data, analyze data, and utilize data. I think we are in a world where we have got perfect clarity into all of our information. And remember that we are a pretty good-sized company, and we have got a lot of units that we can look at, and we see how those units are behaving, and we can see how our consumers are behaving. And so I am not really sure that there are any real significant improvements on the data side to come from being considerably bigger. Operator: The next question comes from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Maybe a question on acquisitions as you prepare to deploy the disposition proceeds. Can you talk about cap rates in the Sunbelt markets you typically underwrite, year-one rent growth, and if you are seeing more opportunity in kind of core products or are you looking at maybe unstabilized or lease-up? Alexander Jessett: Sure. So, obviously, transaction volumes are still clearly below sort of pre-COVID levels, but today are trending in line with where we were in 2025. We are evaluating a number of opportunities as we look to redeploy the proceeds from the California transaction. Not seeing a lot in terms of lease-up acquisition opportunities this year. Those types of opportunities—I think sellers who have properties in lease-up—are really trying to get them to a point of stabilization before they go to the market to create as much liquidity for that asset as they possibly can. From a pricing standpoint, cap rates have really been stable over probably the last 18 months. The trades for newer, well-located properties in the Sunbelt—those cap rates are in the 4.5% to 5% range and have been for some time. That is certainly what we are seeing. Operator: The next question comes from Richard Anderson with Cantor Fitzgerald. Please go ahead. Richard Anderson: Hey, thanks. Good morning and congrats to everyone for all the moves—very exciting. So, my question is on sort of the cadence of the “recovery” from here. I think if we were sitting here at this time last year, we probably would have thought by now we would be seeing more in the way of real, you know, CPI-plus at least type growth, particularly out of the new lease category. It seems like that got delayed a year, given the tail of supply. But I am curious if you could comment about what you think the cadence of the growth recovery will be as we get into 2027? Is it more of a hockey stick like we saw in 2022—I would hope not—or more of a gradual improvement based on whatever forces are at work as supply burns off? I am just curious how you envision sort of the cadence from that third-quarter strength that you talked about and onward. Thanks. Alexander Jessett: Yeah, absolutely. So the first thing I will tell you is if you go back and look at 2025, if you remember, we had a little bit of a head fake because in 2025, April looked fantastic, and then all of a sudden, things just stopped pretty quickly, and a lot of that was tied to the factors that we know—“liberation day,” etcetera. If you look at what we are assuming, we are assuming that this recovery could look a lot like what we saw coming out of the GFC. And if you look at what we saw coming out of the GFC, we saw several years of really considerable growth. You look at 2011, I think our NOI was up about 7%. 2012, it was up 9%. 2013, it was up 6%. So you could see something similar to that. Now, if you look at the cadence, we certainly are—and I know you said you hope it is not a hockey stick—we are anticipating sort of a hockey stick in the latter part of 2026 as we get through this absorption. Then, when you get into 2027, at that point in time—clearly not going to give any guidance—but I would anticipate, if you just look back at what we saw coming out of the GFC, then it becomes a steady but strong growth on a go-forward basis. I would just add to that some numbers around the completions in Camden’s markets. The cadence looks like: in 2025, we had 200 thousand completions; that drops to about 140–150 thousand this year; that drops to 135 thousand in 2027; and down to 120 thousand in 2028. The thing that is important about that is it is very hard to change the trajectory of that completion number because if it is not already under construction, it is not coming by 2027. Operator: The next question comes from Bradley Barrett Heffern with RBC Capital Markets. Please go ahead. Bradley Barrett Heffern: Yes, thanks, everybody. Congratulations on all promotions. Glad to see the music is sticking around amid all the changes. Going back to the 1Q blends, typically we see a jump sequentially in the first quarter. Your peers have generally reported that. Last year was 100 basis points higher or so in the first quarter. Sounds like that was already assumed in guidance, but I am just wondering if you can talk through why you did not expect or see that sort of normal seasonal pattern. Alexander Jessett: Alright. So the first thing is, music is not going anywhere. Love our music, and expect to see that for, to the point whenever I am handing it over to somebody else. That music will continue. If you think about the first quarter, what we were doing in the first quarter was making sure that we were setting ourselves up appropriately for the rest of the year, and we feel good about the way our first quarter unfolded. It was in line with our expectations. It was in line with our guidance. It is interesting because there is obviously going to be a lot of comparison between the multifamilies, and we completely understand that. We are all in different markets. If you look at the markets in which we overlap with our competitors—and in particular, one of our competitors—we outperformed in most of those markets. And so however you get there on the revenue side, our revenue results, we feel really good about, and we feel that we are doing the right thing to set ourselves up for a successful second, third, and fourth quarter of this year. And when we look at our April results, our April results are doing very well, as we just talked about, and so we feel very good about how our trend is looking. Operator: The next question comes from Haendel St. Juste with Mizuho. Please go ahead. Haendel St. Juste: Hey, guys. Congrats on the promotions and thanks for taking my question. My question is on the buyback/capital deployment. As you said, you repurchased the $650 million that you outlined on prior calls. Another couple hundred million or so capacity in the buyback. Can you talk more about capital allocation from here, your level of interest in maybe more buybacks? Are they more dependent on incremental dispositions beyond the SoCal portfolio sale? Could you shift a bit of capital from maybe acquisitions to more buybacks? So some thoughts here on capital deployment, the options on the table, then remind us the tax limitations regarding 1031s. Thanks. Unknown Executive: Sure. So between 2025 and 2026, we bought back $693 million in advance of our California sale at an average price of $105 and change. That represents a 6.4% FFO yield. So that has been an excellent source and allocation of our capital. Like I said in my prepared remarks, we are going to continue to monitor our share price performance, but as of now, for our transaction plan, we have no additional share repurchases in our 2026 guidance. And as far as taxable room, we have planned for $1 billion in acquisitions, which is about the amount we need to maximize the use of proceeds to offset any additional special distributions we would need to make. But I will point out, just because we do not have any other share repurchases in our guidance, that does not mean that we will not do any additional share repurchases. We have plenty of capacity under our balance sheet, plenty of capacity with our leverage once the California transaction closes, that we can absolutely do more share repurchases. And so that is absolutely something that is up there for opportunities for us as we go forward. Operator: The next question comes from John P. Kim with BMO Capital Markets. Please go ahead. John P. Kim: Thank you. On the Southern California portfolio sale, I know you do not want to get into the details of it. But I wanted to ask about the rationale of selling to one buyer for the entire portfolio rather than splitting up the portfolio where you might have gotten better pricing. And given the amount of interest that you have gotten on this sale, why not more actively pursue acquisitions ahead of closing of it? Alexander Jessett: Yeah. We had a lot of interest, and we had a lot of interest on both the portfolio side, individual asset side, and then sub-portfolio sides. We believe at this point, what we have done with picking the one buyer that we have picked is we have limited our execution risk while maximizing proceeds. Now it is important to note that there were a lot of buyers clustered together, and so we did make a choice going with a particular buyer because of the strength of that buyer. But to your point, whether we could maximize proceeds by splitting it up—maybe we could have done a little bit more—but it would have introduced additional risk that we did not think made sense to us. And then as I did point out in prepared remarks, even though we have picked the buyer and we are still in the diligence process, the good news is that there were several buyers, and there are several buyers that are around. I think there are several buyers really hoping that our current buyer falls out, but we do not think that is going to happen. And then when it comes to opportunities for more acquisitions, we are really active right now. Since the last couple of weeks, we have actually been awarded $250 million worth of acquisitions. So that gets us up to pretty close to halfway towards our $1 billion goal. There is a lot out there, and I will tell you right now, we are the prettiest buyer in the market. Everybody is coming to us. Everybody is showing us opportunities because they know that we have the capacity to close, and they know that we are for real. And so I am expecting that we are going to come out with a really, really great additional portfolio to enhance what we have today from this process. So feeling really good about the acquisition opportunities, feeling really good about the California process and how it is progressing. Operator: The next question comes from Alexander David Goldfarb with Piper Sandler. Please go ahead. Alexander David Goldfarb: Hey. Good morning down there, and congrats all around Alex, Laurie, and Ben. I guess you guys will have to lead the Camden company skits at those off-sites. So question for you about the demand and supply. You and a number of the other Sunbelt players have all commented that certain markets are rebounding and showing strength. But overall, as you outlined, it is still going to be a tough market until later in the year. Is this a matter of there were a lot of projects from last year that just had slow lease-ups? Is this stuff that leaked into this year? Or is it that you need faster jobs? Basically, I am asking, is this a jobs issue, or is this a supply issue? And if it is supply, was this just projects that got delayed from last year or slower lease-ups? Just trying to better understand the dynamics here. Alexander Jessett: Alex, I am going to hit the most important point first. Rick and Keith are not going to be let out of skits. Fully anticipate seeing them, and seeing them dressed up, on a continual basis. This is entirely a supply story. Demand in our markets is incredibly strong. As I laid out in the prepared remarks, you can look at domestic migration. You can look at job creation. You can look at corporate headquarter relocation. All of those favor our markets over the coasts. This is merely a matter of absorbing the existing supply that is out there, and that is why we feel very good about how the latter part of 2026 should end up because you will have that excess supply being absorbed. To a point that was made earlier, if you look at our markets, our market supply is down 50% over its peak. If you look at most of our markets, and you just look at a year-over-year basis, you have got supply down anywhere between 20% to 60%. What that tells you is once that supply is absorbed, we are going to have very, very healthy revenue growth. Operator: The next question comes from Adam Kramer with Morgan Stanley. Please go ahead. Adam Kramer: Good morning. This is Derek Metzler here with Adam Kramer. My question is about the difference in Class A versus Class B—or affordable by comparison—product and urban versus suburban product. And as supply comes down and, obviously, it is mostly Class A, high-quality product supply that is coming down, how do you see the outlook for the Class A versus Class B and other products in your portfolio and across your markets performing over the next few quarters or years in the better supply environment? Alexander Jessett: Yeah. So A’s versus B’s for us right now is pretty flat. Where we are seeing the delta is suburban versus urban, and if you look on the revenue side and you just look at last quarter, our urban assets actually were 70 basis points better than our suburban assets. Once again, and to the earlier question, this is entirely a supply story. If you look in our markets, apartment supply is falling fastest in urban areas. And because of that, that is where we are seeing the additional pricing power. And then it is in statistics like that that make us feel very good about our ability to get positive rent growth as we move through the year because we do know that once you get past the supply falling in the urban areas, it is going to fall in the suburban areas as well. We will get it all absorbed, and that is what should lead to continued strength as we go throughout the year. Operator: The next question comes from Michael Goldsmith with UBS. Please go ahead. Michael Goldsmith: This is Amy on with Michael. We wanted to touch on Houston where occupancy was down pretty materially year-over-year in the quarter. Wondering what the outlook is for that market and if you think that the recent higher gas prices could have any positive impact there? Alexander Jessett: For Houston, Houston is a really interesting market. If you look at all of the fundamentals in Houston, they are fantastic. When you actually look at the results, though, they are not as great. And there are some really interesting data around consumer sentiment that seems particular to Houston. Houston’s consumer sentiment has fallen pretty dramatically in 2026 as compared to 2025. I think a lot of that is around just some of the effects of immigration, which does have a huge impact to Houston. And I think that that negative customer sentiment is having an impact in the way the Houston consumer spends their money. And, obviously, that is impacting rent. But if you get past the sentiment issue—and what we know about sentiment is humans are incredibly resilient, and they have an ability to return to the positive really fast—once they get past that sentiment issue, they are very strong. In Houston in particular, we have got a lot of job creation. We have got a lot of population growth. We know our consumer is doing really well. In fact, our rent-to-income in Houston is 16%. It is one of the lowest in our entire portfolio. So the consumer is there. The consumer has the ability to spend more money. Supply has come down pretty dramatically. Houston will get better. It is just a sentiment issue. Richard J. Campo: Let me add to that a little bit. When you think about consumers today—and Houston is a great example of that—and I echo Alex’s issue about immigration because immigration is a big issue, and it is definitely stressing a lot of folks out, especially since Houston is the most diverse city in America. We have a minority majority of Hispanic people that live here, and 25% of our population is foreign born in Houston. But the consumer in general is interesting. When you think about consumer sentiment generally across the country, it is not great. But if you look at job growth, wage growth, and consumer spending, it is good. So the consumer is kind of stressed about a lot of things. The things that they are stressed about are, number one, inflation continues to be an issue. And when you think about inflation, housing—so in Houston, for example, housing prices have gone up 60% since the pandemic. In Houston, Texas, people go, “Oh, it used to be affordable here,” and that is bothering consumers. But if you look nationwide, it is the same issue. Housing costs are up. Apartment rents, of course, have been flat for 36 months, but housing prices continue to be up. Interest rates were up. So all those things have kind of created this. And this uncertainty, by the way, politically, has created this tension in the consumer. The interesting part is the consumer is actually doing really well. And so the feeling they have is bad; the underlying consumer strength is good. But to Alex’s point, that tension or that stress or that feeling of uncertainty and “bad” that the consumer has is making them slower to make housing decisions and to move around. So you have less moving around than you would normally have. The other thing I think is really interesting is that when you look at what has happened to college people who graduated from college this year and last year, there has been sort of a failure to launch for about 10% or 12% of those graduates. If you look at stats on people living at home that were not living at home before, pre-COVID we have about a 900 thousand increase in 20- to 25-year-olds that are living at home or with roommates today. So it is a really interesting, kind of weird place. Even though the world is good from a consumer perspective, they are fairly uncertain. Operator: The next question comes from Richard Allen Hightower with Barclays. Please go ahead. Richard Allen Hightower: Hey, good morning, guys. I guess I want to combine two categories into one question for a second. So if I think about the earlier question about sort of the benefits of scale and data and how that informs revenue management and then, of course, the fact that you and several of your peers have sort of put the RealPage lawsuit stuff in the rearview mirror at this point. And I know that revenue management around that topic has already sort of changed throughout the industry. But just maybe help us understand, when you combine those two threads, what has changed about the way units get priced, how you use information, how the competitive marketplace uses information in a different way, and has anything really changed fundamentally on the ground since then? Alexander Jessett: So if you look at RealPage, first of all, all of that litigation—we did come to an agreement in terms—but it is not in the rearview mirror yet. We have got a little ways to go, and so hopefully we can stop talking about that in the next couple of quarters completely. If you look at the way revenue management works, revenue management really does rely a lot on your existing data—on your existing units, the amount of tours you give, how long that particular unit has been on the market, the occupancy of your particular community. And so fundamentally, sure, there have been some changes in the way revenue management works. We do not think that any of those changes will have any negative impact on us whatsoever. The other thing that is really important is, if you look at the way we do it, we have a full-time department called the revenue management department that does nothing but all day long price our individual units. Revenue management software is a tool. It is a tool that our humans use. And so our humans are constantly going through, repricing every single day, looking at recommendations, etcetera. One of the things that we used to say five, ten years ago was whenever we bought an existing community that was using YieldStar or some other revenue management software but only just had it turned on without any additional human interaction, we used to say we love to buy those because we knew we could come in and we could absolutely use our talents, use our resources, use our institutional knowledge, and use our data and make it better—make it perform far better than revenue management software on its own. So we do not think there is going to be any delta, any differential here whatsoever. And the reality is that we have all been using a “compliant” software now for quite some time. So we feel good about the resources we have and feel good about the way we will price our real estate and do not expect to see any negative impact whatsoever. Laurie A. Baker: Yeah, and I would just add that the benefit we have today is the fact that there are new operating models. There are new tools. We have AI. We have a BI team that is continuing to work with our on-site teams and that revenue team to provide data via our dashboards and gain more insights that we have just never even had the ability to make in-the-moment, real-time decisions about what is happening in the field. And so by the nature of how we have evolved as an organization—and our revenue team who has been involved since the very beginning—they have such good insight into what is happening with all of our properties, and getting the weekly, daily information allows us now to even price better with that information and those tools. But as Alex shared, this has always been based on what we do internally with our strategy, and our strategies change. Sometimes what is happening in a submarket or at a local community is driven by some of the outside circumstances, but it is our on-site team and the data we have about our occupancy and our traffic and our leasing velocity that dictates how we price and how we look at our renewals. Operator: The next question comes from Analyst with Goldman Sachs. Please go ahead. Analyst: Yes. Hi. Thanks for taking my question. Just wanted to go back to the tax refund benefit. Do you think that has been a big driver of the April sequential improvement in blends, just because up until this point it does not sound like we were seeing the typical seasonal uplift we would usually expect? And how do you think about the duration of that benefit into future months? Alexander Jessett: It is really interesting when you look at the data. So you saw this large increase in tax refunds, and what happened was folks spent it on a couple of things. One of them—which is, to quote somebody else here, somewhat un-American—they used it to pay down debt. And so that is sort of a one-time benefit. And then they used it for a lot of discretionary spend—think going to restaurants, think retail shopping. So they are absolutely spending the money. I do not think that that is the driver of what you are seeing in the April uptick. I think the driver of what you are seeing in the April uptick is us hitting the typical leasing season and the continued absorption of supply. So I do not think that is the factor. But I clearly do think it was a large component of our bad-debt significant outperformance in the first quarter. Operator: The final question comes from Alex Kim with Zelman and Associates. Please go ahead. Alex Kim: Hi. Congrats to everyone for the respective moves, and thanks for taking my question. I wanted to ask a little about the development environment today and some of the economics that you are seeing, particularly in relation to your capital allocation strategy. Where does development sit relative to acquisitions and then potentially looking at share repurchases? And then, just a bit more specifically, on Ken and Baker given that Denver seems to be a bit slower in the timeline for its recovery in revenue and operating fundamentals? Thanks. Alexander Jessett: If you look at the best uses of our capital today, number one is share repurchases. Obviously, we are limited on how much we can buy back if we are using dispositions to fund that. Once you get past that, developments and acquisitions are sort of a toss-up. At one point, I would have said development, absolutely—three years ago, development was absolutely better than acquisitions. Today, what we are seeing is that you can buy real estate at a discount to replacement cost almost everywhere. And so what that means is that acquisitions become a better use of capital if you are just looking at it from 10,000 feet. Then when you start to dial it back and you start to really dig into the numbers, there are certain environments and certain locations where developments make more sense. And so we certainly are continuing to do our developments. We will talk about Baker in a second, but we do have other land sites we control. At this point in time, we control three additional land sites that we have not purchased. Those three additional land sites we intend to buy this year, and those will be developments, and those will be developments that we believe are going to create pretty significant value for our shareholders. But keep in mind that we are talking about three development land sites versus buying $1 billion of stabilized assets. So that should answer the question right there about what we think is a better use on a broad stroke. When you look at Baker, Baker has been sitting there on our development pipeline for quite some time. The reason why it has been sitting there and not started is, at this point in time, the math is not that great. And we are in no hurry to go start something that we do not believe is the right thing to do for our shareholders. So we will continue to evaluate Baker. Baker is in the central business area of Denver. As everybody knows, that area is really soft right now. So we need to see some improvements in that area. If we see improvements in that area, we will start that development. And if we do not, we will not. We are committed to doing what is right for our shareholders and making sure that we use our capital to create the best investments. Operator: This concludes our question and answer session. I would like to turn the conference back over to Richard J. Campo for any closing remarks. Richard J. Campo: Thank you for joining us today and look forward to seeing all of you really soon. Hope everybody has a great weekend. Take care. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help. Please standby, your meeting is about to begin. Good morning, everyone. Welcome to the Ares Management Corporation First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, May 1, 2026. I would now like to turn the call over to Greg Mason, Co-Head of Public Markets and Investor Relations for Ares Management Corporation. Please go ahead, sir. Greg Mason: Good morning, and thank you for joining us today for our first quarter 2026 conference call. I am joined today by Michael J. Arougheti, our Chief Executive Officer, and Jarrod Morgan Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares Management Corporation or any Ares Management Corporation fund. During this call, we will refer to certain non-GAAP financial measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measure. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of 1.35 dollars per share on the Company’s Class A and non-voting common stock, representing an increase of over 20% from the same quarter a year ago. The dividend will be paid on June 30, 2026, to holders of record on June 16. Now I will turn the call over to Mike, who will start with some comments on the current market environment and our first quarter financial results. Michael J. Arougheti: Thank you, Greg, and good morning. We hope everybody is doing well. In the first quarter, we continued to generate strong financial results and significant growth across our key financial metrics, and we are excited and confident about the opportunities ahead for our business. Our AUM increased 18% year-over-year to 644 billion dollars, and our fee-paying AUM increased 19% to 400 billion dollars. This is translating into strong top line growth and profitability, as management fees increased 22% year-over-year, FRE grew 26%, and realized income increased 24%. We also continued to generate strong fund performance for our investors across an expanding array of investment strategies, which is helping to drive increased and more diversified investor demand across our firm. In fact, we are on track for another record year of fundraising as we raised 30 billion dollars of gross capital in Q1, which is our highest ever first quarter, and that is up 46% compared to last year’s record first quarter. Our pipeline of new institutional funds remains robust for this year and next year, with three of our largest institutional private credit funds in the market over the next twelve months, two of which have already launched with significant momentum. Our institutional franchise remains strong. Three-quarters of our 644 billion dollars of AUM is comprised of institutional capital with 14% from publicly traded closed-end funds and other sources and just over 10% from evergreen wealth products. With nearly 1,700 investment professionals across more than 55 global offices, we operate one of the largest and most diversified origination platforms in the private markets. This platform enables us to source differentiated investments throughout market cycles and to capture market share during periods of volatility. Even with the typical seasonal slowdown in the first quarter, which was further amplified by heightened geopolitical issues, our deployment was still over 32 billion dollars across the firm, which was higher than the first quarter of last year. As sponsors and business owners gain increasing comfort with the market backdrop, we are seeing our forward investment pipeline increase to a new record level with notable strength across European and U.S. Direct Lending, Alternative Credit and Infrastructure. The expansion of our platform is also driving new investment opportunities. For example, over the past two years, we have added 14 new investment products and strategies, which now total 68 billion dollars in AUM. These new additions to the platform enable us to continue to expand our global origination capabilities and help us to find supply-demand imbalances and scenarios. Our available capital continues to expand on the back of our strong fundraising, and it now stands at over 158 billion dollars. As one of the largest institutionally backed private credit providers globally, we believe that we have the most credit dry powder of any public player in the market, totaling more than 100 billion dollars. This sets us up well for continued growth in FPAUM as we invest in today’s increasingly attractive market. Now let me dive into a few key drivers of our business, starting with fundraising. In short, we continue to see strong demand from institutional investors as many are seeking to take advantage of improving market conditions across private credit, real assets and secondaries. Institutional demand is broad-based; we continue to see investors consolidating relationships with scaled platforms like Ares Management Corporation that can generate consistent performance across cycles. Within our Credit Group, we raised over 20 billion dollars in Q1, driven by strong demand across both drawdown funds and perpetual capital vehicles. In the first quarter, we held the final close for ASOF III, our latest opportunistic credit fund, raising over 8.3 billion dollars of equity commitments and nearly 10 billion dollars including related transaction vehicles. ASOF III significantly exceeded its target and the size of the prior vintage. We believe that the timing of this raise is particularly compelling as the team is seeing a large pipeline of investment opportunities. In January, we launched the third vintage of our Alternative Credit fund with a target of 6.5 billion dollars. Our Alternative Credit strategy is where we invest across the multi-trillion dollar addressable market in global asset-backed finance. Our prior Alternative Credit fund totaled 6.6 billion dollars in capital, and the current fund is experiencing strong demand from existing and new institutional investors well in excess of the target. We expect to complete the fundraise in the second quarter at its hard cap as the fund is already meaningfully oversubscribed. In U.S. Direct Lending, we are accelerating the launch of our fourth senior direct lending fund due to improving market conditions, which are offering enhanced economics, lower leverage and improved deal terms in U.S. Direct Lending investments. We anticipate a first close in late third quarter or early fourth quarter of this year. We also have some exciting structural enhancements to our main fund series, which we believe will benefit investors and enhance our fundraising capabilities in the strategy. In our third U.S. senior direct lending fund, SDL 3, we raised approximately 15.3 billion dollars in equity commitments across both levered and unlevered sleeves in the fund against a 10 billion dollar cover. The fourth vintage in the series will be a fully levered fund, and we plan to launch a new unlevered evergreen U.S. senior direct lending core product. The two products will continue to invest together just like previous vintages, but will now provide investors with both a commingled and an evergreen opportunity. Like our third fund, we would expect this fourth fund series to also exceed its 10 billion dollar cover. In Digital Infrastructure, we are raising a global data center equity fund to take advantage of the multi-decade supply-demand imbalance, as the hyperscalers drive demand for trillions of dollars of cloud and AI computing over the next five years, a significant portion of which will need to be solved by private equity and private credit. Our Digital Infrastructure group, which includes our own vertically integrated operating platform, Ada Infrastructure, has a differentiated position in the market characterized by long-standing hyperscaler relationships, significant investment and development expertise, and multiple seed projects in the pipeline in top-tier markets. We expect to hold a significant first close for our global data center fund this summer. As many of you know, we operate one of the largest real estate platforms globally, and our scale continues to drive accelerating demand across our real estate funds. In the first quarter, our eleventh U.S. Value-Add fund closed at its increased hard cap of 3.1 billion dollars in fund commitments and approximately 3 billion dollars of total capital. Similarly, our fifth Japan Logistics Development Fund is seeing very strong demand following the excellent performance of prior vintages. We expect to hold a first close this spring and ultimately reach the hard cap later this year. And in Secondaries, we are back in the market with our third real estate secondary fund and expect a first close in the back half of the year. Within our Wealth business, we had another strong quarter driven by accelerating demand in our six products outside of U.S. private credit. In fact, we raised the same amount of gross and net equity capital of 4 billion dollars and 3 billion dollars, respectively, in the first quarter as we did in the fourth quarter of last year. On a year-over-year basis, our Wealth AUM increased 54% to 68 billion dollars. We believe that our diversified product offering is enabling us to gain market share as advisors broaden their focus away from U.S. private credit toward other alternative products like infrastructure, real estate and private equity. For example, during the first quarter, our core infrastructure fund raised 1 billion dollars in equity subscriptions and now has over 3 billion dollars of AUM, and the fund just launched on its first major platform with its first capital raise on that platform closing today. We are also seeing improving flows across our two non-traded REITs, with more than 640 million dollars of inflows in the quarter, and our European direct lending wealth products had equity flows of nearly 1.2 billion dollars. Within U.S. Direct Lending, equity flows into our non-traded BDC have moderated relative to prior periods, while fund performance and underlying credit fundamentals remain strong. Since inception, the non-traded BDC has generated an annualized return of over 10% for Class I shares. Notably, the majority of repurchase requests during the most recent quarter came from a limited number of family offices and smaller institutions in select regions, and over 95% of our investors did not request redemptions. It is important to remember that these vehicles are specifically designed to align liquidity with the underlying assets. For example, the non-traded BDC’s 5% quarterly repurchase framework approximates the natural repayments of a typical U.S. direct lending portfolio. This repurchase framework is intended to provide access to attractively yielding illiquid assets while also mitigating against the risk of forced asset sales amid heightened redemption requests. Finally, we believe that we are well positioned to continue to drive strong growth regardless of redemption activity in our U.S. private credit vehicles. These two private credit wealth products account for approximately 4.5% of our overall fee-paying AUM. While we believe it is a very unlikely scenario, if these two funds were to experience 5% quarterly redemptions for a full year with no gross inflows, we estimate that, based on existing fund structures and redemption mechanics, it could impact our FPAUM by approximately 1% annually. Considering that our FPAUM increased by over 19% in the past twelve months, and our current AUM-not-yet-paying-fees available for deployment represents another 19% of future growth in FPAUM, we would expect the impact of any redemption activity to be minimal. In reality, any deployment that would have gone to these non-traded vehicles will likely be taken up by other traded and institutional funds and SMAs with limited to no impact to our current year profitability. On the investing side, overall deployment activity increased modestly compared to 2025, driven by real estate, alternative credit, European direct lending and private equity. The transaction market environment for U.S. Direct Lending was slower in the first quarter as industry-wide deal count and middle market M&A declined by 41% in Q1 2026 versus Q1 2025 due to impacts from the Iran war and changing inflation and rate expectations. During slower periods, we often gain considerable market share due to our certainty of capital and broad sourcing capabilities, and the first quarter was no exception. Over the past several weeks, we are beginning to see a pickup in new U.S. Direct Lending transaction activity as market participants adjust to changing market conditions. As Jarrod will discuss later in the call, our investment portfolios are performing well and credit fundamentals remain positive. Of course, the broader market will see defaults which will inevitably garner attention, but we are not seeing signs of an impending default cycle, and we believe that private credit players are getting well compensated for the risks with enhanced economics. We have operated our U.S. Direct Lending strategy for over 20 years, and looking at Ares’ BDC, Ares Capital Corporation, we have deployed and exited more than 70 billion dollars in capital with an asset-level realized gross IRR of 13% on all exited investments. In our view, the growth of the private credit asset class is part of a multi-decade structural evolution supported first by continued expansion of the private markets relative to the public markets; secondly, it is driven by bank consolidation, the need for tight bank regulation given the dependence on federally insured deposits and the inherent asset-liability mismatch and leverage in the banking system; and lastly, the syndicated bank loan and high yield markets have been focused on larger companies for decades, which has left a growing void for middle market companies, which comprise about one-third of our economy. The U.S. private credit market, which is funded 75% or more by institutional investors, serves as a stabilizing force in the economy when bank lending contracts or when the capital markets become constrained. For example, if you look over the last 25 years, U.S. private credit has contracted once, which was over 10 years ago, versus the banking sector, which has contracted eight times over the same period. Today, Ares Management Corporation has over 100 billion dollars in available capital to invest in credit, and we estimate that the industry has over 500 billion dollars of available capital, which is larger than the size of the entire non-traded BDC industry. While private credit has expanded at low double-digit rates over the past decade, this growth tracks in line with the growth of the 5 trillion dollar private equity sector and other private market asset classes. Also, the percentage of our economy’s GDP funded by corporate credit, including private credit, bank C&I loans, syndicated bank loans and high yield bonds, has not changed over the past decade. This indicates that the growth of private credit is not increasing the amount of leverage or credit in the economy, and is providing more consistent funding throughout business cycles. Every loan funded by private credit with comparatively less fund or balance sheet leverage should reduce risk of volatility. Software is a topic that is rightfully drawing a lot of attention, but there seems to be confusion on how to distinguish between software exposures and different software companies. Senior debt is much more protected from downside risks than equity in the capital structure and individual software companies have varying degrees of potential AI disruption risks and opportunities. In the traded loan markets, we are seeing a bifurcation in the prices of software loans between the potentially less and more impacted companies. For example, we have tracked a basket of companies focused on core operational software, systems of record and highly regulated markets where their loans have traded down 2% on average year-to-date to 98–99 dollars, versus another basket of software companies primarily focused on content generation, data analysis or productivity tools where their loans have declined 24% on average year-to-date and now trade below 65 dollars. As we have discussed in the past, Ares’ software exposure, which is 6% of overall AUM and less than 8% of our AUM in private credit, is focused on senior lending, primarily to software companies in the former basket serving the core operations of complex businesses in regulated industries with proprietary data. As you may have heard from the Ares Capital call earlier this week, we engaged one of the top three global management consulting firms to supplement our own internal analysis of our software-oriented portfolio. They conducted a nine-week independent and detailed review of the potential forward-looking AI risk in our software-oriented portfolio companies, and the study also included our relatively lower software exposure in our European direct lending portfolio. The study graded each company on a spectrum based on risk characteristics and concluded that our software-oriented portfolio is very well positioned with 86% of the portfolio with low risk of potential AI disruption. Approximately 13% of the portfolio was classified as medium risk—these companies are performing well today but have a greater need and an opportunity to adapt to AI risks to their business—and only 1% of the portfolio was categorized as having high risk of AI disruption. If the consultant’s framework, which aligns with our own rigorous underwriting views, proves directionally correct, the portion of our software exposure that is medium to high risk represents less than 2% of our U.S. and European direct lending AUM and well under 1% of our total firmwide AUM. And lastly, before turning the call over to Jarrod, I wanted to highlight the successful IPO last week of X-energy, which is a small modular nuclear reactor company. In 2022, we identified X-energy as a revolutionary company through our first SPAC, Ares Acquisition Corp. I. As we approached the de-SPAC process in 2023, high inflation and rapidly rising interest rates impacted market conditions for the transaction. We chose to support X-energy in a private transaction and the company continued to execute its strategy, including receiving support from strategic investors like Amazon. Last week, X-energy completed its IPO that was meaningfully oversubscribed, raising over 1 billion dollars at a 20% premium to the high end of the proposed range, and represented the largest equity offering ever for a nuclear company. The cost basis of our balance sheet investment is a little over 100 million dollars and, based on the recent trading price of the stock, our current fair value net of employee compensation is close to 700 million dollars. We are excited to celebrate this significant milestone with our partners at X-energy. And with that, I will turn the call over to Jarrod to provide additional details on our financial results. Jarrod? Jarrod Morgan Phillips: Thanks, Mike. Our financial results in the first quarter demonstrate the strength, durability and diversification of our platform, with continued strong growth across our key financial metrics. Importantly, these results reinforce what we believe is one of the defining characteristics of our business model, which is our ability to continue growing, often faster, through periods of market dislocation given our FRE-rich earnings profile, balance sheet-light strategy, diversity of our AUM and investment strategies, and the scale of our global platform. As we look ahead, we remain confident that we are on track to meet our financial objectives for the year. We continue to benefit from a large base of AUM that is not yet paying fees, strong fundraising momentum—especially in the institutional channel—and improving conditions for our deployment across a broader set of strategies. We believe the combination of long-duration capital, flexible investment mandates, significant dry powder, an asset-light balance sheet and a management-fee-centric model positions us well to navigate through a range of market environments while continuing to drive growth in earnings over time. Turning to our results, quarterly management fees exceeded 1 billion dollars for the first time in our firm’s history and increased 22% compared to the prior-year period. This growth continues to be driven by expansion in FPAUM, which increased 19% year-over-year due to strong underlying fundraising and deployment activity across the platform. Fee related performance revenues totaled 20 million dollars in the quarter, which were driven by APMF. As a reminder, the timing of FRPR varies by fund and investment strategy. Within Credit, we typically recognize FRPR from our Alternative Credit strategy in the third quarter, with most of the remaining credit strategies recognized in the fourth quarter. In Real Estate, FRPR is concentrated in the fourth quarter, while APMF and certain other perpetual vehicles generate FRPR on a more recurring quarterly basis. Fee-related earnings were 454 million dollars in the quarter, increasing 26% year-over-year. Our FRE margin expanded 90 basis points year-over-year to 42.4%. We continue to have good visibility into margin expansion for the full year towards the high end of our targeted range, driven by a number of factors including continued efficiencies from the GCP integration, the data center business shifting from a negative to a positive FRE contributor with the new global digital infrastructure fund paying on committed capital, and our expectations for continued strong growth in AUM and FPAUM from deployment. Turning to performance income, we generated 75 million dollars in realized net performance income, an 84% increase over the year-ago period. Interest expense increased to 51 million dollars due to normal increased Q1 seasonality. Additionally, interest income should remain around the Q1 level going forward. Realized income for the quarter was 503 million dollars, representing growth of 24% year-over-year, and after-tax realized income per share was 1.24 dollars, up 14% compared to the prior-year period. Our tax rate in the quarter totaled 13.5%, just above the midpoint of our 11% to 15% expected range for the year, in line with where we would expect the rate to be for the remainder of the year. As Mike stated, our fund performance remains strong across the platform. Over the last twelve months, we generated time-weighted returns of approximately 12% to 15% in our U.S. Direct Lending strategies, 15% in Alternative Credit, 12% in Opportunistic Credit, 9% in European Direct Lending and over 20% in APAC Credit. We continue to see strong fundamental performance in our funds, and when we look across private and public credit markets, nothing we are observing suggests we are at or near a turn in the credit cycle. Across our direct lending portfolios, we are seeing continued near 10% EBITDA growth, loan-to-value ratios in the mid-40% range, private equity funds continue to fund new transactions with majority-in-equity and improving interest coverage ratios of 2.2x. Non-accrual ratios are well below historical norms and we are generally financing much larger, more resilient businesses today versus past vintages. The relatively small number of credit issues we see are company-specific rather than indicative of broader trends. We are not seeing any credit deterioration broadly within software, as we have only one software company on non-accrual. Within Real Assets, our diversified non-traded REIT has generated a total return of approximately 12% over the last twelve months. Our infrastructure debt strategy produced gross returns of approximately 9% over the last twelve months. In Secondaries, APMF has generated a since-inception net return of over 14%, while our primary private equity strategies continue to deliver strong performance with net returns of approximately 15% in ACOF VI. Overall, these results reflect the breadth and consistency of our investment performance across strategies and continue to be a key differentiator for Ares Management Corporation as we look to drive long-term growth in AUM and earnings. In conclusion, for the year 2026, we are on track with our longer-term goals of generating compound annual growth of 16% to 20% in FRE, 20% to 25% in realized income and 20% in dividends. We anticipate continued FRE margin expansion and we expect to be within the upper end of our 0 to 150 basis points annual target this year. We are on track for another record year of fundraising, and our expansive origination platform, record levels of dry powder and flexible capital position us for strong deployment even in uncertain markets. I will now turn the call back over to Mike for his concluding remarks. Michael J. Arougheti: Thanks, Jarrod. As we step back and reflect on the events of the first quarter, we believe one of the most important takeaways is the continued strength and resilience of our institutional fundraising franchise. Last week, we held our global annual meeting for our institutional investors. We welcomed over 1,100 attendees from across the world to both highlight the breadth and depth of Ares Management Corporation’s investment platform and to expand and deepen relationships with our largest investors. We continue to see enthusiastic engagement from large, sophisticated investors who are allocating capital with a long-term perspective and are increasingly consolidating relationships with scale managers that can deliver across strategies and cycles. That demand has remained consistent despite the recent market noise, and in many cases, we are seeing investors lean in given the improving opportunity set. I think it is noteworthy that we continue to exceed our fundraising targets in most of our flagship fundraises, and in many cases, we are getting to the hard cap in a shorter amount of time than in prior vintages. We also believe that the current environment is setting up very well for enhanced deployment. Periods of uncertainty tend to create more attractive investment terms and risk-adjusted returns, and we are already seeing a broader set of opportunities across Credit, Real Assets and Secondaries. Given the ongoing impacts from geopolitical issues and certain redemptions in retail-focused funds, the current environment is offering wider spreads, higher fees and better terms. With over 150 billion dollars of available capital and a highly diversified platform, we are well positioned to take advantage of these conditions and deploy capital at more attractive risk-adjusted returns. Importantly, our business model continues to provide us with a degree of diversification, stability and flexibility. We operate leading businesses across an array of global Credit, Real Estate, Infrastructure, Secondaries and PE strategies. Our earnings are driven by management fees supported by long-duration capital and complemented by performance income that we believe will continue to grow over time. This combination enables us to remain patient and opportunistic while continuing to generate durable growth in earnings. We are excited about the many levers that we have for profitable growth and our ability to continue driving long-term shareholder value. I will remind everyone that Ares Management Corporation experienced its two fastest periods of growth during the GFC and COVID, as we were able to leverage our competitive advantages to consolidate share and as our institutional investors increased their allocations to us to take advantage of improving returns in choppy markets. As always, I want to thank our employees around the world for their continued hard work and dedication, and I want to thank our investors for their ongoing support and confidence in our platform. We will now open the call for questions. Operator: Thank you. We will go first today to Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Mike and team. Hope everyone is doing well. Michael J. Arougheti: Thanks. You too, Craig. Craig Siegenthaler: You had a strong fundraising quarter in the Credit platform, and that is despite a deceleration in two of your newer retail funds that, as you said, only represent 5% of your AUM. Can you provide some perspective on the evolving demand dynamics between the institutional channel, the insurance channel, and also the retail channel within private credit? Michael J. Arougheti: Sure. Thanks for the question, Craig. I am going to step back and contextualize the answer with some things that I know I have talked to you about and others on the line. When you think about how the private credit market has been evolving and how Ares Management Corporation has chosen to participate in it, remember we actually started in private credit with Ares Capital Corporation, a traded BDC, and as we referenced on the call, that entity has a substantial public track record through cycles. If you look at the 21-plus year track record there, the return coming out of ARCC has beaten the S&P 500, the syndicated bank loan market, the high yield bond market and probably most anything else that people have invested in. It is a wonderful company and a wonderful structure. But what we learned was that because of the ebbs and flows, particularly within the retail market, it was challenging to take full advantage of cycles when they developed only in that traded BDC fund structure. And so we launched in earnest our institutional fund platform with the SDL and ACE series, which have obviously scaled with similarly strong performance. Watching those two work together, what you learn is diversification of funding is critically important to navigate cycles and drive outperformance, but also the ability to have those funds working hand in hand is performance-enhancing for both funds given our ability to continue to invest into the franchise, drive new originations, have the dry powder to support our best performing companies, etc. So you need both. Then we entered the wealth channel; we were actually last in our space to come into the market in earnest given some of the learnings we had about the procyclicality of flows sometimes within that channel, both good and bad. We have been very measured as we have thought about how to build the fund complex to capture the full complement of opportunities across the cycle within traded, non-traded and institutional. But what we have always tried to articulate is the assets are the same. As I said in the prepared remarks, if we originate a senior secured loan and we have availability of capital in each of those three pools, each of those three pools will get to participate. Not surprisingly, if you are beginning to see slowing inflows or increased redemptions in the non-traded part of our business, that does not detract from our global deployment opportunity, and those assets will find their way into other funds and therefore will not have an impact on our profitability. Insurance is something slightly different. It is important to talk about it separately because 90% plus of insurance companies’ balance sheets are investment-grade rated and high-grade. It is exciting to talk about the growth of the private high-grade market, but it is a different asset class in many respects from the traditional private credit and sub-investment-grade credit market. So when you think about the demand, you have to think about it in terms of not just the channels, Craig, but also high-grade versus sub-investment-grade. If you look at our 20 billion dollars of capital raised in our credit strategies in the quarter, I think it is indicative of what is happening in the market. We raised 20 billion dollars of capital in our credit strategies in the quarter, 5 billion dollars of which was in wealth. If you break down that 5 billion dollars in wealth further, 3 billion dollars was in our two U.S. Direct Lending funds, and about 2 billion dollars was in our European Direct Lending fund and our Sports, Media and Entertainment fund, which we would characterize as a quasi-private-credit product. Those two—Europe and SME—are actually enjoying very strong gross and net inflows as well despite the noise in U.S. Private Credit. As I referenced on the call, we are seeing our third vintage of the Opportunistic Credit fund, ASOF, hit its hard cap; we are seeing our third vintage of our ABF fund hit its hard cap and be meaningfully oversubscribed; and we talked about the early momentum that we see in the next senior direct lending vintage. Everything we are seeing on the ground is that the institutional investor is not anxious, they are not allocating away from private credit, and in fact, they are looking at this as a huge opportunity to take advantage of a dislocation and bring liquidity into the market to capture excess return. Thanks for the question. Operator: Thank you. We will go next to Alexander Blostein with Goldman Sachs. Alexander Blostein: Hey, Mike. Good morning, everybody. I was hoping we could dig a bit more into your comments around the deployment pipelines. You made a point that they are currently at a record in the Credit business. Can you expand on which parts of the Credit business you have seen the biggest incremental pickup in deployment opportunities, how the market has evolved in the last several months, especially considering that the non-traded BDCs and the evergreen vehicles for the most part have been the incremental buyer in the last few years, and how that might change the market structure and the spreads you currently see available in the States? Michael J. Arougheti: Thanks for the question, Alex. I would just comment that I do not know that they are the incremental buyer. If you look at the market structure, whether you include certain portions of high-grade private credit or not, you will see that the non-traded BDCs in aggregate—AUM, not new flows—are somewhere between 15%–20% of the overall private credit market. Because they do not operate with a significant amount of dry powder, when you look at the net flows into non-traded BDCs relative to aggregate dry powder in the institutional market, I do not think they were the incremental buyer. That goes back to our point earlier about the deployment opportunity this creates. In terms of the pipelines, the diversification of the platform really shines through in the quarter. We saw really strong deployment in our Infrastructure and Real Estate businesses; our European Direct Lending business had very strong deployment; Secondaries and Structured Solutions were very strong; ABF saw a little bit of a slowdown in the U.S. Direct Lending part of the business. I think that slowdown is more about what is happening in middle market M&A and the private equity market as they digest the war in Iran and the implications for inflation and the rate backdrop. But, as was said on the ARCC call, over the last number of weeks we have seen people pick their pencils back up and the pipeline has re-engaged. As we saw last year, there is a strong possibility that deployment will pick up in that part of the market pretty aggressively as we head into the back half of the year. It has been broad-based, which is part of the value of having the global diversification that we have. If there was one theme that I would point out that is accelerating, it is liquidity-generated opportunity—there are a lot of companies in the public and private markets that, because of the rate environment or flows, are going to need to seek creative liquidity solutions through opportunistic credit, secondaries and even direct lending and recap solutions that I think are going to drive significant deployment. We are excited about the setup, and pretty much every investment team is incredibly active right now. Operator: We will go next to Steven Chubak with Wolfe Research. Steven Chubak: Hi, good morning and thanks for taking my question. I wanted to double click into some of the comments on retail. While non-traded BDC flows have come under pressure, flows in other products you alluded to, Mike—such as infrastructure and secondaries—have been much more resilient, and some of the flows are even beginning to accelerate. What are you hearing from advisers and gatekeepers as it relates to retail appetite for strategies outside of credit? And given the fundraising pressures on the private credit side, do you still see a credible path to hitting the recently revised 2028 fundraising target of 125 billion dollars? Michael J. Arougheti: Thanks for the question. Zooming out, it is important to appreciate that development in the wealth channel is about investor access and bringing differentiated solutions to a part of the market that heretofore did not have the opportunity to invest. The large wealth platforms and large RIA and advisory platforms would tell you that their clients are meaningfully underinvested in the types of solutions that we and others like us are offering—around differentiated equity exposure, differentiated yield exposure, and tax-advantaged access to real assets. There is a major secular trend at play that will overwhelm, in my opinion, whatever periodic noise we see—whether it was the periodic noise we had in real estate a couple of years ago or the periodic noise we are seeing now in U.S. Direct Lending. As I mentioned in the prepared remarks, we have eight products in the channel—you could maybe add two more because we have two 1031 exchange platforms—that continue to see demand pull-through. While the U.S. Private Credit funds are seeing slowing demand, we are seeing increasing demand elsewhere because of the secular momentum I talked about. I would also remind people, because we put this out when we talked about our redemptions, if you look at our non-traded BDC, which is generating top-market performance, and see where redemptions were coming from, it was smaller family offices and some smaller institutions in non-U.S. regions. It was not what I would call the well-advised high net worth investor that tends to be the consumer of this product. From another angle, 95% of our investor base in the BDC did not want to redeem, and that was in addition to meaningful inflows in the period. I am not sure the redemption narrative is right, because it is not a broad-based repudiation of alts in the wealth channel. It seems to be something different. The adviser community—we spend a lot of time on education and support with individual advisers and their investors—and that is why you are not seeing broad-based requests for redemptions. It tends to be more isolated. On the 125 billion dollars, yes, we have not changed our guidance. Operator: We will go next to Patrick Davitt with Autonomous Research. Patrick Davitt: Good morning, everyone. I hear the more constructive direct lending pipeline commentary, but you cannot really see that in the hard numbers that have been put out there yet. Can you put a bit more meat around how that shadow pipeline compares to historical periods and when you think it could start converting into real announcements? Michael J. Arougheti: There is a lag, obviously. The deals that we are closing now have been in process with visibility for months. As you would expect, we have a top-down view of all of the transaction flow that is working its way through the business, including the Direct Lending business. The aggregate pipeline across the firm is at a record level, and the Direct Lending pipeline is increasing in momentum. We would hope that pulls through. A lot of times when you see things like the conflict in Iran, you get a pause as everybody evaluates, and then once people understand what we are working with, the pipeline will pick up. The longer-term catalysts are still in place—you have a significant amount of private equity invested that is aging and needs resolution through a sale transaction, refinancing or other capital structure solutions; you have an administration that is pro-business and a regulatory backdrop that is pro-M&A; and with rates stabilized, even if they are not coming down as the market anticipated a few months ago, a stable rate backdrop should be constructive for transaction activity. Last year, with the tariffs in April, you saw a similar pause—meaningful pipeline build through January–February, tariffs hit, pause, then reacceleration and it turned out to be a record deployment year. I cannot guarantee that is the case, but you do see these periodic pauses. The catalysts are intact, and the weight of money that needs to get resolved is going to drive people to the deal table. Operator: We will go next to William Raymond Katz with TD Cowen. William Raymond Katz: Thank you very much for taking the questions. Maybe one for Jarrod. On the realization side, Q1 came out a little lighter than many of us anticipated. It sounds like there is momentum not only for you but the industry at large. Can you give us a general sense of how you are thinking about the year playing through? And second, given the momentum on the FRE margins for this year, how should we think about 2027 given the significant scaling across the platform? Jarrod Morgan Phillips: Thanks, Bill. On realizations, it is similar to what Mike said. The more active the transactional backdrop, the more ability you have to pull realizations forward; the less active, you may have some extended durations. The nice thing about our European waterfalls that we have talked about in the past is they are predominantly from our credit funds. That means if the duration is extended, you are continuing to earn interest back on those, which increases your accrued balance to be recaptured later as part of the European waterfall. We just put out an 8-K when we were explaining what we thought would happen for this quarter and reiterated the same guidance we had provided for the year. Looking into next year, there is really no change there. The hardest thing for us is to peg the exact quarter, because we do not control whether a deal is refinanced or whether transaction activity results in a lot of deal turnover. The good thing is, because of the nature of these assets, you are not dependent on a market price coming to fruition through a transaction. That is one of our favorite parts about the waterfall. We are excited to have our first harvest from our first U.S. senior direct lending fund here in the first quarter. In terms of margin, we give that 0 to 150 basis points guidance on purpose as we get closer to the year. Our business is built so that as we deploy, it creates natural scale. But we do not want to take away from investment opportunity to do something like invest in the data center business, which we knew would be FRE-negative for a period of time until we launched a fund; then it will be very accretive to the firm overall and margin accretive. We want to keep flexibility for those opportunities. We expect to be well within that 0 to 150 basis points guidance and will look at opportunities through the current volatility and into the back half of the year. Operator: Thank you. We will go next to Analyst with RBC Capital Markets. Analyst: Great. Thanks and good morning everyone. Wanted to ask about the secondaries market opportunity. It sounds like we are seeing an acceleration this year versus last, and you have secondaries across four asset classes, so it is pretty built out. Can you give us an update on what you are seeing on the ground with regards to the secondary opportunity accelerating? Michael J. Arougheti: Sure. I will give context. We came into the secondaries business in earnest through the acquisition of Landmark almost six years ago. The thesis was that transformation was happening along three axes. One, a shift from LP-led to GP-led—not just sale of portfolios by LPs, but GPs using the secondary market for creative liquidity solutions, everything from NAV loans to GP prefs to minority stake sales. That evolution was going to transform the industry. Two, the installed base or primary market for other parts of the alternatives landscape—real estate, infrastructure and credit—was growing to a level that would require more robust secondary solutions. Three, we were beginning to see growth in wealth and retail that wanted to access more diversified broad-based private equity exposures than we could deliver from our core buyout business. We made that acquisition, launched into the wealth channel, scaled the product set to attack the GP-led market, and pioneered the credit secondaries business, which we have grown into a meaningful growth engine for the firm. The reason for that context is because that is exactly what is happening. Primary markets have grown and evolved; LPs and GPs alike are looking for creative liquidity; the GP-led part of the market represents half, if not more, of the current deployment opportunity and is here to stay. The combination of those trends is why you are seeing so much opportunity. Most interestingly, if you look at annual deployment in secondaries against industry dry powder, it is about a 1:1 relationship, which probably makes it the least well-capitalized segment of the alternative asset space. We like that because you tend to generate excess return where there is a supply-demand imbalance. Not only is the market opportunity growing, but fundraising has not kept pace with demand, which is one reason we are scaling nicely. Operator: We will go next to Kenneth Brooks Worthington with JPMorgan. Kenneth Brooks Worthington: Hi, good morning. Can you talk about the deployment opportunity for direct lending in Europe? I know the M&A backdrop is a little different there than in the U.S., but you have a record-size fund. What are you seeing there? Michael J. Arougheti: Europe has many of the same dynamics as the U.S. We have fully developed businesses in Credit across Europe—opportunistic, direct lending, real estate, infrastructure and more. Deployment there has been quite robust. I was pleasantly surprised with deployment in Q1 in the European market. Going into this year, some may have expected slower transaction activity, but some of the geopolitical reorganization around the world has brought more attention to investing in the Eurozone. The market opportunity is probably better than we would have expected. If the first quarter is an indication, the European Direct Lending business is in a good spot. The benefit of diversification: last year Europe had a slower year than the U.S. as the U.S. accelerated in the back half; this quarter U.S. Direct Lending is a little slower and European Direct Lending surprised to the upside. Looking top-down across the credit business, we are happy with the pace of deployment, and the pipelines in Europe are as healthy as they are here. Operator: We will go next to Michael Brown with UBS. Michael Brown: Hey, good morning—almost good afternoon. Mike, a question on software. You emphasized low LTV, near-zero non-accruals, and talked about this on the ARCC call, but much of this is a bit backward looking. Can you give color on the forward look, how you stress test the portfolio, what you see in underlying fundamentals that give you confidence that these companies will continue to operate successfully? And how are you approaching software now—leaning in or leaning back within direct lending? Any interesting opportunities in credit ops or even secondaries? Michael J. Arougheti: The most important thing is that, at least in terms of our exposure, the software portfolio is incredibly well diversified in terms of number of names; it is sponsor-backed; and it sits at roughly a 40% loan-to-value. If you look at ARCC’s current quarter as a proxy, you will see that we marked down the equity value within the software portfolio commensurate with broader markets, so the LTV in portfolio actually went up slightly. But when you are sitting at the top of the capital structure at 40% with 60% equity value below you, you have to eat through all of that equity before taking losses in your credit book. That is the most significant mitigant to loss as this plays out. The weighted average remaining maturity in our software portfolio—probably similar to the general market—is about three years, which means there will be a moment over the next couple of years where owners and lenders evaluate where each company sits, how disrupted it has been, whether it will benefit into the future, and how it gets resolved—transfer of ownership, a debt paydown, a debt repricing, etc. This will play out slowly over time. In our book now, contractual revenues are actually growing, and we are seeing EBITDA growth in the 10% range, reflecting new customer adds. As you add customers, contract length is probably outside the maturity date, so in many businesses the financial picture will not erode even if there is a view that the business model needs to adapt. We are very confident in the quality of the software book. We think we are getting well paid for the risk. As new software deals come in, there are deals getting done because people understand there are competitive moats and you can get paid incremental return because of anxiety around software. We are also using the opportunity to exit some names where we have less conviction. One reason you saw the gross-to-net number that you did in the direct lending portfolio this quarter is we took the opportunity to get out of a couple of names where we had less confidence. To oversimplify: as CEO of Ares Management Corporation, we have over 500 core systems that run our company—financial systems, cybersecurity, order and trade management systems. We are not ripping those systems out. We are putting an AI layer in to get the most efficient output from those systems and the data that sits within them. Those system providers are using AI to deliver a better product to us. Personalize it: you are probably not ripping Excel out of your computer—you are using AI to supplement a core system. Many AI opportunities will enhance rather than displace core systems. Those are the types of things we have focused on investing in. Operator: We will go next to Benjamin Elliot Budish with Barclays. Benjamin Elliot Budish: Hi. Good afternoon, and thanks for taking the question. Maybe another one for Jarrod. Typically, you give a few more guidance tidbits. Is there anything you can share around expectations for the European-style realization revenues for the year, G&A growth, and any help with expectations for FRPR? I know FRPR is a Q4 thing, but anything else to fine tune would be helpful. It sounds like margin expansion may be a bit predicated on cadence of deployment quarter to quarter, but anything else helpful? Jarrod Morgan Phillips: Thanks, Ben. I feel like I covered most of the main ones we normally give through Investor Day, etc. On G&A, that is encompassed within the margin guidance. One thing to highlight—Mike mentioned it earlier—we had an amazing AGM with over 1,100 attendees. Normally we have AGMs throughout the year. In terms of G&A, you will probably see a bit more of an increase next quarter, but that means we have that travel and AGM expense for the different strategies largely out of the third and fourth quarters. There will be a little imbalance in the trend. You can look back to 2024 as a similar time. It will be somewhere in the high single digits to low double digits type of increase in G&A for the travel and related expense. Otherwise, everything is pretty well in line with guidance we have given prior. As Mike said in prepared remarks, we feel well positioned in the current market with the breadth of the platform—there are a lot of things that are extremely active right now that will help drive us toward those goals. Operator: We will go next to Brennan Hawken with BMO Capital Markets. Mr. Hawken, your line is open. Brennan Hawken: Yes, I was—sorry about that. Mike, you spoke to credit selection impacting recent gross-to-net trends. Based on your expectations today, where do you see those trends shifting and what primary factors are going to drive that? Michael J. Arougheti: I do not think we are changing anything in the playbook, Brennan. If you look at the history of our direct lending business—we have been doing this for over 30 years, over 20 here—the model is the same: originate the broadest possible funnel and apply rigorous diligence and portfolio management to drive return. Two hallmarks of our outperformance may be underappreciated. One is our selectivity rate. In private credit portfolios across the board, we typically have a yes rate of about 5%, meaning we only do 5% of the deals we see. That is a function of high conviction on the types of things we like to invest in and those we do not. Second, in core direct lending, roughly half of deployment tends to come from incumbent relationships within the portfolio, which makes for much easier, high-conviction underwriting—companies we have lived with for years, deep relationships with management, understanding risks and opportunities, and observed performance. Those two—low selectivity and the compounding effect of incumbent relationships—are reasons for our performance. If you look at loss rates across private credit, they have all been trending close to zero. That is not by accident. We are not doing anything different now. You are probably a little more selective given market anxieties and keeping liquidity a little drier because we are heading into a spread-widening environment where we will get better economics next month than this month. That is probably driving some of it. But core underwriting tenets and how we think about outperformance have not changed. Operator: We will go next to Brian J. Mckenna with Citizens. Brian J. Mckenna: Thanks for squeezing me in. In the past, you have talked about the benefits of managing flexible pools of capital across the public and private markets. Given the first quarter volatility, did you take advantage of any dislocation across your funds? And can you remind us why having this type of AUM base is so important in delivering outperformance for your clients through cycles? Michael J. Arougheti: That is another hallmark of how we set the business up. Beyond diversification and access points, within individual fund strategies we also have flexible mandates. Our Opportunistic Credit business—where we just had that meaningful ~10 billion dollar capital raise—is a pool that can invest private and public. The closing is coming at an opportune moment as there are dislocations beginning to form in both markets. Having the ability to look at relative value in both and drive to the better risk-adjusted return is good for performance. It is not just public vs. private; it could be senior vs. junior or debt vs. equity. You are constantly looking at relative value across markets, geographies and capital structure. If you are a single-asset, single-point-in-the-capital-structure investor, everything you look at will be squeezed into that framework, which means in certain parts of the cycle you will misprice risk. We have developed with high conviction around flexibility in asset class, position and market, which has created an investment culture around relative value and risk-adjusted return that is pretty unique. Specifically to your question—yes, in parts of the public and traded credit markets, there are increasing opportunities to pivot, and I would not be surprised if we see that pick up in the next couple of months. Operator: We will go next to Analyst with Raymond James. Analyst: Hey, good afternoon. Could you go into a bit more detail on your data center business? Do you have data center AUM outside the Digital Infrastructure business? And what do you think the total market size could be for data centers in the intermediate term? Unknown Speaker: I will take that one. We have been investing in the digital space broadly for the past 10 to 15 years—everything from towers to networks to data centers—across several areas within the firm, including Real Estate, Infrastructure, Asset-Backed, as well as our Direct Lending business and Secondaries in both Real Estate and Infrastructure. This has been a longstanding investment focus for us, with over 10 billion dollars invested historically in the space. One exciting development with the GCP acquisition last year was adding the Ada digital development capability that Mike mentioned, which came with a very attractive seed portfolio for which we raised about 2.5 billion dollars last summer for initial assets in Japan, and we are currently going out with a broader fundraise to address not only the seed assets but the significant pipeline behind it. So yes, we have data center exposure elsewhere, but adding this development capability is very powerful for our future. In terms of market size, it is absolutely massive—a multi-trillion dollar market opportunity. Some of that will be in the domain of the hyperscalers themselves; however, we have sized the third-party market at around 900 billion dollars. When you look at the supply-demand imbalance in terms of capital being raised to address it, it is meaningful. We are really excited about the market opportunity ahead, and the interest in what we are doing is very strong. Michael J. Arougheti: I would add one overlay. When you are talking about data centers, it is not just data centers—it is GPUs, power and energy. We are also one of the leaders in the renewable energy and energy transition space, and you saw what we were able to do with our X-energy IPO. The digital infrastructure opportunity is pulling together all of these teams at scale to address the market opportunity. We also have a large infrastructure debt business and are one of the larger lenders to other platforms and portfolios in the institutional market. Operator: We will go next to Analyst with Jefferies. Analyst: Thanks. I wanted to follow up on your comments around the strength in institutional market demand. Is there any differentiation among that subset—Middle East or sovereign wealth—given global dynamics, or is it truly broad-based? Michael J. Arougheti: It is pretty broad-based. We are not seeing major shifts by geography or by channel. Consistent with what I said earlier, there is a consolidation theme—larger institutions doing more with fewer GP partners—so the larger platforms are net beneficiaries. When you look at gross dollars raised in the market, you are likely to see a disproportionate share going to the larger incumbent platforms in many asset classes we play in. That is the predominant takeaway. It is also important, as we talk about diversification, that you have businesses in all regions—Europe, U.S., Middle East, Asia—because from time to time those investors want to increase allocation in their home region. Being able to meet them there, not just on the fundraising side but also on the investment side, is increasingly important. Operator: Thank you. That is all the time we have for questions today. If you missed any part of today’s call, an archived replay of the conference will be available through June 1, 2026, to domestic callers by dialing 302-393 and to international callers by dialing +1 (402) 220-7206. An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of our website. Again, thanks so much for joining us, and we wish you all a great day. Goodbye. Michael J. Arougheti: Goodbye.
Operator: Greetings, and welcome to the Park Hotels & Resorts Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian Weissman, Senior Vice President, Corporate Strategy. Please go ahead. Ian Weissman: Thank you, operator, and welcome everyone to the Park Hotels & Resorts Inc. first quarter 2026 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Please refer to documents filed by Park Hotels & Resorts Inc. with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as adjusted FFO and adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measures, in yesterday's earnings release as well as in our 8-Ks filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Thomas Jeremiah Baltimore, our Chairman and Chief Executive Officer, will provide an update on strategic initiatives and review Park Hotels & Resorts Inc.’s first quarter performance and outlook for the year, while Sean M. Dell'Orto, our Chief Financial Officer and Chief Operating Officer, will provide updates on our capital investments and balance sheet management along with additional color on guidance. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom. Thomas Jeremiah Baltimore: Thank you, Ian, and welcome everyone. I am pleased to report that we delivered better-than-expected performance in the first quarter with RevPAR increasing 5.5% year-over-year excluding our Royal Palm South Beach hotel, which suspended operations in mid-May 2025 for a comprehensive renovation. I was incredibly impressed by the strong performance throughout the quarter with RevPAR excluding the Royal Palm increasing over 6.5% in January, approximately 3.5% in February, and nearly 6.5% in March. Results were driven by continued strength in leisure demand at our resort properties, where RevPAR increased 7.6% excluding Royal Palm, along with healthy corporate group demand that helped our urban hotels generate over 2% RevPAR growth during the quarter. From a capital allocation perspective, it was another productive quarter as we remain laser-focused on enhancing the overall portfolio quality through the disposition of noncore assets while continuing to unlock embedded value within our core assets through our transformative renovations, and further strengthening our balance sheet by addressing upcoming debt maturities. Following the January disposition of the Hilton Checkers in Los Angeles, we recently sold the 396-room Hilton Seattle Airport hotel, which was on a short-term ground lease, for $18 million, bringing total noncore asset sales for the year to $31 million, or 16 times 2025 EBITDA when accounting for nearly $36 million of CapEx expected for both properties. Together, these transactions reflect the continued execution of our capital recycling strategy and our commitment to improving the long-term growth profile of the company. We continue to make solid progress on the remaining 12 noncore hotels and remain firmly committed to materially reducing our noncore exposure by year end. To that end, we have active marketing campaigns underway on several assets but remain disciplined in our approach to prioritize transactions that improve our portfolio's growth profile and maximize shareholder returns. While the transaction market remains challenging, our track record speaks for itself, having sold or disposed of 52 hotels for more than $3 billion over the last nine years, materially improving the quality and earnings power of our portfolio. Turning to capital investments, we are making significant progress on our comprehensive repositioning of the Royal Palm in Miami. The pace and execution have been exceptional, especially given the scale and complexity of this project. We remain on track to achieve our target completion date by early June thanks to the tireless efforts of our best-in-class design and construction team and all of our partners involved on this project. Miami continues to be one of the strongest hotel markets in the country, and we remain highly confident in the long-term outlook for this asset. We are already seeing strong group demand with the property securing $1.4 million of group business as of the end of the first quarter for 2027 at an average rate of $460. This represents an increase of $108, or 31%, compared to our pace for 2024 at the same point pre-renovation. Looking ahead, we expect returns on invested capital between 15% to 20%, with EBITDA projected to more than double from approximately $14 million to $28 million upon stabilization, or roughly $69 thousand per key, positioning the hotel to be among the most profitable assets in our core portfolio. Turning to operations, the strength of our core portfolio remains evident. Core RevPAR increased 5.4% during the quarter excluding Royal Palm, which represented nearly a 400 basis point drag on core results. Performance was led by strong leisure demand in Bonnet Creek, Key West, and Hawaii, along with a sharp rebound in Southern California driven by improved group and leisure transient demand. In Orlando, Bonnet Creek once again exceeded expectations, delivering approximately 16% RevPAR growth and a 20% increase in hotel adjusted EBITDA over the prior-year period, driven by a 10% increase in transient revenues and a 19% rise in group production supported by large in-house events and stronger average daily rate. Revenues and earnings reached all-time highs with trailing twelve-month EBITDA exceeding $103 million, nearly 60% above pre-renovation levels and $20 million, or 24%, above our projections, meaningfully exceeding our return expectations on our $220 million investment and further underscoring our ability to unlock embedded value across the portfolio. Adding to the property's momentum, our Waldorf Astoria Orlando was recently recognized on Travel + Leisure's list of the top 500 hotels in the world, one of only two Orlando properties to receive the honor. In Key West, performance remained strong at both Casa Marina and The Reach, with RevPAR increasing nearly 9% and capturing meaningful market share during the quarter. Results were driven by increased transient demand and favorable holiday calendar shifts. Like Bonnet Creek, Casa Marina also exceeded our underwriting for the $80 million investment with trailing twelve-month EBITDA of nearly $36 million, exceeding our projections by over $4 million, or approximately 14%. Southern California results significantly exceeded expectations. At the Hilton Santa Barbara, RevPAR increased nearly 23% as strong transient demand helped drive a nearly 13 percentage point increase in occupancy and a 3% increase in ADR. The Hyatt Regency Mission Bay also delivered exceptional performance with RevPAR up 12% supported by continued strength in drive-to leisure demand. Turning to Hawaii, we continue to see a steady rebound in demand following the completion of our comprehensive room renovations for the Rainbow Tower at the Hilton Hawaiian Village hotel and the Palace Tower at the Waikoloa Village that, despite the disruption from historical storm activity, resulted in a combined RevPAR increase of 2% across the two resorts, or approximately 5.4% when accounting for the 340 basis point drag from the storms. Waikoloa Village delivered 6% growth, benefiting from an expanded airline contract and improved ADR following the renovation of the Palace Tower. At Hilton Hawaiian Village, which was far more impacted by the storms, RevPAR increased 1%, or over 4% when adjusting for the storm disruption, driven by higher-rated transient demand in the newly renovated Rainbow Tower. Looking ahead, we remain very encouraged on Hawaii demand trends and expect both hotels to perform at the upper end of our guidance range for the year. Easier year-over-year comparisons, coupled with tailwinds from the completion of our tower renovations at both resorts, should continue to support a higher-rated customer mix. Group performance in the first quarter also exceeded expectations, with portfolio group revenue increasing 5% year-over-year excluding Royal Palm. Growth was led by double-digit gains in Puerto Rico, New York, and our Bonnet Creek complex, driven by a higher-rated group mix and by strong in-house events along with active citywide calendars in Denver and San Francisco. Looking ahead, group trends remain stable, with second-quarter group revenue pace up approximately 4% and full-year pace improving to 3% growth excluding Royal Palm and Hilton Hawaiian Village, which is being impacted by the partial closure of the Honolulu Convention Center. Stronger-than-expected convention demand across several core markets, coupled with the momentum for in-the-year-for-the-year bookings, has driven a greater than 180 basis point improvement in the group revenue pace since last quarter. Longer term, group demand remains healthy, with 2027 pace currently up 5.5% for the core portfolio, reflecting continued confidence in the segment. As we look at the balance of the year, we remain cautiously optimistic based on our first-quarter outperformance and the underlying strength of demand across the portfolio, but recognize the broader macro setup remains uncertain. We continue to believe fundamentals will be supported by a combination of anticipated macro and lodging-centric tailwinds. Fiscal stimulus, including favorable tax policy, deregulation, and potential lowering of near-term interest rates, coupled with easier year-over-year comparisons, favorable calendar shifts, and incremental demand generators such as the World Cup and America's 250th anniversary celebrations, should promote a continuation of the demand growth we saw in the first quarter. That said, growing geopolitical tensions in the Middle East and their potential impact on consumer discretionary spending and business investment sentiment certainly warrant a continued measured approach. Sean will address this more when he talks about guidance. The first quarter was an encouraging start to the year, and I am very pleased with the progress we have made thus far to elevate the quality of our assets and strengthen our long-term growth profile. I could not be prouder of our team's ability to execute in a challenging environment for our business. We remain laser-focused on our strategic priorities: reinvesting in our iconic properties to drive long-term value, advancing the disposition of noncore hotels, and further strengthening the balance sheet through successful maturity extensions and disciplined leverage reduction over time. And with that, I will turn the call over to Sean. Sean M. Dell'Orto: Thanks, Tom. We are very pleased with our first quarter results. RevPAR exceeded $191, up approximately 2% over the prior-year period, or approximately 5.5% when excluding Miami, and over 6.2%, or another 75 basis points, when adjusting for the Hawaii storms that Tom mentioned earlier. Total hotel revenues for the quarter were $591 million, up nearly 2%, and hotel adjusted EBITDA was $152 million, resulting in a hotel adjusted EBITDA margin of approximately 26%. Hotel operating expenses increased 2.6%, reflecting continued cost discipline. Overall, earnings came in ahead of expectations with EBITDA of $143 million and adjusted FFO per share of $0.45. Core portfolio performance remained strong with RevPAR increasing 5.4% to nearly $216 excluding Royal Palm, while gains were partially offset by typical comparisons at both of our D.C.-area hotels following last year's presidential inauguration in addition to a 170 basis point drag on the core portfolio as our Hilton New Orleans Riverside hotel lapped last year's Super Bowl. As Tom mentioned, we continue to make significant progress on our comprehensive transformation of the Royal Palm South Beach hotel in Miami. As we look ahead to the second quarter, we expect the hotel to remain a partial drag on operating results as the property ramps up its staffing ahead of its opening and rebuilds its demand through Q3. Overall, we are forecasting a nearly $3 million loss for Q2, and expect the resort to ramp up quickly over the back half of the year. During the first quarter, we also completed the second and final phase of guest room renovations at both the Rainbow Tower and the Palace Tower, bringing the total investment for Phase Two across both Hawaii properties to approximately $85 million. In addition, we completed the second of three phases of room renovations, totaling more than $30 million, at the Hilton New Orleans Riverside this past January, with the third and final phase scheduled for completion in the fourth quarter of this year. Looking ahead over the balance of 2026, we expect a lower level of capital investment this year, with $230 million to $260 million of planned spend, including the completion of Royal Palm and the launch of the Alethe Tower renovation at Hilton Hawaiian Village. This project will encompass all 351 guest rooms, the tower lobby, its private pool, and the addition of three new keys. Total investment for the project is expected to be approximately $96 million. We expect renovation-related disruption at Hilton Hawaiian Village to have a modest impact in 2026, with the tower's closure expected to have less than a $2 million impact on 2026 hotel adjusted EBITDA and representing just a 10 basis point impact to portfolio RevPAR. Once complete, nearly 80% of the resort's rooms will be newly renovated, significantly enhancing the iconic hotel's long-term competitive positioning. Turning to the balance sheet, our liquidity at the end of the first quarter was approximately $2 billion, including $156 million of cash, plus $1.8 billion of available capacity under our $1 billion revolving credit facility and $800 million delayed draw term loan. With respect to our 2026 maturities, we have made significant progress over the past two months to raise a $700 million floating-rate delayed draw mortgage on Bonnet Creek, which is expected to close this week. The loan was upsized $50 million based on the complex’s strong results and will bear interest at SOFR plus 225 basis points. When combined with the $800 million delayed draw term loan, this $1.5 billion of new debt capital commitments provides us with certainty while also allowing for the flexibility to fund within par prepayment windows closer to the maturities. Accordingly, we expect to execute a partial draw under the delayed draw term loan in June to fully repay the $121 million Hyatt Regency mortgage which matures in July. We then expect to draw the remaining capacity in September along with fully drawing proceeds from the Bonnet Creek mortgage financing to fully repay the $1.275 billion CMBS loan on the Hilton Hawaiian Village, which matures in early November, with additional proceeds to be used for corporate purposes. We are grateful for the continued support of our bank group whose confidence in Park Hotels & Resorts Inc.’s credit profile and the strength of our portfolio has been instrumental in executing these transactions. Their commitment is a clear validation of our balance sheet strategy and underscores our ability to address all 2026 debt maturities in a comprehensive and highly effective manner. Upon completion of these transactions, we will have meaningfully enhanced our financial flexibility, unencumbered the Hilton Hawaiian Village, extended our weighted average debt maturity to nearly four years, and eliminated any significant maturities for approximately two years. On an annualized basis, these refinancings are expected to increase interest expense by approximately $28 million, with roughly $13 million reflected in our 2026 AFFO guidance based on the timing of these transactions. With respect to our dividend, on April 15, we paid our first quarter cash dividend of $0.25 per share, and on April 24, our Board of Directors approved a second quarter cash dividend of $0.25 per share to be paid on July 15 to stockholders of record as of June 30. The dividend currently translates to an annualized yield of approximately 9% based on recent trading levels. Turning to guidance, while we remain mindful of the geopolitical uncertainties and the potential impact of higher oil prices on both business and leisure travel, we were very encouraged by the strength observed in Q1 and solid demand trends continuing into the second quarter. April RevPAR is expected to be flat, but up 3% excluding Miami, with performance led by a continued strength in Hawaii, Bonnet Creek, and Key West, as well as solid spring break leisure transient demand in Santa Barbara. And while we expect performance to modestly soften in May, June looks very strong, driven by strong group demand up nearly 10% and favorable year-over-year comparisons across several key markets, including Hawaii, Orlando, Key West, and New York. Overall, we expect Q2 RevPAR to come in around the midpoint of our guidance range with roughly a 100 basis point drag from Miami. For the year, with Q1's outperformance, we are increasing our RevPAR growth guidance by 50 basis points at the midpoint to a new range of 0.5% to 2.5%, and adjusted EBITDA guidance by $7 million at the midpoint to a new range of $587 million to $617 million, while AFFO increases by $0.01 at the midpoint to a new range of $1.74 to $1.90 per share. It is also worth noting that the recently sold Hilton Seattle Airport hotel was expected to contribute approximately $3 million in EBITDA for the remainder of the year. This concludes our prepared remarks. We will now open the call for questions. Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Floris Van Dijkum with Ladenburg Thalmann. Floris Van Dijkum: Morning. Tom, glad to be on these calls again with you guys. If you can give us a little bit more of an update on the disposition. I think one of the key things I think the market is having some trouble understanding is the quality of the portfolio that is being shielded by, you know, the lower 10% of your assets. If you can talk a little bit about where they are. I know that you have pretty much all of those presumably in the market. What is the status on that? Are you having some detailed discussions? What is the pushback that you are getting from the market? And are you going to hold out for the last dollar on those assets? Thomas Jeremiah Baltimore: Well, Floris, it is great to have you back, and I appreciate the question. If I could sort of frame it for a second, keep in mind, if you think about the remaining 12 assets that we have, we currently have 33 assets in the portfolio. We have sold or disposed of 52 assets, as I said in the prepared remarks, for north of $3 billion. We have 12 assets that we are defining as noncore. Three of those assets obviously rest with the dispute with Safehold, which will, we know, resolve itself, if not this year, certainly next year. The EBITDA from those assets is about $16 million, plus or minus. The remaining nine assets account for about $41 million in EBITDA, and candidly, probably 45% of that relates to one asset in Florida. So we are generally dealing with eight assets that are small. Some have short-term ground leases. Some are joint venture. Some have various challenges. I would say, obviously, the last mile is always the most difficult. I would hope the market would give us credit for the perseverance, the discipline, our ability to reshape the portfolio over the last nine years. We are very confident we are going to make substantial progress this year on those noncore assets. And our collective team are working their tails off. We have work streams underway on all of them. And it is going to be a little lumpy and choppy. I think you will see more reported as the year unfolds. And believe me, no shortage of effort and focus. We realize it is, while a small overhang, it is an overhang. It clearly is less—if you look at the $41 million—certainly less than 5% to 6% of overall EBITDA. But it is a drain when you think about operating metrics. And so we are working hard to get the assets sold as quickly as we can. We are not holding out for the last dollar. But we certainly want to have counterparties who can execute and who can move through the process, and we certainly are always focused on creating value for shareholders. Floris Van Dijkum: Thanks. Maybe a follow-up question on the World Cup. I know that your Royal Palm asset, I think, is opening up in June. Is that a market potentially that could get impacted by the demand for the World Cup? If you can talk broadly about what the impact is going to be or what you are seeing so far. I think everybody is sort of muted on the World Cup impact, but if you can give us a little bit more color on that, that would be great. Thomas Jeremiah Baltimore: Yeah, it is a lot to unpack there, Floris, but I am happy to take it. I think most importantly, if we step back and think about the Royal Palm at 15th and Collins, 393 keys—we are expanding to 404—putting in approximately $112 million. We could not be more excited. We could not be prouder. We had, obviously, a group there. We cannot wait to get more analysts and more investors in. I could not be more grateful to Carl Mayfield, who heads our design and construction team, who is literally spending three or four days of his week in Miami leading. And we also have the lead operator from Davidson who has been on-site since we launched construction last May. As of this morning, we had 417 men and women on-site, and that includes from owners’ reps to general contractor to subs to owners’ teams to operations folks, and we are currently targeting that construction will be substantially complete by early June. What we would call the stocking and training TCO would begin and target sort of in mid-May. You have got a few weeks of testing all the fire alarm and life safety issues that have got to work through, and we are probably looking at a target public occupancy TCO, and hoping for sort of mid-June. So when you think about where that all unfolds as it relates to the World Cup, we have included in our guidance that Sean outlined in his prepared remarks that we have no contribution coming from Miami in that process at this time. So, if we are able to get open, I think the two prominent games in Miami will be July 11 and July 18. We are cautiously optimistic that we should be open in time for those, and that is what we are all working our tails off to make sure that occurs. Again, we do not have anything in the current guidance, so we have been quite conservative in that intentionally just given all of the geopolitical issues and also the complexity of the inspection and regulatory process as we close out the job. But you may recall other projects and the months, and in some cases years. I think this again speaks to the core competency, the leadership that we have at Park Hotels & Resorts Inc., our experience, the extraordinary success that we are having, obviously, at Bonnet Creek and also what we are seeing in Key West. And we feel the same way about Royal Palm as we look out. So we are very, very bullish and excited about this project and think we are going to have tremendous success there over time. Floris Van Dijkum: Thanks, Tom. Operator: Thank you, Floris. Our next question is from Smedes Rose with Citi. Smedes Rose: Hi, thank you. I wanted to ask you, in your guidance it looks like the expense expectations moved up around 40 basis points versus your prior guidance, and I was just wondering what was behind that. Sean M. Dell'Orto: Yes, Smedes. We obviously, in Q1, had some outperformance top line. A lot of that was occupancy-based. So we certainly naturally see, while cost per occupied room was solid—in terms of basically 50 basis points or so growth—with the extra occupancy, expense growth was a little more than expected as well. So we are kind of carrying that through, much like we are doing with the top line, into the expense. Certainly, it is expected the rest of the year that expenses operate as we expect, much like we are thinking about the top line, kind of expecting that to perform as we expected for Q2 through Q4. Smedes Rose: Okay. Yeah. So thanks. That is helpful. And then, Tom, you said that you think the Hawaii assets this year can trend towards the upper end of your expected ranges. Can you just remind us what that range was for this year? Sean M. Dell'Orto: Well, I think, ultimately, you are talking about the upper end of our guidance range. So, certainly, you know—yeah, so 2.5%, somewhere in that zone or a little better. Thomas Jeremiah Baltimore: Two and a half. You know, as we said, we did not provide an EBITDA outlook. The other part is we do have, obviously, some favorable comps coming up on the heels of renovations and certainly some softening activity that we saw last year in Hawaii. So to Sean’s point, we feel good about that. If anything, it is conservative, but that is intentional given all the uncertainty right now. Smedes Rose: Okay. Thank you. Appreciate it. Operator: Alright. Thank you. Our next question is from Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Yes. Hi. This is Peter on for Duane. Thanks for taking the question. I think I would like to maybe just piggyback off Smedes’ last question on Hawaii. And bigger picture, Tom, if you could just kind of lay out the building blocks of the recovery in Hawaii getting back to kind of pre-strike levels—what do you need to see happen, and what could kind of the cadence of that recovery look like? Thomas Jeremiah Baltimore: Yeah, Peter, it is a fair question. I would just again kind of frame it a little bit. If you look historically, Oahu’s RevPAR growth has always outpaced the U.S. pretty consistently by about 120 basis points. And I think Key West and Hawaii both are around CAGR of about 4.5% versus certainly 3.3%. Obviously, you have got very limited supply growth in Hawaii through 2030. And, again, the investment that we are making—that we continue to make—and after we have finished the Elihi Tower, at least 80% of the rooms at Hilton Hawaiian Village, in particular, will be renovated. And we have been looking to sort of reposition. If you think about the Japanese traveler, we are at about 750,000 visitation versus about 1.5 million historically. So we have been seeing that shift away, and we have been really repositioning the business to account for that. So Japanese travelers are really accounting for about 3% of our business approximately, which was probably high teens—18% to 20%—pre-pandemic. So as we look out, we are still very encouraged. Obviously, right now, you do have current headwinds, given what is happening with the conflict and the impact it is going to have on fuel and fuel surcharges and, obviously, the strong dollar versus the yen and, candidly, some cheaper alternatives. Having said that, when you look at the investment we have made and think about the favorable comps that we have, we think there is an opportunity for Hawaii to perform on the higher end of our guidance, if not exceed that. Do not want to get ahead of ourselves, but we are certainly very, very bullish over the intermediate and long term. We still, last year, generated north of $140 million in EBITDA, plus or minus. Think about the highs—it is about $185 million, plus or minus, coming out of the pandemic. So with that backdrop and some of those headwinds, we are really not that far. We continue to think about repositioning and get back some of the higher-end business. And certainly, as the convention center is also done, we also see that as another tailwind for us as we look out in the outer years. So we remain very, very encouraged for Hawaii over the intermediate and long term. And as it relates to Waikoloa, we are just very, very bullish—obviously, completing the Palace Tower renovation. If you look at the second half of this year and what we are lapping, we had 20 thousand out-of-order rooms last year. That also is going to, I think, be a favorable dynamic for us as we finish 2026 and look to 2027 and beyond. Duane Pfennigwerth: Great. Thanks for the detail. And then my follow-up, you mentioned group pace improving from the beginning of the year. Group pace ex Hawaii and Miami—could you highlight maybe some markets that you saw some sequential improvement and the flavor of those bookings? Is it corporate groups in the year for the year? Is it convention blocks booking up? Some details there would be helpful. Thanks for the time. Sean M. Dell'Orto: Yeah, sure, I will jump in on this. I would say from what we saw for Q1, we saw some help in New York on group where we had a nurses strike there and then ultimately, we were at a table taking some of the temporary labor as a group block there for a few weeks. So that was really helpful. We have seen some of the disruptive forces in Mexico and the Middle East allow for some groups to transition or change out and come into markets like Hawaii. So we are seeing some benefit there, and some of that will be in future periods. I think those are kind of the bigger things. I think we have seen revaluations across the portfolio for group be stronger, where groups have outperformed in their blocks, and so we have seen a little bit of that across the board in both in-house group and, ultimately, convention. Operator: Thank you. Our next question is from Ari Klein with BMO Capital Markets. Ari Klein: Thanks. Good morning. Just following up on Hawaii. First, I guess, is that market benefiting from some rotation from maybe also Puerto Rico? And then, Tom, you kind of touched on this, but if oil prices do materially impact airline prices, do you think that disproportionately impacts Hawaii relative to the rest of your portfolio? Thanks. Thomas Jeremiah Baltimore: Yeah, I mean, look, you have to believe, Ari—it is a fair question—if we get a prolonged supply shock and the conflict continues indefinitely, you certainly have to believe that it is going to have an impact, not only on long-haul air travel but certainly on air travel broadly, and certainly affect the sector. So certainly not going to argue that point. I would think, as you think about sort of rerouting, one of the things that I think would be important to point out is, if you think about inbound traffic into the U.S., we still have not gotten back to pre-pandemic. We were about 79 million; I think today we are somewhere in the 67 to 68 million—we are about 86%. And if you think about outbound from the U.S., that had gotten up to about 110% to 112%. I think given the conflict, if anything, you might see some of that reroute. People start to onshore themselves, if you will, to the U.S., and I think Hawaii could certainly benefit from that, as well as certainly the Caribbean and seeing Puerto Rico benefit from that. So, obviously, in Mexico, I think we are already, as an industry, seeing rerouting and seeing certainly Florida and the Caribbean. Certainly, we are seeing that in Puerto Rico. Puerto Rico has had a great first quarter. We are very encouraged about second quarter as well, and certainly seeing that—and those benefits also in California and other parts of the U.S. So those are sort of natural, and I think we are seeing certainly some evidence of that. If you think about all the various cycles over the last thirty-plus years, Hawaii has always been a fan favorite—generations, families, both domestic and international. We certainly think that there is no risk of that changing materially. Mix may change, and we are certainly spending our time as we make these big investments. And you think about Alihi as a great example—a hotel within a hotel—and the amount of investment that we are going to make in that really flagship, with its own check-in, its own pool, an elevated experience. We think that just continues to help us as we continue to reposition Hilton Hawaiian Village over the future. We also have the opportunity in Waikoloa, just by way of right, to certainly continue not only as we have renovated but certainly add additional keys when market dynamics make sense for us. So we remain bullish on Hawaii, and as I said, if you look historically from a CAGR standpoint, it certainly has been among, if not, one of the top performers over the last twenty-plus years, and I think the evidence would support that. Ari Klein: Thanks. And then I just had two clarifications on group. For the fourth quarter, I think previously it was down 8%, and it was going to be a headwind. Just curious, with the improvement, what that now looks like. And then on 2027, the 5.5% growth in pace—does that also exclude Hawaii and Royal Palm? Thomas Jeremiah Baltimore: It does not. Yeah, it includes Hawaii and Royal Palm. So if you think about 2027 just for a second, as Sean said in his prepared remarks, I think the core was up 5.5%. But you have got New York up mid-teens. You have got New Orleans up mid-teens. You have got Hilton Waikoloa up 17%. Bonnet Creek up mid-single digits. Key West up significantly—north of 20%. Hilton Hawaiian Village is down slightly there, in part. And you also keep in mind that you have got the convention center that will be under renovation at that point. But it is broad-based, and we are very, very bullish as we look out to 2027. Sean M. Dell'Orto: And I would just add on Q4, we were thinking about pace down 8% last time around; we are about down 4% now. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from Chris Jon Woronka with Deutsche Bank. Chris Jon Woronka: Hey, good morning, guys. Thanks for taking the question. Morning. So, question—I was hoping maybe we can spend a minute going back to the transactional market and, you know, good progress so far to date. The question would be, are you seeing a difference in the buyer pool in terms of it broadening out and being more institutional as opposed to, you know, local or owner-operator? Thomas Jeremiah Baltimore: Yeah, Chris, it is a great question. I would say, candidly, for these types of assets—and again, as I try to frame for listeners—when you think about the eight for a second, these are smaller assets, not big EBITDA contributors. More attractive, I would say, generally to owner-operators, entrepreneurial, could be small PE firms—clearly experienced—and see value and see the opportunity to reposition in some cases. So no shortage of interested parties. Some markets are more attractive—no secret. L.A. certainly would not be at the top of anybody’s list, given some of the challenges there. And I would say Chicago, generally a more tough market. But, certainly, as you look across the assets that we are marketing, we have got a healthy buyer pool and interested parties. It is just really working through the process, which—the last mile is always the toughest. Many of these assets were assets that had been in the old Hilton portfolio, and they were not a high priority for obvious reasons. And then when Hilton was sold, it was not a high priority to that buyer. And the Park Hotels & Resorts Inc. team has the challenge. We accept the challenge. No excuses. We own it. And we have got to make it happen, and we are going to do that. And I think we have demonstrated that. And keep in mind, again, the long track record—we have sold assets before the pandemic, during the pandemic, after the pandemic. That also included 14 international—all of those assets—and all of these assets have, you know, some are legal issues, some are joint ventures, some are tax-related issues. Whatever it is, we are up to the challenge, and we are going to get it solved. And you are going to see significant progress this year. Chris Jon Woronka: Okay. Thanks, Tom. And as a follow-up on Miami—on the Royal Palm. I think you guys have outlined kind of EBITDA expectations fully ramped and timing of opening. So my question is, when that thing opens and it starts the ramp, how much does the composition of the earnings change to get to your EBITDA target, in terms of, you know, ancillary and getting the higher rate and maybe some—are you doing a beach club there—things like that? So just maybe how does the composition look versus what it did pre-renovation? Thanks. Thomas Jeremiah Baltimore: Yeah. I do not have all of that with me other than to just tell you how excited we are. If you think about the ADR pre-renovation, I think we were $265. I think we have underwritten this at around $400. I think in the prepared remarks I talked about business that we are already getting at $460, plus or minus. And then when you see it and you see the 2nd floor, which had a pool, and now it has got outdoor, really, entertainment space. Plus, as we are bringing all three of the buildings together, all of the opportunities for an elevated guest experience—and we are planning to really tuck underneath when you think about the Auberge and Rosewood and the Aman and Andaz and the Delano and all of those—and where they are going to be priced at $600, $700, $800 or more, and us underwriting at $400, I personally believe that we will exceed that. I think there is a significant opportunity for us, and just the response that we are getting is really exceeding expectations. So we are very, very bullish and very excited about it. And, again, I would draw your attention to the success that we are having at Bonnet Creek. We have taken that already from $60 million in EBITDA to north of $100 million. And you think about the success that we are having at Casa. I think it really speaks—we believe, passionately, and I think the track record is demonstrating—that we can generate higher returns on development deals than we can on acquisition deals. And I think it is a real core competency for the team. So we are excited to finish it and then to have an event and have analysts and investors down to see it, and to see what an incredible transformation really looks like. So we have got to get it done—we know that. As I mentioned, we have got north of 400 people on-site right now working two shifts, really to get the construction completed and to get as much of the World Cup as we can. But also keeping in mind we did not plan for any benefit in the World Cup as part of our guidance as it relates to Miami Royal Palm. So anything we get, we think is going to be incremental gravy, and we are pretty excited about the challenge and look forward to getting it done. Chris Jon Woronka: Okay. Very good. Thanks, Tom. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from David Brian Katz with Jefferies. David Brian Katz: Hey, everyone. Thank you. So I feel like we always cover the quarters quite well, and I wanted to ask something a little longer term. Ian always reminds us about, you know, the pipeline of longer-term repositionings. Clearly, Royal Palm gets done. You know, Hawaii—I think you have given pretty good updates on it. Can you talk about, in qualitative terms, some of the ones that might be next and how we think about sort of building the portfolio for the longer term? Thomas Jeremiah Baltimore: Yeah. There are a few, obviously, that come to mind. Obviously, Santa Barbara—we think there is significant upside. We have a proposal to add approximately 70 keys, plus or minus, and so we have been working through the entitlement process there. I am really excited. And when you think about—obviously, that is unencumbered and will be unencumbered. We have a great JV partner, but unencumbered in terms of its visibility and views. So pretty excited about that as we sort of look out. As you think about Hawaii, something like at Waikoloa—by way of right—we have the opportunity to add another 200 keys. I would not say that that would be on the front burner until, obviously, we see the market recovered enough to where that makes sense, but it certainly is in the pipeline. We have the ability, obviously, with our DoubleTree in Crystal City—not sure that the market conditions warrant that right now—when you think about just bull’s-eye real estate and where it sits in the location at the front of Amazon HQ2. Certainly pretty excited about that over the long term. I do not think that is something intermediate as we look out right now. Now the one that we continue to noodle and study—we are working on some of the elevator modernization in New York—but there is no doubt as we think about New York and how to reposition that, that certainly is also a priority and one that needs to be addressed within the portfolio. We know that. It is just trying to figure out what is going to make the most sense for that asset over the intermediate and long term. We certainly think that there is significant value as you think about just the sheer scale of it. It continues to improve from a performance standpoint. We certainly think that there are opportunities—different things that can occur with that asset over time. So just to give you a few that are on the mind and ones that we certainly think about. David Brian Katz: Okay. Thank you. I appreciate it. Got a lot done. That is it for me. Thomas Jeremiah Baltimore: Okay. Thanks, Dave. Operator: Our next question is from Daniel Brian Politzer with JPMorgan. Daniel Brian Politzer: Hey, good afternoon, everyone. Thanks for the question. Just had a quick follow-up on the second quarter. I think you mentioned RevPAR in range, but I think you had a comment on May, how it is tracking. I was wondering if you could just give a little bit more detail what is driving that, because I think you kind of characterized it as mix. Sean M. Dell'Orto: Yeah. Ultimately, to the core second quarter—April, obviously, almost finished here—just looking, we probably have about a week or so of data to get in and get real time. But tracking flattish—might be a little bit better there. Certainly better than expectations, so it kind of continues from Q1. May is the weakest, I think, setup right now for the quarter, with group pace just down slightly. Transient—we ultimately need there to make the numbers we are thinking, which are kind of a flattish type of result. But there is some risk there, so we kind of hold that out as the one where we are going to monitor May. But June is really strong. So June makes the quarter. As we look at it right now, pace is up double digits for group. Obviously, we have got some things related to World Cup and Juneteenth and other activities going on around that month. Certainly, we think it is going to be a good performer. But altogether, April kind of flattish, May where we see a little bit of risk, and then June strong—comes together to be plus or minus the midpoint of the guide for the year. Daniel Brian Politzer: Got it. And just for my follow-up, I know we spent a lot of time talking the World Cup as it relates to Miami. But I guess more broadly, as you think about where your footprint is and across the portfolio, have you seen kind of a change in terms of the demand for World Cup maybe versus, say, three or six months ago? Sean M. Dell'Orto: Nothing dramatic. I think, for us—you put Royal Palm aside, Miami aside; Tom talked to that—the really two big markets for us are New York and Boston, and these are two markets that typically have been 90% occupied during this timeframe of June and July. So it is really kind of a rate play. I think the positioning right now is good in those two markets around the matches. It remains to be seen. Clearly, there is a lot of uncertainty around this event. But right now, we think we have a good position. I would not say it is—what we would say is fantastic like people thought coming into the year. We said about that impact between those two—those two markets considerably make up the most of the impact for the year for the portfolio. It is probably—we probably said $35 million or so, plus or minus, which might come off a little bit from our expectations today, but still a demand generator, still a positive. But I would not say as dramatic as we thought necessarily as we go into it. We will see. It could change, but I think there are a lot of unknowns around this event right now. Daniel Brian Politzer: Got it. Thanks so much. Sean M. Dell'Orto: Thank you. Operator: Our next question is from Chris Darling with Green. Chris Darling: Hi. Thanks. Good morning. Hey, Tom. Quick one circling back to Hilton Hawaiian Village, maybe framing the trajectory there in a different way. Can you update us on where your RevPAR index share is today and where you see that metric heading over time as you realize the benefit of the capital you have invested over the last few years? Sean M. Dell'Orto: Yeah. The RevPAR index is kind of tracking in that 95 to just around 100. We have seen that last year and this year as we started the year because we have had some of that work going on at the Rainbow Tower. What we saw last year is once we got past the first quarter, we saw that pick up a little bit more. But in terms of recovery, where we see it going from there is really back to the historical levels of 110 to 115 range. That is where we kind of were sitting ahead of the renovation and some of the other events like the strike. I think that is where we want to ultimately see it come back to. And certainly, if we can get there more on a rate profile as well, that is going to help the bottom line, given the renovation work. Chris Darling: Okay. Understood. And, you may not have a perfect answer to this, but just how are you thinking about the timing in terms of that index share? Is that a one-year timeline, three-year timeline? And maybe you cannot quantify. Thomas Jeremiah Baltimore: Chris, we would hope that—just if you look historically and the amount of investment that we have made, the corporate resources that we are devoting in addition to our operating partners at Hilton—we would expect that that ramp-up to accelerate. And, again, once we get the Alihi Tower done—again, that is somewhat isolated and self-contained—we think that is going to help. And, obviously, we project there is going to be minimal disruption. But when you get that done and you have got 80% of the campus done, we think that is just going to really continue to reposition and, candidly, give us the opportunity to change the customer mix as well. So very excited, remain committed to it. And, also, when we pay off the mortgage, keep in mind we will have two marquee assets in Hawaii completely unencumbered. Very rare. Most of those resorts and many of the assets owned are under long-term ground leases. That is not the case with Park Hotels & Resorts Inc.’s portfolio. So that is a real benefit for us too and gives us a lot of optionality. Chris Darling: Alright. I appreciate the thoughts. That is all for me. Thank you. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from Cooper R. Clark with Wells Fargo. Cooper R. Clark: Great. Thanks for taking the question. Can you talk us through some of the building blocks for the updated OpEx guide for the full year and what you are expecting to see from a growth perspective on wages and benefits, insurance, and utilities? Sean M. Dell'Orto: Sure. Like I mentioned before, we have a range right now kind of in the mid-2s to mid-3s. Labor and wage growth should be kind of in that 5%, plus or minus, as you go throughout the year on average. We have some of the offsets to that. Fundamentally, our insurance—we do have embedded in our budgets favorable premium reduction—certainly continues to be a good market for the insureds as we look to renew. We renew on June 1, so we will get the continuation of our reduction from last year through May, and then ultimately pick up for the next seven months what we expect to be a favorable outcome. And we will give more color to that when we know more in the back part of the year. Estate taxes—once again, we kind of find ourselves with probably about a 5% increase right now through the budget process. But the whole appeal process is in place, and we have not fully factored that into any guidance because we just do not know—in terms of outcomes, amounts, timing, and the like. So I would say labor and wages are clearly the big driver on the growth side, but certainly some good offsets, and we continue to work with our asset management teams and the operators to find those meaningful ways to further offset. Cooper R. Clark: Great. Thanks. And then a quick follow-up. Just curious how much, if any, impact the Hilton Seattle sale had on the RevPAR guidance raise? Sean M. Dell'Orto: RevPAR guidance raise was obviously a growth rate, and it is comparable growth. So we remove that from the portfolio on a like-for-like basis. So no impact. Clearly, from a nominal RevPAR, you are seeing a nice increase. Cooper R. Clark: Great. Thank you. Operator: Our next question is from Robin Margaret Farley. Robin Margaret Farley: Great. Thank you. Most of my questions have been answered. I wonder if you could—oh, can you hear me okay? Thomas Jeremiah Baltimore: We can. Go ahead. Robin Margaret Farley: Okay. Great. Sorry. Yeah, most of my questions have been covered. Just going back to the Aliyah Tower in Hawaii. I wonder if you could walk us through a little bit about what you are expecting in terms of returns and change in RevPAR, kind of the way you—you know, I think you have given great color on Royal Palm. Just kind of what you are expecting from that Hawaii tower? Thanks. Thomas Jeremiah Baltimore: Yeah. We would certainly think, again, the opportunity is to take it from 351 keys to probably pick up three keys incremental, budgeting approximately $96 million. Any of these transformations—we have got to be in returns of 15% to 20%. And, again, if you think about Bonnet Creek and Key West that we have talked about already—already confidently exceeding that. The opportunity here is it is really a hotel within a hotel. You have got your own separate check-in. You have got, obviously, an embedded pool given its premier location on the Village. I am just really, really excited about it, and it has not had really that sort of upgrade for some time. So we are excited about it. Again, we will start that later this year and expect to finish that in the middle of next year, plus or minus. And given the experience that we have had, the success that we have had with the Tapa Tower there, obviously the Rainbow Tower—this is really the next in line to really reposition and, again, take the opportunity to change the customer mix. We are pretty excited about it. Robin Margaret Farley: And are there any limits on brand there in terms of—do you have to do something Hilton-branded, or could you do something completely different? Thomas Jeremiah Baltimore: It would have to stay within the Hilton family. And, you know, we have looked at whether you want to rename, but the reality—given the fact that Hilton Hawaiian Village is iconic; you think about that in north of sixty years, plus or minus—and Alihi Tower obviously has its own following. So we think really just the repositioning and the upgrade is the right answer there. But, you know, we will continue to look and continue to study it. But at this point, we have concluded really just the repositioning and the upgrade. And we are getting a phenomenal response, not only from Tapa but also the Rainbow Tower, and the room product and the quality of the renovation and how thoughtful we were about it. So, again, really excited and, to the point that Sean was making about RevPAR index, getting the whole Village back into that 110 and above range—we certainly think that is within our eyesight, and that will be accelerated once we get this final tower done. Robin Margaret Farley: Okay. Great. Thank you. Operator: There are no further questions at this time. I would like to turn the floor back over to Tom Baltimore for any closing remarks. Thomas Jeremiah Baltimore: I appreciate everybody taking time, and I look forward to seeing many of you at upcoming meetings—one hosted by Wells Fargo, JPMorgan, and, of course, NAREIT. Safe travels, and I look forward to seeing you all. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies, Inc. First Quarter 2026 Earnings Conference Call. My name is Daniel, and I will be your coordinator for today's call. There is a process for entering the question and answer queue. To ask a question during the session, you will need to press 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir. Rob Kukla: Thank you, Daniel. Good morning, everyone, and welcome to Forum Energy Technologies, Inc.'s First Quarter 2026 Earnings Conference Call. With me today are Neal A. Lux, our President and Chief Executive Officer, and David Lyle Williams, our Chief Financial Officer. Yesterday, we issued our earnings release, which is available on our website. Today, we are relying on federal safe harbor protections for forward-looking statements. Listeners are cautioned that our remarks today will contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in Forum Energy Technologies, Inc.'s Form 10-Ks and other SEC filings. Finally, management's statements may include non-GAAP financial measures. For reconciliation of these measures, please refer to our earnings release and website. During today's call, all statements related to EBITDA refer to adjusted EBITDA. Unless otherwise noted, all comparisons are first quarter 2026 to fourth quarter 2025. I will now turn the call over to Neal. Neal A. Lux: Thank you, Rob, and good morning, everyone. Our first quarter results reinforced our confidence in the path we presented with FET 2030. Year over year, we increased revenue 8%, EBITDA 14%, and net income 300%. The execution of our beat-the-market strategy drove these results. Impressively, we grew revenue per global rig 12% from a year ago, and positioned our company for future gains with strong bookings. Orders were up 10% year over year with a book-to-bill of 106%. We entered the year with our highest backlog in eleven years, and we grew that backlog again. Compared to the first quarter of last year, our backlog is up 44%. Also, following the completion of our structural cost saving initiatives, we are now a more efficient organization. These efforts have achieved $15 million of annualized savings. In addition, we continued our share repurchase program and strengthened the balance sheet by extending our credit facility's maturity to 2031. Overall, this was the kind of start we wanted to see, providing momentum into the second quarter and beyond. Looking ahead, our results should increase substantially, driven by market share gains, backlog conversion, and cost savings. We are forecasting second quarter EBITDA of between $24 million and $30 million, which at the midpoint is up 32% from a year ago. These results would deliver incremental margins of 51% with EBITDA margin approaching 13%. This sequential improvement is driven solely by the execution of our plan. Turning to the full year, we are raising the midpoint of our EBITDA guidance to $103 million, up 20% compared with 2025. Importantly, while we are seeing signs of increased activity, which is consistent with some analysts' expectations, our forecast conservatively assumes a flat market. Should the market pick up, I would expect to see further upside to our forecast. During the first quarter, we continued gaining market share through innovation and new customer adoption. This is a key part of our strategy, so let me provide an update on a few products we have recently commercialized. First, DuraCoil 95, coil tubing for sour service environments, is continuing to gain traction and is now active on three continents. This is an ideal product for Venezuela and the Middle East, especially if workover activity accelerates to bring production back online. Another innovation I want to mention is Unity, our next-generation operating system for remote ROV operations. We recently had the opportunity to showcase this technology at a large international trade show. In a real-time demonstration, our customers were able to control an ROV positioned hundreds of miles away from a terminal in our booth. It was a powerful demonstration of Unity's capabilities and has ignited interest in our product. The next product I want to highlight is DuraLine, our manifold system for multi-well frac applications. Compared to our competition, DuraLine is significantly safer and more efficient. Also, it is a great example of technology developed for U.S. shale applications that can be exported to international locations. In the first quarter, we received a significant order for multiple systems to be deployed in Argentina this year. Another innovative area for Forum Energy Technologies, Inc. is rig floor automation. We have developed patent-pending software for the FR-120 Iron Roughneck that automates the drill pipe makeup and breakout process with the push of a button. Our solution dramatically simplifies rig floor operations, reduces nonproductive time, and increases drilling efficiency by 30%. This software will be packaged with new Iron Roughnecks and sold as an upgrade to existing ones. I am very excited about this development. Shifting to the power generation and data center market, we have seen increased interest in the cooling solutions offered by our Global Heat Transfer product family. Based on customer feedback, we have developed a stationary power cooling solution. This new design gives us an opportunity to address a bigger part of the market and, since its introduction, we have developed a strong commercial funnel. These innovations are great examples of how our product pipeline is supporting both near-term share gains and the long-term ambitions of FET 2030. Shifting to the Middle East conflict and its impact, first and foremost, I am thankful all our employees in the region are safe. That is our primary concern. Also, operationally, we have not suffered any facility damage. We have experienced some disruptions that are having a slight impact on our business, particularly around logistics and freight costs. However, our teams did an excellent job finding creative solutions to these challenges, and we were able to increase revenue in the Middle East during the quarter. While uncertainty remains high, we are not forecasting any material net negative impact from the conflict. For context, Middle East revenue is only 10% of our total, limiting the company's exposure. At the same time, this conflict is creating medium to longer-term tailwinds for our industry. A significant portion of the world's oil and gas supply has been disrupted for 62 days and counting. Even if oil shipments through the Strait of Hormuz resume quickly, global oil inventories will be meaningfully reduced. Barring a material downturn in global demand, we expect investment in oil and gas production to increase over time to replace depleted inventories and support energy security. Some analysts have suggested that our industry will experience a prolonged upcycle beginning later this year or early 2027. This upcycle aligns with the growth market scenario of our FET 2030 vision. Under this scenario, our addressable markets grow at a rate of 9% annually and we expand our market share to 22% by 2030. The combination of market expansion and share gains doubles revenue and supports our near-term financial outlook. I will now turn the call over to Lyle for the financial results. David Lyle Williams: Thank you, Neal. Good morning. I will begin with first quarter results and our guidance, then shift to a discussion of cash flow and our capital allocation strategy. First quarter revenue of $209 million came in near the top end of our guidance. Growth in offshore and international markets led the revenue increase of 3%, outpacing global rig count. Our international revenue was up 7%, with Canada, Europe, and Latin America each delivering double-digit gains. This is the third consecutive quarter when international exceeded U.S. revenue. And offshore revenue expanded 10%, driven by a 20% increase in our Subsea product line as the team begins to execute orders secured last year. Adjusted EBITDA for the quarter was $23 million, in line with our guidance, as cost savings benefits were largely offset by product mix. Adjusted net income of $6 million increased 11% on a favorable income tax expense rate that benefited from geographic income mix. We grew backlog again in the first quarter, even after very strong bookings in 2025. Both segments posted a book-to-bill ratio greater than 100%. We saw higher demand for capital equipment in the Stimulation and Intervention and the Drilling product lines, and increased demand for wireline cables. Valve orders increased nicely, bouncing back from tariff-related impacts throughout 2025. Let me continue with additional color on our segment results. Drilling and Completions revenue was $127 million, flat with the previous quarter. The Subsea product line increased 20% as we recognized revenue on ROVs and the rescue submarine project. The Stimulation and Intervention product line increased 7%, supported by power end and wireline cable demand. And to note, our Quality Wireline product family set a new record this quarter in revenue and in greaseless cable sales. Coiled tubing revenue was down 17%, coming off strong U.S. sales last quarter and due to customer-requested delivery pushouts into the second quarter. Despite flat revenue, segment EBITDA was up 6%, benefiting from cost savings and improved plant utilization related to our facility consolidations. Artificial Lift and Downhole revenue was $82 million, up 9% with increased sales volumes across all three product lines. EBITDA was roughly flat, reflecting a combination of product mix, timing of incentive expense, and lower absorption at one facility, which we expect to improve in the coming quarters. Consolidated free cash flow was $1 million, consistent with our guidance. As a reminder, our free cash flow is typically back-half weighted; for example, roughly two-thirds of our free cash flow was generated in the second half of 2025. Despite the seasonally lower free cash flow, we still remained active on share buybacks. We repurchased almost 93 thousand shares for approximately $5 million under our share repurchase authorization. These purchases averaged $49 per share, about 20% lower than our stock price at yesterday's close. In addition, we paid $9 million for withholding taxes associated with our stock-based compensation program, avoiding the issuance of roughly 180 thousand shares and ultimately benefiting our shareholders. These payments, along with transaction costs associated with the credit facility amendment, resulted in a modest and temporary increase in net debt. We ended the quarter with net debt of $121 million, with a net leverage ratio still at a comfortable level of under 1.4x. While this is higher than where we ended last year, we expect net leverage to decline to under 1.0x by the end of the year. Liquidity of $91 million remains strong, with $54 million available under our revolving credit facility. During the quarter, we extended our credit facility maturity to February 2031 with improved pricing and greater letters of credit capacity. This amendment, combined with our strong balance sheet, provides significant flexibility for Forum Energy Technologies, Inc. to fund strategic initiatives, including long-term debt retirement, organic growth, and acquisitions. Now turning to our guidance. For the second quarter, as Neal mentioned earlier, our results should increase substantially, driven primarily by backlog conversion, cost savings, and market share gains. We are forecasting revenue between $202 million and $225 million and EBITDA between $24 million and $30 million, which at the midpoints are up 6% and 32%, respectively, from a year ago. Adjusted net income expected for the second quarter is between $6 million and $11 million. Our full year guidance issued in February assumed relatively flat market activity compared to 2025. Now, with strong first quarter results and increased expectations for the second quarter, we are raising the bottom end of our EBITDA guidance range from $90 million to $95 million. We are maintaining our revenue guidance of $800 million to $880 million, and for adjusted net income we are guiding between $21 million and $38 million. In addition, we reaffirm our full year free cash flow guidance of $55 million to $75 million, as we remain confident in our ability to convert approximately 65% of EBITDA into free cash flow. Let me conclude with our capital allocation expectations. As we discussed last quarter, our balance sheet is in great shape. We consider any further net leverage reduction as dry powder for incremental strategic investments, including acquisitions and share repurchases. With our M&A framework, we seek to acquire companies with differentiated products competing in targeted markets, at valuations that would be accretive to Forum Energy Technologies, Inc. per-share metrics. And we compare these acquisitions with repurchasing Forum Energy Technologies, Inc. shares. This year, our bonds allow total repurchases of around $30 million as long as our net leverage remains below 1.5x. We believe Forum Energy Technologies, Inc. remains a compelling investment. With that, I will turn the call back to Neal for closing remarks. Neal A. Lux: Thank you, Lyle. Over the last few years, we have implemented a strategy to make Forum Energy Technologies, Inc. a better and stronger company. We are gaining share through commercial excellence and innovation. We are leveraging our global footprint, delivering our solutions to customers around the world. We are creating significant value for our shareholders, and we have been successful despite market headwinds. Now we may be closer to finally having a market tailwind that can supercharge our efforts going forward. Thank you for joining us today. Daniel, please take the first question. Operator: Star 1-1 on your telephone and wait for your name to be announced. Our first question comes from Jeffrey Woolf Robertson with Water Tower Research. Your line is open. Jeffrey Woolf Robertson: Thank you. Good morning. Neal, with respect to the Unity ROV system and the trade show, are you seeing demand for that product outside of traditional energy? And then secondly, if we think about Unity and the cooling systems you all have, are there orders for those systems that are in the backlog, or are you working on that? Neal A. Lux: Good question. So, starting with Unity first, Jeff, it is still a fairly new system. We are gathering more and more field data as well as understanding how much it benefits our customers, so it is early stages there. I do think it would have an application outside of oil and gas for remote control of an ROV. I think the interest is high, and we do have a number of Unity systems already in the backlog that will continue to add to what we have already delivered. As we build that field experience, we will then look at other applications outside oil and gas; defense would be a great application as well. On our cooling systems, we did not mention in the call, but we have previously had a cooling system that is mobile for data centers that we call Powertron. The system I mentioned in the script is a new design that is stationary, so it is not mobile. This is brand new, one that we are quoting actively, and we are building up a strong opportunity queue. We do not have orders for that system yet, but all indications are we have a great product and would expect orders going forward. Jeffrey Woolf Robertson: Can you comment, Neal or Lyle, on what the margin profile looks like in the backlog? Neal A. Lux: With the new products and innovations, generally our innovative products have higher margins than our standard overall margin. The innovations we developed are addressing specific customer needs, and so we are able to get more value out of that. As we talked about, our backlog coming into the year, about 11% was new innovations or new products that we developed recently, so I would think overall our average margin would be higher because of that. Lyle, maybe a little color to add to that. David Lyle Williams: Last year, we booked a large amount of orders for Subsea. Their book-to-bill was basically off the charts in a combination of defense and traditional oil and gas, ROVs, and the rescue submarine. Typically, we see our Subsea business with slightly lower contribution margins—there is a lot of pass-through material and electronics, etc., that go through on those Subsea orders—that tends to pull the average margin down. So I would say the Subsea portion of backlog, which is meaningful, is a little bit lower. But as Neal mentioned, our other products we are putting through are coming in at higher margins. Jeffrey Woolf Robertson: And if I can have one more. With respect to the Middle East and Qatar's LNG—part of it has gone offline—are there conversations underway with customers in the Middle East that would increase demand for Forum Energy Technologies, Inc.'s business as the oil and gas producers maybe look to diversify their production capacity and maybe put a bigger emphasis on developing their own natural gas for internal consumption? Neal A. Lux: I think it is maybe early on for that rebuilding discussion, Jeff. We are staying close with our customers. As we mentioned, we did increase revenue in the Middle East during the quarter. One area that we did not cover specifically was Venezuela. We are seeing an increase there in demand, especially for our short-cycle, activity-based products like coiled tubing and wireline. As we get farther from the conflict, there will absolutely be an opportunity in the Middle East. Interestingly, we are finding some nice opportunities already in Venezuela. Operator: Thank you. Our next question comes from Stephen Michael Ferazani with Sidoti. Your line is open. Stephen Michael Ferazani: Good morning, Neal. Good morning, Lyle. Appreciate all the detail on the call. In terms of the guidance raised this early in the year—obviously, you would not do it without confidence—just trying to get a better sense of the components that led you to that decision. Covered it a little bit, but to me, the surprise here was the strength in orders, given the fact that we have not seen a pickup in North America yet, given the conflict in the Middle East, and given you would assume a lot more uncertainty on behalf of customers. Were you surprised? Was that the major contributor? Were there other factors in the guidance raise? We were certainly surprised by the strength in the order book for Q1. Neal A. Lux: Having a book-to-bill over 100% does give you a lot of confidence when you look out a quarter. That helped. Some of the orders we booked—I mentioned DuraLine for Argentina—that is one we worked on for a long time and got to the finish line in Q1, which helps. Another area where we are seeing great strength is in Canada with the Veraperm product line; they are delivering great results. With oil prices up, that is an area where we are going to see more investments. So Veraperm being strong, as well as the visibility from our backlog coming into the quarter, gave us a lot of confidence in increasing guidance. Again, we are not assuming yet an increase in overall activity; we are keeping our assumptions flat. But we are getting initial indications of some increase in activity. It is uneven so far, so I do not want to call it a trend. If activity does increase, we will be aggressive in following it up. Stephen Michael Ferazani: In terms of the strength in Q1, it sounds like you were also impacted by some delivery pushouts. Given the higher Q2 guidance, fair to assume those deliveries were either completed or will be for sure completed in Q2? Neal A. Lux: Yes. Specifically coiled tubing, where customers were a little unsure at the end of the quarter and just waited. That is an area where we are now seeing customers accelerate, which is one of the initial indications we have received. Stephen Michael Ferazani: Have we seen the full benefit of your cost reductions now with the plant consolidation? Or can we expect more to contribute to margins as the year goes on? Neal A. Lux: The Q2 guidance fully assumes all of our cost reductions. We still had some actions being completed in Q1, and we also had some operational challenges you always see when consolidating facilities. But going forward in Q2, we feel really good about the cost savings and our ability to execute. Stephen Michael Ferazani: That is helpful. And, Lyle, I do have to circle around on operating cash flow. Clearly, Q1 is always the lowest and you had pointed it out going into this quarter. That being said, cash flow was lower than the previous two years. Looking through the numbers, it looks like it is a timing issue with receivables collection as the delta between the last two years. Is that fair? More timing than anything? And there is no reason to think you are not still on track for full year cash flow? David Lyle Williams: Yes, Steve. The seasonality is driven by incentive comp payments and property tax payments that go out in Q1. That is the big drag from a working capital perspective. Beyond that, it is really timing. Quarter to quarter we see movements in DSOs based on project timing for our bigger projects and shipment timing. We did see a little bump up in DSOs in the first quarter; we think that will unwind in the second and third quarter. So there was some movement in receivables and payables, but the big driver for Q1 is those annual payments we make every year. We feel like we are on track for the full year, Steve. Stephen Michael Ferazani: In terms of the use of it, any change to your buyback strategy? David Lyle Williams: No. We like the buyback plan. We highlighted about $5 million bought back this year. Total capacity for the year would be about $30 million. We do expect that to be back-end weighted, keeping it somewhat in line with how our free cash flow comes in. With our free cash flow yield over 10%, it is an attractive investment for us to consider. Stephen Michael Ferazani: Great. Thanks, Neal. Thanks, Lyle. Operator: Thank you. Our next question comes from Daniel Ray Pickering with Pickering Energy Partners. Your line is open. Daniel Ray Pickering: Morning, guys. I think Lyle mentioned—or maybe it was Neal, I cannot remember—you talked about FET 2030 and you threw out some numbers. Just want to confirm what I heard. I think I heard doubling of revenues to 1.6 billion and EBITDA quadrupling to, call it, 400 million. I just want to confirm that. It implies an EBITDA margin of about 25%. I was hoping you could give us some perspective. I realize that is aspirational and forward-looking, etc. How do you think about pricing improvements? And can you put that 25% margin level in context with prior strong cycle periods? Neal A. Lux: Those numbers are based compared to 2025, when we delivered around $85 million of EBITDA. The revenue path is to 1.6 billion. We see two drivers: market growth and share gains driving revenue, and then operating leverage delivering roughly 30% incremental margins on that revenue increase. That is how we get the increase in overall margin. As you play it out, we see around 20% EBITDA margins once we have that kind of revenue growth on our fixed cost base. We also look at revenue per rig: in the U.S., we are around $700 thousand per rig annually; internationally, it is closer to $300 thousand. The ability for us to export technology—whether DuraLine manifolds, Multi-Lift solutions, DSP life extenders or protectors going into the Middle East—is a great opportunity. If international revenue per rig gets closer to the U.S., that 1.6 billion target is aspirational but feels like a great target for us to achieve. Daniel Ray Pickering: Thank you. Neal, you mentioned Venezuela. What are you seeing there? Is it inquiries about what you could do if companies go in there? Are you seeing companies that are already there asking for more stuff? Is this a Q2 revenue impact? Is it later in the year into 2027 revenue impact? Neal A. Lux: It is both. We are receiving orders and delivering material for customers who are already in country looking for our products so they can get back to work. We are also in early stages looking at more infrastructure-type sales—coil line pipe, things like that—potentially valves going into Venezuela to help rebuild infrastructure. That would be longer term. Historically, Venezuela was a great market for many of our products, and getting back in there creates a lot of opportunity for us. Daniel Ray Pickering: You talked about Argentina and the DuraLine order that you had been working on for a while. Is that going in with a pressure pumper that has equipment there already, or is it new capacity, new equipment moving in that you are going along with? Neal A. Lux: I am not positive if the pumps are in country yet or not, but I believe that is additional fleets being added to get the work done. Daniel Ray Pickering: As we bring it back to the U.S., can you talk a little bit about pricing behavior? Is it a flat pricing environment? Are we seeing any upward bias anywhere? Or is it kind of a steady market right now? Neal A. Lux: I would say it is steady right now, Dan. We are getting interest; the phone is ringing; inquiries are coming. We have had a few customers ask to receive material earlier than originally planned, but it is not a boom yet. I do not see a pricing impact in Q2 beyond passing through any freight increases, diesel surcharges, or tariffs. Real pricing increases—we have not approached that yet. We have some capacity, and some of our competitors have some capacity at least initially. As we go along in the cycle, that is absolutely something we are looking for. Operator: Thank you. Our next question comes from John Daniel with Daniel Energy Partners. Your line is open. John Daniel: Hey, Neal. My first question is with the GHT product line. Can you speak to what you are seeing from the North American frac companies—replacement orders and inquiries? Neal A. Lux: We have seen an uptick in inquiries. It is not a trend yet, John, but something we are monitoring. We are still seeing more demand right now for our data center cooling opportunities than for frac. That said, even going into the year, we were a little surprised with a few capital orders on the drilling side and on the pressure pumping side, where customers were pulling the trigger even before the recent oil price increase. I am cautiously optimistic that as we get farther in the cycle and activity picks up—and given how old some of the equipment is in the field—we could have an opportunity to add some new capital for our customers. John Daniel: And my follow-up: on DuraLine, it was characterized as more efficient. Can you elaborate on what makes it more efficient? Neal A. Lux: It is our DuraLine connection. We are able to rig up and rig down significantly faster. We also utilize high-pressure hoses and cranes to move those hoses. If you need to pull out a pump, you can do that much faster than with a traditional manifold. We are seeing a lot of interest from large pressure pumpers who want to be best in class, and uptake has been good. John Daniel: Once you sell those systems, what type of consumables go along with it? What is the repeat revenue opportunity? Neal A. Lux: The whole system is a pretty big order initially, but ongoing pull-through would include check valves, hose replacements, different types of bearings, and iron. Call it 80/20 on capital versus recurring. John Daniel: Final question. I do not know how many of the bearings, valves, and fittings are sourced from international markets, but do you see any potential supply constraints as an eventual Middle East rebuild comes—supply that you thought you could get gets diverted to a higher-priced market? Is that a risk? Neal A. Lux: We have not seen anything like that. We feel good about our supply chain, but it is something we will watch. Operator: Thank you. Our next question comes from Eric Carlson. Your line is open. Eric Carlson: Hey, good morning. Good quarter again. Last time we talked, oil prices were probably lower. In the 2030 plan you presented, and from a physical perspective, we are likely to lose over a billion barrels of supply from inventories. Your base case in that plan has been a no-growth scenario and then the 2030 growth scenario. Can you provide a bit more context on your confidence in outcomes given we probably need to build a lot of supply back into the market? Neal A. Lux: We agree. Taking a billion barrels of oil out of inventory has to be replaced. Countries around the world will have to ask themselves how much inventory they should have; I would imagine it is going to be more than what they had coming into the conflict. That is even more demand on oil production. This fits really well with our growth scenario. As the buildup comes in oil—and data centers are still out there, and natural gas demand is still going to grow—that biases us up toward our growth outlook where we could double revenue because our markets are growing and we are taking share. Our key innovations are driving growth, and adding the need to rebuild and refill creates a great opportunity for us. Eric Carlson: In that context of headline volatility—commodity volatility has been high, your own equity volatility is relatively high too—pretty good results today, but equity market reaction is what it is. In the context of your capital returns, do you look at volatility as an opportunity to buy more of what you already own? Does that change how you think about buybacks versus acquisitions? The organic opportunity is massive if the 2030 growth scenario plays out. And on the M&A market—potential targets, size of target, and bid-ask spread today versus a quarter ago? Neal A. Lux: Our free cash flow yield is still around 10%—higher than our peers and the average small cap—so we are a great value, especially with our growth outlook. For acquisitions, our criteria are clear: differentiated products, few competitors, great financial profile, and accretive to free cash flow per share. Lyle and his team have developed a solid pipeline. There are opportunities out there, but we will be incredibly selective, especially given our free cash flow yield. David Lyle Williams: Because of the breadth of our product portfolio, we have a lot of shots on goal around products that could be strategically beneficial. But the criteria are the same: differentiated technology, targeted markets, and accretive to our per-share metrics. We can be conservative and take our time because we have a good alternative investment in our own shares. It is an interesting market with a lot of opportunities to evaluate, and we have a compelling base case if we cannot find something even more compelling. Eric Carlson: On valuations, the Veraperm deal was done under 4x EBITDA with a really impressive free cash flow multiple. What does the market look like today versus a quarter ago? Seller expectations? David Lyle Williams: Public company valuations have increased year to date pretty meaningfully—ours included—and you would expect sellers to try to take advantage of that. That said, we have seen deals getting done still in the range of where we acquired Veraperm. Our expectation is those deal values have not changed a lot in the last 90 days. Valuation volatility in public equities can be high, so we will be appropriately conservative, making sure any moves are very accretive to our story. Eric Carlson: On target size, Veraperm was large and transformative. What is the general range you have been thinking about if you can get something at the right price? David Lyle Williams: We do have a broad dispersion of potential targets. Key financially is to keep our balance sheet very strong. We are not going to risk the balance sheet by doing a bigger deal that stretches us. Our stock being a very good value also brackets the size of deals we might do. The range is broad, and it depends on what we can bring across the line that meets our criteria. Eric Carlson: Seller type—privately held companies like Veraperm, carve-outs from publics, or something else? David Lyle Williams: We are seeing it all. Quite a few private equity-held businesses that are long in the tooth, smaller family-owned businesses considering next-generation and estate planning questions, and other structures. Over our history, Forum Energy Technologies, Inc. has participated in a lot of different kinds of deals. It is definitely an interesting time. Eric Carlson: Great. That is all I have. Thanks. Neal A. Lux: Thanks, Eric. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Neal A. Lux for closing remarks. Neal A. Lux: Thank you for your support and participation on today's call. We look forward to our next meeting in July to discuss Forum Energy Technologies, Inc.'s second quarter 2026 results. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Corporation First Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Lynette Gould, Vice President, Investor Relations, Communications and External Affairs. Please go ahead, Ms. Gould. Lynette Gould: Thank you, operator, and good morning, everyone. I would like to welcome you to our conference call to discuss our first quarter 2026 results. Before we begin, I would like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures and risk factors in our Management’s Discussion and Analysis. Joining me on the call today, we have George Burns, Chief Executive Officer; Christian Milau, President; Paul Ferneyhough, Executive Vice President and Chief Financial Officer; and Simon Hille, Executive Vice President and Chief Operating Officer. Our release yesterday details our first quarter 2026 financial and operating results. The release should be read in conjunction with our Q1 2026 financial statements and Management’s Discussion and Analysis, both of which are available on our website. They have also both been filed on SEDAR+ and EDGAR. All dollar figures discussed today are U.S. dollars unless otherwise stated. We will be speaking to the slides that accompany this webcast, which can be downloaded from our website. After the prepared remarks, we will open the call for Q&A, at which time we will invite analysts to queue. I will now turn the call over to George. George Burns: Thank you, Lynette, and good morning, everyone. I will begin with an overview of our first quarter and provide brief updates on McIlvenna Bay and Skouries. I will then hand the call over to Paul to review the financials, and then to Simon with an update on our operations. Following that, Christian will make some concluding remarks before opening up the call for questions. We have had a very busy and solid start to 2026, with performance in the quarter tracking in line with our expectations and full-year guidance. This year, production is back-half weighted as two mines come into production and several other operations deliver stronger results later in the year. 2026 is an important year for Eldorado Gold Corporation as we continue to advance two high-quality growth projects, Skouries in Greece and McIlvenna Bay in Saskatchewan. MacBay is nearing first concentrate production, followed by first concentrate at Skouries in Q3. Once in operation, both assets will meaningfully enhance our production profile and cash flow generation. Starting in 2026, to provide greater transparency as these polymetallic assets come online, we plan to enhance our disclosure by reporting copper assets on a dollar-per-pound co-product basis for Skouries and MacBay. Before getting into the project updates, I want to note that, as previously announced, I plan to retire as CEO later this year as we ramp up Skouries towards commercial production. Christian, who joined us last September, has been deeply involved across the business and is set up to seamlessly step into the role at that time. I am pleased to remain on the Board to support continuity, and Dan Myerson has joined the Board as Deputy Chair, providing important continuity from the Foran side. I want to take a moment to recognize the achievement of our colleagues at Lamaque. In March, they received the TSM Gold Leadership Award, a special recognition for mining operations who achieved Level AAA, the highest possible rating across all applicable TSM performance indicators. This recognition reflects the dedication of our employees and our unwavering commitment to responsible mining in Quebec and across our global operations, where TSM protocols are applied as a matter of practice under Eldorado Gold Corporation’s Sustainability Integrated Management System. Well done, Lamaque team. The Foran transaction represents a significant milestone for Eldorado Gold Corporation. At MacBay, we have now begun integration activities and are working closely with the existing team as the project nears first concentrate production. Following the close, members of our management team visited Saskatchewan and the MacBay project to welcome the team to Eldorado Gold Corporation, see progress firsthand, and engage with our stakeholders in Saskatchewan. What stood out was the enthusiasm of our new team, the capability supporting the operation, and the clear focus on safety, collaboration, and responsible execution. Now that MacBay is part of our portfolio, expect us to provide the following with our second quarter results: MacBay production and cost outlook for 2026, timing for an expansion study, and progress on a study for a potential lead-silver circuit. Following the close of the transaction, we have already approved approximately $17 million to spend on exploration for the remainder of 2026, reflecting the target-rich environment and our view that continued exploration success has the potential to drive meaningful long-term value. The quality of MacBay and its exploration potential reinforce our confidence that it will become a long-term cornerstone asset within our portfolio, delivering near-term growth while adding copper exposure in a stable, top-three global mining-friendly jurisdiction. Turning to Skouries in Greece on slide six, construction activities continue to progress well across all major areas. The team remains focused on disciplined, safe execution as we move through the final construction phase. At the end of the quarter, overall project progress was approximately 94%, steadily advancing towards first concentrate production. As execution activities have progressed and the project advances towards construction completion on schedule, we have updated our forecast to complete and revised our total project capital to $1.315 billion, an increase of approximately $155 million from the prior estimate. The primary driver was the increase related to construction workforce levels to support sustained final construction momentum. Total workforce has increased from 2,350 in mid-Q1 to approximately 3,200, which includes about 490 in operations. Advancing Skouries into safe production in the current metal environment is a key driver of value creation. This incremental capital reflects our continued focus on maintaining momentum towards first concentrate production. Accelerated operational capital at Skouries is now expected to be approximately $260 million, reflecting an incremental $82 million to expand pre-commercial mining and site works. This supports open-pit mining and advancing underground development ahead of first production. We are well positioned for startup with more than 2.8 million tons of ore stockpiled, which provides the entire planned mill tonnage for 2026. Overall, this investment supports a smoother ramp-up into production. On the process plant, work remains focused on final mechanical installations, piping, cable tray, and cabling as we prepare for first ore. With respect to the damaged cyclone feed pump variable-speed drives, temporary replacement equipment is expected to be installed in Q2. High- and medium-voltage electrical distribution for multiple stations is progressing. The process control building structure is complete, and electrical rooms are being progressively handed over to commissioning. On the power line and substations, the 150 kV power line and primary substation continued to advance to startup in Q3. Ahead of grinding area ore commissioning, final electrical regulatory authority approval will require completion of inspection and energization protocols. Powerline construction is progressing with the transmission tower assembly complete and pilot wire pulling now underway along the transmission line. The primary substation is advancing through ongoing assembly of the substation structures and control building structural completion. Pre-commissioning is now underway starting with the substations that feed the process plant, filter plant, and primary crusher, while commissioning continues across fire, utility, and process water systems. In parallel, we have begun pre-commissioning in flotation focused on air and instrumentation, as well as the SAG and ball milling instrumentation, electrical and control systems, and we started wet commissioning in the process water pumps and tailings thickeners. Together, Skouries and McIlvenna Bay represent a step change for Eldorado Gold Corporation in scale and portfolio diversification across jurisdictions and metals. With that, I will turn it over to Paul to review the financial results. Paul Ferneyhough: Thank you, George, and good morning. I will start on slide seven. In Q1 2026, we produced 100,358 ounces of gold, a 13% decrease year over year, primarily reflecting lower tons at stack grades at Kisladag and lower grades at Efemcukuru, partially offset by higher grades and improved recoveries at Olympias and Lamaque. Gold sales totaled 100,119 ounces at an average realized gold price of $4,891 per ounce, generating total revenue in excess of $532 million, a 50% increase from $355 million in the comparable quarter last year, driven by significantly higher gold prices. Production costs were $188 million, up from just over $148 million, driven primarily by royalty expense in Turkey and Greece, which accounted for approximately 70% of the increase, with the balance largely attributable to labor inflation in Turkey and incremental labor and contractor costs associated with continued development of the Lamaque Complex. Royalty expense increased to $50 million from $22 million last year, reflecting higher realized gold prices and higher royalty rates, partially offset by lower sales volumes. On a unit basis, total cash costs across the portfolio averaged $14.70 per ounce sold, up from $11.53, while AISC averaged $1,942 per ounce sold compared to $15.59 in the prior-year period, mainly reflecting higher royalty expense driven by the higher gold price environment, lower production, and labor cost impacts. Below the line, net earnings attributable to shareholders from continuing operations were $136 million, or $0.69 per share, compared to $72 million, or $0.35 per share, last year, primarily due to higher realized gold prices, partially offset by lower sales volumes, higher production costs, and higher income taxes. Adjusted net earnings were $188 million, or $0.95 per share, compared to $56 million, or $0.28 per share, last year. The adjustments this quarter included an $18 million foreign exchange translation loss on deferred tax balances, a $20 million unrealized loss on derivative instruments, and $8 million of acquisition costs related to the Foran Mining transaction. Turning to slide eight, we ended the quarter with cash and cash equivalents of approximately $630 million, maintaining a strong balance sheet and significant financial flexibility to fund our growth initiatives. Cash declined in Q1 relative to Q4 2025 primarily due to capital investment, share repurchases, dividend payments, and income taxes paid, partially offset by cash generated from operating activities. As we prepare the company for the significant cash flow that will come following ramp-up of production at Skouries and McIlvenna Bay, it is worth reflecting on our developing capital allocation policy, which is based on a framework built around five key priorities. First, we continue to allocate funds towards the highest-return opportunities within our global portfolio, including potential expansion projects at Lamaque and McIlvenna Bay, advancement at Perama Hill, ongoing optimization and expansion of Olympias, and continued investment for our stable, cash-generating mines in Turkey. Second, we have meaningfully increased our exploration investment focused on mine life extensions and the discovery of new resources. Third, we remain committed to maintaining balance sheet strength with a focus on reducing leverage over time, including the prudent management of our $500 million high-yield bond maturing in 2029, while preserving the flexibility to execute our pipeline of development projects. Fourth, we have established a sustainable base dividend policy of $0.075 per share per quarter. Finally, we continued in Q1 to opportunistically repurchase shares, reflecting our conviction in the company’s intrinsic value, particularly given the potential for an estimated double-digit free cash flow yield based on our current valuation, compared to industry-leading peers who currently trade at a lower yield. Overall, we believe our capital allocation framework appropriately balances growth, financial strength, and shareholder returns. With that, I will turn it over to Simon for an operational update. Simon Hille: Thank you, Paul. Starting on slide nine, at Lamaque we produced 42,306 ounces in Q1, up 5% year over year. The outperformance was primarily grade driven, and we also saw the initial contribution from Ormaque following the receipt of our operating authorization. All-in sustaining costs were $13.70 per ounce sold, modestly lower year over year, reflecting higher production volumes and continued cost focus, partially offset by the impact of deeper mining and timing of sustaining capital spend. Total capital spend was $48 million, including $20 million of sustaining capital, primarily for underground development, drilling, and equipment. Growth capital totaled $28 million, largely related to development of Ormaque and ramp development at the Triangle Mine and supporting infrastructure. Continuing to slide 10, at Kisladag, we produced 28,339 ounces as planned. As we have previously disclosed, 2026 is a cutback year for Phase 6 of the open pit, where the average grade is lower than the life of mine. All-in sustaining cost was $2,060 per ounce sold, primarily reflecting lower volumes sold on a higher cost base. Sustaining capital spend included $4 million, while growth capital included $51 million, including a one-time $24 million purchase of strategic land to support the North Heap Leach pad and North Rock waste dump expansions. The remaining planned $27 million was largely waste stripping and continued construction of Phase 3 at the heap leach in 2026. At Efemcukuru, on slide 11, we produced 15,394 payable ounces in Q1 relative to 19,307 payable in 2025. Lower output is primarily due to lower grade, partially offset by higher throughput. All-in sustaining costs increased to $2,528 per ounce sold, primarily reflecting the lower volumes sold and the higher cost base, as expected, with the higher sustaining capital tied to increased development meters. Sustaining capital spend included $5 million, primarily for underground development, and $2 million of growth capital related to the new portal development at Kokarpinar along with the development costs for the new Bati Zone. Finally, to slide 12, at Olympias, we produced 14,319 payable ounces of gold in Q1, up 21% from 11,829 ounces in 2025. This improvement reflects a stable ore blend and flotation performance that drove higher metal recoveries. Revenue increased to $88 million from $46 million, primarily on the higher realized gold price, higher sales volumes for gold and base metals, and with the base metals also benefiting from higher grades and recoveries. All-in sustaining cost was $2,031 per ounce sold, reduced from $2,842, primarily reflecting improved metal recovery and stable mill performance that resulted in lower cash cost per ounce sold as a result of higher volumes sold. Sustaining capital was $5 million, while growth capital was $8 million, driven by the mill expansion project, with sequential area completion commencing at the end of Q3 and ramp-up through 2026. Across all sites, safety remains core to our operations, and we continue to reinforce a culture of safe, responsible production. I will now turn it over to Christian for closing remarks. Christian Milau: Thank you, Simon, and good morning, everyone. Overall, the first quarter reflects a solid start to what is a defining year for Eldorado Gold Corporation. We are delivering solid operational and financial performance while continuing to make meaningful progress on our key growth projects as they march towards the finish line. In addition, we initiated our dividend and bought back over $80 million worth of Eldorado Gold Corporation shares in Q1. Importantly, we have continued to strengthen our leadership team over recent months, including the well-deserved promotion of Simon to Chief Operating Officer and the appointment of Gordana Viseptievich, who will be joining us shortly as Senior Vice President of Projects. Gordana has significant experience leading projects of a large and small scale globally, as well as experience working with G Mining Services, which will be a key partner on a number of future projects. Additionally, we would like to recognize Sylvain Lehoux, who has been promoted to Senior Vice President, Operations for Canada, taking on responsibility for Eldorado Gold Corporation’s growing Canadian portfolio. The deliberate steps we have taken to enhance our bench strength—particularly in project execution and operational leadership—are already contributing to improved alignment and stronger integration across the business. Complementing these efforts in 2026, we entered into a project alliance with G Mining Services to support project development and execution, reinforcing our technical capacity and ability to deliver projects safely, efficiently, and on schedule. As I have spent time across our sites and corporate offices, I have seen strong alignment with our values, particularly in how our teams are approaching collaboration and execution. These behaviors will be critical as we move through the remainder of the year. With Skouries and McIlvenna Bay advancing towards key milestones and first production, and with the strength of the team we have in place, we are entering a period of meaningful transformation for the company that we believe will enhance our scale, diversify our portfolio, and strengthen our long-term value proposition. Looking ahead, while Eldorado Gold Corporation remains predominantly a gold producer, the addition of meaningful copper production from Canada and Europe represents an exciting extension of our portfolio. At McIlvenna Bay, we are building exposure to copper in a top-tier mining jurisdiction with dependable infrastructure and access to a skilled workforce, and we appreciate the Major Projects Office support of the Strategic Projects for Canada and Eldorado Gold Corporation. Further, the district-scale exploration potential and work being done by the team in Saskatchewan is extremely exciting, with excellent targets to be followed up, as evidenced by our increased investment in exploration. Expect us to aggressively explore the Deposit and wider land package starting this year. This potential and the already long mine life will enhance our peer-leading average mine life and exciting exploration portfolio across all jurisdictions. At Skouries, we expect to deliver a long-life copper-gold asset within Europe, where demand for responsibly produced metals continues to grow. Northern Greece is highly prospective and will continue to grow as a core part of our portfolio. These two near-production mines provide substantial exposure to copper and its key role in electrification and the energy transition, while also enhancing the resilience of our portfolio through greater commodity and geographic diversification, and extending our average years of mine life into the mid-teens with excellent potential to extend further. I am excited about Eldorado Gold Corporation’s future and the strong culture and teams across the company. As we reach the significant cash flow inflection point later in 2026, I have a high level of confidence in our team, our strategy, and our ability to surface significant value from execution of peer-leading near-term growth. Thank you to our employees, partners, and you, shareholders, for your continued support. I will now turn the call back to the operator for questions from our analysts. Thank you. Operator: We will now open the call for questions. The first question comes from Don DeMarco with National Bank. Please go ahead. Don DeMarco: Thank you, operator, and good afternoon, George and team. First question, looking at Skouries, given that labor cost pressures contributed to the CapEx increase, is there a read-through to potentially cost pressures on operating costs going forward? George Burns: Hi, Don, thanks for the question. No read-through there. What drove this capital increase as we get to the final stage of construction was completing electrical and instrumentation in the plant, so we brought in three EU contractors just recently to help ensure we can maintain the early Q3 startup of the plant. It is essentially some extra labor to complete that electrical and instrumentation. No read-through in terms of our operating cost. Our operating manpower levels are going to come in as expected, and we have only had normal inflationary pressure on labor costs. If you look at our cost guidance for the fourth quarter as we bring it into operation, we continue to maintain a very low cost profile once we are into production. Don DeMarco: Okay. And so then, looking at the next couple of quarters before first concentrate, are there any risks on the horizon—maybe lingering cost pressures, whether related to labor, contractors, etc.—that might require additional capital that might be unforeseen at this time? George Burns: No, Don, we do not see that at this point. Again, from a construction perspective, we should have the construction complete at the midyear point, and we have said Q3 as first concentrate. Really, the variable for us remaining is how efficiently we can get the energy connected to be able to put first ore through the grinding mills and through the plant. There we are collaborating with the Greek power authority. If we get our construction completed in July, our expectation is final checks with us and them on that main substation can happen together in parallel, and that would result in an early Q3 startup. If we cannot get that collaboration and they do their checks subsequent to ours, it could slip to mid-Q3. But really that is not a cost impact. We will be ramping down construction workforce rapidly as we get this construction completed around midyear. Don DeMarco: Okay, great. And then for a final question, just shifting over to MacBay. I see that you have approved an exploration budget. Can you share the split between infill and expansion, and some of the targets that you might be focusing on with that budget? Simon Hille: Thanks, Don. Simon here. I can give you some color on our plans around the exploration portion of the budget. The Foran team had around a $4 million exploration budget for the year, to which we are adding $17 million for the remainder of the year, and the team is quite excited to mainly focus on three key targets: the Tesla copper-rich feeder zone, Bigstone expansion, and then adding some more geoscience to the existing land package around some airborne geophysical surveys and expanded LIBS on the whole-body characterization. These things should set us up for good success moving forward. In our exploration budget, we typically do not have infill. Infills are part of an operational budget. Don DeMarco: Okay, that is very helpful. That is all for me. Good luck with the rest of the development. Paul Ferneyhough: Thanks, Don. Operator: The next question comes from Analyst with Scotiabank. Please go ahead. Analyst: Hey, good morning, everyone. Thank you for taking my questions. Just a couple more questions on Skouries. We were quite surprised by the increase in capital costs, and you mentioned it was related mainly to the workforce at the electric plant. But what else happened? What else changed since the previous increase in Q4? George Burns: Again, really, 60% of that cost increase is the additional contractor workforce completing the electrical and instrumentation, and then the balance is split between materials, FX, and owner support costs. Bottom line, it is taking us a couple of months of additional full workforce to get the final construction complete. If you go back to our last guidance on Skouries capital, at that point the view was we would be waiting to get the power connected in the power lines and doing final things in the tailings filtration plant. Bottom line, this increase is us spending some additional dollars bringing in some additional EU contractors to ensure we are ready to run once that power is connected, hopefully early Q3. Analyst: Great, thank you. And then, you said 60% was the contract work with the balance being materials, FX, etc. Could you give a little bit more of a breakdown between what the materials were and the split of that remaining 40%? George Burns: Yes. There were about $15 million in materials across four key items. In the dry stack filter plant, our insurers have requested—and we have agreed—to put in additional fire protection; that is about $5 million. We have added about $4 million in additional spares to ensure a smooth ramp-up and balance of the year. We have added about $3 million in additional gensets that are helping us with pre-commissioning as we wait for power connection. There was about $1.5 million in freight. Then there was about $15 million in foreign exchange impacts, and the balance is really the indirect costs to support that couple of months of high labor intensity to finish the construction. Analyst: Thank you. Last question for me: What are the remaining risks in your opinion—whether that be capital or operating—to startup, and what contingencies do you have in place to make sure we hit this Q3 timeframe? George Burns: The key risk for the year remaining on Skouries is to get that power connected, and the timing of that will really determine whether we are closer to the bottom end of our production guidance or the top end. If we can get that power connected in July as we expect, we would expect to be higher in production guidance. In terms of cost risk, that is not a worry for me now. We have got a couple of months of maintaining these high workforce levels to complete the construction. The only remaining risk beyond that is just the normal commissioning risk. Once power is connected, we start moving ore through the circuit, and as always in every construction you have adjustments that need to be made. At this point, I think we have a 20-year mine life plus here, fantastic infrastructure that has been constructed, and I am pretty confident about the ramp-up. Analyst: Thank you for the color and best of luck with these two projects. Lynette Gould: Thank you. Operator: The next question comes from Analyst with RBC Capital Markets. Please go ahead. Analyst: Yes, thank you very much. Just going back to this labor conversation on Skouries. I understand the need for the additional contractors to meet the timelines, but was there some difference in thinking versus the prior plan in terms of labor productivity being challenged, or what really is prompting this change? George Burns: It is really taking more hours of electrical and instrumentation to get this finished. We have not hit the numbers we expected and, again, brought in three European contractors to button this up and get it running. Analyst: Got it. Thank you. And I understand it has only been a short amount of time since the Foran acquisition closed. I noted the second quarter will have a more comprehensive update. Is there anything you could provide in terms of what is required ahead of first production, or what milestones we should be looking at there? Simon Hille: It is Simon here. We are pretty excited. We were on the ground a couple of weeks ago and are in close contact with the team. The team is right in the thrust of what we call hot commissioning right now, which is where we start to add ore into various parts of the process to test the components and simulate what we will see as we run into full production, and we link those things together on a sequential basis. We are pretty excited that things are moving to plan, and we expect to see this running this month. Analyst: Great. Thank you very much. Operator: That is all the questions we have for today. This concludes the question-and-answer session and today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Hello, everyone. Thank you for joining us, and welcome to Wabash National Corporation First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to John Cummings, senior director of FP&A and investor relations. Please go ahead. John Cummings: Thank you, and good afternoon, everyone. We appreciate you joining us on this call. With me today are Brent L. Yeagy, president and chief executive officer, and Patrick Keslin, chief financial officer. Before we get started, please note that this call is being recorded. I would also like to point out that our earnings release, the slide presentation supplementing today's call, and any non-GAAP reconciliations are available at ir.1wabash.com. Please refer to slide two in our earnings deck for the company's safe harbor disclosure addressing forward-looking statements. I will now hand it off to Brent. Brent L. Yeagy: Thanks, John. Before we begin, I want to recognize Mike Bennett, who as of April 8 is transitioning out of Wabash National Corporation. Mike has been a meaningful contributor to Wabash National Corporation for 14 years and played an important role in shaping our culture and our strategy. His impact on the organization is lasting, and we are grateful for his leadership and commitment to Wabash National Corporation. We wish him all the best as he enters this new chapter of his life. As we entered the first quarter, we did so with a clear-eyed view of the environment in front of us. Freight markets were uncertain, and customers continued to act cautiously. Order patterns were uneven, asset utilization inconsistent, and capital decisions across the industry were being evaluated carefully. At the same time, we were encouraged by early signs of stabilization and improving fundamentals that typically precede a broader recovery. Now as we move into 2026, both our customers and our visibility continue to improve, and it shows an environment that is building to set up for a constructive 2027 as spot rates, contract rates, capacity, and demand all are coming together to drive back to replacement demand for equipment, and possibly beyond as fleets begin to plan more confidently. Against that backdrop, our priorities have not changed. We are focused on controlling what we control, protecting margins through the cycle, and executing against our long-term strategy. That means aligning cost to demand, maintaining pricing discipline, and continuing to invest in areas that differentiate Wabash National Corporation. Particularly parts and services, digital enablement, and our manufacturing operations. The actions we have taken position us favorably for the market's return versus prior down cycles. We are deploying capital more effectively, more efficiently, and at levels above what has been historically possible, managing liquidity with discipline, and building a business that will emerge from this cycle stronger, more resilient, and better positioned to perform as market growth accelerates. Execution remained a focus in Q1. Key operating metrics, including on-time-to-promise, first-time quality, and total recordable incident rates, continue to improve and set new benchmarks. That performance reflects the experience, commitment, and capability of our team. I want to recognize our employees for their continued focus and discipline. Market conditions in the first quarter were largely consistent with what we saw exiting last year. We are encouraged by the progress beginning to take shape across several underlying indicators. Improvements in spot rates and manufacturing activity, for example, are increasing visibility into recovery, as evidenced by the 19% increase in backlog versus the prior quarter, to $837 million. While geopolitical uncertainty continues to influence customer behavior at present, with fleets remaining conservative, extending asset lives, and prioritizing flexibility over expansion, the tone is shifting quickly, and customers are increasingly engaging to discuss their future needs. As expected, the early stages of this recovery continue to be supply-driven. Capacity continues to contract as enhanced driver eligibility enforcement designed to improve safety across the industry improves freight rates and begins to restore carrier profitability. At the same time, key freight indicators are exhibiting some of the strongest year-over-year performance, including the ATA for-hire truck tonnage index having its largest year-over-year increase since October 2022, and the Logistics Managers Index increasing 4.2 points sequentially, the fastest level of expansion since May 2022. As this recovery builds, capital spending will follow. Wabash National Corporation is well positioned to respond with the capabilities, capacity, and customer relationships to support increased demand and increased market share. Looking ahead, our near-term demand outlook remains balanced as customers convert improving profitability into capital spending decisions. Beyond that, the outlook is increasingly constructive as we move into 2027. Multiple leading indicators continue to trend positively, customer conversations are becoming more optimistic, and the very positive impact of the recent change in Section 232 tariffs, and the forthcoming positive progression of the antidumping and countervailing duty process, further support our confidence as we approach the Q3 and Q4 bid season for 2027. While we prepare to exit this stage of the market cycle, operational discipline and cost management remain foundational to how we run the business for both near-term assuredness and long-term improved profitability. That means staying disciplined on costs, protecting liquidity, and remaining ready for multiple scenarios. The plant idling actions announced in our January 2026 call are progressing as planned, with $3 million of the costs referenced in our prior call recognized in Q1 2026 and in line with projections. Beyond those actions, we continue to evaluate opportunities to rationalize our portfolio and rightsize fixed costs while remaining committed to our strategy of delivering industry-leading supply chain solutions from first to final mile. Our objective is straightforward: remove costs in a sustainable way that protects margins and liquidity today and creates leverage for improved profitability and cash generation as volumes recover. We remain agile and prepared to adjust spending, including capital expenditures, as conditions evolve. At this time, we have been deliberate about what we do not cut. Investments in safety, quality, and customer support remain nonnegotiable. We continue to fund initiatives that expand recurring revenue and strengthen customer relationships, particularly within parts and services. The result is a cost structure that is more flexible, more resilient, and better aligned with current market realities while preserving our ability to scale efficiently as demand improves. Recent developments related to Section 232 tariffs and the pending antidumping and countervailing duty rulings are expected to provide meaningful relief for the domestic industry. Wabash National Corporation is proud of its U.S. manufacturing footprint and workforce, and as these measures take effect and the playing field begins to level in late 2026 and into 2027, we are confident in our ability to compete, grow share, and benefit from greater pricing stability. We are also well positioned operationally. The additional dry van capacity from our Lafayette South plant completed in late 2023 provides scalable and efficient capability to produce approximately 10 thousand incremental trailers versus prior upcycles. Flexibility allows us to support customers effectively as conditions normalize. As the market recovery continues to solidly take hold over the next few quarters, uncertainty across the industry will continue to subside, but until then, we will continue to provide quarterly guidance only as we navigate this transitionary period. This approach allows us to deliver more accurate and relevant outlooks while acknowledging limited visibility on timing. Customer engagement is increasing, and our sales team remains active. As mentioned earlier, backlog improved 19% sequentially, which is a historic high rate of growth for the first quarter. For the second quarter, we expect revenue in the range of $380 million to $400 million and adjusted EPS in the range of negative $0.40 per share to negative $0.60 per share. This outlook is consistent with our expectation that Q1 2026 represented the low point for the year, with sequential improvement expected in each subsequent quarter. We remain focused on execution, liquidity, and readiness to capture profitable growth as market conditions continue to improve. I would now like to highlight some of our strategic initiatives. Digital enablement continues to be a key differentiator for Wabash National Corporation. At the recent NPEA event, which showcased SPECT SYNC, we significantly reduced friction from the quoting and product configuration process for our customers. The response exceeded expectations, and we are focused on scaling these capabilities across the network as we create breakthrough advances in both speed and quality of the customer experience—key enablers to capture additional market share in a forthcoming expanding market. Across the organization, we are using digital tools to improve selling, tracking, and supporting our products, enhancing fleet visibility, enabling smarter maintenance decisions, improving inventory efficiency, and elevating the customer experience through data-driven AI insights. These capabilities are particularly critical within parts and services, where they support more predictable revenue streams and reinforce our shift from products to solutions. What is coming into focus for Wabash National Corporation are clear opportunities, with the recent advancements in AI technology, to leap forward in operations, supply chain, working capital efficiency, and the customer experience. I am very excited to share in the future what we will look to accomplish over the next 36 months and beyond in terms of growth, profitability, and customer satisfaction. The synergies from these initiatives lead us to target dry van share of more than 25% in the first half of the cycle. I also want to touch on our upfit business, which remains an important component of our strategy and a clear example of how we are expanding beyond traditional equipment manufacturing. Demand for vocational body-based solutions remains attractive, particularly across utilities, telecom, landscaping, highway construction, and solid waste, where fleet complexity and uptime requirements create a strong need for local, fast-turn customization. New site openings are progressing in three of the largest using metroplexes, designed to serve the Chicago, Atlanta, and Phoenix areas. These markets sit within state concentration that drives many units, and the new locations are intended to improve proximity, reduce lead times, and increase win rates by bringing install and customization capability closer to where customers operate. We are already supporting major national accounts out of our Atlanta location, and we are confident the growth we have seen in our existing upfit locations will translate to the same new sites as volumes ramp and capacity utilization improves. At peak, we expect the additional upfit sites to generate incremental revenue in the range of $10 million to $20 million per site and gross margins approaching 20%. There is more we can do with these assets over time and into the future. I will describe how we will grow the addressable markets of each of these and future locations on additional calls. Over time, our work to deploy digital tools, AI insight, and upfit capabilities strengthens our parts and services platform, deepens customer relationships across our products, and creates a natural pull-through for additional offerings. They also strengthen our transportation products business. In addition to recurring revenue, together they help reduce cyclicality and improve our margins. I am going to end my comments discussing workplace safety. I want to recognize the organization's continued drive for safety excellence. In Q1 2026, our overall injury rate improved 7% versus 2025, and 19% versus 2025. Total injuries declined 9% sequentially and 42% year over year. An injury rate of less than one is attainable, and Wabash National Corporation is on a mission to achieve it. It reflects the level of operational discipline we are driving today on our shop floor and the readiness we have to perform as the market moves upward. I am very proud of our people on the manufacturing floor, and I am eager to have them show what they are truly capable of when they rise to meet the challenges and the opportunities contained within the acceleration of demand at the start of a new industry period of expansion. With that, I will turn it over to Pat for his comments. Patrick Keslin: Thanks, Brent. I will begin with a review of our first quarter results. For the first quarter of 2026, consolidated revenue was [inaudible]. During the quarter, we shipped 5,378 new trailers and 1,527 truck bodies. As expected, challenging market conditions persisted throughout the quarter. While we did see sequential top-line growth in truck bodies from Q4 2025, that improvement was more modest than anticipated. The truck body business entered the down cycle later than traditional trailers. Based on current visibility, we now expect this segment to remain soft through 2026, with a recovery profile that trails dry vans by approximately six to nine months. Lower production volumes continued to pressure operating efficiency. As a result, adjusted non-GAAP gross margin was negative 2.6% of sales, and adjusted non-GAAP operating margin was negative 18.3%. As a reminder, these adjusted results exclude costs associated with the idling of our Little Falls and Goshen facilities, as well as favorable purchase accounting impact from the acquisition of our marketplace joint venture. Adjusted non-GAAP EBITDA for the quarter was negative $38 million, or negative 12.5% of sales. Adjusted non-GAAP net income attributable to common shareholders was negative $47.5 million, or negative $1.17 per diluted share. These results were below expectations, driven primarily by lower-than-planned volumes. While results were below our prior guidance, our view that Q1 represents the low point of the year remains unchanged, and we continue to expect sequential improvement as we move forward. Turning to our segments, Transportation Solutions generated $250 million in revenue and reported an operating loss of $34.5 million on a non-GAAP basis. Results reflect lower demand across core markets and the inefficiencies associated with reduced production levels. Parts and services delivered $54 million in revenue and negative $2 million of operating income on a non-GAAP basis. Segment profitability was adversely affected during the quarter as we incurred startup costs for newly established upfit sites that have not yet begun generating revenue, resulting in a heavier cost burden as volumes are still ramping. While upfit operations were breakeven in the quarter, we have clear line of sight to growth in the coming quarters and expect strong profitability as capacity utilization improves and we meet customers where they operate. Turning to cash flow, operating cash flow for the quarter was negative $33.7 million, resulting in negative free cash flow of $37.3 million. As of March 31, total liquidity, including cash and available borrowings, was $165 million. Throughout the ongoing market softness, we have remained focused on preserving liquidity and maintaining financial flexibility. This disciplined approach positions us to manage near-term headwinds while continuing to support our strategic priorities and longer-term initiatives. During the first quarter, we invested approximately $4 million in traditional capital expenditures, and returned $3.5 million to shareholders through our quarterly dividend. As we navigate uncertain market conditions, we are maintaining a prudent and conservative approach to cash management in 2026. Preserving liquidity and strengthening balance sheet resiliency remain central priorities. Working capital management continues to be an area of strong execution, and we are preparing the organization for an efficient working capital ramp as markets recover. In support of this effort, we are engaged in discussions with our banking partners, and we intend to address our existing ABL facility ahead of September 2026 when the ABL would turn current. Looking ahead to the second quarter, we expect revenue in the range of $380 million to $400 million, an operating margin of approximately negative 5%, and adjusted earnings per share in the range of negative $0.40 to negative $0.60. Capital expenditures remain under close review. While we are prepared to adjust timing based on market conditions, we currently expect modest sequential growth in Q2 spending following disciplined deferral actions in the first quarter. As we communicated on our prior call, Q1 was expected to be the weakest quarter of the year, and that expectation is reflected in our Q2 guidance. We anticipate continued improvement as we progress through 2026, with positive adjusted EBITDA expected in 2026. In summary, the first quarter reflects continued challenges and uneven demand conditions across transportation. At the same time, it reinforced the resilience of our organization and our ability to actively manage liquidity and costs in real time. We remain focused on disciplined execution, maintaining financial flexibility, and positioning the business to respond quickly and decisively as underlying market indicators continue to improve. Our priorities remain unchanged, and we are committed to building long-term value while navigating near-term uncertainty with clarity and control. I will now turn the call back to the operator and we will open it up for questions. Operator: We will now open the call for questions. We ask that you pick up your handset when asking a question to allow for optimum sound quality. You are muted locally; please remember to unmute your device. Our first question comes from the line of Michael Shlisky with DA Davidson. Michael, your line is open. Please go ahead. Michael Shlisky: First, on the guidance you put out there for next quarter, are your backlogs now that we are already well past order season and well past even March fully booked for the quarter, or are you still waiting on a few orders here? Brent L. Yeagy: Yes, good question. We have complete visibility on the backlog that went into our guidance. Michael Shlisky: Okay, great. Thank you for that. I also want to ask about the truck body business. I assume that some of the very largest truck buyers that you make are some of the weaker areas—if I am wrong, correct me there—and what are you looking for, macro-wise, in truck bodies to really feel good that things will, in fact, get better after the next quarter or two here? Brent L. Yeagy: Yes, so I would say that truck bodies are really being impacted across, I would say, Class 2–3 all the way up to predominantly Class 6. As we sit here today, that is the majority of truck bodies that we are going to produce. I would not say there is a tremendous difference in the classes at this point, and it kind of goes to the second part of your question. We really need to see some of the discretionary-spending-related areas pick up, which is really going to reflect in the overall sentiment of the consumer as we go forward. I think the other parts of it are that the generation and consumption of some of the more consumable discretionary products—we are starting to see some movement in manufacturing—need to continue and hold as we move into 2027. Housing is a substantial part of the equation, especially when you think about some of the largest consumers of truck bodies to support their rental businesses, which is really predicated on the movement of people into those new homes. So the housing market is a market that we are really paying attention to right now. Michael Shlisky: Got it. Maybe can you also update us on your current status and plan for reefers? Do you think you have to hire or get a ramp-up period to get that started again and get that rolling? And if you see improvement in demand generally—dry vans too—do you have the people that you need to ramp that up once that arrives? Brent L. Yeagy: We will start with the dry van piece. As we approach 2027, we are in a good place in terms of installed capacity sitting here approaching midyear of 2026. With the shifts that we have running and our ability to flex those to meet initial demand, coupled with the efficiencies that we have gained with our South plant, the relative hiring needs that we will have on the early stages of the ramp are somewhat muted for us based on all those actions. Now, as the ramp continues into the later half of 2027, there will be additional hiring that will have to be done to add additional shifts, which would be expected as we meet that demand. Specifically with refrigerated, we are still going down the process of development of a repositioned refrigerated van product. We have done low-level capital purchases in order to address long lead-time areas. We remain committed to working through a deployment schedule for that to be a material addition to Wabash National Corporation as the cycle progresses. Michael Shlisky: Okay. Appreciate that color. I will pass it along. Thank you. Brent L. Yeagy: Thanks, Michael. Operator: There are no further questions at this time. I will now turn the call back to John Cummings for closing remarks. John Cummings: Thank you, everyone, for joining us today. We look forward to connecting with you throughout the quarter. Have a wonderful day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the WisdomTree Q1 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Jessica Zaloom, Head of Corporate Communications. Thank you, Jessica. You may begin. Jessica Zaloom: Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation, in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2025, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree's CFO, Bryan Edmiston. Bryan Edmiston: Thank you, Jessica, and good morning, everyone. I'll begin with a review of our first quarter results, followed by updates to our forward-looking guidance before turning the call over to Jarrett and Jono for additional business updates. . Our assets under management reached a record $152.6 billion, marking our fifth consecutive quarter of record AUM and up 6% from year-end driven by net inflows and market appreciation. Growth was broad-based with record AUM across our U.S., European and digital asset platforms. We generated $5.9 billion of net inflows globally, a 17% annualized organic growth rate, including $3.1 billion in Europe, $2.6 billion in the U.S., $100 million in digital assets and $75 million in private assets. Flows were led by our international equity exposures, including our Japan strategies and UCITS thematic products with particular strength in areas such as our European defense and rare earth funds. Fixed income was also a key contributor and our leveraged and inverse suite also generated meaningful inflows, reflecting elevated volatility in the commodity markets. Notably, flows were skewed toward higher fee products resulting in a 1 basis point increase in our average advisory fee during the quarter. We also just completed our acquisition of Atlantic House, a U.K.-based asset manager with approximately $4 billion in AUM, generating 53 basis points in advisory fees from its defined outcome and derivatives driven strategies. The business also generates complementary revenues including 25 basis points on $1.5 billion of AUA in managed models as well as structuring fees from bespoke investment solutions, which totaled $13 million during 2025. Taken together, these revenue streams represent an overall revenue yield of approximately 95 basis points. The purchase price is $200 million, which has been financed through recently issued convertible notes. This transaction is expected to increase our overall revenue yield by almost 2 basis points is modestly accretive and further enhances our product capabilities and distribution footprint across Europe, while supporting higher quality revenue growth over time. Overall, our record AUM and strong organic growth underscore the strength of our business, while our disciplined approach to strategic expansion positions us well to continue driving growth and long-term shareholder value. Global AUM currently stands at approximately $164.3 billion, up almost $12 billion or 8% from March 31, driven by favorable market conditions, approximately $800 million of net inflows and the inclusion of Atlantic house. Next slide. Revenues were $159.5 million during the quarter, an increase of 8% from the fourth quarter and 48% from the prior year quarter driven by higher AUM and growth in other revenues. Other revenues of $16.4 million reflect higher AUM and elevated trading activity in our European products, up from almost $13 million recognized in the prior quarter. Results versus the prior year quarter also include approximately $8 million of revenue contribution from Ceres. Ceres' contribution included management fees and performance fees of $5.2 million and $3 million, respectively. Performance fees reflect normal seasonality tied to performance-based fee structures along with limited activity in the solar portfolio during the quarter. Our adjusted operating margin has expanded 770 basis points when compared to the prior year quarter. Adjusted net income was $40.6 million or $0.27 per share. Adjusted net income excludes the loss on extinguishment of convertible notes related to the repurchase of a significant portion of our 2026 and 2029 maturities. This refinancing reflects a proactive repositioning of our capital structure, replacing lower conversion price instruments with new convertible notes at a 4.5% coupon and $21.58 per share conversion price, providing meaningful headroom and reducing potential dilution. This transaction also supports funding for the Atlantic House acquisition, aligning our financing strategy with our broader growth and capital allocation priorities. As a reminder, the Atlantic House acquisition is expected to add approximately $4 billion in AUM, generating 53 basis points in advisory fees, along with complementary revenues from managed models as well as structuring fees from bespoke investment solutions. The transaction closed this morning. Next slide. Now a few comments on our forward-looking guidance, which includes the impact of the Atlantic House acquisition on our expense base. Our compensation to revenue ratio of 26% to 28% remains unchanged, and we expect to trend towards the upper half of the range, reflecting the addition of Atlantic House which is accretive to our operating margins and earnings, but carries a modestly higher compensation ratio. We are also increasing our gross margin guidance by 1 percentage point, now ranging from 83% to 84%, reflecting continued operating leverage from organic growth as well as the Atlantic House acquisition. We are also increasing our discretionary spending guidance by $3 million to reflect the inclusion of Atlantic House. Our third-party distribution expense is expected to range from $20 million to $24 million, driven by higher AUM and elevated trading activity primarily across our European platforms, with commodity market volatility influencing where we fall within the range. Interest expense is forecasted to be approximately $53 million for the year, reflecting our current capital structure and the anticipated retirement of our remaining 2026 and 2029 notes this summer. Quarterly interest expense is expected to be approximately $15 million in the second quarter declining to approximately $14 million in both the third and fourth quarters. We are increasing our interest income guidance by $2 million to $10 million for the year, reflecting the level of our interest-earning assets in the forecasted rate environment. Our adjusted tax rate is expected to be approximately 24% to 25% compared to 24% previously, reflecting the addition of Atlantic House. And finally, our weighted average diluted shares were 152 million in the first quarter. We expect shares to increase to approximately 155 million to 158 million in the second quarter reflecting the full impact of shares issued in connection with our convertible note refinancing and then declining to approximately 154 million in the second half of the year, following the retirement of the remainder of our 2026 and 2029 notes, which we anticipate settling for cash. That's all I have. I will now turn the call over to Jarrett. Robert Lilien: All right. Thank you, Bryan, and good morning. This was another quarter marked by steady broad-based execution and continued momentum across the business. The results were strong, but more importantly, they reflect the consistency of a strategy that is delivering and scaling. As Bryan just highlighted, we generated nearly $6 billion of net inflows in the quarter including $2.6 billion in March, making this our strongest quarter since Q1 of 2023. And what stands out the most, though, is the quality and the breadth of those flows. . We saw inflows across 7 of our 8 major product categories, reinforcing that WisdomTree is increasingly winning as a diversified platform rather than tied to any single product theme or market call. And that matters because it demonstrates that we can generate growth across market environments and not just when conditions are favorable. This quarter also highlighted how clients are using us. They engage with us across geographies, asset classes and use cases from international developed equity to fixed income to leverage strategies to digital assets. And in March, in particular, we saw a bear market playbook unfold in real time across our platform. Clients were allocating to both offense and defense, income, liquidity and hedging strategies alongside risk-taking exposures. And what stood out in that environment was how well the platform held up despite an extremely volatile backdrop, AUM ended the quarter at approximately $153 billion and has since recovered to $164 billion including $4 billion from Atlantic House. And that resilience speaks directly to the strength and utility of our product lineup. Products like USFR continue to serve as an important portfolio ballast and more broadly, you can see the key drivers of that stability and growth. Our UCITS platform continues to lead with over $3.4 billion of inflows year-to-date, and AUM up over 26%. Portfolio Solutions continues to gain traction as a structural growth engine. And in digital, we generated $98 million of inflows in Q1 with AUM reaching a record $867 million, driven primarily by our tokenized money market fund. Importantly, the story there is evolving. It's increasingly about real use cases and adoption and not just infrastructure. Alongside that organic progress, we also continued to make measured strategic progress. Ceres is now part of the base business, and with the closing of Atlantic house this morning, we are continuing to build out the platform in a disciplined way. Both transactions are consistent with how we think about capital allocation and creating faster, more durable long-term growth, which John will walk through in more detail in a moment. Overall, there's a difference between having a strategy and delivering on it. And what we are doing is delivering, and we built a proven track record of consistent execution quarter-by-quarter, we are strengthening the platform and building real momentum. And with that, let me turn it over to Jono. Jonathan Steinberg: Thank you, Jarrett, and good morning, everybody. What Bryan and Jarrett just walked through really speaks to the strength of the business we have built. We delivered another quarter of broad-based execution in a volatile environment with strong inflows, with resilient assets and continued traction across the platforms. I think the most important takeaway is that this was not driven by any 1 product or 1 strategy or 1 market backdrop. It reflects a business that is becoming more diversified, more durable and increasingly more capable of compounding growth over time. That is exactly the foundation we want in place as we continue to build WisdomTree. That brings me to the 2 transactions we have recently closed; Seres and Atlantic House. We are not pursuing acquisitions for the sake of being acquisitive. M&A for us is a complement to organic growth, not the core strategy. The bar is high, the fit has to be clear and the transaction has to strengthen the business in tangible ways. At a high level, the logic is simple - we want companies that help us diversify the business by adding differentiated products and capabilities we do not have today. We want them to enhance the economics of the firm by bringing higher revenue yields and stronger margin characteristics. We want them to accelerate growth, by giving us more ways to win flows, deepen client relationships and extend those offerings more broadly across WisdomTree. Ceres is a very good example of that approach. It brought us into private assets to an uncorrelated asset class, and it did so in a way that adds attractive economics to the business. It expands our capabilities in an area where we see real client demand while also improving the earnings profile of the firm. Atlantic House fits the same logic. It adds differentiated derivatives capability expands our reach, particularly in the U.K. wealth channel and strengthens our ability to deliver more outcome-oriented solutions for clients. It also helps globalize our portfolio solutions business by extending that footprint into the U.K. and accelerating the international expansion of that offering. From an economic standpoint, Atlantic House brings a revenue yield of approximately 95 basis points which lifts our overall firm-wide revenue yield by about 2 basis points to roughly 43.5 basis points. Just as importantly, it brings expertise and solutions that we believe can be scaled through the broader global WisdomTree platform. So again, this is not simply about adding assets, it's about adding enhanced expertise and differentiated offerings with better economics and greater growth potential. Stepping back, what these deals really show is how we are continuing to strengthen the business. We are broadening the platform, improving the quality of our revenue and adding areas of expertise that we believe can help accelerate firm-wide organic growth over time. That is why both Ceres and Atlantic House fit so well with where we are taking wisdom trade. We are still in the early stages of integrating and scaling these capabilities, but the fit is clear, the rationale is clear and the opportunity is clear. We are building a business with more ways to win better economics and greater earnings power. That is how we will continue to deliver strong top line growth, continued margin expansion and even faster earnings per share growth over time. Thank you. Now let's open up the call to questions. Operator: [Operator Instructions] Our first questions come from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you talk about the advantages of WisdomTree's tokenized money market fund compared to other non-tokenized yield-generating options with respect to your new partnership with stable fix? Jonathan Steinberg: Absolutely. Thank you for the question. Will, you pick that up? William Peck: Yes, absolutely. So Page 11 of the deck talks about our -- we're positioned to win business through a combination of the functionality that we've got and our strong U.S. regulatory positioning. So unlike a lot of the tokenized money market funds that are out there, WTGXXRs is a 1940 Act fund sold by prospectus in the U.S. It's available to U.S. retail, U.S. businesses and global businesses as well. So just by virtue of doing that and also having kind of strong functionality around that. Also this quarter, we announced that we got an exemptive relief from the SEC to have the money market fund trade view of broker-dealer in the secondary market on an intraday 24/7 basis, which is like truly unique functionality, especially in the 4 here in the U.S. So we feel really strong about our positioning of our tokenized money market fund, and we're establishing a lot of partnerships and relationships. Stable C is a great example. Stable C as a start-up run by some former blocked employees, that's focused and their payments experts, they're focused on bringing payments use cases to small- and medium-sized businesses throughout the United States. And like I would not have thought about a small business in the U.S. as being kind of underbanked but kind of through these conversations, we've been learning a lot about how, hey, getting access to a tokenized money market fund yielding 3.5% today is much, much better than what they were getting through maybe nonexistent savings accounts paying essentially nothing, right? So it's just showing kind of new use cases in us kind of building distribution relationships, both in TradFi in addition to kind of like D5 channels where we've been focusing today. So that's some of the ways that we're differentiated and why we feel really good about our positioning right now. Wilma Jackson Burdis: Great. And then are there opportunities to generate higher fees on model portfolios as WisdomTree gain scale and the adviser relationships? And could you provide some detail on the overall relationship dynamics there, especially given the additional model AUM from Atlantic House? Jonathan Steinberg: Jerrett, I think that starts with you and maybe Jeremy. Robert Lilien: Sure. I think in general, yes, the model opportunity for us globally does a number of things. First of all, though, it brings stickier assets. deepens the relationship with our partners, and it does lead us to a nice stable mix of WisdomTree funds that are in those portfolios. In addition to that, as you add sort of horsepower from Atlantic House, you add even further sort of value add that as Jono sort of covered in prepared remarks, comes at a higher revenue capture. . So overall, these things, including SMAs, by the way, which is another area where we're pushing forward quite nicely. All of these things just lead to higher quality flows I think, with a tilt towards higher revenue capture and just better quality of earnings. Wilma Jackson Burdis: If I have time for 1 more. We saw other revenues were strong in the quarter. Could you talk about what contributed to that? And if there's going to be additional growth there? Bryan Edmiston: Yes. So this is Bryan and thank you for the question. You're right. Our Other revenues were $16 million this quarter versus $13 million last quarter. And again, that was driven by higher AUM and transaction fees, largely tied to our European commodity products. And if volatility persists, we could see similar levels of that revenue growth going forward. About 40% of that line item is the transaction fee element, 60% is AUM base. So there is some variability and volatility there as well. The other thing we don't want you to overlook is Atlantic House and that acquisition -- in 2025, Atlantic House generated about $16 million of revenue between its models and product structuring business. That revenue is also going to run through this line item going forward. So if you were to prorate that as of today, it would be about $11 million of incremental revenue. Jonathan Steinberg: Let me just add on the Atlantic House, there sort of derivative solutions that they've been doing just in the U.K. They have really established a business that has scaled. So they've done over $20 billion of structured solutions delivered across more than 120 clients. And we do believe that, that solution clients that want to want these sort of bespoke defined outcome for themselves. It's sort of like in almost like an SMA, but not the SMA structure, but very tailored to the clients' needs has both broad European and U.S. appeal. And so that other revenue line, we really do think should grow not just for the rest of this year, but significantly in 2027. Anything else, Wilma? Operator: Our next questions come from the line of Chris Kotowski with Oppenheimer. Unknown Analyst: This is actually John Coffey on for Chris. I just had a couple of questions. One is on Page 4. I think when you mentioned your 95 basis point yield for Atlantic House. Is that the right way to look at revenues going forward? Or do you think it should be -- or should I really look at some of the constituent parts like the models under advisement, yield and restructuring fees, like should this be really modeled out on sort of a more granular level? Or is that 95% a pretty good way to think about it going forward? Jonathan Steinberg: I'll start but maybe -- so I think about the business in revenue yield terms. It's very, very important to me that we grow our revenue yield. I think it's really one of the -- and it ties to even product consideration. So you think that we're 43.5 basis points on $165 billion today. Atlantic House was 95 basis points of revenue yield, Ceres 200 plus and just know that we are focused on it as part of our strategic initiatives. So now there is some volatility that is outside of our control, meaning asset mix, where the market goes. But from what we can control, that is a metric that we are laser-focused on. But Bryan I'll turn it to you... Bryan Edmiston: Yes. So -- from a modeling standpoint, I would suggest, though, just not looking at it as 1 overall revenue yield, but looking at the component part. So that advisory fee line is going to grow based upon the AUM on our platform, excluding Ceres AUM at whatever our revenue capture is in that particular line item. And again, that revenue capture ticked up 1 basis point this quarter. I would think about Ceres separately, modeling those management fees at 1% of AUM. And then the performance fee is another variable element to be taken into consideration as well. And then when it comes down to the last line item, our other revenue line, again, a lot of that has been driven by the activity that we're seeing out in Europe in our commodity products. You have a trend over the last few quarters in that particular line item. And as I just mentioned in the prior response, Atlantic House is also going to factor into that line item going forward, too. Unknown Analyst: All right. Great. Very helpful. And just 1 last question. When we think about Atlantic House, will that show up on your IR page, you have your daily AUMs? Is that something that at some point in the future, we'll start to see AUM from Atlantic House contributing to those? Or is this something like Ceres where it's sort of treated a little bit differently than your other ETPs? Bryan Edmiston: We should be having that AUM as part of what we're reporting over -- in the not-too-distant future. We need a little bit of time to just get integrated. Unknown Analyst: Jeremy Schwartz, could you just add a little bit on a future product around Atlantic House, which will also obviously contribute to the AUM on the IR side. But just from a strategy and even how it ties into revenue yields? Jeremy Schwartz: Yes. They currently have a bunch of use funds in addition to that derivative solutions business that Jono talked about, we definitely plan to be part of the global synergies is extending that franchise both to the market as well as the U.S. market. We definitely have plans to be aggressive with the product road map. And when you look at where has there been big growth in ETFs, the fun you let from income over or protection type strategy we're calling it defined outcome and sort of target type return we can do in many different asset classes. So we have targets to launch both in the U.S. and Europe as many as 15 to 20 funds over the next 24 months. And so we're going to have a big family. We're excited to be working with their team. It's a very strong, actively managed within them, and we think we can really position ourselves well versus the market in that space. So you'll definitely see a big product road map coming from us in both markets. Operator: Our next questions come from the line of Michael Grondahl with Northland Securities. Mike Grondahl: First question is with your not brand new, but newer digital money market fund, WTG XX, that is growing like a weed, but it seems like there's a lot of demand for that product. I wanted to understand a little bit better how you're marketing that? What's kind of that communication strategy just to get the word out? Jonathan Steinberg: Well, that's you, obviously, but touch on its use cases as well because it's being used differently in the world of on chain than just how it's being used in the mutual fund format. William Peck: Yes, absolutely. Thanks for the question. Yes, it's continuing to grow strongly. Even since this deck was dated as of March 31, at least the AUM. We're up another $50 million in April, and assets primarily into that fund. So it's continuing to grow. WisdomTree Connect users, we had 29 at year-end. There's 41 on the page as of March 31. That number is higher today as well. . So we are seeing kind of continued strong growth in that. Like I said, we distribute both to U.S. retail through WisdomTree Prime, also to global businesses and global platforms really through WisdomTree Connect. Today, 90%, 95% of the AUM is through the WisdomTree Connect platform. Really, that's focused on serving kind of different use cases that we've spoken about. It could be a stablecoin issuer. We've seen a lot of them post Genoa being implemented, looking to hold WTGXX's reserved asset for stable coins that they issued. WTG XX is clearly within the Genius Act, sorry, the Genius Act is a compliant reserve asset. It's treasury management for stablecoin native businesses. So this is exactly what Stable C is helping to serve. And the last piece is really around collateral mobility, right? The ability to use WTGXX in the yield bearing form of collateral rather than just sitting in stable coins, if you're doing a crypto transaction, also increasingly playing in other kind of non-crypto related transactions. WTX being a yield burn form of collateral that's able to be moved instantly, right, which gives people participating in that transaction kind of makes it much more capital efficient for them. So we're seeing actually considerable growth in that use case as well, onboarding new clients focused on that. So it's really those use cases where the tokenized Money Market Fund is adding a lot of value for people. It's not just a buy and hold sort of thing. It's about making it more useful serving different clients, really the Onchain community growing into more of the traditional finance community as well, that is aren't able to be served well from a kind of traditional money market fund. Mike Grondahl: Got it. And then, John, when talking about Atlantic House in those funds, you had mentioned the broad European appeal, U.S. appeal -- how should we think about you rolling out to those 2 additional markets? . Jonathan Steinberg: So we obviously launched 20, 30 funds a year every year. There will be a significant number of new fund launches in the next 18 to 24 months dedicated to the capabilities that we have just acquired around active derivative solutions, options-based strategies sometimes called buffer funds or to find outcome funds. It's a broad, broad category, more than $100 billion globally in ETFs. We think that sort of what's in the market today for the most part is like a 1.0. There's real room for differentiation. It's a little more developed here in the U.S., but still tremendous room for differentiation and growth almost open fields for the European team. The team that we acquired will play not just the portfolio management role, but they'll be part of the sales process really showing global clients, the -- they're very strong communicators. They really will give us, I think, an ability to we really raised assets against the funds that we're launching. I think that if I had a range of expense ratio. It's probably between 55 and 85 basis points for the types of products that we'll be launching, which is above our expense ratio average now. So very, very excited about putting the Atlantic has team to work. I hope that answers the question. Mike Grondahl: Yes. No, that's helpful. Operator: Our next questions come from the line of George Sutton with Craig-Hallum. Unknown Analyst: It is Logan on for George. Can you hear me all right? Robert Lilien: Yes. . Unknown Analyst: Yes. Awesome. I want to follow up there on the digital asset side. Well, I wondered if you could just kind of walk through the priorities there. I mean, I think for a long time, it was a bit more of a consumer-focused effort, -- it seems like a lot of the momentum now is on the institutional side. And then there's also been talk about times about white labeling. So I wondered if you could just kind of rank those for us. And then also the stable seed partnership is nice to see. Do you see kind of more opportunity for sort of distribution partnerships out there similar to that? William Peck: Yes. Happy to take that. So I wouldn't really rank them. I mean for us, it's about growing AUM and growing the number of people that are using the platform. So that's tied directly to the metrics that we have on the page for you guys. That's what I look at every day to see if we're being successful. Are we driving AUM growth are we driving the number of people using the platform. In the future, and you started to see this with the WTGXX announcement, there's going to be other types of transactions, other types of revenue streams, that we're going to see continue to grow over time as well. And that will be really like a third metric that I look at. So we don't kind of stack rank is 1 more important than the other. They all kind of are servicing as part of that. What I would say is unique about like digital asset and blockchain as we're seeing -- we're going to be servicing retail beyond just WisdomTree Prime. WisdomTree Prime is a key priority for us. We want to continue to drive people and use that platform, that app we're able to serve metamaskwalet holders, other self-custody wallet holders. And we want to meet people where they are. And economically, WisdomTree is indifferent. It's really about getting people to use our products and services. So again, not really stack ranking kind of different things. It's really an all of the above driving people to invest in our funds, use our products and services. Unknown Analyst: Will, could you just touch on because I think it's sometimes overlooked, the vertical integration of your offering, sort of your -- you've put in a lot of effort over the last 7 years. Can you just touch on the vertical integration? William Peck: Yes, absolutely. So touch on this on Page 11 as well. But I think if you look at some kind of competitive products out there, you find that there's probably like 3 or 4 different firms that kind of comprise that stack, right? There might be a separate tokenization provider and transfer agent and then there's a separate asset manager and there might be a separate kind of stable coin conversion service or a stable point orchestrator provider -- and then WisdomTree's case, since we've invested early, we've kind of built that all kind of we have built that all ourselves, right? So when you're buying the WisdomTree tokenized money market fund using USBC, for example, the other counterparty you're facing in that transaction is WisdomTree, right? We're able to convert the stable coin. If you wanted to trade it instantly, you can do it against our broker-dealer then you're investing in a WisdomTree managed fund. So we've built all of these capabilities ourselves, which has allowed us to win business in the areas we're competing today. It also opens up good optionality for us, and we're having active conversations around this to license elements of this technology stack to other asset managers or other people in the space. So we feel really good about the investments we've made to kind of be in this position. I mean this is such a hot topic on Wall Street. And I speak to a lot of people. And every time I do, I just feel great about the decisions we've made and the position that we occupy in the market. And I think we're going to be continuing to kind of grow market share as more and more people are adopting this technology. More and more wallets come online, stablecoin AUM continues to grow. We're going to continue to win share in that environment. Jonathan Steinberg: Thanks, Will. Anything else, Logan? . Unknown Analyst: Yes. One other. That was very helpful. You mentioned kind of the lower seasonal performance fees with Ceres but it looked like the inflows were pretty strong this quarter. Just curious if you could unpack that a little bit. I mean is that just blocking and tackling by the Ceres team? Or how much of that is maybe your distribution capability starting to have an impact there? Jonathan Steinberg: So I think this is a combination, probably you, Bryan and maybe Jeremy. Bryan Edmiston: Yes, sure. So on the flow side, it was -- I can respond to the flow side. Let me take it and Jeremy, if there's anything else to feel free to elaborate. But -- it was a strong first quarter, $75 million in the quarter. Our first fund was closing. So the closure of that fund did accelerate flow into this particular quarter to get where investors wanted to get some money in before that fund closed, and we're focused on getting our second fund launched in the not-too-distant future. So from a flow perspective, look, we can expect variability quarter-to-quarter. We generally don't provide guidance on flows. But that said, I would say our long-term target remains unchanged. We're targeting $750 million over 5 years, and we'll see if that ultimately proves to be conservative. On the performance fee, -- there was some seasonality there. The fee was a bit lower than it was in the fourth quarter of last year. There was some seasonality. There wasn't much solar activity this quarter. But again, we'll see some ebbs and flows in the mark, but we don't foresee any changes in the earnings power of our prior guidance. Our framework remains consistent as it relates to what we've communicated in the past. Think about it as take your AUM, take a flow assumption, multiply it by, call it, a 7% return on average and then factor in our 15% participation rate to arrive at a performance fee and we'd say that's our baseline working assumption and then there's upside for solar and data center opportunities as well. So again, really no change versus what we had previously communicated. Jeremy Schwartz: Yes, this is Jeremy Schwartz, our CIO. The only thing I would say on the seasonality is that the way the appraisals work is the same farms are appraised in Q1 of each Q1. And that Q1 has happened to be a little bit below performance on a regular basis, the last 4, 5 years. So I think we'd expect to sort of as the other farms continue to get appraised from Q2, Q3, Q4, they tend to be a bit higher in terms of where they have been. And so that's just for now, that what we've been seeing on the performance trend. But we remain optimistic on where things are going. . Robert Lilien: Yes. And this is Jarrett. Let me just hop into Bryan mentioned how we closed Fund I and Fund II is on its way. Fund II is on its way, and that will be launched in the next couple of months. That is when the WisdomTree distribution team gets involved already without having the fund to market. We've got strong interest, a strong pipeline of live leads -- so we're pretty optimistic on that good track record of flows continuing. Jonathan Steinberg: And let me just add an all foreshadow something that become increasingly important to WisdomTree in the second half of this year and in 2027, you will see, I believe, in very farmland in ETFs. As you probably know, the 40 Act does allow for up to 15% of assets in illiquid assets, and we do see appropriate in some broad commodity and real estate ETFs and opportunity to put in farmland. And so that battle of privates and ETFs is something that WisdomTree is very focused on in the -- or really the second half of this year and the coming years. Unknown Analyst: Understood. Congrats on the continued strength, I will leave it there. Operator: Thank you. We have reached the end of our question-and-answer session. And I would like to turn the floor back over to Jonathan Steinberg for any closing comments. Jonathan Steinberg: Thank you. Yes, let me say something. As we approach the 20th anniversary of launching our first 20 ETFs this June, it's worth pausing to recognize just how far we've come and how well positioned we are for what comes next. Today, with $165 billion in assets under management and a global team of 400 employees, WisdomTree stands stronger than at any point in our history, the efficiency of our business model, the breadth and diversity of our product set and the distinctly entrepreneurial culture continues to differentiate us in a crowded and evolving industry. Our first quarter momentum is not an outlier. It's the continuation of years of consistent high-quality organic growth, delivering 17% annualized organic growth across a diversified asset base in a volatile market underscores both the resilience of our platform and the strength of client demand. At the same time, expanding margins or translating that growth into meaningful earnings per share acceleration. Importantly, we are not standing still. Our investments in tokenization and private assets or opening new avenues for growth and positioning WisdomTree at the forefront of where the industry is heading. Our commitment to shareholders is clear in the numbers. we've compounded earnings per share at 30% over the past 5 years and more than 50% over multiple 3-year periods. This isn't just strong growth. It's growth that is accelerating, driven by increasing scale and efficiency. With the impact of recent acquisitions of Ceres and Atlantic House coming online in the second quarter, we expect that acceleration to continue over the next several quarters, the trajectory is unmistakable. We are entering our next chapter from a position of strength with momentum with innovation and with discipline, all working in our favor. If the first 20 years were about building the foundation, the next 20 years will be about scaling it in ways that create even greater value for our clients and our shareholders. So I want to thank all of you for participating in today's call, and we'll speak to you next quarter. Thank you. Operator: Thank you, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.
Operator: Good morning, and welcome to the Minerals Technologies First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Lydia Kopelova, Head of Investor Relations. Please go ahead. Lydia Kopylova: Thank you, Gary. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Eric Aldag. Following Doug and Eric's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about forward-looking statements contained in our earnings release and on the slides. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from these forward-looking statements. We also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and in the appendix of this presentation, which are posted on our website. Now I'll open it up to Doug. Doug? Douglas Dietrich: Thanks, Lydia. Good morning, everyone, and thank you for joining. Today, as usual, I'll provide a quick review of our first quarter financials. Then I'll give an update on our outlook for the remainder of 2026, including an overview of the impact that current events are having on our business, and the progress we've been making on our growth projects. Eric will then take you through the detailed financials and provide our outlook. After that, we'll open up the call to questions. Before I get into the details, let me start with the headline. We delivered a strong first quarter with broad-based double-digit growth, and we're seeing early proof that our strategic growth investments are paying off. First quarter sales came in at $547 million, up 11% from prior year. Sales growth was broad-based and from both of our segments. We saw an 11% year-over-year increase in our Consumer and Specialty segment, driven by Household and Personal Care, which grew 16% and and Specialty Additives, which grew 6%. Our Engineered Solutions segment sales increased 12% over last year, with high temperature technologies up 8% and and environmental and infrastructure of 24%. A portion of this growth is tied to the specific investments we made last year in support of our strategic growth initiatives to expand into higher-margin consumer markets and into higher growth geographies. If you recall, we projected that these initiatives would drive $100 million in annualized revenue beginning this year and this quarter, we delivered the first portion of that growth. From a market perspective, we saw small improvements in demand at the start of the year, which then trended stronger in March. The stronger trend has continued here in the second quarter. Operating income was $68 million, excluding special items, up 7% from last year. Earnings per share were $1.38, up 21% and and both operating and free cash flows improved significantly compared to last year. Like most companies, we felt the impact this quarter from the rapidly changing environment caused by the recent geopolitical events, and I'll talk about that more on the next slide. Let's start on the left side of this slide with some points about the impact current events of -- in the Middle East. Overall, we've avoided any material impact on sales or operations to date. Where we have seen an impact is with higher energy and freight costs, which we are addressing through pricing actions and temporary surcharges. In terms of our operating and sales footprint, we only have a small presence in the region, primarily consisting of refractory sales to Middle East steel producers and a long-standing joint venture in our Energy Services business. We did encounter some challenges with shipments that were in the Persian Gulf when the conflict started, but we managed to redirect those shipments to ensure delivery to our customers. Our team responded quickly to the changing environment, much as we did last year with tariffs, and I want to thank our employees for their agility and creativity in identifying solutions for our customers. Our biggest current challenges are higher energy prices at our facilities, increased fuel cost for our heavy equipment and higher transportation and freight costs. Once these impacts became apparent, we implemented price actions some of which could be implemented quickly and others which will take effect over the next 90 days due to contractual terms. We are, of course, closely monitoring the evolving conditions and are prepared to implement further actions as needed. We've had minimal supply disruptions as a result of the conflict, and I'd like to point out that from a broader supply chain and logistics standpoint, we benefit from the geographically diverse structure of our business and the localization of our operations. We typically produce our products within the same region or country where we sell them. I believe that this operating structure is one of MTI's key differentiators as it limits the impact that global supply chain disruptions have on us. This structure will further demonstrate the value as the trend for locally produced minerals and mineral-based products increases. Now let me turn to the right side of the slide to update you on our growth projects. The progress we're making and the associated timing of the expected sales as well as the market updates. There are a number of positive elements here, all contributing to what we see as strong sales momentum this year. I'll start with our Consumer and Specialty segment, in our household and personal care product line, we've been upgrading and expanding several of our facilities. The Cat litter facility expansions that we completed late last year in North America are fully online. We've been ramping up the new business we've secured for them from customers in the U.S. and Canada. In fact, this was a record sales quarter for Cat Litter, which grew 19% over last year. Our new cat litter facility in China also continues to ramp up and should be fully functional by the second half of the year with new business orders already secured. Last year, we announced a capacity expansion for our natural oil purification facility. We expect to have this fully online late in the second quarter, enabling us to meet the rapidly growing demand we are seeing for renewable fuels specifically sustainable aviation fuel. Our high-performing products are uniquely capable of meeting the challenging specification for these applications. In this quarter, sales of these products grew 14% over last year and we expect the pace -- this pace to accelerate once the expansion is fully operational. Elsewhere in our Specialties business, our Animal Health business is trending nicely with sales up 9% over last year. and we're anticipating strong volume growth in Fabric Care starting in the second half with the introduction of a new technology. In our Specialty Additives product line, we previously announced the ramp-up of several new satellites in our paper and packaging business as well as capacity expansions at others, all of which remain on track for the second half of this year. One area where we've not seen much improvement is in the North America residential construction market, which remains relatively slow. Turning to our Engineered Solutions segment in the high-temperature Technologies product line, the min scan installations we previously announced all remain on track. We are seeing higher refractory product demand from stronger steel markets in North America as well as from the share gains we've captured as a result of our MINSCAN installations. Europe steel production, on the other hand, remains soft. Our Metalcasting business remained stable with no major inflections. We're seeing some strength in municipal foundry applications. the North America heavy truck market is showing signs of potential recovery that we continue to see slow demand from the agricultural equipment market. Foundry markets in Asia remained stable, and demand for our engineered foundry blends continues to expand with sales growing 9% in the first quarter of last year. In environmental and infrastructure, we're seeing the potential beginnings of demand improvement, mainly through environmental lining project activity, which has increased of late. We're also on track for 10 or possibly more new water utility implementations for our FLUORO-SORB remediation product in the second half and demand for our infrastructure drilling products remains robust in both North America and Europe. Let me summarize all this for you. First, I'm pleased with how our growth investments are performing, and we're on track to deliver $100 million of incremental sales. We're off to a strong start to the year, and we still have several new growth projects ramping up over the next 2 quarters. In addition, we're seeing improving trends in many of our end markets. At the same time, we're mindful of continued macro uncertainty, particularly around energy costs. But even with that backdrop, the momentum we've established from these well-timed investments and the positions we've established in durable and growing end markets puts us on track for a solid growth year. Our current projection is for mid-single-digit sales growth in 2026, and this could inflect higher if the market strength we are currently seeing continues. Now let me turn the call over to Eric, who can take you through our financials and provide more details. Eric? Erik Aldag: Thanks, Doug, and good morning, everyone. I'll start by providing an overview of our first quarter results. followed by a review of the performance of our segments, and I'll wrap up with our outlook for the second quarter. Following my remarks, I'll turn the call over for questions. Now let's review our first quarter results. We had a strong start to the year. Q1 sales were $547 million, up 5% sequentially and up 11% from prior year with solid growth across all product lines. In the sequential sales bridge on the upper left, you can see that sales in the Consumer and Specialty segment grew $22 million from the prior quarter or 8%, driven by strong growth in both Household and Personal Care and Specialty Additives. Sales in the Engineered Solutions segment were up $5 million from the prior quarter, driven by high temperature technologies. Operating income was $68 million in the first quarter, up $1 million from the fourth quarter, driven by higher volumes and improved productivity in the Consumer and Specialty segment. Turning to the year-over-year bridges. You can see that sales were well above prior year in all 4 of our product lines. Excluding favorable foreign exchange, our sales grew 8%, driven by higher volumes in several of our businesses. We also benefited from a few extra days in the quarter relative to last year. We estimate that underlying growth, excluding FX and the few extra days was 5% to 6%. In Consumer & Specialties, sales in Household and Personal Care were up $19 million or 16%, and Specialty Additives sales increased $9 million or 6% from prior year. In Engineered Solutions, sales in high-temperature Technologies grew $14 million or 8% versus prior year, and Environmental and Infrastructure sales grew $13 million or 24%. Operating income improved 7% from prior year, with increases from the segments totaling $8 million. Operating income and margin would have been stronger if not for the rapid shift in freight and energy costs we experienced during the quarter as well as higher corporate expense due to the change in stock price during the quarter and the resulting mark-to-market impact on stock-based compensation. Recall that our guidance for the first quarter assumed $2 million to $3 million of higher energy and mining costs. We actually incurred about $5 million of higher costs in the quarter. While we do hedge a large portion of the energy we consume at our plants, the increases we experienced in the quarter were mostly in the form of higher freight expenses due to the increase in fuel costs. We expect to fully offset these higher input costs through pricing and other actions as we move through the year. However, we are anticipating a timing lag of up to 90 days in some cases based on contractual pricing arrangements. All in all, it was a good start to the year with solid growth above our initial expectations. We are managing through some new cost challenges, and we are working diligently and quickly to overcome them, just as we've done in previous inflationary periods. Despite these higher costs, our earnings per share, excluding special items, grew 21% from last year, setting us up for a strong year in 2026. Now let's turn to a review of our segments, beginning with Consumer & Specialties. First quarter sales in the Consumer and Specialty segment were $297 million, up 11% from prior year. In Household and Personal Care, sales of $142 million or 16% -- were up 16% year-over-year. Cat Litter sales continued to build on the momentum we saw in the second half of last year. The new business we secured ramped up ahead of schedule in the first quarter, which helped drive Cat litter sales up 19%. Sales of bleaching earth for edible oil and renewable fuel purification remains on a solid growth track, up 14% from prior year, and commissioning is underway with our capacity expansion for this product line to serve our expanding order book. Our capacity investments are also progressing well for animal health and fabric care, which grew 9% and 13%, respectively, in the first quarter. And we expect sales from these investments to ramp up beginning in the second half. Sales in Specialty Additives grew 6% from prior year to $154 million. Our volume to paper and packaging customers in Asia was up 21%. And including the ramp-up of our newest satellite there. This growth was partly offset by slower sales into residential construction. We did see an improvement in residential construction volumes from the fourth quarter as expected. However, this end market remains soft compared to prior years. Operating income for the segment increased by 8% from last year to $33 million. Operating margin improved by 40 basis points sequentially despite the rapid increases in freight and energy costs we saw in the first quarter, and we expect operating margins to continue to build throughout the year as we work with our customers to pass through these incremental costs and as we gain leverage from our growth initiatives. Looking ahead to the second quarter, we expect segment sales to be similar sequentially and up 4% to 5% from prior year. Sales in Household and Personal Care are expected to remain strong up mid- to high single digits from prior year, driven by continued growth in cat litter and bleaching earth for renewable fuel purification. We expect sales in Specialty Additives to be similar, both sequentially and year-over-year. We expect a seasonal uptick in residential construction, albeit below last year's level to offset seasonal maintenance outages for paper and packaging customers and a paper machine conversion from paper to brown packaging in North America. Now let's turn to the Engineered Solutions segment. First quarter sales in the Engineered Solutions segment were $250 million, up 12% from prior year. In our high-temperature Technologies product line, sales of $183 million were 8% higher on continued strength in the steel market in the U.S. And despite ongoing softness in the agricultural equipment and heavy truck markets, sales to GLOBALFOUNDRY customers were flat to prior year, supported by continued growth in Asia, where sales were up 9%. Sales in our environmental and infrastructure product line were $67 million, up 24% from prior year. We continue to see strong pull for our infrastructure drilling solutions. -- with sales up 46% over prior year. Also contributing to the growth for this product line were stronger starts for large-scale project activity and offshore water treatment relative to last year. Overall, the segment delivered another solid operating performance. Operating income increased by 14% versus prior year to $39 million, representing 15.7% of sales. Sequentially, margin for the segment was impacted by fewer equipment sales and seasonally higher mining costs as we expected, in addition to the higher freight costs. Looking ahead to the second quarter, we're expecting sales for the segment to increase by high single digits, both sequentially and year-over-year. In high-temperature Technologies, we're expecting a sales increase following the Lunar New Year holiday outages in Asia in the first quarter and demand from steel customers in North America is expected to remain strong. Sales in environmental and infrastructure are expected to increase by around 20% sequentially as we enter the seasonally stronger period for large-scale project activity. And this would equate to around a 10% growth over last year for this product line. Now let me turn to a summary of our balance sheet and cash flow highlights. Our first quarter cash flow improved significantly versus the prior year. First quarter cash from operations was $32 million, up $37 million from prior year. The first quarter is typically our lowest cash flow quarter. And as usual, we expect free cash flow to build as we move through the year. Capital expenditures in the first quarter were $23 million an increase of $5 million from prior year as we continue to make investments to support our growth initiatives and our operations. We continue to expect full year capital expenditure in the $90 million to $100 million range with the potential for slightly higher spending depending on the pace of certain investments. Free cash flow also improved significantly over last year, and we continue to expect to finish the year with free cash flow in the 6% to 7% of sales range. The balance sheet remains strong with our net leverage ratio at 1.7x EBITDA. Now I'll summarize our outlook for the second quarter. Overall, we expect second quarter sales to be approximately $560 million, up around 6% from prior year, driven by growth in both segments. In Consumer & Specialties, our guidance reflects growth from our new cat litter business that began in the first quarter as well as the ramp-up of our expansion for edible oil and renewable fuel purification. Overall, for the segment, we expect 4% to 5% sales growth over last year despite residential construction markets remaining soft. In Engineered Solutions, we expect continued growth in North America refractories, Asia foundry and improved environmental and infrastructure project activity. Overall for the segment, we expect year-over-year growth of around 7% to 8%. Altogether, we expect operating income for the quarter of approximately $80 million and earnings per share of between $1.60 and $1.65. I want to highlight that our outlook for the second quarter includes $12 million of higher inflationary costs on a year-over-year basis. This is up from the $5 million we experienced in the first quarter. Given the rapid pace of these cost increases and the contractual pricing lag for certain customers, we are expecting around a $3 million temporary impact on our operating income in the second quarter, and this is included in our guidance. However, even with the new cost challenges we've been navigating in the first half, we're still expecting 2026 to be a strong year for us. As Doug mentioned, we're well on track for mid-single-digit growth in sales this year. We could certainly exceed this mid-single-digit growth level if our end markets remain relatively constructive, but we feel this is a balanced and appropriately cautious outlook for the year given the current macro uncertainty. And based on our current outlook for energy costs, pricing and end market dynamics, we're currently tracking to about a 14% operating margin for the full year. This means we're expecting margins to improve by more than 100 basis points from the first half to the second half, approaching our 15% run rate target in the second half, driven by our pricing actions and volume leverage from our growth initiatives. Of course, should energy costs moderate this year, our margin could move higher. Before we turn to questions, I'd like to highlight that we're hosting an Investor Day on September 22 at our R&D facility in Bensalem, Pennsylvania. The event will include a webcast program updating investors on our 5-year targets as well as an in-person R&D walk-through, showcasing some of the technical and innovation capabilities that are driving our growth today and into the future. We'll be sending invitations in the coming weeks, and we look forward to seeing many of you there. With that, I'll turn the call over for questions. Operator: [Operator Instructions]. Our first question is from Daniel Moore with CJS Securities. Dan Moore: Eric. I appreciate all the color. Congrats on obviously nice quarter. Impressive momentum from a top line perspective. I think if we backed out FX and some of the extra days, 6% plus, so well ahead of the mid-single digits or at least tracking well. How much of that growth was price versus volume? And I just kind of -- I know you have a lot of different end markets, but how would you describe your growth relative to overall end market growth, just trying to tease out the impact of some of those strategic investments and initiatives that you've been making? Erik Aldag: Yes. Thanks, Dan. Thanks for the question. So pricing was relatively minimal in the first quarter. We expect that to be a little higher as we move forward as we've obviously had to implement some price increases to cover the higher costs. But around 1% pricing in the first quarter versus last year. And yes, as far as the growth, I think when we gave the guidance at the beginning of the quarter, we expected a bit of a ramp-up as we move through the quarter. But we had pretty broad-based improvement in the pace of sales into March. I talked about the new Cat litter business that we have coming in a little early. I think we're certainly outpacing the market growth as it pertains to the Cat litter market with the new business that we've secured here in North America. These are new items that we're launching with retail partners, new stores that we're in. So certainly outpacing market growth there. And the other sort of highlight was in the environmental and infrastructure product line -- it's just -- it's been great to see that product line show a few consecutive quarters of growth after a pretty long period of stagnant or a subdued market for the product line. So as we mentioned in the prepared remarks, things like infrastructure drilling, the environmental lining systems, just getting stronger pull, and we're starting to see early signs of a pretty positive market for that product line. Dan Moore: Really helpful. And actually, just kind of stole the answer to my second question because certainly, Enviraland infrastructure is clearly turned owner appears to be turning it. I guess, just talk about your visibility, project-based work. So what are you seeing in terms of RFQs and opportunities looking beyond the next quarter or 2 in that business? Douglas Dietrich: Yes, Dan, let me hand that one over to Brett Argirakis to give us some color on the mining market. Brett Argirakis: Dan, thanks for the question. Yes, as Eric said, really, in the last 4 quarters, it showed a little bit of improvement. And this quarter, it was pleasant outcome. So overall, the growth drivers in the first quarter were primarily a result of increased activity in the mining sector in both North America and Europe. The sector actually has shown global improvement versus last year and really is pointing to continued improvement in the second quarter and into the third. We're seeing -- also seeing North American municipal landfill projects improving. And it's providing us additional opportunities -- we are getting more RFQs, as you pointed out. And so we are feeling pretty good about the rest of this quarter into the third. So our pipeline really has increased and we've been specified into several projects for this year in both our North America and European production schedules are pretty healthy, really into the third quarter. So we feel pretty good about the next couple of quarters. Dan Moore: Very good. I guess, last for me, and I can jump back in queue with follow-ups. But you're demonstrating certainly not just this year, but in the last couple of years, more speed and agility in terms of pricing reacting to the spike in energy and other input costs. Obviously, it's a little bit of a lag. So we saw some margin compression. I'm just wondering how much of the year-over-year margin contraction was kind of lags in energy input costs versus mix or any other factors? Erik Aldag: Yes. So Dan, in the first quarter in terms of the price cost lag, it was probably about a $2 million impact for us on margins, mostly freight and that picked up really in March, obviously, the other thing kind of weighing on our margins in the first quarter that I alluded to, was the higher corporate cost, but that was $2 million to $3 million higher depending on the comparison period that you're using and that was really just based on the change in the stock price during the quarter. It's a mark-to-market impact on stock-based compensation. So if not for those kind of 2 items, the freight cost increases and the corporate costs, operating income would have been well over $70 million. We probably would have been above last year's margin. So yes, we have some -- we've got to pass through the higher cost in pricing. We've got the surcharges in place. We've got pricing actions implemented. We do just have some contractual limitations that results in a lag of up to 90 days in some cases before we can pass that through. So about a $2 million impact from the inflationary point in the first quarter. probably about a $3 million impact in the second quarter just because of the full load of higher freight costs. And then that should taper down in the third, certainly, probably closer to $1 million in the third and then catching up in the third quarter. Douglas Dietrich: Yes. Dan, the only thing I'll add is that, yes, we've gotten more agile with this. But at the same time, look, we -- we price our products on value, not cost, right? But there are times where like this and some unprecedented times. And if you remember in 2022, we were able to pass through over $200 million of inflationary costs. So we do have that pricing power. We do work with our customers. We understand there's temporary fluctuations. So when we see something like this, we need to move and we use different methods. We use general regular pricing increases, but also surcharges to make sure that we're only pricing for when these impacts happen. So we move very quickly to put those in place. And as I mentioned in my remarks, we will we will make sure that we monitor the situation if we need to take further action, we'll do that, too. Dan Moore: That's helpful. And then I think you said, Eric, 14% kind of trending to 14% operating margin for the year. If we did level set or sort of circle those charges already probably closer to 15%. So if I have any follow-ups, I will circle back. Operator: The next question is from Mike Harrison with Seaport Research Partners. Michael Harrison: Congrats on a nice start to the year. I wanted to just clarify, you mentioned the 1% price mix. Can you break out what the FX contribution was that was part of that 11% growth and did I hear correctly -- did I hear you correctly that you had a number of extra days that contributed to the strong revenue number? Erik Aldag: Yes, that's right, Mike. So the FX impact was about 3% on a year-over-year basis. That's going to come down as we move through the year. It's just based on where the dollar euro basically was this year versus last year and that sort of levels out as we move through the year. So on a full year basis, probably looking at where currency rates stand today, probably looking at more of a 1% to 2% FX impact. But for the first quarter, it was about 3% impact. And yes, so we did have a couple of extra days in the quarter just based on how our fiscal quarter fell. The extra days went into the Easter holiday. So we estimate that the extra days contributed to about 2% to 3% of the growth on a year-over-year basis. Michael Harrison: All right. Very helpful. And then I just wanted to kind of revisit the -- just the margin performance. I understand that there was some headwind related to the freight costs you mentioned as well as the corporate higher corporate expense. But I'm just a little bit surprised that with 11% revenue growth number that we didn't see more leverage to the bottom line. So maybe just talk a little bit more about price mix or any other costs or efficiency issues that may have impacted your margins? Douglas Dietrich: Yes. We started off the year. I'm going to hand this back over to Eric, but just to kind of chime in on your commentary of disappointed to see it follow the bottom line. Look, we were set up for a great quarter. I think things were starting to trend north, we had new products coming in, margin contributions were right on target where we wanted. Look, higher stock price, the mark-to-market is something we're -- it's going to happen. But we are set up for a good quarter. So yes, we do think that this will ultimately fall to the bottom line. But then when the energy prices hit, we had to take that on. You know we have some lag in pricing. So that was unexpected in the quarter. But we do think that as this moves through and as our pricing actions fall in, that margin is going to come back. So this is a temporary thing, Mike. But it really had to do with energy and freight. So Eric, do you want to -- I think we bridge to just... Erik Aldag: Maybe a couple of things. From a mix perspective, Mike, we talked about residential construction being soft. So Q1 is a seasonally soft period for residential construction and the market is relatively soft. And I think we've mentioned before that those are relatively high contribution margin products. So that does generally have an unfavorable mix impact. And I would also say that for the cost impacts that we are experiencing, probably 2/3 of that cost impact is impacting the Consumer & Specialties segment. And that's where we have some contractual limitations as well in terms of the timing of passing things through. And so we do expect those margins, in particular in that segment to improve as we move through the year. Michael Harrison: All right. Then I just wanted to talk a little bit about this $3 million price cost lag that you expect in Q2. Any thoughts on what could drive that to be better or worse in terms of things you can control and your ability to get higher pricing or find some improved procurement or things like that. Obviously, if the war ended today, that would probably be favorable. But then my other -- the other piece of this question is, do we expect that $3 million price cost lag to be neutral by the time we get to Q3 and then at a certain point, is your expectation that, that would turn favorable to earnings or margin contribution? Douglas Dietrich: Go ahead, Eric. Erik Aldag: Yes. So it's going to depend a lot on energy costs generally. And our energy spend isn't directly linked to oil prices but there's a correlation there into freight, some of the energy-linked raw material packaging that we buy, the energy spend that we have on the plant. I would say, yes, we're planning to be caught up on that in the third quarter. We may have about $1 million of lingering impact in the third quarter. But as we move through this as long as energy costs stabilize, we plan to more than offset and maintain our margins at least. I think Doug mentioned the prior inflationary time period. I would say that between 2022 and 2024, we took on over $200 million in costs. And over that same time frame, we also improved our margins. And so I think we've shown historically that we can pass things through. I think we've gotten faster over time as an organization. We're seeing $3 million in the second quarter that's going to come down to something closer to $1 million in the third, assuming energy costs stay relatively close to where they are today. Douglas Dietrich: Yes. I mean things that can improve it, Mike. Obviously, energy costs dropped rapidly and stay there for a while. I don't think we're projecting that right now. I think we're looking at this probably being through the year at higher energy costs. It's going to take a while given what's going on, I think, to have that happen. It could change. That could be one upside for us. But again, we're going to take care of our customers. We're going to make sure that we price appropriately for the value we deliver and pass through some of these costs with them. So yes, there are some things that can improve upon that. But we're giving you our best projection in a volatile environment right now. Michael Harrison: Right. And then last question I had is just on the metal casting and foundry business. I guess, first of all, it sounds like you continue to pick up additional market share with the custom green sand blended product in Asia. So that's great to hear. But I was just curious, you mentioned in North America heavy truck, I think that's a headwind now, but I think the assumption or what the forecasts are saying is that because of some regulatory changes, heavy truck could pick up as we get into the second half. And I'm just curious if your expectation is that North America foundry should see some improvement in the second half, either just based on heavy truck or because we're kind of getting into some easier comps here? Douglas Dietrich: Yes. Heavy truck has been kind of a headwind for a while. So is the heavy ag off-highway ag business for a couple of years. So -- and that has been, at least in heavy truck due to some pending regulation that I think we're getting some clarity on. I think the comments I put in were relatively stable markets in North America, but we are seeing potentially some -- the order book for heavy trucks starting to build. And I think, as you said, that could be towards the second half of the year. So early signs that folks are going to move forward with buying these trucks, and that will certainly flow into kind of our heavy truck business. ag, we have not seen that yet. That's the 1 area that still seems to be flat. So yes, we could see some improvement, and I think we might be starting to see the beginnings of that early this year, Mike. Operator: The next question is from Pete Osterland with Truist Securities. Peter Osterland: So just wanted to start on your recent growth investments. So you noted the $100 million aggregate sales target is still on track. Are there any of these investments specifically where you're seeing more or less traction than you originally expected? And on a related note, just in terms of the cost impact, given what appears to be a more inflationary environment, I guess any incremental costs or delays that you're expecting with fully ramping your growth investments relative to what you originally expected? Douglas Dietrich: No, we're not seeing that right now. I think let me characterize this. First, we are seeing a little bit of stronger pull or at least earlier pool in the pet litter business, the Cat Litter business. We brought those facilities online late last year, 2 in North America, 1 in China, which is still ramping up, but we started up last year and have begun to fill them up with this business that we projected to be about $25 million plus this year, and that actually started a little bit sooner than we had expected. So that's one positive area. We do have more investments, these investments that are coming online associated with this growth. I mentioned the bleaching earth associated with the oil purification and sustainable aviation fuel, that's going to be coming online in the -- late in the second quarter. And that's supporting very strong demand we're seeing for that product. I mentioned year-over-year first quarter, that product grew 14%. We see that accelerating potentially going through the year. We've already booked -- almost booked out that facility through the rest of the year, just given the strong demand. So that could accelerate. We have 2 paper and packaging satellites coming on late in the year. We've got MINSCAN, we've got FLUORO-SORB installations. So there's a lot building this year that you haven't yet seen. I'm also going to highlight that the markets I just mentioned to you are kind of what we're going to call, not immune, but a bit more durable to what's going on with energy. As I mentioned, the cat litter is pulling and the sustainable aviation fuel is not necessarily driven by cost driven by regulation. And so as the regulations have changed, for the amount of sustainable aviation fuel, that's what's driving this demand, and we see that being very durable this year. Same with the MINSCAN installations, those are contracted. Those will be installed, and we'll start to see the pull in the revenue from those as they get installed. And the paper PCC satellites are contracted. And as they ramp up, we'll start to see the pull there. So I don't see -- outside of that, there could be some market demand fluctuation. We're seeing the strength. Energy costs could change those markets a little bit this year. But the investments we've made, we see are being put into durable and growing markets that we think just alone, that's going to drive at least the mid-single digits growth. And as I mentioned, if these markets hold in like they are, could be better this year. I hope that helps. Peter Osterland: Yes, very helpful. And you kind of touched on what my follow-up was going to be. So I guess just thinking about the disruptions in global energy prices and logistics related to the Middle East situation. where within your core portfolio, do you see the greatest potential for derivative impacts on demand here? I guess, where regionally or by end market is demand potentially most vulnerable for you -- are there any markets that could benefit? I guess what are the potential demand impacts that you're focused on right now if the situation has prolonged? Douglas Dietrich: Yes. Look, I don't want to ignore the fact that higher energy prices may not have settled in fully to the global economy, and we'll have to see where they go and how long they are elevated. I think our concerns are most outside the United States in terms of Asia and Europe. We've been seeing some improvement in some of our European products -- and that could be an area. I think in Asia, parts of Asia, I think most of our business, more of our businesses in China, I think that's a little bit more immune, but we could see some slower demand associated with higher energy costs that could dampen with the strength that we're currently seeing. But that's what I'm saying, even if those kind of balance each other, I think the durability of the products and the growth investments we currently made are going to at least post on track for a floor of about mid-single digits, 5% growth this year. Operator: The next question is from David Silver with Freedom Capital. David Silver: So I have a scatter of questions here. First 1 is just on pet litter, and I apologize, I probably just wished on it when you discussed it earlier. But the 19% growth, would it be possible for you just to break that out by factor? In other words, I'm certain there's a currency benefit there, maybe but price. But I'm just wondering how much was organic volume growth and how much of that might have been related to the ramp-up in China? Erik Aldag: Yes. Thanks, Dave. I mean I'm going to tell you, it was mostly volume. And we did have the favorable currency across the company of about 3% to 4%. But in terms of the vast majority of that 19% increase, it was mostly volume. David Silver: Okay. And then I did want to touch on the FLUORO-SORB comments you made in the opening remarks. And in particular, I wanted to hone in on the word implementation. So 10 implementations scheduled for the second half. Just a couple of questions. When you say implementations, I mean how much -- how many of those are I guess, full commercial developments as opposed to maybe an important, I don't know, beta tests or sampling kind of thing? And then, you did mention last quarter that at least 1 of these newer projects was targeted for Europe. And I'm just wondering, in the 10% for the second half, how many might be outside the United States. Douglas Dietrich: Yes. Let me start, and I'll pass it off to Brett. David, we probably have 250 -- now it's some sort of 350 Brett, 350 trials going on around the world. And so these 10 are full installations, right? I think we had 7 last year. We have 10 scheduled for this year. And as I mentioned, that could be higher. But Brett, I want to give some color on kind of what the trial activity is like, where it's going on? Brett Argirakis: Sure. David, that's right. FLUORO-SORB is now operating in 10. These are full-scale municipal drinking water plants that are treating the PFOS impact water. And we continue to receive pilot requests in not only the U.S. but EU, U.K., Japan and now Hong Kong. So we are doing trialing activity now in all of those countries. There's another 10 municipal systems that FLUORO-SORB has been specified for in -- for upcoming installations. Most of those are under construction now and expected later this year and into 2027. We're seeing a strong progression from early pilots in small ground water treatment plants to additional full-scale implementation. So those smaller scales are now we anticipate them moving into large scale like the 10 we're doing now. But over the last 6 to 8 months, our request to pilot FLUORO-SORB in the large surface water facilities has doubled. That's signaling an expansion to us in more higher value segments. So this would be those -- like the large project we did in the Eastern U.S. that takes on a lot of FLUORO-SORB we're getting more of those requests. So that's also positive. The other thing we're seeing is the in-situ remediation activity increasing. And we've secured several Department of War and aviation-related field pilots to demonstrate our PFAS absorption using our FLUORO-SORB. So some examples would be like on and off base drinking water treatment, in situ stabilization for contaminated groundwater plooms storm water treatment, which is getting even more attention. There's a lot of activity there. And that's really due to the risk of PFOS migration into sensitive receptors. So all in all, David, we're seeing continued interest. It's a -- it feels like a slow progression, but we're moving very fast and it is global right now. David Silver: Okay. And I'm just going to follow up. But a couple of things. Just to clarify, so 10 implementations or I'll use installations in the second half of '26. And then, Brett, I believe you said there's another 10 that are -- the work is progressing maybe for first half of 27 or full year -- is that -- did I quote you correctly or? Brett Argirakis: Let me clarify. So yes, so there's 10 full-scale active. There -- we anticipate 10 more that will go for the second half of the year, correct? And that some of those may trickle into early '27, but we continue to look for more. There could be more, as Doug pointed out in his comments. Douglas Dietrich: Is that clear, David, so we have 7 installed -- 10 installed thereabouts. We have 10 more coming this year. We expect that there will be more installations coming. We haven't announced those yet, but we expect that more installations will be coming in as this builds between '27 and '28, which is regulation will start to go in in '29. So yes, we're seeing that momentum. We're seeing the trial activity. We're seeing the pool for trial activity. We're seeing extended trials, which means they're really working with the product. We've seen only positive results from those trials. And we're starting to see more and more conversions. So we expect this will continue as we get closer and accelerate as we get closer to the regulation deadlines. David Silver: And I hope you don't mind, I'm just going to follow up with one more. So out of the 10 installations, Brett, would you characterize them as using FLUORO-SORB alone, FLUORO-SORB in conjunction with granular activated carbon or -- just what is the standard? What seems to be the approach that your customers are most interested in and when they want to incorporate FLUORO-SORB into, let's say, a drinking water project? Douglas Dietrich: I would characterize them as some of both. I think we are seeing stand-alone floors or installations. We're seeing it used very effectively in conjunction with others. Could be on the front end or the back end of the other media, but we're seeing some of both, I would say. So -- which I think is a good thing. I think that allows the broad-based use of utility that's currently using a certain media to be able to add FLUORO-SORB. So that opens -- it says that all uses are being valuable. And it really depends on the utility, their type of system. And the PFOS that they have in the drinking water. So it's some of both. That's how we're characterized for you. David Silver: Okay. I'd like to swing over to PCC satellite activity. And in particular, you did discuss the 3 ramp-ups that are underway and adding to results. But I was wondering if DJ or whoever might be able to just characterize the next wave of projects that you might be bidding on? In other words, maybe the quantity relative to -- is it higher or in line with kind of typical like bidding activity or bidding opportunities? And then more to the point, are we kind of at a phase in that business where there's kind of a shift maybe more than 50% of the opportunities relate to packaging as opposed to uncoated free sheet. Just what is the status of kind of the new project or the potential project funnel for PCC satellites. D. J. Monagle: David, I'll field that one. Thanks for the question. So let's -- just on clarifying those investments that are part of that $100 million deliverable that we were speaking about to which we spoke earlier. There were 4 of those are paper and packaging investments. And I think the mixture of those informs how this portfolio is currently looking -- so if I look at those 4, 2 of them were packaging, 2 of them are printing and writing and the mix of technologies. One was standard PCC on GCC and a couple of new yield. And so as I've spoken in the past about the pipeline, I think I've been saying it's just under 2 dozen active pursuits and even though we've closed on these 4 deals, I look at the pipeline today, and it's it's another 2 dozen opportunities that we're working on. So the pipeline remains flush full. The interest remains high. But now what we're seeing is a shift in -- you had said 50% packaging. I would say the number has been in the past 10-plus percent, and now it's been migrating more towards 25%, 30% is packaging, and that's kind of holding steady -- but what we're seeing in the mix of technologies, I would say 50% or so are in standard PCC and then the other 50% is New Yield and GCC. And so that's the mix that's been happening for us. The other shift that we saw is that the -- all these new investments have been Asia, India and China, we are seeing a fair amount of pull from around the world on this. So a little bit of Europe, a little bit of America and different parts of Southeast Asia. In addition to the traditional pull from India and China. So that's how I would describe the portfolio. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Doug Dietrich for any closing remarks. Douglas Dietrich: Well, I appreciate everyone joining today. Thank you for the questions. We look forward to chatting with you in 3 months. So thanks for attending. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the CubeSmart First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Josh Schutzer, Senior Vice President of Finance. Josh, please go ahead. Joshua Schutzer: Thank you, Paige. Good morning, everyone. Welcome to CubeSmart's First Quarter 2026 Earnings Call. Participants on today's call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental operating and financial data is available under the Investor Relations section of the company's website at www.cubesmart.com. The company's remarks will include certain forward-looking statements regarding earnings and strategies that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or filed with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning together with our earnings release filed with the Form 8-K and the Risk Factors section of the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the first quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris. Christopher Marr: Thank you, Josh. Good morning. The first quarter showed a continuation of trends from late last year with results that were in line with our expectations. We are encouraged to finally see the inflection in same-store revenue growth this quarter as the stabilization and operating trends we experienced in late 2025 is flowing through the financial metrics. We expect continued gradual improvement throughout 2026, albeit without a projected catalyst coming from the macro environment. Positive move-in rates and same-store revenues were supported by steady demand trends and lessening headwinds from new supply. We are encouraged that the wave of new stores from the last couple of years continues to lease up while the forward pipeline remains lighter. This environment continues to showcase the strength of our quality focused strategy with primary markets outperforming and showcasing their lower beta characteristics. Steady demand when combined with fewer vacates resulted in a 240% increase in net rentals for the quarter, helping to narrow the year-over-year occupancy gap to now 20 basis points by the end of April and putting us in a good position entering the spring summer busy season. Our more stable urban markets in the Northeast and Midwest continue to outperform, while our more transient supply-impacted markets across the Sunbelt and the West Coast are beginning to see green shoots in the form of second derivative improvement. We are also encouraged by pricing trends. Last year, we began seasonally pushing rates a little earlier, which for us, created a tougher March comp, but move-in rates have improved throughout the month, they ended the quarter up 2% and that plus 2% spread held through the month of April. Across all markets, our existing customer metrics remain strong, with no change to attrition rates or credit. Our pricing and operating strategies when combined with our best-in-class portfolio, are attracting a high-quality customer who is remaining in the portfolio longer. Looking at performance across markets, 21 of our top 25 MSAs saw a sequential improvement in the same-store revenue growth during the quarter. The Acela corridor continues its outperformance led by New York, Austin and Washington, D.C. MSAs. Midwest markets led by Chicago, maintained their steady pace of improvement. Major Sunbelt markets showed encouraging signs with Miami swinging to positive same-store revenue growth, and Phoenix and Atlanta making meaningful progress in their recovery from the influx of new supply. We are proud of the work our operations team has done to have us well positioned to capitalize on the opportunities presented as we transition into our busiest time of the year. We remain committed to our strategy of building the highest quality portfolio in the storage sector. Through cycles, our target markets and their strong demographics produce the best long-term risk-adjusted returns. The strength of our portfolio demographics and density of populations around our stores ensure stability of demand and insulates our portfolio from some of the cyclicality based by more transient and supply impacted markets. We are confident that our focus on building the highest quality portfolio in the self-storage sector by acquiring high-quality assets in top markets will create meaningful value for our shareholders over the long term. Thank you, and I'll now turn the call over to our Chief Financial Officer, Tim Martin, for his comments. Timothy Martin: Thanks, Chris. Good morning, everyone. Thanks for taking a few minutes out of your day to spend it with us. First quarter results were encouraging coming in at the high end of our expectations, giving us a nice positive start to the year. Same-store revenue growth was 0.6% over last year. And as Chris mentioned, nice to see top line growth flip to positive for the first time since mid-2024. Move-in rates remain positive year-over-year, while the occupancy gap further narrowed to down 30 basis points from down 70 basis points at year-end. The early months of 2026 were a continuation of trends from last year with generally stable overall levels of demand. Demand does vary across markets and submarkets and with a continued bifurcation in performance between the outperforming core urban markets in the Northeast and Midwest, and the more volatile performance across the more supply-impacted markets throughout the Sunbelt and Southwest. However, we have seen second derivative improvement across most markets. Same-store operating expenses grew 5.8% over last year, in line with our expectations. After 4 straight years leading the industry in expense control, our expectation is for more inflationary type growth this year with some particularly tough comps early in the year, leading to outsized growth in the quarter. We knew snow removal costs were going to be elevated over the prior year, and those elevated costs accounted for about 120 basis points of our overall quarterly same-store expense growth. We entered the year with attractive return opportunities across our primary marketing channels and a plan to front-load some of our spending to take advantage. When combined with a tough comparison, as we had historically low spending in the first quarter of 2025, the year-over-year growth was robust. We expect that for the full year, marketing as a percentage of revenues will align with historical trends. Personnel expense growth reflects our continued focus on delivering the experience our customers tell us they desire. 2/3 of our customers tell us they want some level of in-person service. As we continue to fine-tune staffing based on our data-driven prediction models as well as our first-person customer feedback, we expect personnel expense to grow at current levels throughout the first half of the year, tapering a bit in the back half as year-over-year comparisons ease. Revenue growth of 0.6% combined with 5.8% expense growth yielded negative 1.5% same-store NOI growth for the quarter. We reported FFO per share as adjusted of $0.63 for the quarter, which was at the high end of our guidance entering the quarter. On the external growth front, we continue to execute on our disciplined capital allocation strategy, looking for creative avenues to attractive risk-adjusted returns in this environment. Where the disconnect between public and private market valuations persisted. We, again, repurchased shares in the quarter as the relative value of our portfolio made it our most attractive investment option. We own the highest quality portfolio of self-storage assets and at the low valuation levels during the quarter, the best risk-adjusted return we had was investing in our existing high-quality portfolio rather than the relatively higher private market valuations for what were ultimately inferior assets. Year-to-date, this has been our most attractive avenue for capital deployment. We also closed on the first store in our recently announced new joint venture with CBRE IM with a $250 million mandate to invest in high-growth markets, allowing us to continue to grow the portfolio with enhanced returns. In the current environment and our current cost of capital, joint ventures such as the CBRE venture are a good investment option for us to pursue. On the third-party management front, we added 33 stores to the platform in the first quarter and ended the quarter with 854 third-party stores under management. Our balance sheet remains well positioned with conservative leverage and access to a wide range of capital sources to fund potential growth. We have a bond maturity late in the year that we will address with existing capacity or through accessing the debt markets opportunistically in the coming quarters. Details of our 2026 earnings guidance and related assumptions were included in our release last night. As I opened with, performance in the first quarter was encouraging and in line with our expectations resulting in no change in our guidance range and underlying assumptions with a small exception of a slightly lower share count resulting from our share repurchase activity. Thanks again for joining us on the call this morning. At this time, Paige, why don't we open up the call for some questions. Operator: [Operator Instructions] Our first question comes from Samir Khanal with Bank of America. Samir Khanal: Chris, looking at your advertising expense growth was up year-over-year. I guess when do we see the impact of that come through? Average occupancy was up slightly sequentially, and just help us understand kind of how to think about occupancy with the spend you're doing? Should we expect a bit of a ramp-up in 2Q? And maybe you can unpack that for us. Christopher Marr: Sure, thanks for the question. So as Tim touched on, there was a lot of variables that went into the marketing growth in Q1. And obviously, starting with relatively by historical standards, low spend in the first quarter of 2025. So a very difficult comp. We knew we had -- we were experiencing late last year and going into the beginning of this year, a good ROI on the spend across all of our channels, continue to see some good opportunities through not only paid search, but also as the LLM continue to evolve some interesting opportunities there as well as in social and in those channels. The spend in terms of the translation, it's always going to be that balance between occupancy and rate. So certainly, as we think about the ROI on that spend, it's a combination of those two. Are we getting more customers into the top of the funnel? That answer is, yes. Are we able to convert those customers at better rates? That answer is, yes, and then ultimately, as you've seen in the trends in asking rates. And as I mentioned, that continued to be in positive territory, up about 2% in April. That occupancy gap, as I said, continue to contract was 20 basis points at the end of April. So we're starting to see it fairly quickly in both rate and occupancy and would expect that trend to continue. Again, that being said, this is a weekly decision as we think about how to allocate capital to our marketing line item. And so it will continue to ebb and flow. But as we sit here today, as Tim mentioned, for the full year, our expectation is as a percent of revenue, marketing will be in line with what we would have seen from historical trends. Samir Khanal: And I guess just my second question is on New York certainly holding up well. Maybe talk about kind of the demand trends you're seeing in New York and certainly anything on supply would be great as well. Christopher Marr: Yes. I think New York continues to be a star performer for us. It's why we love the market incredibly resilient through cycles. What we're seeing is almost a complete absence of new supply in the outer boroughs, certainly, that competes well overall. And then for stores that compete within existing Cube. So that sharp decline in supply that we've seen now over the last couple of years is being very helpful as we think about the performance of our same stores. It was a very challenging rental housing market in terms of cost in New York. So you are seeing folks looking for solutions to that issue. And certainly, we are one of those solutions that folks are finding. So continue to be productive. Manhattan, where we have one owned and a few managed, they're getting some supply, and you are seeing some of those stores, particularly those that may have overweighted the unit mix to the really small, blocker-sized units are a little bit softer there, but the outer boroughs continue to perform really, really well. Operator: Our next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Chris, in your prepared remarks, you noted a 240% increase in net rentals in the quarter. Maybe you can break that number down a bit, both the steady demand and fewer vacates and what that could mean for trends going forward? Christopher Marr: Yes. I think the trend in the quarter is pretty consistent with what we had what we had seen historically over the last bit, we disclosed it on Page 16 of the supplemental package. So rentals in the first quarter were down 1.8%. Here in April, we actually had rentals that were up about 1% year-over-year. So good top funnel demand in April at good prices. So very encouraging trend to start off the second quarter. Vacates were down 3.9% in the quarter. Again, that's just what I think we're seeing a little bit across the industry. The existing customer base is particularly sticky, staying longer than certainly pre-COVID historical trends. Michael Goldsmith: And my follow-up question relates to the guidance or reaffirmation. Regarding that, is that just a function of it's early the year and you -- the decreasing season is really going to determine the trajectory of the annual results? Or is there just a level of -- is there a level of conservative? Just trying to get a understanding of the thought process behind reiterating the guidance. Timothy Martin: Thanks, Michael. So we just provided the annual guidance not all that long ago. And the first quarter played out, as we mentioned, very consistently with our expectations on both revenue and expenses and overall from an FFO standpoint, just ending up at the high end of our guidance for the quarter. So nothing has really changed. Nothing happened in the first quarter that would cause us to reevaluate the impact for the full year. And as we sit here, getting ready for our primary leasing season, we're in the same place as we were 60 days ago, ready to go and looking to capitalize on all the opportunities that will present themselves, but nothing has happened in the last 60 days that has had an impact or change on our overall view for the year. Michael Goldsmith: Good luck in the second quarter. Timothy Martin: Appreciate it. Thanks. Operator: Our next question comes from the line of Ravi Vaidya with Mizuho. Ravi Vaidya: I wanted to ask about your thoughts about broader regulation and maybe price moratorium that may be in New York and maybe a couple of other markets. Have you had discussions regarding any sort of pricing restrictions or policy shift or moratorium that you could be anticipating from the current administration here in New York? Christopher Marr: We have not engaged directly in those conversations. As we've seen across a variety of different real estate product types as well as other industries, certain municipalities have been focused in on varying factors affecting the consumers. And we believe that we offer a valuable solution to our customers who are experiencing a need to put their valuable possessions in a self-storage facility for a period of time that they define. And we think we provide a good value for that service. So from our perspective, we continue to be keenly focused on that customer service element and providing good value and a solution for their need as varying things governmentally, ebb and flow, we'll will continue to be involved as a corporate. Ravi Vaidya: That's really helpful. I wanted to ask also about the fee income realized in the quarter was elevated. This quarter is also elevated last quarter. What's driving that? Timothy Martin: Yes. So on the other property income line item. We have -- there are a variety of things that are in that line item. They include merchandise sales, locks, boxes, fees, as you mentioned, truck rental income. We're always looking at ways to enhance and grow our cash flows in those areas. And we've had some success in that line item. If you think about the level of growth in that line item in the first quarter, we would expect the first quarter to be a little bit higher than where we would land for the full year as it relates to growth on that line item. But we continue -- we always continue to look for ways to provide many services to our customers, and some of them show up in the line item. Operator: Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just hoping you could talk a little bit about the '26 earnings guidance, it implies a bit of an acceleration, but flat on same-store revenues. Just hoping you could talk through the dichotomy and the acceleration versus flat between earnings and same-store revenue? Timothy Martin: I'm trying to understand your question. Certainly, our guidance implies that there is, within the range, there is an opportunity for top line to grow throughout the year, and that's going to be the result of all the trends that Chris touched on a narrowing gap in occupancy. Some better rates to new customers. And so looking at top line growth that could accelerate a little bit. We talked about the expense somewhat of anomaly of some really difficult comps. The snow being part of it. Marketing expense year-over-year. And so the first quarter had an expense growth that's higher than the range. So if you're looking at accelerating NOI growth then throughout the year would be the expectation that's embedded in the guidance. Was there another portion of your question that I missed? Juan Sanabria: That's helpful, Tim. And then just switching gears on the third-party management. You guys have had some success on the growth side, growing the relationships with the net number has seeing a little bit of shrinkage. So just curious on how we should think about the net number going forward and the different pushes and pulls within that business? Christopher Marr: It's a little bit analogous to our customers and their length of stay. We are -- we continue to add stores to the third-party management platform, again, 33 more this quarter. We have a great pipeline that looks pretty similar to what it would look like this time of year over the past few years. And so our team in the business development side is focused on finding owners or expanding our relationship with existing owners, and what we can control is having an attractive offering and providing great services to our third-party owners and adding stores to the platform. What we can't control is when they decide to transact and sell their assets. There are times where we are the acquirer of those assets. We've bought over $2 billion worth of assets from stores that we had previously managed. But in an environment where we are today, we oftentimes are not the buyer. And so the majority of the stores that leave our platform are because of a transaction and they sell to somebody who self manages or they choose to -- they have an existing other relationship that they use to manage their stores for. So very difficult to predict. But ultimately, when stores leave our platform, in large part, it means that we've -- job well done because we've managed a store for somebody helped to create that value, to put them in a position to be able to seek liquidity and they tend to do pretty well as we create a lot of value for them. Operator: Our next question comes from the line of Todd Thomas with KeyBanc. Todd Thomas: First, I just wanted to follow up on April, I think, Chris, you said April rentals were up 1% year-over-year. How did that look on a net rentable square foot basis? And can you discuss occupancy through April and sort of quantify the move-in rents that you discussed a little bit. You said that rentals were at good prices. Can you just elaborate on that a little bit? Christopher Marr: Yes. Thanks, Todd. So through the month, we continue to see nice demand in April. And the rentals or the move-ins were up just a little bit shy of 1% throughout the month. You combine that with the continued trend in lower vacates and occupancy from March to April, so not to confuse these two 20 basis points occupancy from March through April grew sequentially, about 20 basis points, and that occupancy gap then at the end of April to April of last year was also -- had also shrunk to about negative 20 bps. The rent through April, as I mentioned early on, at the end of March, that last few days of the month, we saw average rent rate on rentals right around 2% for those last couple of days of the week or the last week of March. Those trends continued throughout April and the average rent rate on rentals in April was plus 2%. Todd Thomas: Okay. That's great. That's helpful. And then I just wanted to see if you could speak a little bit more around the improvement that you're seeing in some of the Sunbelt markets, some of the more challenged or supply-challenged markets, I guess, that you've discussed. Do you see that trend improving and continuing as you move through the year? Or does it remain sort of choppy in the near term in your view? Christopher Marr: I think as it relates to Miami, does feel as if the wave of supply has been reasonably absorbed, you're still seeing, albeit the velocity is less than what certainly we saw coming out of '21, '22, '23, the velocity of inbound folks into the Greater Miami is reduced a bit, but still pretty healthy. So feeling pretty good about that MSA, Phoenix and Atlanta. If you think about where they're heading this has really been one of the first quarters where we saw some good positive momentum in those two markets in terms of starting to chew into the negative same-store revenue results that we've seen over the last year or so, but cautious on those two, would like to see another quarter or so of that momentum continuing before you would feel much more column about those two. Todd Thomas: Okay. So it doesn't sound like you would continue to expect the Acela corridor or to be outperforming at year-end? Or do you see potential for there to be sort of a handoff during the year or late in the year as we start to think about '27? Christopher Marr: Yes. Maybe a little premature, given as we're starting to get here into the busier season. Certainly, would not be surprised if the Acela corridor from an overall growth for the year is at the top of the pack. Operator: Our next question comes from the line of Eric Wolfe with Citi. Nicholas Joseph: It's Nick Joseph here with Eric. So we continue to see consolidation within the storage sector. So just curious if you think there are benefits to being kind of larger or at a certain point, does it kind of diminish and once you're large enough, there's not incremental benefits to getting even bigger. Christopher Marr: Yes. I think -- from our perspective and how we think about portfolio construct, there is value to having scale in market. So I think having a portfolio that has brand awareness and scalable opportunities on both the pricing and the expense side within markets and submarkets, I think, has proven to be has proven to be a good strategy. I think when you think about scale on a national level, I think those benefits diminish relative to what you can get with within scale and market. Nicholas Joseph: And then just on the buybacks, as you think about funding continued buybacks, where are you willing to take leverage assuming your stock stays at these levels? Timothy Martin: So what we talked about when we execute on the share repurchases last quarter for the first time is that we generate roughly $100 million in free cash flow, and kind of the first level of analysis for us when thinking about the share repurchases is has the valuation been disconnected enough for long enough. And when we got to the fourth quarter, the -- both of those boxes were checked, and so we started to execute on the share repurchases. And so a little bit more than $30 million of those purchases in the fourth quarter, another a little bit more than $30 million in the first quarter. And so you kind of think about that tracking towards utilizing that free cash flow that we generate to repurchase the shares, plus or minus. And so to this point, we've been repurchasing shares effectively with no impact on leverage. If you were then thinking about how you would execute on share repurchases above and beyond that $100 million-ish for us on an annual basis. Then you're getting into your question, which is how much leverage would you be willing to use. And I think for us, then that goes up another level. Not only would the disconnect between public and private market valuations have to be big enough for long enough, you're then -- also then taking a view on -- for how long do you think going into the future because our equity capital is precious to us. We need to raise equity capital to support our growth over time. And so we don't take executing on our share repurchases lightly from that perspective. So we talked last quarter about how could we then continue to navigate through an environment where there's this disconnect. And that's where we started looking at and continue to look at opportunities where perhaps we take some assets that we could contribute to a co-ownership vehicle and take some of the proceeds from that to support additional share repurchases above and beyond kind of the $100 million level. And that would be a way to -- for us to continue to navigate and create shareholder value consistent with our long-term strategic objectives of having the highest quality portfolio so we could improve the quality of our portfolio through contributing to some of those assets and take advantage of the arbitrage then between public and private market valuations. It's not super appealing for us to just lever up the balance sheet to repurchase shares for the reasons that I mentioned earlier. Operator: Our next question comes from the line of Michael Griffin with Evercore ISI. Michael Griffin: Great. It seems like existing customer trends continue to be strong. But Chris, I'm curious if you can either quantify or give us some color on the rate increases that are going out now versus maybe this time last year? Are you getting more aggressive trying to push on those ECRIs? And have you seen any customer pushback when it comes to getting those rate increases? Or are they still generally pretty willing to swallow them. Christopher Marr: The magnitude and the pace of increases to the existing customers is generally unchanged from what we would have seen first quarter of '25 and here into April on a year-over-year basis. So really no fundamental change. And then from an overall customer behavior, and this starts with broad the credit and how we think about units falling into arrears, receivables, units going to auction, et cetera have not seen any measurable change in consumer behavior. We certainly watch all of those metrics quite carefully, particularly given some of the macro impacts we're seeing on the consumer. Michael Griffin: Appreciate the color there. And then on the transaction market, I realized that just given where deals are trading right now, maybe relative to your cost of capital on balance sheet acquisitions and not make sense right now. But can you give us a sense of deal volume, how investors are receptive to self-storage product down the market? And is there any way for you to compete on wholly-owned acquisitions? Or are JV deals probably the more opportune avenue to go down at this juncture? Timothy Martin: Yes. Thanks, Michael. So the transaction market hasn't really changed all that much. There are still a pretty healthy number of assets that are out there and brokers are representing a lot of potential sellers. I would say the environment has been very similar now for several quarters in that many of the assets that are on the market will trade if they get to the seller's targeted price, many of them don't. So I would say the hit rate on transactions closing remains lighter than certainly at historical levels. Our cost of capital, just back to the share repurchase conversation, when you just think about choices for us and different items on our capital allocation venue, year-to-date, year share repurchases have been more attractive given the quality of our portfolio versus the quality of an opportunity that we see out there. Our team, our investments team continues to be very active and very busy underwriting a ton of opportunities. It's just the clearing price on where things are trading or where a seller desires them to trade versus a valuation that makes sense for us to acquire that in an accretive way, both short, medium and long term just doesn't work right now. On the joint venture side, what I was alluding to is we can make our dollars go a lot further in this market by being a piece of a joint venture. And then from our standpoint, we can get some enhanced returns given the fee structures and management fees and the like in our invested dollar in a joint venture investment. So I would say that the result of what you've seen for us for the past many quarters is that there are assets that are trading. There is a strong desire from many, many pockets of capital to be in the storage space just not valuations they're attractive to sellers at the moment. Operator: Our next question comes from the line of Viktor Fediv with Scotiabank. Viktor Fediv: So you mentioned that you'll be addressing the September 2026 note maturity, potentially like existing past or opportunistic issuance. So given where credit spreads are today, either a time line or tenure you're targeting? Timothy Martin: Yes. So we have a nice gap in our maturity schedule, 7 years out and then anything 10 years or longer is wide open on our maturity schedule. So likely pads for us or to evaluate from a tenure perspective, likely either a 7- or a 10-year bond. We do have amounts drawn on our line as we started the year. I think we saw a possibility that maybe we would go twice this year, and we still could and perhaps do a chunk of 7s and a chunk of 10s. Obviously, the world was -- has been pretty volatile here in the beginning part of the year. And so we look at -- for us, pricing, if we were to go today on 7 year would be right around 5%, just a little bit higher and then on we would be in the low to pushing mid-5% range for a 10-year bond. So we'll continue to be to onto the markets and be opportunistic, and we're in a great position that if we don't feel. And if we don't see an attractive window to access that market, we have capacity to address that maturity, and we'll be patient and opportunistic. Viktor Fediv: Understood. And then a second question, but just a quick follow-up on your churn because obviously, first quarter was impacted by weather conditions. So you saw a decline in both move-ins and more substantial on vacates. And you mentioned that so far, second quarter is a positive territory for move-ins, but still down year-over-year on vacates. Just trying to understand whether we can expect some acceleration in vacates as kind of flowing through Q1 being slower or you don't see that in the most recent data? Christopher Marr: So as it relates to the weather, I think the reality in the storage business is that it impacts both the move-in and the move-out. If your intention on a miserably snowy Saturday was to vacate, likely defer, but eventually, you're done with the product. So it's something when the weather clears and it's comparable to access you depart. Similarly, for the most case, on the move-in side. It's more of a deferral now there if it was -- if it was a move-in from someone who's in transition from point a to point b, then the firm, but they still need to transact. If it was if it was a solution to another problem where you had some variability to your need, then perhaps that customer doesn't come back within the near term and wait for another day. But it has a little bit of an impact in the near term, but over the course of time, I think it tends to work itself out. So I think the trends we've seen are very consistent with what has been occurring over the last year or so, which is the impact of supply has certainly been felt on the move-in side. Customers have more options within a market. I think, as we said in the earlier remarks, that impact continues to decline, and we expect it to continue to decline. So that's been a bit now more of a helpful tailwind than a headwind. On the vacate side, I think we're seeing a customer base, particularly in the more urban stores for whom we are a more semi permanent solution to their particular need as opposed to the more typical precode where it was a transaction in which a customer was simply moving from point a to point b and a add a more defined time line for their length of stay. Operator: Our next question comes from the line of Brendan Lynch with Barclays. Brendan Lynch: Chris, you mentioned large language models in the context of advertising spending. Can you just give us an update on how Cube is using large language models and how it's changing dynamics for acquiring clients? Christopher Marr: So very early stages in terms of certainly our product and how folks are searching for it. So we're still seeing only about 1% or 2% of the customer conversions to a rental coming through channels search channels, not paid search, but increasing gradually. And again, I think it's interesting because it's creating an opportunity for sort of a longer tail search that brings in a disparate characteristics in terms of what the customer is searching for. So as an example, looking not only for geographic convenience. So self-storage near me continues to be the most searched term but also bringing in the more qualitative of mature convenience, but high-quality service, good value. It's creating an opportunity to begin to have a bit more of a spatial surge. So help me understand how to store all the possessions in my one-bedroom apartment, et cetera. And so what feeds into that, though, is not all that different than what we would have seen as we somewhat evolved from Yellow Pages to paid search, it's the geographies of the geography, but being able to have reviews or other content that enhances and validates that your store has those characteristics that, that customer is searching for good value, great customer service, et cetera. So very early stages continues to evolve. And then the monetization of that is not quite there yet either in terms of how our some of these LLM ultimately going to monetize the value of having that customer come through that panel. So early and interesting, and we're doing a lot of work with our great team here internally on the marketing side and with a lot of our external partners to continue to make sure that we are well positioned as this evolves. Brendan Lynch: Maybe a follow-up on that. Are you finding that customers who are using the large language models can be more efficient in the amount of space that they take. I'd imagine if you didn't have the capability to assess really what amount of space you needed for, say, a one-bedroom apartment. If you ask a large language model and said you need a 10x10, you might have otherwise taken the 10x20. So just kind of walk through those considerations about how the customer might be benefiting as well? Christopher Marr: Yes. So again, very, very early in this whole journey. So not at a point to draw any conclusions. But one of the headaches, frankly, in our industry is that our customers, in general, are not always the most spatially aware. It's sometimes difficult to understand how all the contents of your 1 bedroom apartment may fit into a 10x10 storage Cube. So to the extent that the LLM and the various inputs help that customer makes the right decision on the front end. I think that's very helpful from a frictional cost perspective to us because having to have them begin the journey and then discover that they either went too large or too small, and they need to relocate to another Cube as an operationally frictional cost to us. Operator: Our next question comes from the line of Eric Luebchow with Wells Fargo. Eric Luebchow: Tim, I know you talked a little bit about potential co-ownership or JV structure to contribute some assets. I guess as you think about that potential structure, would you focus more on your core urban assets in the Midwest or Northeast, that have been more stable in the last couple of years or potentially look at more Sunbelt markets where trends have been a little choppier. Timothy Martin: Yes, I appreciate the question. Overall, what we would hope to do is to, again, be consistent with our long-term objective to have the highest quality portfolio. So most likely what we would do is look for assets that we contribute that are in perhaps outside of top 40 MSAs or assets within top 40 MSAs that are more on the outer ring of that particular MSA versus kind of the core inside. Then you go through that analysis and say, do you want to target assets that are in markets that have been underperforming or under pressure from supply and the like. And would you be potentially leaving some meat on the bone for some of those assets as those markets inevitably recover and start to outperform. All those things are considered. All of those things are consideration. So it's complicated and -- but we continue to work through that because at the moment within the current environment, we think it potentially could be a pretty attractive path for us. Eric Luebchow: Great. And I guess just rough numbers, are you still seeing acquisition cap rate kind of in the lower 5% range for Class A? Or have those kind of moved at all year-to-date? Timothy Martin: I think that's a safe characterization. I mean we see some things to trade even tighter than that. But I would say very low 5s is -- tends to be where things are trading. Sometimes you get into the mid-5s. A lot of sellers based on what they're looking for would imply something very, very tight even inside some of those numbers. Operator: Our next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: Just quick one, are you seeing any pockets of opportunity where you're starting to see development make more sense at some point? And where we could see activity pick up in the next few years for you? Christopher Marr: No. The short answer, I think there are always going to be a unique opportunity in a market where you don't have supply in the trade ring, whether that be ground up or a conversion of the existing asset. So it's not 0. But I think the inputs in terms of costs and then the ultimate underwriting of rental rate for the new customers to fill up the new store, continue to make development quite challenging on a broad scale. Michael Mueller: Got it. Okay. And then maybe just something on ECRI. I know you talked about the consumer being good and accepting ECRI. But if you look at the move outs that tend to happen, do you have a sense as to what portion leaves in conjunction with ECRI versus they just don't need storage anymore and maybe how that compares to the split compares to, I don't know, what you've seen in normal times over the past. Christopher Marr: Yes. To the best that we can get at that again, we are -- we're observing that customer that gets a rate increase and then their behavior in the recent months following that and comparing that to our expectations based on historical data over a long period of time, and we haven't seen any change in that trend. The stated reason the overwhelming amount of time for why a customer chooses to leave the portfolio is because they no longer have the need for the storage Cube that brought them to us in the first place. Operator: Our next question comes from the line of Spencer Glimcher with Green Street. Spenser Allaway: I appreciate all the color you provided on the third-party management business. Just Curious if you think that over time, you're more sophisticated AI usage or machine learning will bring a greater portion of smaller operators to your platform? Timothy Martin: And I think the -- I think you put that in a laundry list or a bucket of a lot of things that we and a handful of sophisticated operators bring to the table. And so I think that's one of those areas where Chris touched on a little while ago, we're early stages. But as the search for the product evolves from an AI perspective, opportunities to improve operational efficiencies, pricing systems, the larger players are going to most likely be the winners and be on the front end of a lot of that evolution. And I would think that if I were an owner of a store and looked at how challenging of an operating business that we're in, that those large players like us have those tools, have those advantages. So I would just put that in a bucket with a whole bunch of other things that have us stand out as to why our platform is going to help create the most value for their self-storage asset. Spenser Allaway: Yes, that's fair. Do you think it will be incumbent upon you and the team to go out and make that point like very clear to smaller operators as part of just kind of looking outreach and trying to have others see the growing value of your platform? Or do you think that, that will just naturally bring smaller operators see you without kind of additional work on your end? Timothy Martin: I think it will be a combination of those things. Certainly, our business development team, and we're at trade shows and lot of our third-party opportunities come from referrals. And so we need to do a good job and continue to do a good job for our existing owners because their referral is one of our most important contributors to adding stores to the platform. But at trade shows and our "dog and pony" shows certainly we need to do a good job to explain all the things that we do and how we do them in ways that we believe are superior to the way that others do them. And so that, again, that's another piece of that story, and that's another piece of our sophisticated platform that we need to both perform on and do a good job of explaining to potential customers of ours. Operator: There are no further questions at this time. I will now turn the call back to Josh for closing remarks. Christopher Marr: Hey there, this is Chris. Josh, ceded his closing remarks to me. But thank you all for listening. We're very enthusiastic by how the Spring has started here for our business and our company. We're quite excited by all of the things we're working on internally, which I think will continue to create value over time and continue to create a great customer service experience for the users of our products. So looking forward to the quarter and seeing how the busy season unfolds here and we'll be excited to report back to you in a few months. Thanks, everyone, and have a great weekend. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Summit Hotel Properties, Inc. First Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode. To ask a question during the session, please press 11 on your telephone. You will then hear an automated message indicating your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Kevin Milota. Please go ahead. Kevin Milota: Thank you, Operator, and good morning. I am joined today by Summit Hotel Properties, Inc.’s President and Chief Executive Officer, Jonathan P. Stanner, and Executive Vice President and Chief Financial Officer, [inaudible]. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, 05/01/2026, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at www.shpreit.com. Please welcome Summit Hotel Properties, Inc.’s President and Chief Executive Officer, Jonathan P. Stanner. Jonathan P. Stanner: Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our first quarter 2026 earnings conference call. We are pleased with our first quarter financial results, which were driven by a meaningful sequential improvement in operating fundamentals throughout the quarter. RevPAR in our pro forma portfolio inflected positive in the first quarter, increasing 20 basis points year over year, which exceeded expectations communicated during our fourth quarter 2025 earnings call by over 200 basis points. Importantly, operating strength was broad based across the portfolio, particularly in March, with growth in multiple high-rated demand segments driving increases in average rates and RevPARs in many of our markets. Operating fundamentals improved each month as the quarter progressed. While RevPAR declined in January and February, those declines were more than offset by 4.1% RevPAR growth in March, which was driven by a robust 5.6% increase in average rate. We were especially encouraged with March results, which represented a relatively clean calendar comparison for our portfolio. Despite the lingering government shutdown and highly publicized TSA wait times, we believe March trends are more indicative of the underlying demand strength in our business and have been pleased to see these trends continue in April. While demand strength and pricing power were broad based across our portfolio, our best performing demand segments were our highest rated segments, which allowed us to yield out a portion of lower rated business, in a reversal of the prevailing pricing trends we experienced for most of last year. In particular, the ongoing recovery in business transient travel is driving better midweek performance, as RevPAR growth increased 3% for the quarter and 10% in March in our negotiated segment. This helped drive double-digit RevPAR growth in a dozen of our markets in March, including urban-centric markets such as Baltimore, Charlotte, Cleveland, Miami, Pittsburgh, San Francisco, and Washington, D.C. As a reminder, we expected our first quarter to be the most challenging of the year given multiple headwinds faced in our portfolio, notably a difficult Super Bowl comparison in New Orleans where we own six hotels, and continued weakness in government demand, with Doge-related travel cuts not lapping year-over-year comparisons until the March time frame. In addition, disruption related to winter storm Fern and civil unrest in Minneapolis further reduced first quarter reported RevPAR growth. In total, these events created an approximately 140 basis point headwind to our first quarter RevPAR growth, most significantly in January and February. Our outlook for the remainder of the year has improved, driven by strengthening demand trends that have persisted into the second quarter. We are also approaching what is expected to be a robust summer of special events–driven demand. We expect April RevPAR to increase approximately 3.5%, and our second quarter revenue pace is currently trending approximately 4% ahead of the same time last year. Pace trends in June are particularly strong, supported by a favorable event calendar highlighted by our significant exposure to major demand catalysts, including the 2026 FIFA World Cup, where we have exposure to six U.S. host markets representing approximately one third of our total room count and 44 scheduled matches. In addition, we expect strong incremental demand from the U.S. 250th anniversary celebrations in Boston, Washington, D.C., and Baltimore, as well as several other major summer travel and event-driven demand drivers. As we have discussed on previous calls, government and government-related demand has been a significant headwind for our portfolio since the creation of Doge in the quarter of last year, and the lapping of these comparisons is expected to improve our year-over-year growth rates going forward. While first quarter government-related demand declined 12% year over year, this represented a meaningful improvement from the 20%+ declines we experienced through most of 2025. Encouragingly, March government revenue increased approximately 3%. Our outlook for this demand segment has improved, demonstrated by second quarter government pace currently trending up mid single digits. Government demand represents approximately 5% to 7% of our total guest room and revenue mix, and we believe this could serve as a potential modest tailwind to our year-over-year growth rate in the last three quarters of the year. Given our strong first quarter results and our improved outlook for the remainder of the year, we have increased the guidance ranges for our key operating and financial metrics, which were outlined in our earnings release yesterday. [CFO name] will provide more details on our updated guidance ranges later in the call, but we believe the revised ranges strike the appropriate balance of reflecting a more positive outlook while acknowledging that our most meaningful quarters are still ahead and macro and geopolitical uncertainty persists. While near-term performance trends are driving our improved outlook, longer-term lodging fundamentals suggest an improved demand environment has the potential to create an extended period of attractive top-line growth. More specifically, supply growth remains meaningfully below historical averages, and still elevated construction and financing costs create an impediment to a meaningful near-term reacceleration in construction starts. In addition, consumer prioritization of travel and experiences remains paramount, which has driven resilient leisure demand. And finally, improved industry demand has increasingly been driven by the ongoing recovery and acceleration of business travel, which uniquely benefits our urban-centric portfolio. We believe these dynamics create a favorable operating environment as we move through the balance of 2026 and beyond. From a capital allocation standpoint, in the first quarter, we successfully closed on the previously announced sale of the 122-room Hilton Garden Inn in Longview, Texas, a noncore asset owned in our joint venture with GIC. The hotel was sold for $12.3 million, representing a 6.8% capitalization rate based on trailing twelve-month net operating income after consideration of foregone near-term capital expenditures. In April, we entered into an agreement to sell our wholly owned Courtyard and Residence Inn Dallas Arlington South hotels for a combined sale price of $19 million. The two hotels total 199 guestrooms, and the transaction reflects a 5% capitalization rate based on trailing twelve-month NOI after factoring in near-term capital expenditures that we would otherwise have been required to fund. We expect the Arlington transaction to close in the third quarter, which will allow us to capture the demand generated from the FIFA matches in the market. These dispositions are consistent with our ongoing strategy to selectively recycle capital out of lower growth assets, reduce future capital requirements, and enhance the overall quality and growth profile of our portfolio. Proceeds from asset sales support our broader capital allocation priorities, including enhancing liquidity, reducing leverage, repurchasing shares, and maintaining the physical condition of our portfolio. During the first quarter, we remained active under our share repurchase program, repurchasing 1.4 million common shares for an aggregate purchase price of $6 million, or a weighted average price of approximately $4.17 per share. As of 03/31/2026, we had approximately $29 million of remaining capacity under the program. Since launching the program in 2025, we have repurchased approximately 5 million shares, representing roughly 4% of total shares outstanding, at an average price of $4.26 per share. We believe these repurchases represent an attractive use of capital and reflect our continued confidence in the intrinsic value of the portfolio and the long-term earnings power of the business. In summary, we are encouraged by the start to the year and remain optimistic about the improved outlook for our industry broadly and our company specifically. While the operating environment remains dynamic, the breadth of demand improvement we are seeing across the portfolio combined with favorable industry supply conditions reinforces our confidence in Summit Hotel Properties, Inc.’s ability to outperform as fundamentals strengthen. Our priorities are unchanged. We remain intensely focused on optimizing profitability at the property level, prudently allocating capital, and continuing to strengthen the balance sheet. We believe this disciplined approach, supported by our high-quality portfolio and efficient operating model, positions Summit Hotel Properties, Inc. to create meaningful long-term value for shareholders. With that, I will turn the call over to [CFO name] to discuss our financial results for the quarter in more detail. Unknown Speaker: Thanks, and good morning, everyone. First quarter pro forma RevPAR increased 0.2% year over year. Driven exclusively by growth in average daily rate. Strength in rate was a primary theme of the first quarter, as nearly all segments generated positive growth year over year. In particular, the retail and negotiated segments, our clearest indicators of higher-rated leisure and business transient demand, delivered first quarter RevPAR growth of 78% respectively, driven by strong rate performance. Furthermore, the retail and negotiated segments experienced sequential improvement across each month of the quarter, culminating with March RevPAR growth of 1,160%, respectively. Finally, as Jonathan mentioned, government-related demand within our qualified segment inflected positively during the first quarter, with March RevPAR increasing approximately 3%. Due to the relative strength of the company’s first quarter operating results, RevPAR index increased to 116% of fair share. Driven by these positive RevPAR trends and strong cost controls, first quarter operating results materialized above expectations outlined during our February earnings call. For the first quarter, adjusted EBITDA was $44.2 million and adjusted FFO was $25.5 million, or $0.21 per share. Several core markets delivered strong first quarter results, including continued strength in San Francisco and South Florida. In San Francisco, where the company owns three hotels, the market benefited from a strong citywide calendar and several high-impact demand events, including the JPMorgan Healthcare Conference in January, Super Bowl in February, and RSA in March. Our hotels performed exceptionally well during these peak periods, capitalizing on compression nights to drive strong top-line performance, resulting in RevPAR increasing 27% in the quarter. Looking ahead, we expect this momentum to continue in the second quarter, particularly June, supported by a strong convention and special events calendar, including several major technology conferences, Pride, and the start of the World Cup and related fan activities. In South Florida, our Miami and Fort Lauderdale hotels delivered a strong first quarter performance, with RevPAR growth exceeding 14% driven by a 9% increase in average daily rate. In Miami, operating results were supported by peak season demand and several high-impact January events, including the NHL Winter Classic and the College Football National Championship, and a more condensed spring break calendar due to the shift of the Easter holiday to the first weekend in April. Our South Florida portfolio continues to benefit from the highly successful repositioning of the Oceanside Fort Lauderdale Beach. The hotel generated first quarter revenue and EBITDA growth of 5,690%, respectively, as the renovated rooms product and expanded food and beverage amenities appeal to both tourists and locals alike. Group demand also continues to accelerate at the Oceanside, given the property’s location adjacent to the Fort Lauderdale Aquatic and Diving Center, which is also home to the International Swimming Hall of Fame. Looking forward, we expect continued strong demand in the second quarter for South Florida. Our AC and Element Hotels, located across from Brickell City Center, are ideally situated for visitors attending the World Cup fan festival at Bayfront Park in Downtown Miami during June and July. In Fort Lauderdale, the Oceanside is pacing 12% ahead of second quarter 2025 as the property continues to ramp post-renovation. Non-rooms revenue increased 10% year over year in the first quarter across the company’s portfolio, reflecting continued progress in our efforts to capture a greater share of the customer’s discretionary spend. Food and beverage revenue was again a meaningful contributor, supported by the reconcepted restaurant and bar offerings at the Oceanside Fort Lauderdale Beach, enhanced breakfast programming at select hotels, and continued focus on driving higher beverage and outlet sales. In particular, food and beverage revenues at the Oceanside Fort Lauderdale Beach experienced a fourfold increase year over year and drove the majority of the company’s overall increase in food and beverage sales. We also realized healthy growth in other ancillary categories, including marketplace sales, parking income, and resort amenity fees. These revenue streams remain an important component of our broader operating strategy, and we believe there is additional opportunity to build on this momentum throughout 2026. Pro forma operating expenses increased 3.6% year over year in the first quarter, reflecting continued discipline across the portfolio despite ongoing cost pressures. Increases in the quarter were primarily driven by merit-based wage adjustments as well as payroll taxes and employee benefits, which is a result of our strategic shift to internal staffing. Stability in the labor pool is best evidenced by the continued reduction in contract labor, for which nominal costs declined 6% versus first quarter 2025. Contract labor now represents 9% of our total labor pool, which is approaching pre-pandemic levels. Furthermore, employee turnover is also in line with pre-pandemic levels, declining 1,300 basis points from the prior year period. For the full year 2026, we expect nominal expense growth of approximately 3%. From a capital expenditure perspective, in the first quarter, we invested $12 billion across our portfolio on a consolidated basis and $9 million on a pro rata basis. Ongoing and recently completed renovations include the Dallas Downtown Hampton Inn and Suites, Grapevine TownePlace Suites, the Scottsdale Courtyard, Tucson Homewood Suites, and our Mesa Hyatt Place. For the full year 2026, the company expects pro rata capital expenditures to range from $55 million to $65 million, the majority of which will be incurred in the second half of the year. Turning to the balance sheet, during the first quarter, we fully repaid our $288 million 1.5% convertible senior notes that matured in mid-February utilizing our $275 million delayed draw term loan and corporate revolver. Pro forma for this refinancing, we have no debt maturities until 2028. When accounting for our swap portfolio, approximately 50% of our pro rata share of debt is fixed. Including the company’s Series E, Series F, and Series Z preferred equity within our capital structure, we are over 60% fixed on a pro rata basis. With ample liquidity and an average length of maturity of nearly three and a half years, we believe the company is well positioned to navigate any potential near-term volatility while also pursuing value creation opportunities. On 04/23/2026, our board of directors declared a quarterly common dividend of $0.08 per share, representing a dividend yield of approximately 6.4% based on the annualized dividend of $0.32 per share. The current dividend continues to represent a modest payout ratio relative to our trailing twelve-month AFFO. The company continues to prioritize striking an appropriate balance between returning capital to shareholders, investing in our portfolio, reducing corporate leverage, and maintaining liquidity for future growth opportunities. Included in our earnings release last evening, we updated full-year guidance for key 2026 operating metrics, as well as certain nonoperational assumptions. Our outlook is based on the 94 lodging assets owned as of 03/31/2026, including the Courtyard and Residence Inn, Dallas Arlington South, which are currently under contract for sale and expected to close in the third quarter. Our current range includes $0.5 million of hotel EBITDA for the remainder of the year that would be foregone upon closing of the sale. For the full year, we have increased our RevPAR growth outlook to 0.5% to 3%, which translates to adjusted EBITDA of $170 million to $181 million, and adjusted FFO of $0.75 to $0.85 per share. Based on our RevPAR growth outlook of 0.5% to 3%, and nominal expense growth of approximately 3%, we expect full-year 2026 hotel EBITDA margins to range from flat to down 75 basis points, which includes approximately 25 basis points of headwinds from higher property taxes. We expect pro rata interest expense, excluding the amortization of deferred financing costs, to be $58 million to $62 million, and preferred distributions, including the Series A, Series F, and Series Z securities, to be $18.5 million. Our outlook does not assume any additional acquisitions, dispositions, share repurchases, or capital markets activity for the balance of the year. Finally, the GIC joint venture results in net fee income payable to Summit Hotel Properties, Inc. covering approximately 15% of annual pro rata cash corporate G&A expense, excluding any promote distributions Summit Hotel Properties, Inc. may earn during the year. We will now open the call for questions. Operator: Thank you. And as a reminder, to ask a question, please press 11. The first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Your line is now open. Austin Wurschmidt: John, you had mentioned May is pacing up, I think, 4%. Based on what you have seen in March and April, how much degradation have you seen in pace this far out as you get closer to realization? And then can you compare that to what you saw last year where, if I recall, you lost a little bit of pace as you got closer through the month versus what you actually realized? Thanks. Jonathan P. Stanner: Good morning, Austin. First, to clarify what we said in the prepared remarks, our second quarter pace is trending up about 4%. We expect April to finish up around 3.5%. Looking at the monthly cadence for the second quarter, May is at a lower pace than we are experiencing in both April and June, and June pace is way up given our expectations for the World Cup. Over the last 30 to 60 days, we have seen an acceleration in in-the-month-for-the-month, and that is a reversal from the trends we saw last year. I would expect our June pace, which is trending up high teens year over year at this point, to normalize as we get into the month. We are not yet in the traditional booking window for June, but we do have a fair amount on the books specifically related to the World Cup, so we would expect that to normalize. The broader takeaway is that what we have seen in the month for the month, and even within the last couple of weeks of the month, has been a meaningful acceleration from our expectations. You saw that in March—most of our Q1 outperformance was related to March—and we have seen those trends continue through April. Austin Wurschmidt: That is helpful. As you think about that pacing and what could be realized in the second quarter—certainly tracking above the high end of the full-year guidance range—how should we think about cadence and any implied deceleration in the back half? And given the firming up in midweek higher-rated business, how does that compare to what you underwrote looking into the back half? Thanks. Jonathan P. Stanner: We clearly outperformed our expectations for the first quarter; we finished modestly positive but closer to flat. Our expectation was always that the second and third quarters would be the highest growth rates of the year, and that outlook has not changed. We remain constructive on the second and third quarters. Some of that is driven by strength in World Cup markets, but our outlook is definitely more constructive today for the balance of the year than it was when we reported sixty days ago. Operator: Thank you. The next question will come from Michael Bellisario with Baird. Your line is open. Michael Bellisario: Hi, everyone. Good morning. Two parts here. In terms of the pickup in demand you have seen: first, how would you separate BT versus leisure trends? And second, any quantifiable share gains you might have seen from rebookings from Mexico during the peak spring break travel period? Thanks. Jonathan P. Stanner: The biggest takeaway from the quarter is that strength was fairly broad based, and what you saw was rate-driven RevPAR growth in the quarter and more specifically in March. That reflects our ability to either yield out lower-rated business or drive incremental occupancy in higher-rated channels—predominantly our premium-rated retail channels and our negotiated channel. We saw our best growth rates midweek in the negotiated segment. First quarter RevPAR in the negotiated segment was up 8% and was up double that in March. Our urban markets were up 6% in March, so there is no question we saw strong midweek BT-driven demand throughout the quarter, particularly in March. Leisure was also good. In South Florida and Scottsdale, we outperformed our expectations going into the quarter. There was likely some benefit from the disruption in Mexico in March, predominantly in our South Florida and Scottsdale markets, and it helped us in March. But many of the trends we saw in March have continued into April, and we do not expect that to create any difficult comparison or distortion in demand patterns going forward. Michael Bellisario: One follow-up. 1Q was more rate than occupancy, with some impacts affecting demand. How should we think about 2Q and beyond in terms of the mix between rate growth and occupancy growth? Jonathan P. Stanner: We expect the vast majority of our RevPAR growth going forward to be rate driven. The first quarter trends have continued through April, and our expectation is that the majority, if not all, of our RevPAR growth in April will be rate driven. When we gave initial guidance, we expected roughly a 60/40 rate versus occupancy split. That has thankfully shifted to be predominantly rate-driven growth for the remainder of the year, which should have better flow-through to the bottom line. Operator: The next question will come from Chris Woronka with Deutsche Bank. Your line is open. Chris Woronka: Good morning. Thanks for taking the questions. On direct bookings, where do those stand for your portfolio? And do you think new and expanded branded credit cards are helping drive direct bookings on the leisure side? Then I have a follow-up. Thanks. Jonathan P. Stanner: We have continued to grow our share of direct bookings—approximately plus or minus 70% for the full portfolio. That reflects our high-quality hotels in good locations affiliated with strong brand distribution channels. We saw a step-up, particularly in brand.com channels, in the first quarter, continuing trends we have seen coming out of the pandemic, with last year being a mild exception when there was greater reliance on some OTA channels. Those brand distribution platforms and loyalty programs are powerful, and we are driving the majority of our business through those channels. Chris Woronka: Along those same lines, I know you do not have many resorts with Hyatt, but Hyatt recently went through another points adjustment. Is that having any impact on you? I think it was meant to be more owner friendly. And on the Hyatt breakfast program that has gone through iterations—any update on whether you are getting bottom-line help from those changes? Jonathan P. Stanner: We do not have a ton of Hyatt properties that are high redemption generally—Orlando being an exception where we get a fair amount of redemption, and Orlando has been a very strong market, particularly near the new Universal development. Generally, brand redemption programs have been trending in a more owner-friendly way over the last several quarters, and we hope that continues. Specifically related to breakfast, we were part of some of the pilot on the charge-to-breakfast at Hyatt Place. Overall, it was a positive experience for us. It is property-by-property and market specific, but generally it has been modestly positive to the bottom line. Operator: Thank you. The next question will come from Logan Shane Epstein with Wolfe Research. Your line is open. Logan Shane Epstein: Maybe diving into the government segment, you noted sequential improvement into March with it inflecting positive. What drove that—any specific markets, or was it broad based? And a follow-up: can you quantify the potential impact given it was down 20% for a number of quarters in 2025, and what is embedded for the rest of the year? Jonathan P. Stanner: We have talked for a while about how our comps would ease as we got into March and April and lapped the Doge comparison from the first quarter of last year, and that played out. Government revenue was down about 12% year over year in Q1, after trending down 20% to 25% for most of last year, with the exception of October when we saw incremental reductions in demand related to the government shutdown. In March, government-related revenue was up 3%. For the second quarter, government pace is trending up mid single digits year over year. It is a relatively small demand segment, so these are smaller numbers, but this is modestly more positive than we expected coming into the year. In terms of markets, we saw some lift in places like Tucson and had a really strong quarter in Washington, D.C., some of which was government-related or adjacent business. It is fairly broad based, and our expectations are modestly more constructive than when we started the year. Logan Shane Epstein: A follow-up on a different note. Given we now have about three quarters of operations at the Oneira expansion, how is that performing relative to initial underwriting? Jonathan P. Stanner: We have done really well there and had a nice beat to our internal budgets and expectations in the first quarter. It is a wonderful asset that benefits from growth in Austin and tremendous growth in Fredericksburg. There have been several high-end products announced in that area—a Waldorf Astoria and an Aman—so submarket growth has been terrific, which has helped performance. We have a unique, compelling offering, and the original thesis and expansion thesis have both played out. First quarter results were meaningfully above expectations. Operator: I am showing no further questions at this time. I will now turn the call back over to Jonathan for closing remarks. Jonathan P. Stanner: Thank you all for joining us today. We look forward to seeing many of you on the conference circuit over the next several weeks. Thank you again, and we hope you have a nice weekend. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, and thank you for holding. Welcome to Aon plc's First Quarter 2026 Conference Call. [Operator Instructions] I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. For information concerning these risk factors, please refer to our earnings release for this quarter and to our most recent quarterly or annual SEC filings, all of which are available on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon plc. Please go ahead. Gregory Case: Thank you, and good morning, and I appreciate you attending our first quarter earnings call. I'm joined today by Edmund Reese, our CFO. The presentation, which Edmund will reference during his remarks is available on our website. We started 2026, the final year of our 3x3 Plan, with strong momentum. Our first quarter results reflect continued strong performance, consistent execution and progress against the strategic priorities we defined more than 2 years ago. We're operating with discipline, investing deliberately and delivering differentiated value for clients, reinforcing confidence in our ability to produce sustained organic growth, margin expansion and long-term value creation. Today, I will focus on three areas. First, I will describe the external landscape and the forces shaping client demand. Second, I will highlight how our execution of the 3x3 Plan is translating into performance, including how advanced analytics and AI are increasing value and opportunity. Finally, I will highlight our results and share some perspectives on our outlook and how we see the year unfolding as we continue to build momentum. Let's start with the external landscape. Now more than ever, our clients are operating in an environment defined by volatility, complexity and rising stakes. Geopolitical uncertainty, economic pressures and cyber risk are converging with rapid technological change. These dynamics are increasing interconnection across risk, capital and workforce planning. With the ongoing conflict in the Middle East, we're working closely with clients, both in region and globally to help them build resilience and continue to operate and grow in a highly uncertain market. In this environment, the value of making better decisions has never been more evident or urgent. Capital is more selective. Boards and regulators are demanding stronger governance, transparency and resilience, and management teams are focused on protecting against downside risk while enabling growth, improving capital efficiency and supporting workforce sustainability. As a result, clients demand outcome-based advice in addition to transactional solutions, and they're looking for partners who can help them understand the risk and people challenges, design bespoke programs and execute consistently across geographies. This environment increasingly rewards firms that can integrate data, analytics and deep expertise to help clients make decisions with clarity and confidence. These trends align directly with Aon's strategic investments, client mix and innovative capabilities. On the topic of strategic execution and the 3x3 Plan. Execution against our strategy remains strong and disciplined. The 3x3 Plan continues to sharpen focus, align investment and drive accountability across the firm. It accelerates progress behind Aon United, integrating capabilities across Risk Capital and Human Capital and scaling them through Aon Business Services, or ABS. Through ABS, technology and advanced analytics are embedded enablers of our strategy, combining proprietary data, advanced analytics and expertise to design, place and govern bespoke risk and capital solutions. This combination creates a strong competitive advantage that technology alone cannot replicate. We established ABS nearly a decade ago and deliberately stepped up our investment beginning in 2024 to embed AI and advanced analytics across the firm. These investments are delivering results, materially improving productivity and execution for clients. By year-end, we expect to have invested approximately $1.3 billion in talent and technology, enhancing productivity and strengthening our ability to better diagnose risk, design integrated solutions, access capital efficiently and execute consistently for our clients. There are several proof points and performance milestones worth highlighting. First, on client segmentation and revenue quality. We compete on client outcomes, resilience, capital efficiency and workforce effectiveness, not transactions. The vast majority of our business serves global, large and middle-market clients with complex risk, capital and workforce needs. In these segments, value is created through expertise, proprietary insight and seamless execution. Meanwhile, less than 2% of our revenue is derived from SME and Personal Lines segments. This client mix translates into strong revenue quality, with the majority of our revenues recurring and embedded in ongoing client needs. Our Health and Wealth businesses together account for approximately 34% of firm revenue. Within those businesses, roughly 80% is highly recurring and anchored in regulatory and mission-critical activities, including annual valuations, pension administration and asset-linked revenue in wealth and annual benefits, broking and advisory and health. Project-based consulting, where our advice is differentiated by proprietary data and technology is less than 10% of firm-wide revenues. Our continued investment to enhance these capabilities, including in our Radford McLagan Compensation Database, instrumental in supporting workforce transformation, reinforces how deep expertise and proprietary data translate into higher value outcomes for clients. Second, on expanding the addressable market. We previously highlighted insured risk as a percent of GDP declining over the last 3 decades. Embedding AI into advanced analytics and modeling are making insurance more relevant by accessing new capital. This narrows the gap between economic loss and insured loss and increases the importance of firms that can design, place and govern complex programs. A clear example of this dynamic is digital infrastructure, where AI computing is driving unprecedented global investment in data centers. These assets introduce complex construction, operational, catastrophe and cyber risk that exceed traditional insurance solutions. Our data center life cycle insurance program, which we recently increased capacity by another $1 billion to $3.5 billion, allows our firm to lead as a market maker, bringing together the sort of coverage, large-scale capacity and capital solutions across the full life cycle of these assets. This is a growing source of demand directly linked to AI adoption, where our integration, data and expertise create a meaningful advantage, positioning Aon as a strategic partner of the clients, leading to opportunities to win new business and deepen relationships. Here, again, our investment and progress in AI-embedded analytics is allowing us to expand beyond the $4.6 trillion of traditional reinsurance capital to access the $250 trillion capital pool that includes private equity, sovereign wealth and pension funds. Third, on innovation embedded within our core brokerage model, Aon Broker Copilot illustrates how, through large language models and predictive capabilities, we can more efficiently embed advanced analytics directly into revenue-generating workflows and transform the manual placement process. The platform draws on decades of proprietary quoting, pricing and trading data to provide real-time insights to brokers as they negotiate complex placements. Further, we're extending these capabilities across the value chain. Aon Claims Copilot improves claims advocacy by consolidating data across geographies and lines of business, enabling better preparation, monitoring and negotiation. As a result of our advocacy over the last decade, we've been able to overturn and partially recover nearly $10 billion of financial value for claims that were initially denied. Claims Copilot strengthens our advocacy efforts and leads to even better outcomes for clients. This represents outcome-driven application of data analytics and expertise, not automation for its own sake. In addition to supporting revenue growth, our investments are improving how the firm operates. For example, we're seeing substantial productivity gains across invoicing, certificates of insurance and policy administration. And these gains are increasingly measurable. For example, a 50% reduction in cycle time from 22 to 11 days for invoicing and 70% reduction in invoicing work, a 95% reduction in handle time and certificates of insurance from hours to less than 5 minutes and a 95% reduction in time in policy checks from 48 hours to 30 minutes. As a result of these improvements, colleague capacity is being redeployed toward higher-value advisory and client-facing activities, fully reflecting our belief that winners in the application of AI will lead with a world-class people strategy to grow today and into the future. Critically, AI-driven productivity creates operating leverage. By lowering unit costs and reinvesting those gains into differentiation and growth, we're expanding margins while increasing the value we deliver to clients. Consistent with our long-term philosophy, productivity gains are intentionally reinvested to strengthen differentiation, accelerate innovation and deepen client relationships while still supporting margin expansion. This flywheel of higher value growth, operating leverage and disciplined reinvestment underpins our confidence in durable value creation for shareholders. Turning briefly to results. Our first quarter performance reflects strong execution across the firm. We delivered 5% organic revenue growth, continued to expand adjusted operating margin, realized strong growth in adjusted earnings per share and generated significant free cash flow. In particular, Q1 highlights the fourth consecutive quarter at or above 6% organic growth in Commercial Risk, reinforcing the impact of deliberate investments we've made and the value delivered through our innovative solutions. Additionally, our balance sheet remains strong and flexible. As Edmund will discuss in more detail, we continue to execute a balanced capital allocation strategy in the first quarter with programmatic M&A and substantial capital return to shareholders through stepped-up share repurchases and our dividend. Finally, we recently announced a double-digit dividend increase for the sixth consecutive year. Looking ahead, we are reaffirming our guidance for 2026 and remain confident in our long-term outlook. The external environment continues to reinforce demand for our solutions. Our strategic priorities are clear and our execution remains constant. We believe the net effect of technology adoption is an expansion of our addressable market. Insurance and risk management becomes more relevant as analytics improve decision-making, alternative and private capital expand available capacity and clients seek integrated outcome-based solutions. Because Aon is uniquely positioned to source capital, integrate capabilities and govern in complex risk and human capital issues for clients across the globe, we expect to grow faster than the market and increase share over time. In closing, Aon is well positioned strategically, operationally and financially. We're delivering differentiated value for clients in an increasingly complex world and translating that value into strong performance and long-term shareholder returns. To our 60,000 colleagues around the world, thank you. Thank you for your continued commitment to our clients, each other and our Aon United strategy. Now I'm pleased to turn the call over to Edmund for his comments and perspective. Edmund? Edmund Reese: Thank you, Greg, and good morning, everyone. Before getting into the details of our first quarter results, I want to clearly anchor today's discussion on the fundamentals that define our performance and momentum as we advance through the final year of the 3x3 Plan. Over the past several quarters, we've been very intentional. First, establishing strategic clarity through our communication, then demonstrating disciplined execution, reflecting in consistently strong financial performance. As we move through 2026, our message remains consistent. The fundamentals of our business are strong, resilient and evident in our results. First, we have high confidence in the structural advantages of our business, exceptionally deep client and industry relationships, proprietary data and analytics and integrated service and global capabilities, all of which are difficult to replicate and, importantly, position us to deliver increasing value over time, particularly as AI accelerates the shift from transaction-based models towards insight-led decision-making. These advantages support sustained economics tied to value delivered, high retention and recurring revenue streams, existing and new, and they underpin our ability to sustain mid-single-digit or greater organic growth and generate returns through the cycle. Second, our confidence is substantiated by our consistent execution. Quarter after quarter, we continue to deliver sustainable organic revenue growth, expand margins through operating leverage and convert earnings into strong free cash flow. The choices we've made, investing in revenue-generating talent, scaling Aon Business Services, expanding Aon client leadership and building a leading middle-market platform, are collectively working together to generate higher-quality growth that is capital-light, margin accretive and resilient across market conditions. Third, our strong execution positions us with significant financial capacity and flexibility. During the quarter, we recognized the unique market conditions and opportunistically deployed $500 million to repurchase shares at prices we believe represent a compelling discount to intrinsic value. With consistent free cash flow generation, a disciplined balance sheet and leverage within our target range, we also remain well positioned to supplement organic growth with high return inorganic investments, ensuring that capital allocation continues to enhance long-term shareholder value. And finally, when you step back and collectively connect these attributes, durable competitive advantages, consistent execution, differentiated performance and disciplined capital allocation with significant financial flexibility, the implication is clear. These are the characteristics that, over time, result in value creation. Our focus remains on the inputs we control: strategy, including growth investment in AI-embedded tools, execution and disciplined capital allocation. As we deliver, we look forward to the outputs, including market recognition of the quality and durability of our financial model. With that context, let's turn to our first quarter results. On Slide 5, you see the first quarter results. Organic revenue growth was 5% for the quarter and total revenue increased 6% year-over-year to $5 billion. Adjusted operating margin expanded by 70 basis points and reached 39.1%. Adjusted EPS was up 14% to $6.48. And finally, we generated $363 million in free cash flow, up 332%. Let's get into the details of these results, starting with organic revenue growth on Slide 6. Organic revenue growth was 5% in the quarter, in line with our mid-single-digit or better guidance. This performance reflects the impact of our strategic investments in hiring across priority growth areas, combined with the increasing contribution from our analytical and advisory capabilities. In Commercial Risk, organic revenue growth of 7% marked the fourth consecutive quarter of growth at 6% or higher. Results reflected meaningful contributions from both North America, where growth was double digit, and EMEA as well as strong performance in our core P&C business. M&A closed deal activity accelerated during the quarter, and M&A services provided an incremental lift to organic revenue growth. In addition, our MGA businesses across both large and middle-market clients contributed positively, supported by continued client demand for specialized underwriting solutions. Finally, construction grew at a double-digit rate and remains a contributor to growth as our data center revenue pipeline is on pace to be 3x higher than last year, reinforcing our confidence in sustained mid-single-digit or greater growth in 2026. In Reinsurance, 4% organic revenue growth was driven by growth in treaty placements and double-digit growth in facultative placements. Treaty growth reflected 10% to 15% rate pressure that was more than offset by continued strong new business activity, including the addition of new logos. Insurance-linked securities were a smaller contributor in the quarter but continued to grow at a double-digit rate with outstanding volumes reaching $61 billion. Looking ahead to the second quarter, our data points to further rate pressure at April 1 renewals with rates down 15% to 20% in both the U.S. and Japan, partially offset by roughly 10% higher demand. Importantly, we continue to expect full year organic revenue growth in line with our mid-single-digit or greater growth objective, supported by a strong second half, driven by continued growth in international facultative placements and growing demand in our Strategy and Technology Group Solutions. Health Solutions grew 4% in the quarter. Our core Health and Benefits business, representing approximately 75% of the Health revenue delivered strong mid-single-digit growth across both EMEA and APAC, partially offset by slower discretionary spend in Talent Solutions, reflecting ongoing pressure that extended through the first quarter of 2026. Looking ahead, the demand for our analytics and advisory capabilities is increasing as employers navigate rising health care costs, manage transitioning workforces and focus on delivering better outcomes for their employees. With that demand building and the core business performing well, we continue to expect full year organic growth in Health to be within our mid-single-digit or greater objective. And finally, Wealth generated 1% growth driven by regulatory and valuation-related work in EMEA and market performance impact on NFP asset-based revenue, partially offset by softer advisory demand in the U.S. We expect mid-single-digit growth in Wealth for Q2 as the pension risk transfer market in the U.K. remains strong with Aon as the market leader. Turning to the key components of our Q1 organic revenue growth on Slide 7. Aon has a consistent track record of generating new business that contributes 9 to 11 points to organic revenue growth, and that continued in Q1. In the quarter, new business contributed 9 points to organic revenue growth, supported by both new client acquisitions and expanding mandates with existing clients. Our investment in revenue-generating talent in high-growth areas like construction and energy continue to deliver measurable impact. Our 2024 and 2025 cohorts contributed 75 basis points to Q1 organic revenue growth, and we expect momentum to build as these cohorts season. We've noted in the past that our data analytics and capabilities make us a destination of choice. And despite ongoing competitive pressures for talent, we continue to expect to expand our revenue-generating population by 4% to 8% in 2026. Q1 '26 retention remains strong in the mid-90s, improving 20 basis points over last year, led by Commercial Risk and Reinsurance as deeper Enterprise Client Group engagement and ABS-driven insights enhance client value and relationship depth. Net new business contributed 5 points to organic revenue growth in the quarter. Net market impact, which captures the impact of rate and exposure, contributed 1 point to organic revenue growth and was delivered in line with estimates despite a softer pricing environment in P&C and Reinsurance. Rate-driven pressure in Reinsurance following 1/1 renewals was offset with higher limit and expanded coverage in Commercial Risk, further reinforcing that growth is primarily driven by business investment and client demand and remains largely uncorrelated with pricing cycles. And one final point on revenue. First quarter fiduciary investment income was $55 million, down 18% from the prior year, as higher average balances were more than offset by the lower interest rates. On Slide 8. Q1 adjusted operating income was up 8% to $2 billion, and adjusted operating margins expanded 70 basis points to 39.1%. Through ABS, we are structurally lowering our cost base by reducing technology costs, standardizing and automating processes, including the integration of NFP and embedding AI into our development and operational workflows. These actions are not only driving margin expansion but also creating durable capacity for investments that support sustainable top line growth. Restructuring savings were $25 million in the quarter, contributing 50 basis points to adjusted operating margin. We remain on track to deliver $100 million of savings in 2026, advancing toward our goal of $450 million in total savings by 2027, with 2026 marking the final year of our restructuring investment. Moving to interest, other income and taxes on Slide 9. Interest income was $12 million in the first quarter and up $7 million over last year, driven by interest earned on proceeds from the sale of NFP Wealth. Interest expense came in at $179 million, $26 million lower than last year, primarily due to lower average debt balances. We expect Q2 '26 interest expense to be approximately $180 million. Other expense was $15 million lower than last year, driven by lower noncash pension expense and the remeasurement of balance sheet items. We estimate Q2 '26 other expense to range between $15 million and $20 million. Finally, the Q1 effective tax rate was 20.3%, 60 basis points lower than Q1 '25, reflecting the geographic mix of income growth and the favorable impact of discrete items. Our full year tax outlook remains unchanged at 19.5% to 20.5%. Turning now to free cash flow and capital allocation on Slide 10. We generated $363 million of free cash flow in the first quarter, reflecting strong operating income growth. This is a strong start to the year, and we continue to expect double-digit free cash flow growth in 2026. Turning to capital on the right-hand side of the slide. Our strong free cash flow growth enabled us to continue to execute our disciplined capital allocation model, balancing investment for growth with capital return to shareholders. As Greg mentioned, in April, we increased our quarterly dividend by 10% to $0.82 per share, marking the sixth consecutive year of double-digit dividend increases and reflecting the cash-generating strength and durability of our business and financial model. We also remained active in M&A and allocated $349 million toward high-growth tuck-in acquisitions in middle market that align with our strategic priorities and return thresholds. The largest use of capital in the quarter was shareholder return. In total, we returned $662 million to shareholders, including $500 million in share repurchases, a significant step-up from the average $250 million per quarter over the prior 8 quarters. As I noted earlier, we were proactive and leaned in the market conditions, repurchasing shares at prices well below the firm's intrinsic value. And that conviction is grounded in the fundamentals of the business, driving strong performance today and also informed by the investments we are making to drive future growth in talent, AI-embedded analytics and scalable platforms, which we believe increase the long-term earnings power and terminal value of the firm. Taken together, these actions reflect the consistent application of our balanced capital allocation model, maintaining our leverage objective, consistently growing the dividend and executing our disciplined approach to high-return M&A and returning excess capital to shareholders, ensuring capital allocation continues to enhance long-term shareholder value. I'll conclude my prepared remarks on Slide 11 with a few thoughts on our financial objectives and 2026 guidance. The first quarter 2026 performance reflects a start to the year that is right in line with our expectations and reinforces the strategic choices we have made to drive sustainable growth. Accordingly, we are reaffirming our 2026 full year guidance for mid-single-digit or greater organic revenue growth, supported by continued new business wins, the compounding contributions from our revenue-generating hires and accretive growth in middle market. We delivered 70 basis points of margin expansion in Q1, and we are seeing the benefits of efficiency gains from our scalable ABS platform and continued progress on our restructuring objectives. As a result, we are reaffirming our expectations for 70 to 80 basis points of margin expansion for the full year. The combination of organic growth and margin expansion supports our outlook for strong earnings growth in 2026, and with high conversion of those earnings into cash, positions us to deliver double-digit free cash flow growth for the year. Our strong capital position affords us the financial flexibility to actively deploy capital across multiple avenues, supplementing organic growth with strategic M&A while also executing opportunistic share repurchases. We have substantial financial capacity to pursue our high-quality M&A pipeline, and we remain firmly on track to deliver at least $1 billion in share repurchases for the year. As we move to Q&A, I want to emphasize that the performance you are seeing is the result of deliberate decisions. Our organic investments as part of the 3x3 Plan, $1.3 billion in talent and the AI-embedded capabilities that enable that talent to bring faster, deeper insight to clients as well as our inorganic actions are all intentionally aligned to deliver consistent earnings and free cash flow growth. We are already realizing productivity improvements today, and we are reinvesting those gains back into capabilities that both expand what we can deliver for clients and how efficiently we deliver it. In a world where technology increasingly enables and amplifies differentiated insight, advice and outcomes, this reinvestment cycle is critical. When executed well, it expands the addressable market by making risk transfer more relevant and increasing insured risk as a percentage of GDP, while also unlocking incremental AI-enabled opportunities to gain share with existing and prospective clients. Our investment leadership here strengthens our long-term growth profile, reinforces our conviction in the firm's growing terminal value and supports long-term value creation for shareholders. So with that, let's open up the line for questions. Kerry, back to you. Operator: [Operator Instructions] And our first question will come from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I was hoping if you could just provide a little bit more color on just the contributions from data centers to organic growth in the quarter. I know Edmund said, I think it was 3x the level this year than last year. But hoping just to size it a little bit to get a sense of the contribution to organic in Q1 and expectations for the next few quarters of the year. Edmund Reese: Elyse, thanks for joining. Great question. I will hit data center in particular, but the important point in this question is our Commercial Risk business and how broad-based the growth was. Data center, just real pointedly, was a part of the double-digit construction in our business. But again, the growth in Commercial Risk was broad-based. So I just have to highlight that in a lower rate environment, Commercial Risk has been 6% or better for the last 4 quarters. And we're not surprised with the strength in Commercial Risk because the results reflect what I just said in the script there, our intentional strategic decisions. So it was broad-based with strength in the U.S. double digit, with EMEA achieving strong growth in the core P&C business. New business itself in Commercial Risk was over 12 points of contribution. That's very much supported by the priority growth hires in construction, where data center shows up as a component of that. Retention was 50 basis points higher in Commercial Risk for the quarter. That's our analyzers helping with RFPs. We have a whole suite of them now rolled out in the U.S. and EMEA. And again, the net market contribution in Commercial Risk was still positive despite pricing pressure in property. And I'll also emphasize just again, to your point, the priority growth areas. Double-digit growth in construction, that's wins and pipeline in data centers. So we had wins that were higher this year and a pipeline that is giving us confidence in the outlook for the year, but it wasn't the key driver of growth. I also mentioned M&A in that. Again, the growth was strong there as well, but we still would have been at these fourth consecutive quarters of 6% growth with or without that, just again, emphasizing how broad-based the growth was. And I'll just point out one other item, Elyse, that the synergies that we are getting from NFP, particularly as we utilize our facilities like Aon Client Treaty in London, is just another contributor to the growth here. So we're going to continue to focus and invest in these drivers of growth, our talent and our technology. We believe those investments, including in construction and data center hires, hires who are focused on that, those are the things that will sustain new business growth and continue the strong retention that we have. Gregory Case: And I think really, Elyse, what Edmund, I think summarized there very, very well is the broad-based piece. And we remain incredibly excited about the data centers. But it's really very much we're at the beginning of the beginning with tremendous promise ahead, and we're very well positioned. Elyse Greenspan: And then my follow-up question is on capital. I recognize you guys leaned into a buybacks in the Q1, but you left the target for the year at $1 billion plus. You obviously could have raised it. Is it just -- are you waiting to see how the M&A pipeline develops? Is it a function of what happens to your stock price? Obviously, there's been more volatility, right, within the brokers subsequent to the end of the Q1. So just trying to understand the desire to lean into buyback and also continue to pursue your M&A strategy. Edmund Reese: Yes. Another important topic, Elyse, so thank you for raising it again. And even on this one, I have to step back as well because I have to begin with just reiterating how pleased we are with the free cash flow generation in the quarter and the continued execution of the capital allocation model, right? I mentioned in the script that we're right in line with our leverage objective, actually a little bit better in this quarter. I think we came out at 2.7. Our objective is at least 2.9 there. We announced a double-digit increase in the dividend. We're investing in middle market. And as you just mentioned, we're taking advantage of the market opportunity as well and returning capital to shareholders. So the question just really has me come back and anchor in our capital allocation model, which we're executing with discipline here. As we go through '26, I mean, you hit on a few things there. We are going to continue to look at the pipeline for M&A. I mentioned earlier that we have strong criteria and thresholds that have to be met strategically, financially. You know that we look at M&A that can be above 10% revenue after owning it for a year, that have IRRs that are at least 20% and allow us to continue to have our market-leading ROIC in it. That's what we evaluate, and there continue to be opportunities in middle market and select international markets like Japan and EMEA and even LatAm that we are looking at. So we have the flexibility with our strong balance sheet to pursue those M&A. If they don't meet the criteria, then we won't have a lazy balance sheet. I continue to use that terminology, and we'll return the excess capital to shareholders. So for now, I think it is prudent for us to stick with our at least $1 billion in the year. Obviously, $500 million in the first quarter is a great start that gives us confidence in that number, and we'll see how the year plays out. Operator: And our next question will come from Andrew Andersen with Jefferies. Andrew Andersen: On expanding mandates versus truly new logos, can you maybe just talk about what the mix was this quarter and how that has been trending versus last year? I would think expanding mandates is better for margins near term, but perhaps that's not the case, and would be particularly interested in CRS. Edmund Reese: Yes. This is a key, key topic, new business growth. I mentioned in the script there, 9 to 11 points, as we've shown in the Investor Day and continue to produce, is what the objective is. So another quarter of 9 points. And it's a great question. If you look back over '25 or even '24, I mentioned during Investor Day that it's been split about half and half between new logos and expanding with existing clients. And you see some movement quarter-over-quarter in the different solution lines, but it's about equal. And then Commercial Risk, in particular, on your question, 12 points of contribution in the quarter from Commercial Risk. That's a strong item. That was both, again, an equal mix between the new logos and expanding with our existing clients there in the quarter. So it's typically going to be balanced across each, and we're looking to pursue each as we deploy Enterprise Client Group, right? We have a whole focus on this, and Greg can speak up on the Enterprise Client Group, really expanding with our existing clients, increasing the relationship with the senior executives, the HR leads, the CFOs of the organization. That allows us to deepen the relationships and retain those clients. So we're seeing that in both. New logos, I called out in the script also, was a strong driver for Reinsurance as it helped us offset some of the rate pressure there as well. So I think a strong quarter from that standpoint. Andrew Andersen: And there's been some broader industry discussion around broker commissions and fee levels. How are you thinking about this dynamic in the context of the value that you're delivering? And where do you see these trending? Gregory Case: Let me say, Andrew, just step back and think about kind of what's going on in the market overall, we see real opportunity. When you think about sort of how this plays into AI and all that we might talk about further on this call potentially as questions come up, but real opportunity. By the way, this is opportunity based on client need. It is interesting how the question gets positioned sometimes, and it takes a view of a zero-sum game between insurance markets and advisers. But really, we should be asking the question on whether the risk industry overall is going to be led greater value for clients. And if we can meet this ever-increasing, ever-higher bar, it suggests a positive movement, and that's exactly where we are. In a world where risks are increasing, volatility is getting greater, the need for better solutions is very high, we are incredibly well positioned to deliver not just insights, but access to capital, which includes the traditional markets and alternative markets. So from our standpoint, we see a meaningful opportunity ahead with AI as a catalyst, driving and enhancing our strategy. Again, AI is not a strategy. Our strategy has been unbelievably strong and well proven. AI is a catalyst for it. And we do what Edmund described in his comments. We expand addressable markets. We've got greater access to those markets. We've got the ability to add even greater value as those markets expand, and that suggests stronger performance. But really, Andrew, to be clear, the ultimate arbiter of truth here is clients. They decide. And we're really well positioned to add greater value. And in doing that, it creates greater opportunity for operational improvement. Operator: And moving next to Rob Cox with Goldman Sachs. Robert Cox: First question just on the Middle East. Can you just talk about how the Middle East conflict showed up in Aon's results this quarter? And maybe if you have any ideas you could talk about the potential to see claims inflation from the conflict later on this year? Gregory Case: Maybe to start overall, Rob, just a general view on the Middle East. Generally, and how it's impacting kind of our clients around the world and certainly, obviously, in region. And I want Edmund to talk specifically about the results in the Middle East and sort of how that's played into the overall performance in the quarter. Listen, our first and foremost focus is on our colleagues and our clients sort of in region and supporting them and reinforcing all that they're going through. As we think about broad-based, obviously, the Middle East is not a tremendously substantial part of our business, but it's important for clients around the world. It will have overall implications. And from our standpoint, we'll see how things evolve. But right now, uncertainty is what we work toward on behalf of clients. It's how we serve and support them. And so whatever form that takes, however long this lasts, we'll be there, and it will have implications on overall operating performance. But so far, it's very much in development mode. But specifically in the quarter, Edmund, do you want to comment on that? Edmund Reese: Yes. Greg, I actually just want to start with what you just said, like our focus is on the colleagues and clients. But if I do move to the performance there. The headline growth for us, Rob, in the region was actually double-digit growth. You got to keep in mind that our Middle East business, as Greg just said, not a substantial part of our overall business, but over 50% of it is Health. Those renewals happened actually before the conflict and that escalation -- before the conflict escalated. So it's pretty locked in. Commercial Risk in the Middle East was one of the largest growers in our portfolio. You can imagine, with increasing risk in the region, that actually creates more demand for us to be able to help clients, as Greg said in his opening remarks, move through that. And the Reinsurance business in that region, 70% of it is done on 1/1 renewals. So again, we had strong growth there as well. Greg's point is the right one. It's a small part of our portfolio. We're very diversified. And as you heard me say, our strength is broad-based. Now if we continue to see an escalation or a prolonged conflict, that could have some impact that seeps into the broader impact on economy. But again, if that happens, our clients actually need more of our services. So we'll continue to monitor development closely, but we remain focused now on our clients and colleagues. Robert Cox: That's super helpful. And I just wanted to follow up on the risk analyzers. Edmund, I think you attributed some of the retention gains in Commercial Risk to the risk analyzers. I'd imagine it's also contributing to new business. How are you actually measuring the benefits from the risk analyzers? And can you just give us some color on adoption usage compared to the past in the various businesses? Edmund Reese: Yes. We've -- our team, led by our COO and our business partners have really been rolling out our risk analyzers. And Greg said it earlier, and I'm sure he will emphasize that. Where we started here was with Commercial Risk. And we've started to roll some of this out into Health, and we're starting to see some of that benefit in core health and benefits. But the Commercial Risk area is where we're seeing the business. And what I talked about, as I said, we've rolled it out. We're on later versions in the U.S., sort of mid-game in EMEA and rolling out in the other regions as well. But it is very clear and measurable to look at the impact of when we use the analyzers and when we don't use the analyzers. And we look at win rates, we look at renewals, and we look at new business from it. Again, it is the first place. The priority hires and the analyzers, if I had to boil it down the 12 points of contribution in Commercial Risk to two things, talent and technology, our hires in the priority growth areas and the analyzers coming through across property, across D&O, across cyber. And now Greg in his script mentioned us rolling out Broker Copilot as well, which is helping us bring insights on pricing, trading data to our clients very quickly as well. So if I had to attribute that new business to two things, it would be those two items. And we're able to measure it very well. But Greg, any comments from you on that? Gregory Case: No, I think you've covered it well. I do want to -- just for context, Rob, back up, and it isn't just the analyzers, right? This is a very measured approach we've taken over a number of years to answer a very straightforward question. How do we address increasing client need. And so the analyzers are a direct response to that, driven by client need. We can do the analyzers because we've got the raw data, the quantity, the quality, how we've ingested it and curated it. We've got the analytic capability, and then we have an organizational structure. When you think about Risk Capital, Human Capital, it doesn't exist anywhere else. And that allows us to take very high-quality talent, the best in the world, as Edmund described, and really make sure we're aligned to deliver this. And so it's not just the analyzers. It's also the service component, what we do on certificates and ad hoc certificates, a whole range of things, invoices. So it is revenue driven and service driven. And then, obviously, it creates -- we have efficiency then that Edmund described before, which means we can reinvest back into that capability. And the reason that's important is it highlights the versions. Don't miss that point. We're on like Version 10 or more of the property analyzer. And across the suite of analyzers, we continue to evolve them. We're about to attend the RIMS Conference. We're going to come away with 15 ideas that are go into a next iteration, and we've got the machine that can just keep innovating to do that. But the real punchline here is we're making a difference, and they're making a difference because they matter to clients on revenue, how they help build their businesses and make decisions and how they run their businesses around service. Operator: And our next question will come from Mike Zaremski with BMO Capital Markets. Michael Zaremski: First question, focusing on the really nice commercial risk organic. Just want to make sure we shouldn't get over our skis given we know that 2Q is one of the biggest property quarters in the industry. So when you think about the net market impact, Edmund for 2Q, in the last 2Q it decelerated fairly materially from 1Q. Should we be kind of keeping that in mind as we think about the rest of the year or just the near-term 2Q is maybe a governor on how excited we should be? Edmund Reese: Well, there's two parts to your question that are important to highlight. One is, you're right. We are running this firm on an annual basis, and not on a quarterly basis. And so we think about the guidance as full year annual guidance because there could be movement within the quarters. Setting that aside, on net market impact, the second part of your question, which I think is important, the guidance, as you know, is 0 to 2 points of contribution from that as the quarters have moved through the end of '25 and into this quarter, despite the pressure that we see, whether we're talking about Commercial Risk in P&C or even in Reinsurance. We've been at roughly 1 point or slightly higher, and that continued in this quarter. That's what we expect throughout the rest of the year, including Q2. It's just important to highlight here that it's not -- that could have an impact, 0 to 2 is still how you should be thinking about it. But more importantly is the growth in GDP, the business investment that we're having right now because that's the pricing piece that we're talking about in the net market impact. And the diversity of the products, the diversity of the geographies, I just talked about the broad-based growth in Commercial Risk. Those are the things that allow us to grow at mid-single digit or better in any pricing environment, and that's where we focus on. So even in this quarter, it's not new, right? Property was down 15% in this quarter. Casualty, like mid-single-digit growth. D&O, a little bit of an uptick in price there. Cyber at low single-digit rates. We have these micro markets on pricing, but we take actions to help our clients take advantage of these markets, help them increase their limit, increase their coverages. And those are the things that allow us to still have the mid-single-digit growth. Greg? Gregory Case: And Mike, I don't miss -- I hear your point on over our skis. We've taken in a very measured, methodical approach year-over-year-over-year period. But you would observe the 4 quarters that Edmund described in Commercial Risk, observe the fact that we, in our 3x3 Plan, have really laid out a series of capabilities defined by clients, driven by serious, serious industrial strength content and content behind them. And we focused initially on Commercial Risk and across the U.S. And what Edmund just described is a very broad-based 7% organic against whatever pricing environment. We didn't qualify it on that. It doesn't matter. It's helping clients succeed, winning more clients, doing more with them, keeping them longer, all those things with it. And the team was phenomenal. They delivered 7%. I think you described double-digit North America. And so this is a pretty unique progress. We don't get excited about it. We just stay focused on client need, and we've got to deliver for the year. But you ask yourself, did we increase probability of the mid-single digit or greater, you should feel good about that progress with that context. Michael Zaremski: Yes. Definitely, even seeing the net margin impact not move much over the last many quarters has been a great result. Just lastly, real quick. In your prepared remarks, you talked about driving productivity improvements. Clearly, a lot of GenAI technology adoption that's being accelerated across your firm. Do you envision a future where Aon's productivity per employee could accelerate to much higher levels than historical levels? Or too soon to know? I guess I asked because one of your broker peers did offer kind of a very long-term North Star about productivity improvements that could be fairly material. Gregory Case: Yes. Listen, this is probably worth a little bit of time since it's come up so much. And I'd really like to offer a couple of thoughts, and then, Edmund, I want you to jump in here, too. This is so fundamental to our firm. Look, on this whole topic of kind of the impact of AI, is it productivity? Is it -- what is it going to be? And how is it going to play out? First, we want to be clear on our position here. We're incredibly excited about the possibilities of AI to reinforce, and we mean reinforce our strategy. It's not our strategy, reinforce our strategy, accelerate it and strengthen it. And we mean over the next 5 years, and we mean equally important over the long term. And we also want to be clear, the capability, we've been doing this for multiple years now. It's already being seen. You saw it in the quarter. And it's going to be seen more over time. And we're going to deliver for clients now and increase long-term value for Aon. And again, our view has developed over time. I mean, we restructured our firm over many years to address this Risk Capital, Human Capital, ABS, how we deliver from an integrated client standpoint. And we also were clear on, look, this comes from our -- how do we do this? How can we pull it off? People can talk about it. We can pull it off because of the data, the raw quantity, the quality, how we've ingested it, how we changed that over time, how we curate it. The analytics, Mike, that come with it and how we model and what we do with it. The analytics are interesting. But when they become a suite of analyzers with the sort of service capabilities that have been introduced and refined 10 or 15x, that's when it becomes powerful. That can only happen with Risk Capital and Human Capital, which is why we're pretty excited about this. And I will come back to look, it's all driven by a few principles. One is literally what do clients need? How is it changing over time? And these responses that we've driven are all around revenue enhancement and driving that piece first and foremost, service enhancement second, and then productivity, which is why we've said, listen, you're not going to get success here in AI without an absolutely world-class people strategy out in front driving this. And that's what we're seeing. And the analyzers from client demand have actually changed the way clients think about what their businesses -- how they evolve, their risks in their business. What we've done on the service side as well. But if that's the client piece, the other piece to your question is really around value and what are the economics of that, the operating results of that. And frankly, greater value, as I described before, is greater margin potential. But then it also has to be continuous. So that's got to be durable. So I would just say, look, from our standpoint, we have our North Star. We're driving toward it. It's really delivering. And we see greater, greater opportunity to have an impact. To go back to Elyse's first question, one of them are in areas that are on the net new, which is data centers. Just beginning. But we're positioned unbelievably well because of all the work we've done. So we're pretty excited about the potential here and see it developing over time and see real opportunity. We don't see this as a defend the house. We see this as a true build the house opportunity. But Edmund, I'd love you to talk a little bit about the value part of this and the durability part of this. Edmund Reese: Yes, absolutely. And your question, Mike, is on the value part and the impact on the economics. Greg just talked about the demand of it. There's the economics, which I think have an impact today. And the third part is the durability of it, the ongoing benefit, how we will perform better. And that's the compelling part of it. We are operating and you're seeing it in our results, today. It's not just margin, though. It's in the new business growth. And I think our compensation there is tied to the outcomes, as Greg talked about earlier, as we help clients with capital, so we help them with workforce, as we help them improve their resilience. It shows up in retention. We had NPS up 10 points, something that I don't think I mentioned earlier here. And the analyzers I have mentioned are improving the RFP rates. And then it's showing up in your question, the margin improvement. Greg gave some stats earlier on claims, certificates of insurance, invoicing, policy management, all those things are lowering our unit costs, and we had talked earlier about 5% to 15% productivity improvements. Those things are happening right now, and we're doing it in a way that still allows us to bring value to our clients. So that's number one. The economics of it are showing up top line and bottom line and in our results today. The important point is that the performance builds over the coming years, right? Like you see multiyear tailwinds from this. Our work in data center is a great example of that. Our work on workforce solutions is a great example of that as well. So our insights and our capabilities are going to help us expand this market. Our content and the investments are going to help us gain share in this expanding market. And as we continue to lead in the investment and get these productivity improvements, we will reinvest, which creates this virtuous circle loop, which at the end of the day, just means that more durable business, a more scalable business and a more valuable business, more valuable business over the long term as we bring this value to clients. Operator: And we'll go next to Bob Huang with Morgan Stanley. Jian Huang: So my question is really also related to the Middle East, but not really Middle East. As we think about the Middle East conflict, the elevated energy price should have a fairly notable impact on GDP in Asia. I understand the Middle East contribution to you is probably small, but the Asia contribution probably is not. As we think about Asia growth slowdown due to energy prices, can you maybe help us understand the impact on organic growth guidance throughout the year, think about the inflation impact and things of that nature? Gregory Case: I'll start overall, Bob. We want to come back and, again, governing thought, reaffirm exactly where we are on mid-single digit or greater from a growth standpoint. We're looking now across the world, see all that you're looking at as best we can. And our view has been single digit or greater. So start with that overall governing thought. And then I just want to highlight a point that Edmund alluded to earlier around ambiguity and uncertainty. Pieces that create challenges in one area create opportunities in other areas. We've seen it countlessly. I mean, I think about even now in the Middle East, which, again, as Edmund described, is not a big part of our business, has done unbelievably well, helping clients understand the situation and really protect themselves as they also think about growth. APAC, Asia, tremendously important for us, still, on a relative basis, not a massive part of the overall firm, but fairly important. And we get your point on the energy side, but frankly, it's going to create other opportunities. Clients trying to decide how to navigate that environment. And that's what we do. We're going to help them do that, which is why you kind of come back to the form might change. The form might change. What we do might change. It may evolve. But our ability to help clients succeed in an uncertain environment has never been greater and is continuing to strengthen, and it's why we come back to that affirmation. But what else could you add to that, Edmund? Edmund Reese: Greg, I don't have much to add to that except like that shows up in the results, right? Our international markets are really leading the growth in many of our individual solution lines. And as that mix changes, we feel good that, that continues to be the opportunity where we can help the clients, which shows up in our results. So not much to add to that. Jian Huang: Okay. Really appreciate it. My last question is about the AI expense, right? So on your press release, you talked about, there's an $8 million increase in IT expense. As we think about AI expense, it's variable expenses, it's token-driven, prompt-driven on the input cost side. Going forward, like as you build out more AI capabilities, how should we think about that overall expense? Is that all essentially factored into the margin guidance? Is it -- as you have a higher and increased utilization of AI, can you just help us with that a little bit? Edmund Reese: It's a great question. And the short answer is yes. It is factored into the margin guidance. Again, me and our COO, our Chief Operating Officer and I talk about this all the time. We are model agnostic. We're building our own models, Broker and Claims Copilots are great examples of that, but we're also working with all the big names you know in the space. And in fact, that comes back to our organizational readiness. Me, Greg and the leadership team just spent some time actually tiering our organization from who needs the basic tools that have less need for tokenization and who needs the tools that are experts. Zone 1, 2 and 3 is sort of how we frame it. So we're super focused on who's going to be using it. Again, our focus is top line growth and productivity. So we want to equip the organization on both of those areas to build the things that help us with top line growth and get the productivity while being conscious of the cost. When I come to the cost, clearly, we have it baked into the $1.3 billion investment that we did as part of the 3x3 Plan. And you've astutely and rightfully called out the tech development part of our income statement, where I would say probably half of what you saw, nearly $600 million in 2025, is connected to AI as well. Obviously, there's a tech infrastructure part of that, but a significant component is the tech dev completely focused on AI. But again, it's our commitment to those investments that highlight our leadership in the space. We factor that in, those costs and the reinvestment of productivity improvements from that in our overall guidance here. Gregory Case: And maybe one observation I'll just add to that, Bob. As you think about the mechanics of literally how we thought about the investment, the cost, as Edmund described it, maybe Simon, our COO and how they discussed it, and it is really an intricate discussion. These are all critically important. So understand sort of how we look at that. But the real breakthrough here is not just cost efficiency, right? The real breakthrough is delivering client value. Literally, it's the revenue part of this and the service part of this. So it's more revenue, better retention of that revenue, all these things factor in. And this is where we want to absolutely -- this is where we've got to get yield to get return, not just efficiency. So again, back to some of the earlier questions on the call around sort of the zero-sum game that everything boils down and gets smaller and smaller. For us, it's bigger and bigger with opportunities. That is a revenue conversation. That's a productivity conversation that's beyond efficiency. And this is where we have seen some breakthroughs. This is really what's led to a lot of our work to accelerate not just taking cost out. We've done that before and continue to do that. But we're truly helping clients do things they couldn't have done before. Operator: And we'll go next to Cave Montazeri with Deutsche Bank. Cave Montazeri: So you started investing in ABS over 10 years ago. And I think until recently from the outside, really felt like it was primarily a margin expansion story. But now, and you've mentioned that several times on the call today, it really looks like we're seeing the tangible impact on organic as well, and we can really see the flywheel effect that you guys are talking about. Now others have noticed and everyone now wants to be a bit more like you guys, can build their own version of ABS. How important is it for you to have that first-mover advantage? Because as more of your peers implement their own version of ABS, will those efficiencies and better analytical tools become commoditized? Or is there like a real moat to being early and that others will always be playing catch-up because you keep on investing and getting better at ABS? Gregory Case: Listen, I really appreciate the question, and it is the question of the day in terms of sort of when you think about some of the evolution, I would really start and emphasize, again, this starts with client need, how it's evolving over time and how we respond to it. We're responding to client need. That's the strategy. Again, AI is not a strategy. Serving clients in a more effective way as their risk increase, that's the strategy. And if you think about what's required to do that, this is where we come back to -- we have been -- it's taken a long time. It's hard to pull this together. And it isn't just the analytics and the data. By the way, that's critical. You don't have the raw quantity and then turn it into quality in a way you can ingest it, curate it, you don't have anything. So that's taken a long time. By the way, ABS was doing cost and that for us, so important. We had great Reinsurance data. We had great Commercial Risk data, great Health data. But they weren't connected. Now we've got them connected in a way that we've not ever seen before. The analytics of that result in these capabilities. But also to be clear, this isn't about analytics. At one level, it's about organization. It's about alignment, Risk Capital and Human Capital. We broke our firm down organizationally and rebuilt it to connect the dots around Risk Capital. This is Reinsurance and Commercial Risk. So imagine Reinsurance contend and insight ingested into a Commercial Risk decision process. This is a massive, massive change in terms of sort of insight for clients. So for us, the organizational change, absolutely important. The analytics and ABS, absolutely important. And then the way we go to market. Edmund described it before around Enterprise Client and a connected global firm, that sounds trivial, but it's powerful. Clients should not be negotiating or trying to understand Aon. We should understand them and bring the integrated firm. If we bring the integrated firm, Aon client leadership with capabilities that never existed before, Aon Business Services, driven by a set of analytics not seen before. That's what for us is the wow. And if we can do that, that's a revenue-driven engine. And we're just going to keep investing in that engine and driving that engine. And the outcome, and don't miss this part that Edmund described. This is about not just in the next 5 years' performance. This is as you think about our terminal value, if you want to look at it that way, this is a bigger market. Data centers are a bigger market. Solving cyber is a bigger market. And then the way to serve that market requires real expertise, new expertise, which means if you've got it, you're going to win more share. And if you win more share, you're going to create more value. And value means you have the opportunity to deliver for clients and for shareholders on margin. You can do both. So that's our mission. That's our view. And we feel fortunate we made progress. But to be clear, we got to hammer down. We see the opportunity here for the clients, and we're going to keep driving it. Cave Montazeri: And then my follow-up question was on the personal lines exposure that you said was less than, I think, 2% of premium. Could you kind of remind us like how that came about? Is that something that kind of you want to keep, that's core to Aon or that your clients ask for? Gregory Case: Just a quick overview. Just first of all, personal lines, this is complex at some level. The piece we serve, this is higher net worth individuals, sometimes tied into businesses, really trying to think about what they're up to. We're working hard to support that. So I don't want to dismiss that as not complex, but it's a very small part of what we do. It's less than 2%. Sometimes it comes with the businesses overall. So put it in context, I understand it's not priority, but it's also important. Yes, Edmund, go ahead. Edmund Reese: Yes. And the way that we've sort of -- the majority of our personal lines business has come as part of the acquisitions that we've been doing over the past decade, right? We've done over 150 acquisitions. And you actually see us continue to have active portfolio management where we look to focus on our core, the higher-growth core businesses. You've actually seen us have cash from dispositions. It was over $730 million in 2024. That comes from the disposition of the personal lines business as we continue to go through our portfolio hygiene here. So that's why it's at that percentage, and I would say, continuing to shrink as we move forward here because we're super focused on our core Risk Capital and Human Capital business. Operator: And thank you. I would now like to turn the call back over to Greg Case for closing remarks. Gregory Case: I just wanted to say thank you to everyone for joining the call. We appreciate it, and look forward to the next quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to Moderna's First Quarter 2026 Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lavina Talukdar, Head of IR. Please go ahead. Lavina Talukdar: Thank you, Kevin. Good morning, everyone, and thank you for joining us today. to discuss Moderna's First Quarter 2026 Financial Results and Business Update. You can access the press release issued this morning as well as the slides that we'll be reviewing by going to the Investors section of our website. On today's call are Stephane Bancel, our Chief Executive Officer; Stephen Hoge, our President; and Jamie Mock, our Chief Financial Officer. Please note that this conference call will include forward-looking statements made pursuant to the safe harbor provisions Securities Litigation Reform Act of 1995. Please see Slide 2 of the accompanying presentation and our SEC filings for important risk factors that could cause our performance and results to differ materially from those expressed or implied in these forward-looking statements. With that, I will turn the call over to Stephane. Stéphane Bancel: Thank you, Lavina. Good morning or good afternoon, everyone. Thank you for joining us today. I will start with a review of our first quarter, jimmy will then cover our financial results and outlook, followed by Stephen on commercial and clinical progress. I will close by discussing our value drivers before we take your questions. The Moderna team delivered a great quarter all around. In the first quarter, we grew year-over-year revenues significantly to $0.4 billion, driven primarily by execution of our long-term strategic partnership in -- with the U.K. government. With a strong Q1, we are reiterating up to 10% growth in 2026. We reported a net loss of $0.5 billion, excluding the previously announced Arbutus litigation settlement or $1.3 billion on a GAAP basis. We ended the quarter with $7.5 billion in cash and investments, maintaining a strong balance sheet as a result of continued financial discipline. Our cost reduction efforts continued in the first quarter, building on actions taken in 2025 and resulting in a 26% year-over-year reduction in adjusted cash cost in the first quarter, excluding the litigation settlement. This performance keeps us on track with our full year objective of approximately $4.2 billion in adjusted cash costs. We also advanced our commercial portfolio and our pipeline. In our respiratory portfolio, we achieved an important milestone with the approval of [indiscernible] in the European Union. [indiscernible] was known before as amounted 1083 of flu plus COVID combo vaccine. This is the first flu plus COVID combo vaccine approved in the world, and this marks Moderna a fourth approved product. I am very proud of the team for bringing this innovation to patients. This is exactly what Moderna stands for. We also secured approval for [indiscernible] in the European Union. These 2 new approved products in Europe will be important growth drivers in the EU in 2027, and when we anticipate COVID market reopening for Moderna. In the U.S., our seasonal flu vaccine mRNA-1010, was assigned a pot of August 5. In oncology, for Intismeran, we initiated a new Phase III clinical trial in non-small cell lung cancer for patients with Stage 1 disease. It's our first Phase III clinical trial evaluating Intismeran in a monotherapy arm in patients with early-stage disease. I am very excited about this new clinical development because Stage 1 lung cancer is mainly treated with surgery alone today. Additionally, we look ahead to our upcoming ASCO oral presentation, where we'll report a 5-year update of our Intismeran in adjuvant melanoma. We were also pleased to recently present at AACR the new clinical data for mRNA-4359, which is currently in Phase II for patients in Stage IV disease, metastatic disease in melanoma and lung cancer. Lastly, with support from [indiscernible], our Pandemic flu program, mRNA-1018 has now initiated its Phase III study. I'm very pleased with the company's strong performance in Q1 and very thankful for our team that executive across the board. With that, I'll turn it over to Jamie. James Mock: Thanks, Stephane, and hello, everyone. Today, I'll cover our first quarter financial results and then review our 2026 financial framework. Let me start with our commercial performance on Slide 7. For the first quarter, total revenue was $400 million, coming in above our guidance and represents a $300 million increase versus the prior year. Our geographic mix was approximately 80% from international markets and 20% from the United States. This strong international revenue performance was primarily driven from deliveries under our long-term strategic partnerships. For the second quarter, we are expecting revenue of between $50 million and $100 million, evenly split between U.S. and international markets, which would bring our first half revenue to approximately $440 million to $490 million. Our strong revenue performance year-to-date puts us on a solid path to achieve our full year revenue growth target of up to 10%, which we are reiterating today. Now I'll round out our full first quarter financial performance on Slide 8. As I just mentioned, revenue was $400 million in the quarter. Cost of sales for the quarter was $955 million. This includes $878 million related to our previously disclosed litigation settlement. Excluding this item, cost of sales was $77 million, a 14% year-over-year decline on a non-GAAP basis, driven by reduced unutilized capacity costs, losses on purchase commitments and inventory write-downs, partially offset by higher sales volume. Regarding the litigation settlement in March, we announced that we entered into a settlement agreement with [indiscernible], resolving all litigation with them worldwide. Under the deal terms, we will make a lump sum payment of $950 million in the third quarter of 2026, of which $878 million was recognized in cost of sales during the first quarter of 2026, and the remaining $72 million is being amortized over the next 3 years. Under the agreement, Moderna will appeal to the Federal Circuit to argue its government contractor immunity defense, which limits its liability under federal statute 1498. If Moderna ultimately prevails on that issue, no further payments will be due. If, however, the Federal Circuit of firms liability under Section 1498, Moderna has agreed to make an additional payment of up to $1.3 billion. We have concluded that a loss related to this pending Section 1498 proceeding is not probable. And accordingly, no charge has been recorded. R&D expenses for the quarter were $649 million, a 24% decrease compared to last year, driven by lower clinical development and manufacturing costs as we wind down large Phase III respiratory programs, and our CMV Phase III study, partially offset by higher post-marketing commitments from our COVID products. SG&A expenses for the quarter were $173 million, an 18% decrease compared to last year, driven by lower spend across all functions, reflecting continued cost discipline while supporting the business. Our income tax provision was immaterial in both periods as we continue to maintain a global valuation allowance, which limits our ability to recognize tax benefits from losses. Net loss for the quarter was $1.3 billion or $3.40 per share compared to a net loss of $1 billion or $2.52 per share last year, primarily driven by the litigation settlement. Excluding this item, the net loss would have been $0.5 billion or $1.18 per share, down over 50% versus the prior year. We ended the first quarter with cash and investments of $7.5 billion compared to $8.1 billion at the end of 2025. The decrease was primarily driven by operating losses as we continue to invest in R&D and advance our pipeline. The litigation settlement did not impact cash in the first quarter as the $950 million payment is due in the third quarter of 2026. Now let's turn to our financial framework for 2026. As mentioned earlier, we expect total revenue to grow up to 10% in 2026, with a geographic mix of roughly 50% from the U.S. market, and 50% from international markets. Our 2026 revenue guidance factors in potential future declines in COVID vaccination rates, offset by increased penetration of mNEXSPIKE and revenue from our long-term strategic partnerships. As a reminder, this guidance assumes no revenue from our flu vaccine or [indiscernible]. Our cost of sales projection has increased from $0.9 billion to $1.8 billion, and now includes the $0.9 billion litigation settlement charge. Without the litigation charge, our cost of sales projection would have been unchanged versus our previous guidance and reflects our expectation of gross margin improvement from manufacturing efficiency gains and volume leverage. R&D expenses are still anticipated to be approximately $3 billion as we continue to invest in our pipeline while maintaining financial discipline. We now expect the timing of our R&D spend to be slightly weighted more to the second half of the year. SG&A expenses are still expected to be approximately $1 billion, flat versus the prior year. Similar to 2025, our commercial spend will be more heavily weighted to the second half of the year due to the seasonality of our commercial business. In aggregate, excluding the $0.9 billion litigation charge, we are expecting total GAAP operating expenses of $4.9 billion and cash costs of $4.2 billion, which excludes stock-based compensation, depreciation and amortization. Additionally, we do not see any material impacts from the ongoing conflict in the Middle East to our 2026 financial outlook, but we'll continue to monitor geopolitical developments. We expect taxes to be negligible in 2026. Capital expenditures are still projected to be between $0.2 billion and $0.3 billion, and we expect to end 2026 with between $4.5 billion to $5 billion of cash and investments. Our cash guidance does not assume any additional drawdown from our remaining $0.9 billion undrawn credit facility. Overall, we are encouraged by the strong start to the year and remain focused on executing in Q2 and beyond. With that, I will now turn the call over to Stephen, who will walk through the commercial outlook in more detail. Stephen Hoge: Thank you, Jamie, and good morning or good afternoon, everyone. Today, I'll review our commercial outlook as well as progress across our pipeline. Slide 11 outlines our multiyear revenue growth strategy, anchored in both geographic expansion and continued advancement of our product pipeline. In 2026, as Jamie mentioned, we expect a 10% revenue growth driven by our long-term strategic partnerships in the United Kingdom, Canada and Australia, and supported by the continued growth of mNEXSPIKE. Looking across the 3-year horizon, we are building a diversified portfolio, adding a flu vaccine, a combination vaccine and a norovirus vaccine as well as late-stage assets in oncology and rare diseases, and all while expanding our global footprint into new markets. We made good progress against this strategy in the quarter. We delivered our first shipment under a strategic partnership in the United Kingdom. We secured key regulatory approvals in the European Union, including mNEXSPIKE for individuals 12 and older, and [indiscernible] for adults 50 and above. positioning us well in the large $1.8 billion annual European respiratory vaccines market. We expect both products to contribute to revenue growth starting in 2027 and in the U.S., our flu program continues to advance with a PDUFA date for set for August 5, 2026. Stepping back, our execution in the quarter gives us confidence in our ability to deliver in the near term and to grow over the long term. Slide 12 highlights our approved products within the infectious disease portfolio. With the recent EU approval of mComvriax, we now have 4 approved products, a remarkable milestone for our commercial portfolio. Starting with our COVID vaccines. We plan to submit annual strain updates across all approved geographies shortly. More than 30 countries for Spike Fax and in the United States, Canada and Australia and now the European Union for mNEXSPIKE. mNEXSPIKE also remains under review in Taiwan, Japan and Switzerland, with additional filings planned for the second half of 2026 to further expand global access to this important vaccine. Turning to RSV. mRESVIA is approved in the United States, European Union and Canada. Most recently, the European Commission also extended that approval to expanded indications to include adult age 18 and older, broadening the eligible population. For our flu plus COVID combination vaccine, mCOMBRIAX, we recently received approval in the European Union for adults 50 and older. The product is also under review in Canada and Australia, and we are awaiting further guidance from the FDA on the next steps for resuming filing in the United States. Finally, at ESCMID, we presented new data supporting heterologous vaccination with mRESVIA as well as results from a Japanese cohort from our Phase III mCOMBRIAX studies. Links to both presentations are included on this slide. Our late-stage infectious disease pipeline also continues to progress. Following with -- starting with flu, mRNA-1010 is under review in the United States, Europe, Canada and Australia, and the U.S. FDA PDUFA date is set for August 5. We recently presented revaccination data for mRNA-1010 at SMED, with a link to the presentation included on this slide. And for our norovirus vaccine, our ongoing Phase III study is now fully enrolled in its second Northern Hemisphere season. Based on case accrual to date, we continue to expect data from this study in 2026. Turning to oncology, starting with Intismeran, our individualized cancer therapy developed in partnership with Merck. This trial program continues to expand with 9 ongoing Phase II and Phase III studies. As Stephane previously mentioned, we have initiated another Phase III study in non-small cell lung cancer, our third Phase III in lung cancer. This one is in high-risk Stage 1 disease, expanding us to the earliest stage of the disease. The trial includes an evaluation of Intismeran as a monotherapy. This is our second monotherapy study following our non-muscle invasive bladder cancer study announced previously and highlighting Intismeran's safety and tolerability profile as we move into earlier stage disease. Across the portfolio, we now have multiple late-stage studies fully enrolled, including Phase III adjuvant melanoma as well as Phase II studies in renal cell carcinoma and muscle invasive bladder cancer, all of which are accruing events towards their interim readouts. We continue to make progress towards completing enrollment in our other Phase III and Phase II trials, including in non-small cell lung cancer, bladder cancer and metastatic melanoma. This broad late-stage portfolio is supported by the strong clinical data including robust 5-year results from our Phase II adjuvant melanoma study, which will be presented at ASCO. Beyond late-stage programs, our Phase I studies in pancreatic and gastric cancers are also fully enrolled, and we look forward to providing updates on those trials later this year. Now outside of Intismeran, we continue to advance additional oncology programs. For mRNA-4359, our cancer antigen therapy, Phase II cohorts are enrolling across first-line metastatic melanoma and first-line metastatic non-small cell lung cancer. We recently presented new data in first-line metastatic melanoma setting at AACR with a link to the presentation included on this slide. And finally, our early stage pipeline includes -- continues to progress, including our T cell engager, mRNA-2808 in a Phase I/II study, a cancer antigen therapy mRNA-4106 and cell therapy enhancer mRNA-4203 in Phase I studies in patients actively dosing. Now in rare diseases, our propionic acidemia or PA program is fully enrolled in its potentially registrational study. We continue to expect pivotal data from this study later in 2026. For our methylmalonic acidemia or MMA program, we have decided to defer the start of a registrational trial for that program until after we receive the pivotal readout from the PA or propionic acidemia program later this year. With that review, I will hand over the rest of the call over to Stephane. Stéphane Bancel: Thank you, Stephen and Jamie. Looking ahead to 2026, we see multiple value drivers across our company in commercial, in new product approvals and in [indiscernible] pipeline. On the commercial side, we continue to expect up to 10% revenue growth and remain focused on delivering our adjusted cash cost target of approximately $4.2 billion. We'll continue to invest in AI with a number of cross enterprise projects to reinvent work with AI. We will, of course, continue to drive increased personnel productivity across the company. We also expect potential approvals across the respiratory portfolio in additional geographies. We could, later this year, see our fifth product approved with mRNA-1010 for flu. From a pipeline perspective, oncology remains a key focus with upcoming data for Intismeran and mRNA-4359. We're also waiting for a Phase III data for norovirus, subject to case approvals, and of our PA programs, which should read out this year. The team remains focused on disciplined execution across these priorities. Over the coming months, we also look forward to engaging with the investment in medical communities at several upcoming events. This includes our investor event on June 1 at ASCO. But also, we would like to invite you in person to Cambridge or via webcast for our Science Day on June 25, where we'll provide a deeper look into our early stage pipeline, also how we're using AI and robotics to accelerate our ability to discover new technology to expand the use of mRNA to new drug modalities. On November 12, we also hosted our Annual Analyst Day, where we plan to focus on commercial priorities, product launches and expanding late-stage pipeline. In closing, I want to thank our teams around the world for the progress we've delivered this quarter. We have been executing consistently over the past 1.5 years, and I'm very excited of what is to come in 2016 and beyond. We are advancing our science, expanding our portfolio and continuing to translate mRNA into innovative medicines for patients. Each milestone achieved as important momentum and reconfirms our commitment to deliver [indiscernible] impact to people for mRNA medicine. With this, operator, we'll be happy to take questions. Operator: [Operator Instructions] Our first question comes from Salveen Richter with Goldman Sachs. Salveen Richter: So you newly disclosed initiation of a Phase III study for Intismeran as monotherapy and in combination with KEYTRUDA subcu for the treatment of high-risk Stage 1 small cell lung. Can you just -- and you spoke to it a little bit, but could you discuss your strategy to pursue this line and where it fits into the treatment landscape and why pursue a monotherapy here in addition to the combination? Stephen Hoge: Yes. Thank you for the question, Salveen. We and our partner, Merck, have been really excited by the clinical data that we've seen with Intismeran to date, including the Phase II. And it's important to highlight that the 2 pieces of that, one is obviously the efficacy signal we see, but the second is the remarkable safety profile associated with that efficacy, really no significant increase in serious or Grade 3 events when you get combination IO-IO like benefit. So the real question for us has been could we get that benefit risk profile in a monotherapy context? Could Intismeran provide IO-like protection against a relapse or recurrence of disease with a profile that really looks like a vaccine? And the best opportunity for us to do that, we and Merck have decided is it's across a couple of studies. Now the first I previously discussed was in bladder cancer, but we ultimately decided that in lung cancer, given the incredibly high burden of disease, the right approach there was to go into a Phase III potentially pivotal study. In that context, as Stephane mentioned, as you referenced, standard of care, more often than not a surgery and then watchful waiting. And so essentially, there is no other intervention. And we're looking at, therefore, INT as monotherapy as opposed to just surgery and watchful waiting for high-risk Stage 1 disease. Now we're also going to look at whether or not there's an incremental benefit of combining INT with KEYTRUDA in that setting because obviously, the best way to address cancer is to have it never occur after Stage 1. Unfortunately, what happened in the treatment landscape is many of those Stage I patients will recur, sometimes even recur as Stage IV or metastatic disease, and that is when we're fighting very late to try and control a quite progressed cancer. And so our goal, simply put, is to intervene early, prevent the relapse or recurrence from ever happening and in so doing, try and achieve cures in the earliest stages of disease. Benefit risk there needs to have a very good safety profile, and we really do think that the monotherapy safety profile of INT will be really strongly supportive if we can see in that Phase III study a strong efficacy signal. So we and Merck have been talking about this one for a while. Our strategy has been to focus on the adjuvant settings, but we have -- and we have started, as you know, some metastatic studies, but we have always wanted to move earlier, signaled that from the beginning because of that benefit/risk profile of INT and we are really excited to see the potential now in Stage 1 disease in a Phase III lung cancer trial. Operator: Our next question comes from Jessica Fye with JPMorgan. Jessica Fye: With a significant amount of international sales this quarter, I remember the -- I think the U.K. order from last year got pushed into early '26. I'm just trying to think about those contracts and the right way to think about what more could come from the U.K. for the remainder of '26? Like is it possible this is a double order year? And maybe you could just elaborate on how that works? Stephen Hoge: Yes, sure, I'll take that. And so the delivery that happened in the first quarter is for their spring campaign. And so for -- in the United Kingdom, there's a recommendation for both spring and fall booster for the targeted population does over the age of 75 or with significant risk factors. And so a second campaign is planned for the fall, and so the third and fourth quarter of this year, and that would be an additional delivery later this year. Operator: Our next question comes from Terence Flynn with Morgan Stanley. Terence Flynn: Great. Just wondering if you can be any more specific about the timing of the interim Phase III of the INT and adjuvant melanoma. I know you said 2026, but can you refine that at all at this point? And then maybe talk to the range of potential outcomes there? Are there only 2 outcomes, either the trial hits at the interim and continues as planned? Or is futility also a potential outcome on this interim? Stephen Hoge: Yes. Thank you for both questions. So I will disappoint in the sense that we won't refine that guidance. We have said we are confident based on the event accrual that we will see interim analysis conducted in 2026. I shouldn't say more, except that, that confidence should indicate where we think we are. On the question of the outcomes, there is not a built-in futility assessment. The interim analysis is either to declare early success or to continue to accrue events in the trial towards a subsequent interim analysis or final analysis both of which could happen in the years ahead. The study is very well powered and has been balanced in terms of its accrual. And so we have continued to accrue events in a way that we would expect, and therefore, we're optimistic about that interim analysis. But obviously, if we have not yet hit the critical hazard ratio to declare early success, we will have the benefit of continuing to look at more events afterwards, but futility is not a part of the current plan. Operator: Our next question comes from Luca Issi with RBC. Luca Issi: Great. Maybe, Jamie, on IP, can you just walk us through why the legal team deemed the additional $1.3 billion charge on 1498 is not probable. I guess the question is what gives you confidence that you will ultimately prevail there? And then maybe just kind of bigger picture, remind us that time line of when the final ruling could come? And then maybe quickly, Stephen, what's the latest thinking on flu in the U.S. ahead of PDUFA? We obviously now have a new acting director [indiscernible]. So I wonder if you have had any interactions with her, and whether you think that having her need is incrementally positive or incrementally negative for you? So any color there, much appreciated. James Mock: Yes. Thanks for the question, Luca, I think I may disappoint as well because we're not really going to comment too much on the merits of the trial. So all I can say is our legal team and ourselves, we are confident, and therefore, we believe it improbable that we would lose and therefore, have not recorded anything. From a time line perspective, it's always difficult to exactly read, but we think that it could be perhaps late 2027 maybe into 2028 is where we think that this might be resolved. But again, that's a moving target. Stephen Hoge: And for the question on the FDA and the -- particularly the flu 1010 program, we continue to progress well in that review in the normal back and forth with the review team and the folks in the office of vaccines towards our PDUFA date, obviously, at this point through a mid-cycle. And we would describe that as a pretty normal course, the kinds of exchanges we're having. And so we're encouraged by that and look forward to that August 5 PDUFA date. Obviously, we'll work hard to answer any questions, any remaining questions that the FDA has as they complete that review. As to the senior leadership, whether it's [indiscernible] or otherwise, we don't usually interact with them in these reviews at all. Really, this is the review staff, the folks in the office of vaccines, and that is the only place that we've been going back and forth. And we don't expect any impact, certainly didn't before, today or after as a result of the new Acting Director. We do look forward to working with the leadership of [indiscernible] broadly across our portfolio. So the 1010 flu vaccine review continues somewhat independently, but we have a large portfolio of other products from in Intismeran, INT to norovirus to our first rare disease program, the propionic acidemia program, all of which we hope have pivotal readouts this year, and we look forward to bringing those forward. So it's an exciting time for us, hopefully, for the field, and we are very grateful for the partnership across FDA and CBER as we try to bring these medicines forward to patients. Operator: Our next question comes from Tyler Van Buren with TD Securities. Tyler Van Buren: Congrats on the quarter. For the Phase III Intismeran adjuvant melanoma top line data, can you remind us what it is powered for? And perhaps more importantly, can you give us your latest thoughts on what constitutes success from a clinical standpoint? And what you need to show in RFS on an absolute basis or as we think about relative benefit there? Stephen Hoge: Thank you, Tom, for the question. So we haven't disclosed the powering assumptions for the IA. Suffice it to say, we -- the Phase II data had a really strong hazard ratio, very narrowly missed and a substantially smaller powering 150, 160 participants as opposed to 1,100. And so we're -- we think we are well powered -- very well powered if we see a similar hazard ratio. That would obviously be a huge success. But to your second part of your question on sort of the range of things that we would be pleased with, obviously, anything looks like the Phase II would be spectacular. But candidly, we think the opportunity for benefit could be anywhere between that 1.5% that we saw in a number like 0.8, where there's a significant benefit still in terms of survival and treatment of melanoma -- adjuvant melanoma, Stage II melanoma. Now across that range is a wide range of outcomes that we want to understand the raw data in what's happening. If you see really strong RFS and really strong eventually overall survival, as we've seen so far in the Phase II study, that's encouraging. If you saw maybe the overall survival or just a [indiscernible] data was better even if the RFS was not, that would probably equally be encouraging. And so there's a range of outcomes for how we would declare success that will depend upon the different clinical benefits that we see in the study. But for now, we feel like we are well powered going into that interim analysis. If not, we look forward to the subsequent analysis. And we think there are a range of outcomes here ranging from the Phase II results to a whole bunch of events that are much more modest, that could still be really meaningful patients and move forward successfully commercially as a treatment for Stage 3 mono. Operator: Our next question comes from Ellie Merle from Barclays. Eliana Merle: Curious what your expectations are for timing for data from RCC and muscle invasive bladder cancer. And can you elaborate on what good data would look like in these indications? And then what the next steps would be in those indications if the data are positive? Stephen Hoge: Yes. Thank you for the question. As we've previously said, both of those randomized Phase II studies are fully enrolled, about 300 participants in each. And so we're really excited to to fill in the picture on the strength of performance for INT across a range of different tumors. I would point particularly to the RCC as 1 that we're we're interested to see whether or not we can provide a really meaningful clinical benefit because we still think there is an opportunity, headroom for improvement there that's quite significant. Now those are event-driven trials, and we did want to protect the registrational possibility for those trials. So we're blinded, and we're accruing events towards that first interim analysis in both. For obvious reasons, we -- if possible, we would want those studies to be registrational. And so we want to make sure we accrue a good number of events and that we treat those analyses the right way. And because that it's hard to guide right now. We don't exactly know when potentially this year or even early next year that those results could come in because they are event-driven analysis. But when we have accrued sufficient cases to conduct that blind analysis, we will definitely be doing so. And all of us are eager to see the results because it will help not only guide whether or not those products or those indications are reasonable to move forward more quickly, again, potentially to a registrational study or towards a Phase III pivotal study, which we would look to start quickly. But also, they feel in that picture of how broadly INT is going to play. And in some ways, if you think of RCC as an example of a place where it's relatively far from melanoma in terms of mutational burden, and therefore, an opportunity for us to demonstrate a potential benefit that would then widen the aperture of where we think INT might have a role. So we're keen to see that data, but we are blinded at this point. We're following those events, and we are eager to provide updates once we have more. But for now, we can't guide on when that timing would be. Operator: Our next question comes from Michael Yee with UBS. Michael Yee: We have 2 questions on INT. The first was on the melanoma study. Would we expect that, that's a similarly designed protocol as it relates to the interim? I recall that the Phase II strongly hit at the interim. And so just trying to understand if a similar type of standard interim was built in here such that if it doesn't stop at the interim, it would imply some sort of different hazard ratio for the first term versus the second room? Similarly, on the renal study, we understand that this is a much slower progressing tumor if you look at the KEYTRUDA adjuvant studies, just trying to understand how it would be possible that a potential interim would come this year, or that's a much differently designed study in terms of an interim? Stephen Hoge: Yes. Thank you, Michael, for both questions. So first, we obviously haven't given any statistical guidance on the Phase III interim analysis. But suffice it to say, I just did a moment ago. We wouldn't be conducting the interim unless we thought there was a chance of success. And in that sense, we are not defining that as the hazard ratio that existed in the Phase II. There were some differences in the population, but certainly, that would be a situation we would want to have a relatively early look at. And so it's somewhere between there and obviously, not significant that we're looking for. We are -- we have -- we are really excited, but we also just need to wait and let the data mature and see those results. And so we're optimistic about that first interim. But it's fair to say that if it isn't successful, there's still opportunity in the second and the final. And we definitely have reserved alpha for both of those for what we think would still be commercially important products. So that's Point 1. Now on the renal, the renal is -- RCC is, as you said, the events can happen more slowly. There is a benefit, obviously, from KEYTRUDA, but there's a substantial headroom still. Even if you look to the combination products, KEYTRUDA plus Bezu, Merck has just had a great success there, with a hazard ratio of 0.72, there's still headroom even above that for improvement in terms of disease free survival. And so we're keen to look at that result. There are about 300 participants enrolled in that study. And I'll remind you as a reference, that's about twice as large as the Phase IIb adjuvant melanoma study that we've all been speaking so much about. We're not intending to power that as a registrational study, but it has registrational potential. And what that means is we could have a lower statistical threshold for declaring that there's a strong result there, a strong signal, I think, again, like what we saw in the Phase IIb with melanoma. The key there though, would be we would not want to unblind that study if at a lower threshold, call it 0.1 -- alpha 0.1, we wouldn't want to unblind the study if it was trending towards statistical significance and registration potential. And so that's the key unknown in that RCC study in terms of timing is we will hit a trigger for conducting human analysis based on events. The DSMB will look at that result and then advise us whether it's appropriate to declare early success or whether to remain blinded or alternative outcomes that are more like futility, but that would cause us to want to look at that data and quickly determine whether or not we want to run a Phase II. And so it's a high degree of uncertainty of what that looks like, but it's all about trying to make sure that if we have a drug here, a strong signal in RCC with registrational potential, we did not disrupt that. Or if it's strong, it needs a Phase III more powered analysis that we get that going quickly. And I think that's the decision that lies ahead of us in partnership with the DSMB. Operator: Our next question comes from Courtney Breen with Bernstein. Courtney Breen: Just a couple more on INT. What I wanted to understand as we're getting closer and closer to the kind of it's becoming a meaningful lot of model [indiscernible], but there's obviously still a big [indiscernible], but also on revenue recognition between you and your partner. Number one, can you help us kind of understand the parameter here, and I think through what this might look like to moda kind of realized contribution in the P&L recognizing that it is [indiscernible]? And then second, in the Stage 1 monotherapy and combination study, can you just again help us understand a little bit about that Stage 1 prevalence of diagnosis relative to later stages? Cancer lung cancer is obviously relatively, compared to other cancers, age quite late. So it would be helpful to understand how you think about this market and potential building if we can see kind of some opportunities for those patients? And speaking of that opportunity, any comments on kind of what the bar looks like particularly compared to a watching and waiting scenario? James Mock: Yes. Thanks, Courtney. I think we're breaking up a little bit, but I think the first question was around rev rec as it pertains to INT. So let me take that one. And I'll put a caveat out there that we don't even have the product approved. We're working with our auditors. It's not a traditional joint venture. So -- but this is -- I'll give you to the best of our knowledge, how we think it will work. So it will end up being that we deliver the product to Merck because they're obviously the market authorization holder, and they were sell it on to the customer. So that will be the first part of our transaction. And so you can imagine some amount of our COGS plus some markup. Thereafter, whatever the profit split is, then we will take that share -- Our share of that of 50%. So it ends up being naturally somewhat greater than 50% of the profit share because it's predicated upon first shipping the product and having some markup on that and then taking the margin on top of that. So that will change over time because we -- as we've laid out before, we're working on our cost of goods sold and with that will continue to come down over time as we continue to drive automation. So it will start a little higher as our cost of goods sold. Well, obviously, like any product starts higher and then get more productive over time. But that's the general framework, and I hope that helps. But again, we hope to be in that position next year to be able to start recognizing that revenue. . Stephen Hoge: [indiscernible] cancer Stage 1. So lung cancer really represents a pretty unique opportunity because screening through X-rays has actually been an important intervention for identifying early-stage disease, Stage 1 disease. Now the majority of diagnoses still show up later at Stage 3, Stage 4, in particular, but you're seeing an increase almost 1/3, north of 30% of diagnoses are now earlier stage, Stage 1, Stage 2. And that has grown over the last decade and hopefully continues to grow through better screening, including a relatively easy intervention, a chest x-ray that your primary care doctor can provide. So we do hope and expect that there's a big push on earlier -- catching lung cancer earlier. And that is a natural place, therefore, to try and intercept and intervene if you have a great benefit risk profile, again, to be proven, but we know we have the safety profile. And if we can do that, then we'll be able to dramatically impact the number of Stage 4 or Stage 3 and 4 diagnoses that start to show up. You've already seen evidence of that, right? I mean if you look in the United States, over the last decade or 2, there has been an increase in the number of diagnoses that have -- the percentage of diagnoses that are happening in earlier stage and a commensurate decrease that are happening in the later stages. And so we do think it's a unique tumor opportunity for us to go demonstrate Stage 1 intervention because of that screening regime around chest x-rays and the overall trajectory in the field. Operator: Our next question comes from Jeff Meacham with Citigroup. Geoffrey Meacham: I have 2 quick ones. The first 1 on Intismeran, as you grow the experience and data here, I know most of the trials are in combo with KEYTRUDA are there other I-O combo mechanisms that could also bear fruit, or is that better addressed with the rest of your oncology pipeline? And the second 1 on norovirus. As we get closer to data, do you have any updated view of what success looks like here, just given the standard of care? My sense is a significant benefit is all you need, but want to get you guys' perspective? Stephen Hoge: Yes. Thanks for both questions. So first, on the alternative IO-IO combinations, we are looking in the adjuvant setting and earlier in many of these Phase III studies. We do have a metastatic melanoma study, as you know. But we -- in that context, generally IO-IO combinations and the toxicity associate has not been seen as advantageous. And so for now, most of our focus is on the combination with the PD-1 and KEYTRUDA because of our partner, Merck. We would be interested in subsequent studies in exploring alternative I/O combinations. But as you kind of alluded to, that's already something we're starting to do in the rest of our pipeline. And in particular, I'd point to 4359, where we are looking in metastatic melanoma and alternative regimens, CTLA-4 plus PD-1 combinations, EPI, Nivo as an example, have been important intervention showing benefits in those populations. And that's a place where, if we want to add a third I-O agent for hopefully some benefit, we are doing some early Phase I/II exploratory work right now. So you might see, just as a function of the huge amount of work we're already doing in INT, you might see us first explore those other combinations for our cancer vaccines platform in the other off-the-shelf context first. But that doesn't rule out that in the future, we might explore the use of INT on top of other regimens. Certainly, both ourselves and our partner, Merck are interested in that. Now on the norovirus side, I think you hit the nail on the head. We we think given that there is not currently an approved vaccine for norovirus, and given that particularly for those at highest risk, those over the age of 75, those that have other medical comorbidities, there really is a high societal and medical costs associated with the profound dehydration that can happen with even just what might feel like a 2-day norovirus infection, not just hospitalization, but the significant exacerbations of underlying medical diseases as well and some death. And so that population, anything that can be done to reduce that burden would be ultimately value creating for the health care system, put aside the benefits for the individual patient. And so we're -- we think statistical significance is the bar. Obviously, we want to see a vaccine efficacy that's also meaningful and so north of 50%. But on -- but given that there currently is no standard of care or treatment, we would take anything above there as a success. Operator: Our next question comes from Cory Kasimov with Evercore ISI. Cory Kasimov: I also have 1 on Intismeran. So wondering how critical is it to demonstrate an overall survival benefit in Interpath-001. Given the challenges of showing OS and adjuvant melanoma, do you believe physicians would interpret the data set any differently absent a clear OS signal? Stephen Hoge: Yes. So I'd make a couple of observations. So first, RFS is a pretty good predictor. I mean this is a relapse-free survival. So again, it's not progression-free survival, it is survival, and tends to correlate. And if you look at our Phase II study, we have released previously the RFS, DMFS and even OS trend data. We look forward to the ASCO presentation to provide the 5-year update and the view on RFS, DMFS and OS. And I would point to that presentation and the data, and we hope that, that will provide confidence for physicians, for health care systems, for patients on that relationship in this case and in the case of Intismeran in combination with KEYTRUDA in the adjuvant melanoma setting, and that, that would provide sufficient confidence to move forward if the Phase III is positive. Now the Phase III data, we will follow OS. And we're through 5 years in the Phase II. So it will take us some time to get to that same level of data in the Phase III, but it will be a part of the trials going forward and can provide a significant degree of confidence going forward, but again, RFS really is survival in this case. Operator: Our next question comes from Simon Bick with Rothschild & Co Redburn. Simon Baker: Just looking at the Q2 revenues, a couple of quick questions. Firstly, should we -- or could you give us any color on the split? Or should we assume that the entirety is SPIKE vax? And also, Jamie, I wonder if you could give us any comments on phasing. It was a very strong number against our expectations, but I just wanted to know if there was any pull-through of expected revenues from Q2, particularly with some of those governmental orders outside the U.S.? James Mock: Yes. Thanks, Simon. So let me address the first question. as it pertains to product split. This was largely, the majority is COVID still. So we have not been -- as we've always said, we don't anticipate RSV being a significant growth driver in the year 2026. We believe that will take a little bit of time for us. So this is still primarily COVID-related. As for the timing, we laid out the second quarter. So -- and then I think maybe your question is more on the second half. But for the second quarter, we laid out $50 million to $100 million in the second quarter. So that should bring our first half to almost $0.5 billion of revenue. And that, if you look at that as probably $400 million outside the United States and $100 million in the United States. So let me talk to the timing of the year and give big picture and kind of compare it to last year. Last year, we had $700 million of sales outside the United States, and it was $100 million in the first half and $600 million in the second half. So with $400 million is in the first half of this year, if we repeat last year, that's $1 billion. And we've been talking about saying that our mix between the U.S. and international is going to be about a 50-50 split. So if we just repeat last year, that should get us $1 billion. And then in the U.S. last year was $1.2 billion. I said in my prepared remarks that we're expecting some amount of decline and we've modeled for that. So hopefully, that gives you a little bit of the phasing and timing here. And the last point I'll say is back to the question that was asked earlier, is in the second half of last year, we didn't have any U.K. revenue. So to Stephane's point that if there is a fall season, in last year, $600 million outside of the United States. We did not have in the U.K. There are other puts and takes that's why we've guided up to 10%. I'm not giving explicit guidance here, but I'm trying to give you the picture and contextualize what the year might look like from a U.S. versus OUS split. Operator: Next question comes from Andrew Tsai with Jefferies. Lin Tsai: It's a bigger picture question. I'm just curious what your guys' latest thoughts are on BD and even considering technology or assets beyond mRNA. Does it make sense to add more assets to your pipeline? Or do you think you're right sized for now? Stéphane Bancel: Thanks for the question. So if you think about the company, as you know, we've always focused on building the most impactful mRNA platform to enable modalities, families of medicines to enable them a lot of medicines happening using the same technology components. We've done it with infectious vaccines. We don't it with Intismeran. I look at a number of studies now. We are doing it in rare disease. And as we share more at our Science Day on June 25, we have been investing heavily to keep increasing in new modalities. You see it with a T cell engager that Stephen talked about [indiscernible]. You see it with 1439. And there's many more assets, we're going to walk you through what the science has enabled. So we're very focused on expanding to new modalities to enable new families of medicine. As you've seen in the past, we acquired a company in Japan a couple of years ago because it was expanding the mRNA operating growth of Moderna. We are continuing to look at science across the board, whether it's from academic labs or from companies, public or private. If we find the right opportunity to increase what we can do, we will, of course, execute on those priorities. But we don't have a pipeline problem like most companies in the industry. We have an abundance of products. As you know, we have been very disciplined on cost right now to get back to breakeven. But we have a lot of exciting science that is waiting to go into the clinic soon, and we'll share more of that on June 25. Operator: Our last question comes from Alex Alexandria Hammond with Wolf Research. Alexandria Hammond: So with the recent approval of the COVID flu vaccine in the EU, can you just walk us through your commercialization strategy? And I guess what is the successful launch of like a year from now and 5 years from now? Stephen Hoge: Yes. Thank you for the question. So first, I want to start by saying, as is our pattern, our path, we do not expect revenues in the year of approval for these vaccines. And so 1083 [indiscernible] or flu in the United States, none of those are in our guidance that Jamie was speaking about. Now your question is more kind of looking forward in '27 and '28, what does success look like? The first step, the one we're engaging in right now across the major markets in Europe is securing market access and so that is pricing and reimbursement. That is a national process, and one that is underway, even publicly underway, for instance, in France, where they have initiated that, frankly, quite quickly after approval, which we think is an encouraging sign. It's important to note that across Europe, there's about a $2 billion respiratory vaccine market. We previously sort of summarized that. Flu is a big part of that, and COVID is the second large part of that and it's much more portion reserve for RSV. So we see it as a very large opportunity for our combination COVID vaccine. Lots of benefits to payers, to health care systems, to patients. Patients appreciate the -- it's only 1 shot and there's a strong preference on that. But payers and health care systems really appreciate the lower burden of work. It's a single product. It's only 1 injection. You don't have to procure both. And the amount of time you get back from a health care provider, be that a physician, a nurse, a pharmacist that they can get back to do other things that are value creating for the health care system is actually a huge part of the value proposition of the product. And so what we've been doing with those governments, and we will do throughout the back half of this year, is help build that economic value story. We've got real-world effectiveness coming -- data coming out from our products, and we hope to be able to show their benefit for the individual, but we also want to help the health care systems understand and value the savings that they will get from a respiratory combination vaccine. And so that's the big push really over the next 12 months. We do hope for a successful launch in '27 in the first markets where we can get pricing and access. And in some cases, in Europe, that takes a couple of years as a process, and it would really be 2028 when you'd start to see that more significant uplift. Our hope is that we end up with a very large share of that $1.8 billion to $2 billion respiratory vaccines market because we really do think we have a unique product that can save the health care system money and deliver better value for patients and providers. And so we're -- we'll have more guidance as we move forward. But rest assured that we are spending the next year securing that market access pricing and reimbursement and helping people understand the value of that combination. Patients get it quickly, health care systems are also getting it quickly, and we've got the work ahead of connecting those dots so that we can have a successful launch in '27 and really drive growth of the business in '28. Operator: Thank you, ladies and gentlemen, this concludes the question-and-answer portion of today's program. I'd like to turn the call back to Stephane for any further remarks. Stéphane Bancel: Well, thank you very much for joining us today. As you can see, we're excited about 2026, returning to sales growth and critical Phase III readouts norovirus, Intismeran and propylene acidemia. We look forward to talking to many of you over the next few days and a few weeks. We're excited to host you more from them Monday, June 1 at ASCO. And on June 25, Han Cambridge for a Science Day. Have a nice day, and have a great weekend. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good morning, and welcome to Lazard's First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead. Alexandra Deignan: Thank you, Chelsea. Good morning, everyone, and welcome to Lazard's earnings call for the first quarter of 2026. I'm Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we've posted our earnings release on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements, or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and investor presentation. Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman; and Tracy Farr, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join us as we open the call for questions. I'll now turn the call over to Peter. Peter Orszag: Thank you, Ale, and good morning to everyone. Before turning to our first quarter results and outlook for the year, I want to start with our announcement of the acquisition of Campbell Lutyens, and the future establishment of [ Lazard Cal ], a new private capital advisory unit within Lazard that will serve as our third global business closely coordinated with our world-class M&A and other advisory practices. This transaction underscores how Lazard is building on its core advisory franchise while both diversifying our business model and accelerating our growth. Campbell Lutyens is a premier global private markets adviser focused on fund placement, secondary advisory and GP Capital Advisory services. Along with our existing PCA group, the transaction combines two highly complementary advisory platforms that will create the leading primary and secondary advisory business globally, with approximately $500 million in anticipated combined '27 revenue. The acquisition marks an important milestone on the path towards Lazard 2030, and an exciting avenue for additional growth. Lazard 2030 is a multiyear plan to build a more productive resilient growth-oriented firm. Our focus is on enhancing our long-standing strength in M&A, while also building leading platforms in restructuring and liability management, capital solutions and private capital advisory. Our recent investments have expanded the solutions we provide for clients and diversified our revenue mix. Revenue related to private capital connectivity has increased from approximately 25% of total advisory revenue in 2019 to 40% today. Upon closing the Campbell Lutyens acquisition, we will achieve our 2030 target of approximately 50%, even while delivering total revenue growth. The acquisition of Campbell Lutyens and establishment of [ Lazard CL ] strengthens our ability to deliver for clients at a time when fundraising is increasingly competitive and liquidity solutions are more complex. Operating across all major alternative asset classes and in all major global markets, [ Lazard CL ] will provide an unparalleled platform for independent differentiated advice that meets the evolving needs of institutional investors financial sponsors and their portfolio companies. By pairing the combined proprietary data sets of these two businesses with our AI capabilities, we will deliver deeper insights for clients while advancing our goal of becoming a leading AI-enabled independent financial firm. We view this acquisition as strategically disciplined, financially accretive and culturally aligned. We share a commercial mindset, collegial approach and unwavering commitment to our clients. With Lazard's heritage in Europe, including the U.K., where we have had a significant presence for well over a century, we also have a shared respect for Campbell Lutyens [indiscernible] and for the importance of preserving local identity within a global firm. This step highlights our further investment in the U.K. and in growth across our global franchise. Taken together, this transaction reflects how we are positioning Lazard to lead across both public and private markets with exceptional advisory and asset management capabilities, while remaining anchored in the strategic [indiscernible] that defines our firm. We anticipate the transaction closing before the end of the calendar year, and we look forward to welcoming Campbell Lutyens' team to Lazard. Now turning to the quarter. Firm-wide adjusted net revenue was $673 million, up 5% compared to 1 year ago. In Financial Advisory, our outlook is optimistic despite geopolitical uncertainty with conditions depending in part on the path forward in the Middle East. Client engagement remains very active, and the pace of client interactions continues to accelerate. Total conflict clearances are up significantly, reinforcing our confidence in our deal outlook. As one example, [ conflict ] clearances for deals above $5 billion are up 50% year-over-year. The broader underlying dynamics supporting activity also reinforce our constructive outlook. Companies continue to look to achieve scale and focus amid rapid technological change and a regulatory environment that is constructive. Dispersion and corporate performance continues to drive elevated restructuring and liability management alongside M&A. We anticipate ongoing strength in fundraising and the potential for increased private equity activity. These dynamics align with our existing Financial Advisory and future [ Lazard CL ] businesses, providing multiple and complementary levers for revenue growth. Financial Advisory activity can admittedly be uneven from quarter-to-quarter. And during the first quarter, we had several transactions moved to later in the year. As a result, revenue from this business was not as strong as we anticipate the rest of the year will be. Robust growth in restructuring and liability management, and private Capital Advisory along with solid M&A performance in Europe, supported overall results and underscore the benefit of our diversified model. Looking beyond 2026 to the next phase of Lazard 2030. Retaining, promoting and recruiting top talent remains a core component of our long-term growth strategy. We more than exceeded our goal of expanding our Financial Advisory [indiscernible] by 10 to 15 net additions from the first quarter of each year, with 28 net additions for 2025. Our recruiting pipeline is strong, and we remain opportunistic about adding new MDs in 2026, while we also focus on integrating Campbell Lutyens following [indiscernible] close. In Asset Management, we delivered net inflows of $9 billion this quarter, the highest level of quarterly net flow in almost 20 years. The momentum we see in our results underscores that our strategy is successfully pivoting the business where active Asset Management [indiscernible] advantage. While our focus on the areas of the market where information is imperfect -- with our focus, sorry, on areas of the market where information is imperfect and where our systems and research carry a distinct edge, including in quantitative strategies and emerging markets, we continue to see client demand and growth. Even with significant inflows for the quarter are one but not yet funded pipeline remains strong. While the environment remains uncertain, our business is well positioned for the year ahead as market volatility creates more opportunities for active managers and global diversification is firmly back on the agenda for investors. We continue to believe 2026 will be a year in which investors increasingly reallocate towards emerging and international markets which is where Lazard's presence and capabilities are particularly strong. With a more diversified platform, best-in-class research and investment processes, enhanced global distribution strategy and new leadership, our Asset Management business is well equipped after opportunities aligned with client demand. Overall, client demand continues to grow for independent differentiated device and investment solutions grounded in [indiscernible], the broad insight and judgment needed to navigate complex macroeconomic and geopolitical dynamics. And that is what Lazard excels at delivering. As we reflected in our annual shareholder letter published last month, Lazard today is a structurally and culturally different organization, more [indiscernible], more globally connected across public and private markets and better positioned to deliver long-term growth beyond traditional cycles. Now let me turn the call over to Tracy to discuss our financial results. Tracy Farr: Thank you, Peter. Financial Advisory adjusted net revenue was $356 million for the first quarter of 2026, 4% lower than the prior year. Building on our momentum in Private Capital Advisory, recent assignments included [indiscernible] Capital Partners, [indiscernible] Capital on continuation funds and advise [ NOVA ] infrastructure on the raise of Infrastructure Fund II. Further reflecting the diversification of our franchise, liability management and restructuring assignments include debtor roles with [indiscernible] and [ Xerox ] Holdings and creditor rules involving [ Ampology ] and [ DISH ]. Demonstrating global reach with complex assignments. We completed transactions. We [indiscernible] $23 billion acquisition of [indiscernible] and planned subsequent separation into two independent companies. And recently announced transactions include Zurich Insurance Group on its [ GBP 8.2 billion ] recommended cash offer [indiscernible] Turning to Asset Management. Adjusted net revenue was $309 million for the first quarter of 2026, up 17% from the prior year quarter. Revenues reflected management fees of $296 million for the first quarter, 25% higher than the first quarter of 2025, and up 3% on a sequential basis. Incentive fees totaled [ $11 million ]. As of March 31, we reported AUM $259 billion, up slightly compared to year-end and demonstrating improvements in flows. During the quarter, we had net inflows of $9 billion, market appreciation of $354 million, foreign exchange depreciation of $3 billion and divestitures of $1.5 billion. Average AUM for the first quarter was $266 billion, up 2% compared to the prior quarter, and up 15% compared to 1 year ago. To mandate highlight ongoing demand for our quantitative global and fundamental equity capabilities. In the first quarter, we secured several new mandates spanning our Advantage platform, systematic equities, fundamental strategies, fixed income and private markets. Related to a few key transactions during the first quarter, the sale of our [ State and Edgewater ] funds was an attractive resolution for our investment in the firm. This resulted in a $78 million noncash gain in our GAAP results, which is excluded from our adjusted reported results. In addition to our organic growth investments, yesterday's announced acquisition of Campbell Lutyens an important step in the execution of our Lazard 2030 strategy, materially accelerating revenues, scale and the diversity of our platform. Upfront consideration is all stock with optionality on deferred payments to be either stock or cash. The acquisition is expected to be EPS accretive in 2027 with no synergies assumed. Equity ownership is broad-based at Campbell Lutyens. So this transaction creates significant value through retention and performance alignment with long-dated deferrals. It also has the near-term effects of strengthening the balance sheet, additional cash [indiscernible] the business. Now turning to firmwide expenses. Our adjusted compensation expense was $471 million for the first quarter of 2026, resulting in a compensation ratio of 69.9%. Our adjusted non-comp expense was $149 million for the first quarter of 2026, which equates to a non-compensation ratio of 22.1%. Improving operational efficiency and delivering profitable growth is a top priority. We continue to take a disciplined approach to expenses while investing in the long term. We are committed to achieving efficiency over time as we balance both sides of these [indiscernible]. Shifting to taxes. Our adjusted effective tax rate for the first quarter reflects discrete tax benefits related to stock-based compensation awards [ that vested ] during the quarter. We currently expect our effective tax rate for the full year 2026 to be in the high [ 20s percent ] range. Turning to capital allocation. In the first quarter of 2026, we returned $174 million to shareholders, including a quarterly dividend of $47 million. In addition, yesterday, we declared a quarterly dividend of $0.50 per share. Guided by our Lazard 2030 strategy, we are building a stronger and more resilient firm. The addition of Campbell Lutyens and the future establishment of [ Lazard CL ] as our third global business will accelerate our strategy and strengthen the scale, relevance and strategic importance of our connectivity to private markets. With ongoing focus on disciplined execution, across financial advisory and Asset Management, we are positioning Lazard to deliver sustained growth and long-term value across cycles. Now we will open the call to questions. Operator: [Operator Instructions] We'll take our first question from Devin Ryan with Citizens Bank. Devin Ryan: First question, obviously, appreciate the comp ratio dynamic in the first quarter, just the -- this kind of [indiscernible]. But -- can you just talk about kind of the full year? Do you think you can drive some improvement there just based on what you're seeing right now in the revenue backdrop, appreciating things can change? And then bigger picture, probably for Tracy, just as you've been in the seat here for a bit, are you identifying any opportunities that could maybe drive more leverage as we look out beyond 2026? Peter Orszag: I think, Tracy, can take both of those. Tracy Farr: I appreciate the question. So first of all, I'd go to Peter's opening comments around our positive outlook for the year, as you can fully expect comp ratio as a factor of 2 different metrics. And so as we gain more and more confidence around the revenue projection, there's leverage there. I want to be careful. I mean, your comment is exactly right. It's effectively a math equation. And the accrual that you'll see of the [ 69.9% ], I think we would still guide you closer to a comp ratio for the full year, similar to what we had last year, around 65.5%. You understand from a GAAP basis, we're required to accrue on a fixed compensation basis, and that has a larger impact in the first quarter. So some of the math, which I understand is complicated, shows that there'll be a higher accrual in the first quarter versus the second. I do think that there are opportunities to be more disciplined. Obviously, me being in this role, one of the things that I stress that I would focus on was operational efficiency and cost management. I think there's additional ability to be disciplined in the comp ratio itself directly. I think you have seen relatively strong amount of discipline on non-comp already in the first quarter. To your question about just other areas, yes, I think there are opportunities, particularly in our support functions, around streamlining operations between both geographies and businesses that we have a renewed focus on finding efficiencies there. We launched a long-dated program to address some of those costs and cost reductions. I think we'll have more details that we can give on that in the second half of the year. I further believe that there's still opportunities as we see advancement in technology and AI and other parts of our business. But again, I think you'll see a continued focus on my part around operational efficiency. Devin Ryan: Great. And then Peter, I won't leave you out here. First off, congratulations on the Campbell Lutyens acquisition, seemingly get you in the top couple of firms and Private Capital Advisory, obviously, [indiscernible] already had a strong business, but this scales that quite a bit. So the question really is Campbell Lutyens didn't have all the other advisory capabilities that Lazard does, and your existing private capital business was pretty integrated with from my sense. So can you just talk about the network effects that you think you can get off of Campbell Lutyens? And then also what that could mean for like productivity uplift of those partners, or just more broadly across the firm as you integrate all those LP and GP relationships with broader Lazard? Peter Orszag: Sure. Thanks so much for the question. First, I'd note, we believe, and I think the data show that we're a pro forma [indiscernible] leader, not one of the leaders in primary and secondary fundraising business as a whole -- on a pro forma basis, for [ Lazard CL ] post close. Second, there is a network effect, a flywheel effect in both directions from M&A, restructuring and liability management to the fundraising business and vice versa. This is one of the major motivations that Campbell Lutyens had for joining Lazard, which was the recognition that they needed more of those capabilities in order to compete in the fundraising business. And they -- again, this was a big part of the discussion, which is the ways in which there was a business flow in both directions. So we're very excited about the opportunities for enhanced productivity from -- not just the kind of base business, but from -- in a sense, referrals in both directions. And this was a core part of the strategic logic of the transaction. In addition to that, I don't want to discount the data piece of this. As you know, really [indiscernible] information and data on both GPs and LPs is difficult for most people to obtain. [indiscernible] this combined business will have a data-rich environment that will be coupled with our AI systems that will help facilitate that flywheel effect that I was mentioning earlier, in addition to helping on the core primary and secondary fundraising business itself. So there's a lot of opportunities for uplift here that we're excited about. Operator: Our next question will come from Alex Bond with KBW. Alexander Bond: Another question on the deal, and congrats there again. Can you help us think about the business mix at Campbell Lutyens just in terms of, maybe, secondary advisory, related revenues versus the primaries business relative to your existing in-house units currently and also in a similar sense in a geographical split of their business compared to yours? And essentially, just trying to determine where do you think their business will fill in the most white space relative to your existing offerings? Peter Orszag: Yes. I appreciate that. And what was attractive for us about this transaction is the [ LEGO ] piece nature of it in terms of very little overlap and a lot of where they're strong, we were weaker and vice versa. So I would highlight, in particular, their strength that -- the way I would put it is we're now balancing in the secondaries market, for example, GP transactions that are a source of excellence with LP transactions that are on the Campbell Lutyens side, more of the focus across asset classes. We're adding complementarity between real estate, private credit and then infrastructure and other for example. And so that's fitting very nicely. And then on the fundraising piece, strength in North America with their -- with strength in Europe and in Asia. And so you're just seeing, as we went [indiscernible] layers down, the entire ecosystem coming together in a comprehensive way, I think it is exceptional having seen lots and lots of potential transactions, the degree to which the pieces fit together to form a coherent whole. We also have some additional information on the mix of activities and what [ Lazard CL ] would look like in the supplemental deck that we posted yesterday on our website. Alexander Bond: Great. And then maybe for my follow-up and going back to the comp and I guess just want to drill down on maybe the impact of last year's above trend hiring there. You obviously added the 28 net MDs last year, well above the [ 10% to 15% ] target that you have out there. But maybe if you could just help us quantify maybe how much the hiring last year impacted the comp in 1Q relative to the full year '25 rate? And then also maybe how we should think about [indiscernible] hiring last year, maybe trickling through and [ impacting higher trends into '26 ], if at all? Peter Orszag: Sure. Let me take that question and then Tracy can take -- or I'll take that part of the question and then Tracy can take the, kind of, I don't want to call it the mechanical part. I'm not [indiscernible] that to you, Tracy, the calculation part. Obviously, last year, we added a lot of talent and well above our [ 10 to 15 ] net add per year target. We have added some bankers this year. Healthcare Services is a good example. We're interviewing others. And by the way, I would note, [indiscernible] an aside, one of the people I interviewed earlier this week before this transaction was announced was highlighting the importance of the secondaries business to his M&A franchise. So just coming back to the flywheel effect. We think that with [ Lazard CL we'll ] have even expanded ability to recruit and attract top talent. But bottom line, I think that we will be [ within our ] range this year in terms of net adds rather than above it. So 2025 was an unusual year because we had a lot of talent that we thought was productive and valuable. I'd also note, just on the timetables here, that also means that if you look back over time at the separations we've done to help modernize our culture. And then when the net adds have been, a lot of the future productivity, I've talked about this before, is still yet come as the bankers that we've been hiring up on to our platform. And if you look at the year-by-year net adds and subtractions, and then add a lag of 1 to 3 years depending on what kind of ramp you want to do. The vast majority of the productivity gain from the hiring we've done is yet to come. Tracy Farr: Yes. And I think the only thing I'd add to that are the mechanics. I mean you talked about the hiring and the expectation around hiring this year. Naturally, we've talked about the ramping and we've talked about that percentage of MDs that are still in that ramping period. Keep in mind that, that still remains at a relatively high level of around 40%. And so again, as that number were to come down, which would be effectuated by, for example, Peter's comment of us being in the middle of that range. You'll see a little bit of of leverage as that matures. I guess, mechanically, maybe what I'd point you to is when you think about total fixed comp, which obviously has a component to that of guarantees as you're bringing in MDs from external places, total fixed comp, if you were to compare it quarter -- first quarter this year versus last year was up kind of low double digits. And so when you think about the total adjusted net revenue being up effectively 5%, there's naturally going to be a higher accrual rate of first quarter. Again, I think that, that math and that mechanic probably paints a tougher picture in the first quarter than what I believe the full year will look like. We think that through both a more positive outlook on the revenue front through a much more disciplined approach on comp this year than maybe what has existed in the past, given my involvement in that process. I think that the guidance that I gave you around comp coming down closer to where it was last year is important. Operator: Our next question will come from James Yaro with Goldman Sachs. James Yaro: Congrats on the deal. I did want to touch, Peter, on the sponsor's backdrop right now. It remains the weaker part of M&A once again so far this year. You did sound a constructive tone on this part of the market. Maybe you could just expand a little bit on the timing and speed of sponsor M&A, recovery and the ingredients associated with that as you look ahead? Peter Orszag: Sure. Look, I struck a constructive tone on the market as a whole. I don't think I struck a constructive tone on the private equity piece of that. And in fact, for example, the [ conflict clearance ] is above $5 billion. The rapid growth there, those are almost all just given the deal size public transactions. Those are much less likely in the private capital sphere as an example. But I agree with you. There's a little bit of waiting for [indiscernible] kind of phenomenon where -- with regard to private equity activity, we've all been waiting for that moment. I'd say if you listen to the heads of the large alternative asset managers who are going to drive a lot of this activity, they are still saying that 2026 will be the year in which they're going to be selling and buying a lot of firms. So we will see how that plays out. But the other point I wanted to make is that our connectivity in private capital, the reason that our revenue share on the advisory side has gone from 25% to 40%, extends well beyond private equity M&A and involves restructuring and liability management engagements with these firms. It involves the Private Capital Advisory business, which is growing rapidly. It involves our [ Lazard cap solutions ] business. So I think the piece that you're focused on appropriately is a subset of the overall private capital activity. And I agree with you that we're -- we've been waiting for a substantial uptick in private equity activity. We'll have to see how the year turns out. We are seeing a significant number of processes that we're [ involved ] in. So that's promising in private equity M&A. And then the second thing I'd say is, again, look to the [indiscernible] comments of the leaders of these firms in terms of what they say they're going to be doing in this calendar year. But we all have to wait to see it actually manifest itself. James Yaro: Okay. I apologize from mischaracterizing your comments. Maybe just a little bit on Asset Management here. I was hoping you might be able to expand a little bit on the flow outlook from here. Do you expect to be able to continue at the recent level of inflows? And perhaps if you could also just unpack a little bit the fee rate dynamics in the quarter in Asset Management and how we should think about the fee rate going forward as well? Peter Orszag: Chris Hogbin is going to take that for us. Christopher Hogbin: Sure. Thank you for those questions. So look, on the flows, we obviously enjoyed a strong first quarter with $9 billion of net inflows. I think that reflects a deliberate sort of focusing [ on ] our distribution efforts, strong investment performance growth in a number of services, and client demand in areas where we have very strong offerings. As Peter mentioned in his remarks, we've seen clients looking to diversify into international emerging markets and global strategies. And as a reminder, 2/3 of the AUM we manage is nondollar-denominated. So we benefit from that. In terms of the flow dynamic going forward, we still have a very strong one, but not funded pipeline. We see a lot of commercial activity. But I would not straight line the number from Q1 through the year. In fact, in the next couple of months, we might see a little bit more of a moderation in the net flow level. As a reminder, net flows is the difference between two big numbers, gross flows, inflows and then outflows. So we think that while we continue to see very strong gross flows, there are some areas of our business where we may see some level of redemption. But we still remain very confident that we will deliver the -- on our commitment of having net inflows for the full year. So we're very confident at that level. Secondly, to your question on fees. Fees in the -- average management fee in the quarter was 44.6 basis points. That's actually up sequentially from [ 43.9 ] in the fourth quarter and up meaningfully from the [ 41.2 ] from a year ago. Obviously, [indiscernible] a fee rate a lot depends on the evolution and the mix of the business going forward. But we feel comfortable as we see the business today, that the fee rate should stay around this level through the remainder of the year. Operator: Our next question will come from Brennan Hawken with BMO. Brennan Hawken: Congrats on the Campbell Lutyens deal. Could you help us understand the price paid for Campbell Lutyens? And thanks for the clarity on the equity financing, Tracy. When was the deal price struck? Could you [indiscernible] understand that, too? As far as the pricing [indiscernible] Tracy Farr: Yes, I can take both of those. So you'll have hopefully seen that the reference share price was $46.50. As you can imagine, we had, throughout the process, a long set of negotiations between the heads of terms and the ultimate pricing. It was based on kind of a medium-range [indiscernible] during the period. On the questions on the equity financing, and maybe it's just helpful to walk through this for everyone. The [ 575 ] total noncontingent consideration, the $460 million of that is paid upfront. So that's -- the $460 million is based on that [ $46.50 ] reference share price. A significant portion of that, about half of it, we can get into the details be effectively released upon issuance. So not locked up about another half of it is locked up over a period of 3 years. There's also $115 million of a deferred payment, which would which would not be priced at the [ $46.50 ] It would be priced at issuance, which is 2 years from close, also subject to then a further 1-year lockup on that. As was noted in the materials that Peter referenced, there was another $85 million of performance-based earnout. On both the deferred and the earn out, we have the ability to pay settle in either a cash like security or stock that gives us some opportunity to manage dilution depending on where the share price is, that was important to us. But we thought that the all-stock nature of the transaction was attractive for a number of reasons. First and foremost, the alignment of incentives between the people that are joining our firm and our existing employees. The nature of the deferral has strong retention dynamics between just the long-dated nature of the deferral and the grant dates, but also forfeitures associated with it. So we thought that, that was powerful from a retention perspective. And then lastly, as was mentioned, we think it's a powerful tool in just further enhancing the balance sheet and providing future strategic flexibility. This would be a deleveraging transaction naturally. But as we continue to think about other organic or inorganic investments that we want to make, increasing our strategic flexibility was important. Brennan Hawken: Thanks for highlighting all that. Another angle that I was interested in pursuing Tracy was the, sort of, getting an understanding of the price paid on the actual earnings that you are acquiring. Could you maybe help us understand the earnings that is embedded either in your 2027 revenue base where you have the combined entity? And importantly, what kind of profit margins [ CL ] had, or anything that we can kind of get a little clarity on the underlying metrics? Tracy Farr: Yes, it's a great question. When you think about it from an acquisition multiple perspective, and we talked about it being accretive in 2027, the way that I would think about it is it was effectively acquired at a multiple similar to our total consolidated weighted average multiple, which is why it's effectively breakeven in the first year and likely accretive in the second year. So that gives you a bit of a sense on just the earnings multiple related to it. The revenue of the business is slightly larger than our own PCA business, but with really holding operating margins in the mid-20s percent range. So this was both a high-growing and high-performing asset. So it was a chance to invest in both revenue growth but also profitability. You didn't ask it, but I also think that this is an opportunity, going back to the comp ratio perspective, not only to help from a scale perspective, which always helps accomplish [indiscernible]. But I also think the -- when you look at respective comp margins in respective businesses, this is another area where our consolidated comp ratio could benefit over the medium term. Operator: Our next question will come from Ryan Kenny with Morgan Stanley. Ryan Kenny: Just want to clarify, as you focus on integrating Campbell Lutyens, does it rule out additional M&A near term in areas like asset management? Peter Orszag: I'll take that. The short answer is that I think we've been disciplined in the acquisition targets that we have been looking at. Campbell Lutyens, I think, is right down the fairway in terms of type of business that we find attractive. It's not -- I think I've talked before about avoiding advisory firms that are [indiscernible] kind of thing that where you're putting a premium on something with very little to no terminal value. We will continue to pursue [indiscernible] in which we're going to avoid doing that. And then on the asset side, we were disciplined. Obviously, we were being pitched a lot of private credit opportunities early in my tenure. We decided not to pursue those in part because we did anticipate that the valuations looked high and we anticipated there might be a wobble in the market at some point, which is exactly what has occurred. That having been said, there may well be teams within Asset Management that we find interesting, not necessarily major acquisitions. And then the only other thing I'd say is we are taking a very active look at our wealth management opportunities, and we believe that there may be pathways for growth in that arena. So I'll leave it at that, which is on the advisory side, I think we've been pretty clear about the criteria that we would apply to acquisitions. And on the asset side of the business, I don't think you should anticipate anything in the traditional asset management space, but we may be -- we're looking through the growth opportunities in our Wealth Management business. And in addition, we are actively always looking at adding talent and teams in our core Asset Management business, where we believe that it's differentiated. And obviously -- one other thing as we look at any opportunity, I just want to emphasize, it's got to fit strategically. It's got to fit from a valuation perspective and a shareholder value perspective, and it's got to fit culturally. We're really pleased with Campbell Lutyens from that perspective, but those are the only transactions that we're going to be doing where you hit all 3. And we will continue to be quite disciplined in terms of what we look at. Ryan Kenny: All right. And then separately, Peter, what are your thoughts on the new proposed merger rules in Europe? Is it meaningful to your Advisory business there? Peter Orszag: It could be. I think it's -- I think -- look, the backdrop in Europe is that there are lots of great European companies, but the macro backdrop has been stymied and to some degree, the corporate backdrop has been impeded by -- you don't have as many frontier firms in Europe as you do in the United States. And so I think going back to the [indiscernible] report, this was one of the recommendations that was in that report. And so in addition to potential that there's opportunity created by moving in this direction. I'm also glad that Europe is moving on some of the [indiscernible] recommendations because I think that's important to not just M&A in Europe, but also European economic growth. Operator: Our next question will come from Mike Brown with UBS. Michael Brown: So Peter, you noted that several large transactions slipped out of Q1, but the conflict clearance is above $5 billion or up, 50% year-over-year. Can you maybe just talk about that pipeline to revenue conversion timing here? Is this potentially coming through in 2Q? Or is it really going to imply kind of a heavy second half skew? And is there risk here that some of these deals ultimately don't reach the finish line? Just maybe some color there about kind of what drove that slippage this quarter? Peter Orszag: Sure. I mean, I think the short answer is this is not a quarterly business. It's a lumpy business, and you have to, kind of, look at underlying trend because the quarters can bounce around. That is what we're very excited about. We are, if anything, ahead of schedule relative to our 2030 plan on all of the indicators that we're tracking to achieve that plan. But quarter-to-quarter, things can move around. It's -- I don't know that there's one explanation for the various different slippages. A lot of them are idiosyncratic to specific deals, or regulatory approvals, or what have you, things do move around. With regard to the outlook from here and the comp clearances. What I would say is I would just underscore that again, which is that there is no guarantee that a [ conflict clearance ] turns into an announcement, and that turns into revenue. But it is encouraging and an indication of the increasing traction that we're getting as a firm. I see this in a in a more qualitative way in terms of the board rooms that we're now in, the CEO relationships we now have that did not exist a couple of years ago. The frustrating part of this business is that takes a long time to mature and it takes a long time to convert into revenue. But it's happening and the conflict clearances, I think, are an indication of that. So I don't want to provide [indiscernible] precision on exact conversion timing. But I do want to give some encouragement about the underlying -- under the surface momentum that the business is creating in terms of our relationships, and those relationships turning into mandates and then ultimately mandates turning into revenue. Michael Brown: Okay. Great. Appreciate the color there. And then I just wanted to ask about Campbell here. A lot of good color. I like the way you frame kind of the [ LEGO ] building blocks here. So it doesn't seem like there's much overlap. But if you were to think about some of the synergies, clearly, there's some network effects. You talked a little bit about that. Maybe expand on that a little bit? Is this an opportunity to continue to, kind of, find ways to get paid more from sponsors if ultimately, there's less deal activity coming through? And then maybe on the expense side, is there any opportunities that could come through there, Tracy, maybe touch on any like shared services, or other expense opportunities here? Peter Orszag: Sure. What I would say is I do think that there is a benefit to being the market leader. Actually, even the responses we've gotten over the past 24 hours from some of our major clients underscores how excited they are that we will be able to offer the full suite of services that they may need in primary and secondary with a global fundraising practice that fills in the holes and therefore, if anything even more effective on their behalf. And so I'd say the past 24 hours has been encouraging on the additional revenue that will come to the combined business precisely from the combination. And then I've already highlighted the data point. I'd say in private markets, this is particularly important. The more insight you can have across a wider array of private market participants, the more effective you're going to be for any given client. And then third, I'd say the scale itself opens -- and we'll have more to say about this in the future, but the scale itself opens up a whole array of new opportunities which I'll leave [indiscernible] vague for right now, but that we're excited about in terms of what we can offer to counter-parties and to others associated with Lazard. So more to come on that. And then on the cost side, the accretion in 2027 that Tracy mentioned, you can fill in additional detail, Tracy, does not assume cost synergies. But -- and so we're -- we're excited about this transaction even in the absence of that. Obviously, as we move through integration process undoubtedly in these sorts of things as we examine different ways in which we can be more efficient together than we were separately. I have confidence that there will -- those synergies will be possible. It's just that we didn't assume any. Tracy Farr: Thanks, Peter, and it's a great question. I think maybe one point I would add on the revenue front. In the negotiations that we have with Campbell Lutyens, keep in mind, they -- this was a bilateral negotiation. One of the things that they found very attractive about Lazard itself was our preeminent M&A practice. In their own revenue pipeline, we talk [indiscernible] diligence the fair bit there's a lot of opportunities where they collaborate, and with other advisory partners where that now could be a revenue synergy within our existing business. So I would say that, that is more revenue synergy [indiscernible] On the cost side, you're exactly right. I appreciate you using the shared service concept. As you know, I've shared my views around legacy Lazard, not having kind of a shared service mentality in corporate. I continue to believe that there are significant synergies there. Naturally, they have a lot of support functions that will come across that can complement that analysis. So that's an area. Peter already mentioned the geographical [ LEGO ] compatibility with our business in addition to the client and the service offering, there's a geographical one that is beneficial. So from a real estate perspective, I think there are also some synergies, which we did not include. The last one I would say is, I'd be remiss if I didn't complement the talent at Campbell Lutyens, both in their corporate and within the business. But I had a significant amount of time to spend with their finance, legal and other support functions. And I think simply, as we evaluate other cost efficiencies throughout Lazard, the talent that we're able to bring over from Campbell Lutyens will be an important component to that strategy. Operator: Our next question will come from Daniel Cocchiara with Bank of America. Daniel Cocchiara: [indiscernible] came into the year just -- with a lot of emerging market excitement, but the war and energy price spike has kind of thrown that into question. I was wondering if you could just talk about how these developments have impacted your near-term outlook just for the Asset Management business? Peter Orszag: Chris will take that. Christopher Hogbin: Yes. I mean it's interesting. If you look through the first quarter, the flows picture was actually very consistent from January to February to March and the gross -- so we didn't -- as the Iran conflict kicked off. We didn't really see any impact in the flows in our business. As a reminder, institutional investors tend to be a little [indiscernible] longer term. And if anything, see any of those market movement is an opportunity to achieve their longer-term asset allocation. So it really hasn't changed much in the outlook for our business at this point. Operator: Our next question will come from Brendan O'Brien with Wolfe Research. Brendan O'Brien: To start, there's been a lot of noise on the private credit space at the moment where there's growing concerns on the outlook for credit performance, just given the greater exposure to software companies. Just want to get a sense as to whether you're seeing any signs of building stress in both sponsored portfolio companies broadly, as well as within their software holdings specifically. And just as we think through the timing of this opportunity, is this more of a 2026 kind of fee event, or more of a long-term one in your view? And just how does the private credit loans, or the fact that there will be more private credit concentrated potentially impact the opportunity from a liability management versus Chapter 11 perspective? Peter Orszag: I'll take a little bit of that, and then Tracy, you can come in also. Look, I'd say the following. I'd say in our -- in the parts of our business that deal with sponsors who are in the software space, you're seeing an effect. It's not universal. It's a bit idiosyncratic firm by firm, but that is a very, very small share of our overall advisory practice. And in general, I'd say the private credit challenges are concentrated in the software sector. And they are also, I'd say, more salient or more severe, if you will, in -- among alternative asset managers or private credit players that have also turned to retail investors. And the reason for that is I think retail investors are more used to having the ability to just withdraw money whenever they want to, and there is a tension between that thought and the relatively illiquid nature of many of these investments. Institutional investors who account for the vast majority of funding of the private credit market overall, I think, understand that point, but it's something that many retail investors are not quite as used to [indiscernible] this juncture is exactly why these private credit funds have gating constraints on the size of withdrawals that are possible at any point in time. It's still somewhat awkward when someone wants money back and they don't get it back immediately. Anything else you wanted to add, Tracy? Tracy Farr: I would just go back to a couple of points. I mean, we noted earlier, the restructuring practice having a broader mandate between creditor and debtor. I think there's a lot of opportunity there. I actually came out of the capital solutions business within Lazard, where I spent the majority of my career. Keep in mind that practice is really a very bespoke credit in private capital advisory business, where, frankly, as some of these challenges emerge, that business actually performs better [ as it's ] dealing with kind of bespoke credit or private capital solutions that exist. And then I go back to part of the rational around PCA and Campbell Lutyens, I think [indiscernible] as much as any kind of the complexities in private credit manifest themselves and challenges in whether it's M&A, Peter mentioned IPOs earlier but just other financing solutions that enable transactions, the ability to pivot towards continuation of vehicles and secondaries, Again, we see that as a natural hedge within the business and frankly, [ just a ] high-growing area. Brendan O'Brien: That's helpful color. And then for my follow-up, I just wanted to touch on the cross-border environment at the moment. With the conflict in the Middle East, once again highlighting the fragility of global supply chains. I just want to get a census to the extent of which some of your larger multinational clients are rethinking their respective footprints and whether you see this as spurring more cross-border M&A activity once we're past the conflict? Peter Orszag: I would say that large multinational firms are definitively rethinking their supply chain footprint. That's pretty much across all sectors. I would [indiscernible] say that I think even when this conflict is resolved, and we could talk more length about the various options there. But even when this conflict is resolved, the risks associated with being cognizant that there are various choke points across the global economy are, I think, much better appreciated today than was the case a decade ago. And leadership teams and Boards are responding to that recognition by trying to create more resilience. The trade-off is it's not so easy to decide in some sense how much insurance you're going to take out against those checkpoints because it's expensive to do it. And so I think that's exactly what -- and I don't mean literal insurance. I mean geographic dispersion that [indiscernible] the chokepoint. So I think that's what you're seeing. I don't know that the end of the hostilities in the Middle East is going to be the kind of break point for those questions because I think there's broad scale appreciation that we're just in a new environment. And even if peace breaks out in the Middle East, the risk that various choke points across the world will again be used for leverage in geopolitical conflict is well appreciated by boards and C-suites. And so they're evaluating how to respond to that. I would just highlight again, I think while this sort of uncertainty is unfortunate for the global economy, it is also something where clients increasingly look to a place like Lazard to help them guide, to help get insight into what they should and could be doing. I've emphasized before the contextual alpha era that we're in. I think we are living in an era of contextual alpha. And Lazard's geopolitical team integrated with our banking teams and then also integrated with our investment professionals on the asset side, meet that moment. Operator: We have a final question from Alex Bond with KBW. Alex please make sure that you're unmuted. All right. This does conclude Lazard's First Quarter 2026 Earnings Conference Call. You may now disconnect.
Operator: Good day, everyone, and welcome to the First Quarter 2026 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, at www.eastman.com. I will now turn the call over to Mr. Greg Riddle, Eastman Investor Relations. Please go ahead, sir. Greg Riddle: Thank you, Becky, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Executive Vice President and CFO; and Jake LaRoe, Senior Manager, Corporate Analysis and Investor Relations. Yesterday after market closed, we posted our first quarter 2026 financial results news release and SEC 8-K filing. Our slides and the related prepared remarks in the Investors section of our website, eastman.com. Before we begin, I'll cover 2 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially Certain factors related to future expectations are or will be detailed in our first quarter 2026 financial results news release. During this call, in the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-Q to be filed for first quarter 2026 and the Form 10-K filed for full year 2025. Second, earnings referenced in this presentation exclude certain noncore and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures including a description of the excluded and adjusted items, are available in the first quarter 2026 financial results news release. As we posted the slides and the accompanying prepared remarks on our website last night, we will now go straight into questions. Becky, please let's start with our first question. Operator: We will now take our first question from Vincent Andrews from Morgan Stanley. Vincent Andrews: Mark, I'm wondering in methanolysis, given what's going on, the run-up in crude oil prices and virgin plastic prices running beyond that, if in methanolysis, this is providing an opportunity for more customer trial or adaptation, whether it's in the U.S., potentially some export opportunities because I seem to remember over the last year or so, we've been talking about customers not wanting to spend or try things that are different, but it would seem to me now your product probably offers some significant relative value beyond just its recycled nature. So if you could comment on that, that would be really interesting. Mark Costa: So we certainly are very excited about the strength of revenue growth or associated with the renewed platform around methanolysis, both on the specialty side as well as the rPET side we need to keep in mind that the end markets here, even though there's a lot of stress in the marketplace right now with Middle East conflict. The end market demand situation hasn't really changed dramatically. Consumer discretionary on durables is still relatively challenged or cosmetics, et cetera. So we're not seeing an uptick in any market demand in this context. And the customers are still fortunately very focused on the value of renewed content and interested in buying it. So on the specialty side, I don't think anything has really changed. We are getting a bunch of wins. We're seeing a great build in specialty customers. You saw some of that volume growth happen in Q1. It will continue into Q2. and into the back end of the year. And it's happening with Tritan sales and cosmetic packaging, where we're seeing the most adoption. On the rPET side, I think there is more of a question around just relative value of our rPET relative to the where virgin PET prices are going with the increase in oil. And certainly, that improves the price position of our material relative to those materials that are going up in a considerable way. And so we see strong demand there. But obviously, the demand was strong before oil went up, and we're running our capacity to serve that. And so that 4% to 5% revenue growth that we've talked about in January, we still think that's probably accurate. There may be some upside. The real upside, I think, sits relative to the underlying market sits more in the Middle East related issue than it is just on the new value proposition across the portfolio, but in particular, specialty plastics since we're talking about Advanced Materials right now, has some upside there. As our competitors in Asia, principally are facing a much higher oil costs, much higher natural gas cost they're having to raise prices like we are aggressively in this context. But they're also facing security supply issues. There are shortages out there that's driving all this price increase. So there's -- people are going to start running into the inability to actually make product polymers, whether it's great competition or indirect polymer competition. So we're just seeing signs of it, but we expect to see more potential volume upside driven by that operational constraint that's going to be occurring in Asia in particular. So there's a combination of renewed growth for sure. What's impressive in this entire environment is even with the challenges that our customers are facing economically, we're still building, they're still paying premiums for these products, which is a really impressive test of the value proposition. Operator: Our next question comes from Patrick Cunningham from Citigroup. Patrick Cunningham: Sort of a related question just on the volume upside as being a reliable supplier here. Have you seen tangible market share gains, particularly in CI at this point? I know you kind of touched on this, but how would you sort of handicap the potential for share upside in other parts of the specialty business as a result of the conflict? Mark Costa: Yes. So it's a great question, and we're certainly paying a lot of attention to this issue, as I just mentioned. So on the Chemical Intermediates side, certainly, we can sell everything that we can make. And the good news about this year because we had such large cracker turnarounds last year is we have a lot more volume to sell this year than last year. So we have more volume to sell. Remember, we sell a good amount of that in North America, where we have good margins always. And then we had the export market that we would send material into from Chemical Intermediates to run the assets well. But those margins have been significantly compressed last year. So those margins now with the shortage out of the Middle East have gone up significantly. And so we're going to see the benefit of that. So we see the benefit of bought more volume than we expected in North America with the tightness in the overall markets from the imports that would have come from Asia that are not coming as much -- as well as the spreads expanding and a lot more volume to sell. So we're definitely seeing share benefits as well as being explored to higher-value markets like Europe than Asia where markets are being shorted by material that's not coming from Asia as readily. So lots of different benefits going on there. When it comes to the specialty side, I already hit the point, I think. But we definitely see the potential for volume and market share upside in AFP and Advanced Materials. But it has -- we haven't seen any significant amount of improvement yet. So we think that's still to come. A lot of people are very focused on the price of oil or the price of global natural gas which is certainly raising the cost structure of our competitors around the world much higher than us. But the quantity shortage, I think, is an impact to the world that we haven't actually seen yet. The people are living off of a certain amount of inventory, whether it's customers or competitors in serving the market, but that's going to start running out and they're going to start seeing more shortages impacting the markets in addition to just the sort of direct oil or natural gas dynamic. Patrick Cunningham: Understood. Very helpful. And then just on fibers, you specifically called out reduced customer shipments, some forward-looking volume risks. Can you elaborate what you're seeing there and why the implied second half earnings run rate should still show some improvement year-on-year? Mark Costa: Sure. So just to sort of go back just a moment to sort of what we're dealing with in fibers. When the earnings came off last year relative to '24, it was really multiple components. The tow volume is part of the story, but it's important to remember that about $30 million of the decline was textiles, $20 million was sort of stream utilization due to weak demand across the company and about $15 million in energy. So when you move to this year, what we told you in January was we thought that the tow volume would be moderately up relative to last year, which was a combination of locking in our contract business with everyone. So we had a modest price decline to lock in our contracts. But our Middle East customers were expected to grow a bit because they were the ones that were missing their contract commitments last year due to the issues we explained about the not realizing market share growth in their markets. And so we were expecting some modest growth into from that. Obviously, with the Middle East war happening, the -- those customers have been impacted. We actually have towed there to serve their demand. in some warehouses. So it's not an issue of us getting material to them. It's an issue of their ability to operate in this environment. and be able to export their cigarettes to other markets because a good portion of their production isn't just for the Middle East, it's for exports to other markets. And so how they get that material out is a bit of a constraint. So Q1 was fine. We see a little bit of risk in Q2 where they're not going to buy quite as much in that quarter as we expected. And the real question is how do they come back in the back half of the year to meet their contract commitments. When it comes to your back half question -- and the other thing that's going a little bit slower and why we lowered earnings about $20 million in our guide here is the yarn business is not growing as fast in this market context. So we don't see that volume pick up -- and as a result, we don't -- we're not getting as much of an asset utilization tailwind as we expected. So when you think about that, we still feel really good about how the business is doing. And then when you look at it from a second half point of view, have several drivers that will make the second half much better than the first half. First is these contract commitments. So even with our large customers who have signed annual contracts that holds to relatively constant to last year. The contracts allow flexibility in how and when they buy it. And a number of them have chosen to buy less in the first half and buy more in the second half. So you have a pretty significant ramp-up in volume with our core customers around the world, just meeting their contract minimums, which is sort of what we have in this outlook. So that's happening. The second is you've got some continued build in the Naia yarn and film side of things. You will have a little bit of energy tailwind as the energy gets cheaper from a flow-through basis from the winter storm in Q1 to lower natural gas prices going forward. So a number of these factors come together to enable this. And of course, our cost reductions are sort of back-end loaded as well across the company, and some of that flows in here. Operator: Our next question comes from David Begleiter from Deutsche Bank. David Begleiter: Mark, on CI, if you were to hold spreads steady at today's rates, and layer in that $50 million of maintenance tailwind for Q3, what will that mean for Q3 EBIT? Could we see EBIT $100 million in CI in Q3? Or is that too ambitious? Mark Costa: Well, I think, Dave, we sort of guided you that in Q2 would be around $50 million in EBIT with a pretty tight market situation that's going on, obviously, right now. As we look at and what the trends could be, I would think it's going to be more similar than to be substantially up. I mean, without a doubt, the margins are tight right now and there will be a tailwind from Q2 to Q3 on the shutdown side. But it then comes to your assumptions around when the Strait is going to get open. If the Strait gets open in the next months, obviously, some pressure is going to come off in the marketplace, and you'll have spreads moderate a bit. So that makes it a little more complicated to sort of say it's going to be up. I think it being similar is a reasonable expectation. But it really comes down to how this whole straight situation plays out and how long the market tightness goes. When you think about it, the price of oil, price of global natural gas are obviously incredibly high right now. and that gives us a very significant advantage in how we make a lot of products, not just olefins, but everything because a lot of our customers are also -- or competitors are based on natural gas, not just for energy, but for feedstock. But if you think about just the cracker side of things on olefins, which is the vast majority of the improvement for us, you've got maps that are offline, and you've got methanol off-line, that's 15%, 20% of that, not just the oil, but these derived products, a lot of time for these refineries to restart. Then you got to get the derivatives restart, then you got to fix the logistics question. And then you've got damage in places that have to be repaired. All of this says the moderation isn't going to go all the way back to pre-conflict in our minds on oil or for the derivatives. But certainly, when the Strait opens, some of that pressure come off and factor into sort of how the margins trend in the back half of the year. But we feel great about how the business has improved. We're happy to have the cash flow that comes from this business. And we certainly think that it lets us to reset better. David Begleiter: Very good. And just on the potential volume upside and specialties from these disruptions in Asia, how do you go about making these permanent rather than just temporary? Mark Costa: That's a great question. So I mean I think it's going to -- it's unfortunately at the patent's answer, David, on where we pick up the volume. In some places where it's a like competitor the shares may normalize back a bit. But customers are learning painful lessons about exposure and reliable suppliers. And I think one thing to keep in mind is this is an excellent proof point about the advantages of being a North American chemical company and in particular, being a very vertically integrated chemical company with 80% of our assets in the U.S. gives us a huge cost advantage but it also gives us a huge security supply advantage to our customers, and there's value to that. And certainly, one we intend to take full advantage of in supplying our existing customers but also picking up new ones that we will intend to hold on to. When we pick up customers, by the way, from other materials, then the chances are we can hold on to them because the value proposition of our product is better once they once they start using it. Typically, they're using some cheaper polymer like polycarbonate or SAN that doesn't perform as well, but it's cheap. When they switch over to our polymer they're going to see it perform far better with their consumers and then that should provide some stickiness in how we hold on to that share once they've realized it. So we're going to be doing everything we can. And of course, we're going to be trying to lock business in on contracts for a longer-term commitment where we can as well in this environment to sort of give us resilience on the volume and the price side. Operator: Our next question comes from Josh Spector from UBS. Joshua Spector: Just curious around your visibility around any pull forward or not. I mean I think in your prepared remarks, you said it's not pulled forward, but how are you validating that? I guess, all the conversation around potential supply risks from some of your competitors probably makes your customers a bit more nervous and probably build a little bit of inventory. So curious there. And then related with that, just how does this impact your production plans? I think you kept your asset utilization tailwind kind of the same. I would think if you're anticipating their demand, maybe there could be some upside there. So curious if you could talk about that as well. Mark Costa: So when you think about the demand pull forward, we're operating with the underlying assumption that end-market demand this year is going to be similar to last year, which is the same assumption we gave you at the beginning of the year. And it's the same thing we're using for how we think about planning and assessing what's going on. And in that context, what we're seeing in volume growth in the second quarter sequentially is strengthened growth in the AM business, really in specialty plastics which is associated with all the methanolysis wins, which is associated with clear wins of new applications and market share we're getting in our core and Tritan business, our cosmetic business that doesn't have anything to do with pull forward. We don't see a big spike in demand like last year where people are just trying to buy stuff ahead of tariff risk. I think part of what's going on is customers see the risk and want to get ahead of price increases or want to have security supply, but they're also being cautious about what they do when it comes to building too much demand with market uncertainty that we all can recognize in the back half of the year in this context. And the other factor in this too is inventories are really low at the end of last year. So you also have to keep that in mind. That's part of the strength of recovery you saw from Q4 to Q1 as people just starting to rebuild some inventories or, if you will, end of destocking that was going on in Q4. But we don't see a lot of inventory out there in the supply chains at this stage. It's always difficult to see it. To be clear, we certainly, along with the entire industry, have not been experts in understanding the supply chain inventory. But we don't see a lot of build of that, certainly not in March. And as we go through this quarter, our order books are really strong. So we had a good March, a strong March and we see that continuing in April and May. But June is a wildcard in this market context. We don't see any problems, but we just don't have that much visibility all the way out to June. But overall, there's just a sign of given market pull-through in the specialties. As I said, in CI, we can sell what we want to make and probably can do that through the end of the year. Operator: Our next question comes from Frank Mitsch from Fermium Research. Frank Mitsch: I was struck by the $500 million of price increases that you have started to implement. I'm wondering if you could talk about how you see that phasing in. What has been the initial reactions from your customer base? And how does that match up in terms of your expected inflation in raw materials? William McLain: Frank, what I would say is, as Mark has already highlighted, in Chemical Intermediates, we were reacting in the moment and driving price increases and volume growth as we think about what's required to supply. In the specialties, obviously, our pricing philosophy has been around the value of our products. And as we pace that with our partners over time. What we expect sequentially is in our specialties, mid-single-digit price increases from Q1 to Q2, when you think about our chemical intermediates, those are phasing in. I would say they're in the high teens or approaching 20% as we see that sequential momentum. So we were -- our teams across the world reacted in the moment in Q1 when March occurred, and we have good progress out of the date. Mark Costa: Yes. So just to answer the question around the sort of market competitive dynamics around this. Clearly, everyone is raising prices, whether it's polymers or chemicals across the entire industry. So you have that momentum to leverage being cautious on price increases will accomplish nothing when you're trying to worry if you think about consumer demand, except you missing out on margin, I think everyone understands that. That's point one. Number two is the competitors we have, especially in the specialties, especially in Advanced Materials are Asian based. They've got significant increase in oil, and they have significant increase in natural gas prices. So their cost structure, their energy cost structure has gone up more than us. And so they're feeling a lot of pressure to manage their prices, and we're seeing the price increases from our competitors similar to us. across the markets. So in this context, we feel pretty good that we can get the price up, hold our volumes. And we've got great commercial teams. We've shown the value of innovation by holding on to price incredibly well in '24 and '25 in very weak market conditions. And now we're in a hyper inflated market condition, and we're showing we can increase our price in our specialties and keep track with our raw material and distribution costs, which is just further proof that we have a specialty business that has differentiated value propositions. And -- but we're always close to our customers. We'll always be keeping an eye on competitive activity and make adjustments if we have to, but we're not seeing the need to do that at this stage. Frank Mitsch: That's very helpful. And if I could come back and get a clarification, when talking about fiber is getting better in the second half of the year, part of that is you have contract commitments from Middle East customers that you're anticipating they're going to meet their contract minimums, et cetera, et cetera. But wouldn't this qualify as force majeure? I mean wouldn't they be able to say, "Hey, look, I mean, this -- to me, it seems like the very definition of force majeure. How should we think about that? Mark Costa: First, to frame it, the Middle East customers are about 10% of our revenue in this segment. So the other 90% is predominantly tow as well as some yarn customers. And in that 90%, the real dynamic here is just they all have contracts -- they all have volume commitments. Our forecast is based on them buying at the bottom end of the volume range in those contract commitments. And so that's global, it has nothing to do with the Middle East. And they bought less in the first half of the year and going to buy more in the back half of the year. And that is the principal driver of the increase in earnings in the second half relative to the first half. And when you get down to the Mid East part, these customers have made a lot of investments in new capacity, and we're winning in the marketplace, but not quite as fast as they wanted. And that's where sort of their volume draw last year sort of came up short. They had taken a bunch of actions and start gaining market share this year and are very focused on doing it. They just have a logistics issue of getting it out. And so we've adjusted our expectations for the risk of that challenge by sort of lowering the earnings expectations segment to this $210 million to $240 million range, which is about a $20 million drop. And part of it is just a bit less volume from them, a bit less yarn growth a bit less asset utilization benefit and you put those 3 together, and that's how you get to that $20 million versus where we were originally. And that's really sort of the dynamic. So it's about customers meet their contracts. Those customers historically have always met their contracts under any situation, and they don't have a force majeure excuse on that 90%. Operator: Our next question comes from Matthew DeYoe from Bank of America. Matthew DeYoe: I can't remember now if it was the slides or the release, but you talked a little bit about the EPA tariff refunds. Wondering if that was a tailwind to 1Q or if it's more 2Q, if it was, how much are you expecting to get back there? William McLain: Matt, on the IEEPA tariffs, obviously, with the Supreme Court ruling and the Court of International Trade, we recognized about $20 million within Q1. That wasn't a tailwind that the EPA recognition of the refund was basically in line with the winter storm impact. So you can think about those 2 as being neutralized in Q1. Also, that is the recognition. There's no further IEEPA refunds to recognize and we would expect to get the cash related to that sometime in the second half of the year. Matthew DeYoe: Just to clarify, that's been like included in the 1Q results then. William McLain: Yes, both the winter storm and IEEPA in the Q1. Mark Costa: So if you think about it, they neutralize each other out. So when we gave you our guide in January, we said this is our outlook excluding the winter storm impact that we are in the middle of. But by the time we got to the end of the quarter, IEEPA tariffs neutralized the winter storm it turned out to be about the same. So it was just a clean quarter relative to how we guided in January. Matthew DeYoe: All right. That's helpful. I'm jumping back in. So context is helpful for me. And then on methanolysis, Right. I just wanted to kind of square some of the commentary because you talk a bit about new wins. And at the other side, you're saying demand hasn't really changed much. So can you just kind of refresh where we are on kind of the upscaling here? Mark Costa: Sure. So when it comes to the revenue of circular, there are 2 components to it, right? There's the core business we have where we're adding recycled content to our Tritan products, our cosmetic products. in our specialty businesses and growing those businesses. Obviously, those end market businesses have been very challenged economically from '22 through '25 as a discretionary spend where consumers have pulled back. So the rate of growth we've seen on the specialty side has not been as good as we would have expected in the last couple of years in '24 and '25 in particular, as we were ramping up this plant. The good news is we've been winning some more applications through the back half of last year that are showing up as additional revenue that you saw some of the benefit in Q1, you'll see it build in Q2 and even more so in the back half. on that specialty side with those wins. So to be clear, we're not saying that end market is improving. We're just picking up more market share in durables or in cosmetic packaging with our value proposition. So that's happening. Then on top of that, we swung a line that can make Tritan back to making PET that we've explained to you guys a year ago so that we could make PET and serve that our pet market because Pepsi and some others wanted to start buying sooner than their original contract obligations because they saw the value proposition we have with our renewed products. So our superior clarity, our superior quality our superior performance and how the product actually performs was recognized and they wanted to start building and use that material this year. So when you put those 2 together of selling more rPET with Pepsi and with some other packaging companies, brands, you get that 4% to 5% revenue growth that we talked about in January. And when I was answering Vincent's call, I was just confirming, we still see that 4% to 5% growth. But the Middle East conflict hasn't yet significantly increased that to be more than 4% to 5% growth. We're going to pick up volume for other reasons, as I described, due to sort of impact on competitors. But in this case, we're going to sell what we can make and we're ramping up our PET capability to sell even more, but it takes a bit of time to do that on the capacity side to continue supporting that growth, not just this year, but also additional growth next year on the rPET side. Operator: Our next question comes from Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: You talked about earnings $50 million, perhaps in the second quarter and in the third quarter in Chemical Intermediates, but propane prices have really been pretty volatile. Sometimes they're $0.75 a gallon and sometimes they're $0.90 a gallon. How are you handling your propane values? And can you reach these numbers that you're talking about if propane is at $0.90 a gallon. William McLain: So Jeff, obviously, we're buying propane at the market prices. that you're referencing. We do believe here in Q3 -- I'm sorry, in Q2 that we believe that we've appropriately taken that into consideration as we look at the supply-demand balances and how we've priced into the market with our price increases. So yes, there's some range or, as we say, approaching $50 million for the quarter, but we think we've taken that into the appropriate context for $0.75 to $0.90 range. Jeffrey Zekauskas: Okay. And you talked about for the year, perhaps approaching the cash flow that you generated last year. What are the parts of working capital that are sort of holding your operating cash flow back? Are they payables or receivables or something else? William McLain: Yes, Jeff, what I would say is, as always, the Eastman team does a great job of generating and managing our cash flows, and that was demonstrated again here as we think about the level of consumption of cash actually being lower than the prior year. So for Q1 out of the gate, I believe, but we've got things well managed and under control. As we think about sequentially, we know that we built some inventory in Q1 for our large turnarounds, and we expect to deplete that. That's going to be offset with some of the inflation that we've described and I've been talking about through the call. At the end of the day, the pressure will come as you think about there's pressure on the inventory and on the receivables account, but we also think that, that will be mitigated by higher accounts payable at year-end. And we're just trying to look and see what's the second half scenario when we get to midyear as we then think about managing all of the various levers. So under control, the range is narrowed because of the level and magnitude of inflation overall. And as you think about net working capital, you've got 2/3 in your assets and 1/3 in payables. So net tension on that front. That's all we're highlighting at this point. Operator: Our next question comes from Kevin McCarthy from VRP. Kevin McCarthy: Mark, can you speak to the expected quarterly earnings cadence in Advanced Materials? It seems like we have a fair number of moving parts there. I'm curious about how you're dealing with paraxylene inflation here and whether you think you can recover or possibly over recover those sorts of input costs, whether there are any lag effects we should be keeping in mind and I think you called out some auto production variances there. So maybe you can kind of just kind of walk us through some of those moving parts and think about whether you would expect earnings to do better in the back half versus the second quarter and that sort of thing. Mark Costa: Sure, Kevin. So when you think about Advanced Materials, there's a cadence, as you said. So first of all, it was a great recovery out of Q4 into Q1. Obviously, we had some mass utilization headwinds with some choices we made there. So as you go into Q2, you've got the benefit of seasonal increase in volumes, these application wins we've talked about, starting with rPET and renew specialty product selling, but other products growing, that's going to give us a lift into Q2. The automotive market, relative on a year-over-year basis for the year, we're expecting to be sort of down sort of low single digits. So that's on a year-over-year basis, it's a bit of a headwind. On a sequential basis, it's a tailwind because the performance film business always has a big ramp-up in volume from Q1 to Q2 that we'll also see helping us on that front. So you have all those factors coming together on the volume side. And then you've got the actions we're taking on price, as you mentioned. So teams have moved incredibly quickly to start implementing prices on either April 1 or May 1 to cover the expected increase in raw material costs, paraxylene, VAM, the key raw materials that go into this segment. And we believe we're very much on track to sort of keep pace with those as we go through the quarter. And then you've got utilization benefits coming in underneath of this that also start to help out. So a number of reasons why we'll certainly have a better sequential quarter in Q2. And then as you look forward into the back half of the year, what you'd expect to see here is continued volume growth because a lot of the build in the circular side is back-half loaded. You're going to see continued improvement and just wins in general. So the back half we won't have a normal seasonal decline in volume because of all those wins that will offset what is still a normal seasonal decline. So you get volumes that could be flat to a bit better in the back half, which would be not normal, but it makes sense with all the innovation we have in this market context. So you've got that happening. You've got the prices having fully caught up. So you've got a first half to second have sequential tailwind in price cost as that plays out as well as energy coming off a bit. And then you have the cost savings and a lot of the utilization benefit is going to be in the back half, too. So a number of reasons where AM will be stronger than normal in the back half of the year, which is also true of the fibers business being stronger than normal. And just to finish out the strength since we're on the topic, AFP would be normal, right? So it will be normal seasonality in the back half of the year. And then as we just talked about Chemical Intermediates, margins are going to be better in the back half of the year relative to the first half of the year, especially on a Q1 basis, relative to the back half. So when you put all that together, that definitely drives earnings to be very attractive in AM to be as we expected as well holding similar in AFP, CI a lot better this year. Fiber is a bit off. So the overall number means that our earnings per share should be above $6 a share. Kevin McCarthy: Very helpful. And then secondly, with regards to your Chemical Intermediates segment. How much harder can you run your assets in the second quarter and moving forward relative to the first quarter. Is there a meaningful uplift from utilization? Or is it really all about the more favorable spreads there? William McLain: So I would just highlight, obviously, we were impacted by some of the winter storm on operations as well. So as we think about going from Q1 to Q2, we'll have -- definitely have that as a tailwind. And also as we look at our olefins and the Oxo's from that perspective, I would highlight that we did build some inventory in Q1 for our planned asset till turnaround. So our asset till, I'll call it, upside here in Q2 is limited. But for us, we see most of that margin growth coming in our olefins at this stage. Operator: Our next question comes from John Roberts from Mizuho. John Ezekiel Roberts: Within the automotive weakness, are you seeing better performance in your coatings ingredients than you're seeing in the films area? Mark Costa: So no, we're not really seeing a difference. You have to remember, a lot of our demand is driven by the refinish market as opposed to the OEM market on the coating side. Obviously, that market has been a bit challenged just like the performance films, the aftermarket in general is more discretionary in consumers' behavior that's been through in '24, '25, and we expect that to continue here the overall auto market, as I said earlier, is expected to be a little bit soft. And I'd say our demand will be in line with the market on the coating side. And certainly, I think that's not as -- not true in the AM side. So we'll continue to do a little bit better than the market with our innovation like HUD and even EVs still take 3x as much material per car versus ICE where there is growth in EVs. And I think some growth in EVs will certainly come back with -- especially in places like Europe and China with a high price of gasoline you're going to see some people moving back to EVs for economic reasons, maybe even in the U.S. But I would focus more in Europe and China for that. So I think that there's -- those kind of advantages will help us do a little bit better on the interlayer side, performance film side will be like coatings more in line with where the market goes. John Ezekiel Roberts: And then was the winter storm impact in the tariff refund benefit largely booked in the same segments? William McLain: On, what I would highlight is, obviously, those aren't going to be uniform and -- but I would say there's not a material difference that I would highlight for you. Operator: Our next question comes from Mike Sison from Wells Fargo. Michael Sison: For Chemical Intermediates, can you give us -- can you give us a thought what pricing needs to be year-over-year in 2Q to get to the $50 million? And just curious on the delta there in terms of the improvement year-over-year. William McLain: Yes, Mike, what I highlighted earlier is you can think about the sequential price increases approaching 20% for Chemical Intermediates overall. Mark Costa: And while we're adding in the specialties, it's about mid-single-digit price increases going on the specialty side that gets you to that $500 million. Michael Sison: Got it. And then it seems like Advanced Materials margins are going to continue to -- will improve sequentially in 2Q. This is a segment that I recall it used to be at 20%. Is that still the potential for that segment longer term? Mark Costa: Absolutely. The business is a great business. The main issue that's affecting the margins in Advanced Materials is volume relative to fixed costs. It's not a price variable cost issue. The price of variable cost has been good, held up and been incredibly stable, frankly, from 2022 to now. And even now with incredible inflation that we're facing in the business and across the company, we're implementing prices to keep up with it. So this really -- when you think about AM is more of a utilization-based issue, right? So you've got the underlying cost structure, then we added $100 million of the cost structure for the methanolysis plant and you've been stuck in a really weak economic environment that hasn't improved since 2022 where volumes in housing, consumer durables are still well below 2019 levels. and even auto is now dropping probably below 2019 levels with the trend this year, we sort of got back to 19% last year. So a lot of opportunity and a lot of pent-up demand of cars 15 years old appliances getting to their end of life that's in our future. So we feel very good about demand coming back when we get past 1 crisis after another and driving utilization benefits, and we're creating our own growth and filling out the methanolysis plant in a weak environment, proving innovation is a critical success factor for our company and how to win in this industry. And we're holding our price cost stable through all that. So that starts translating into materially improving margins as well as a utilization better than last year without the inventory management of last year. and cost reduction activities that have been pretty significant in '25 and '26. So no, we feel that we can get the margins back. We just need a stable economy. Operator: Our next question comes from Arun Viswanathan from RBC Capital Markets. Arun Viswanathan: I guess a few questions. So first off, just on the spreads environment in CI, you noted some strength, and I guess, obviously, that should continue into Q2. I guess, are you seeing any supply issues for your competitors or anything out there that could lead to maybe some permanent rationalization of capacity and I guess, what are you seeing on the supply-demand side for some of the markets in CI? Mark Costa: It's a great question. I mean under this sort of economic stress, there was a lot of assets in Europe in the Chemical and Immediates world that we're on the edge of being rationalized, shut down for economic reasons. And obviously, the economic situation has gotten worse for them. And I think that's also true of some assets in Japan and South Korea, where there's a lot of discussion around rationalizations. So I think it's reasonable to expect that some people are going to look at the current situation, say, if I was going to planning on shutting that asset down 2 years maybe I just do it now in this context. I don't have a lot of evidence of that because we're 60 days into a crisis. So everyone is just managing their way through this dynamic, and we don't even know how long the straight will stay close. So a lot that will factor into that. But I do think global natural gas prices, for example, will likely stay higher for some period of time because even when Strait opens, Qatar has got to repair all the damage that was done to their fields and their processing capability. You've got oil fields that could get permanently shut in Iran right now if this goes on much longer, a lot of debate around that. You've got just -- it's hard to imagine oil production globally and natural gas production globally suddenly coming back to pre-conflict levels. Not to mention, turning oil and natural gas into methanol and naphtha and ammonia and everything else, it's just -- it would be very surprising for just a snap back to those low levels. So I think all of that then just creates more economic pressure on the people on the far right side of the cost curve. Those locations I just mentioned, they're going to have to start considering some rationalization. For sure, we're the low-cost winner in this kind of context. China has got its own dynamics, where we will probably be fine. So I wouldn't expect a lot of rationalization there except for some maybe they're old assets that are not competitive anymore as well, I guess. So yes, we expect to see it, but I can't quote you a bunch of plants that have announced in the last 60 days. Arun Viswanathan: Okay. I appreciate that. And then just as a quick follow-up. Obviously, historically, your spreads have expanded after inflationary cycles like this. Maybe you can just contextualize the magnitude that we should expect on maybe AM and AFP spread expansion in Q3 and the durability of that. I guess just wondering if you think that these feedstock levels will allow for some more durable pricing power as you move through the year? William McLain: I think we've talked previously around high oil environments being positive for Eastman. And as Mark has just highlighted cost curves over time. In our specialty businesses, obviously, we price off of the value and the relative value and Mark has highlighted the tension and, I'll call it, price increases and lower-value products within the polyester business and how ultimately that can lead to share and other opportunities as we continue to grow. As we think about the momentum, obviously, we're making the price increases so that we're pricing through the quarter to ensure that our margins are stable. And we'll look to continue to do that into Q3. Mark Costa: One thing you have to watch out, we run our business on a dollar per kg basis, on a percent basis. So when you get these kind of significant increases like '21, you also have a denominator math problem. So the prices go up a lot that goes into the denominator, not just the numerator when you're calculating margins. So you've got to watch out for that. But we'll be very clear about trends around how dollar per KG is going in our margins. Operator: Our next question comes from Laurence Alexander from Jefferies. Laurence Alexander: A short term and a long term. In the near term, how are you thinking about the rough magnitude of working capital as an impact on your free cash flow conversion this year? And secondly, you mentioned kind of the sort of hitting the quantity limits or the outright shortages. Do you have a sense from your customers where kind of they are expecting or kind of where everybody is waiting to see this actually crack in terms of which end markets feel the outright shortages first? And then which ones if shortages do develop, take the longest to fix. William McLain: So on the working capital front, as we think about the full year impacts, obviously, we built some here in Q1. A lot of that was around planned turnaround. But just as a proxy, I would use the $500 million increase in revenue. And you can take 1/3 of that as I think about how things could balance out and that could be the full year headwind. And obviously, that could go up or down depending on the timing of the freight opening, et cetera. But I think $150 million, $200 million roughly. Laurence Alexander: Sure. When you think about where shortages are likely to develop first, when you speak with your customers and they say kind of where are the most -- where they're warning you or if they do warn you about potential plant shutdowns, where they're flagging kind of -- that may happen first or which end markets or -- I mean, obviously, Southeast Asia seems most likely. And then kind of which ones are saying, well, if we shut down, it's going to take us a long time to come back up and fix things because it snarls up the downstream chain too much. Mark Costa: Yes. So those are great questions. I mean there's a question about our competitors, and then there's a question about our customers and then the whole supply chain. We're not seeing any disruption yet at the customer level. where they can't get something to finish making the product. It's like the semiconductors back in the auto situation back in the 2021 time frame. We are keeping an eye on that, but we haven't had any customers come to us with that problem yet. So it will be sporadic, and it will be customer specific. It won't be something you can really foresee is my guess and how that plays out. But we're keeping a very close eye on it. I think that the dynamics around this is obviously pretty volatile, which is why we're not giving full year guidances. You've got a lot of potential upside as we've been talking about. There's obviously end market risk with inflation that has to be all sort of weighed together. But what I'd say overall is we feel really good about our team and how well they perform. When you think about all the dynamics thrown at them all the way back to COVID to this inflationary environment to total collapse and sort of discretionary demand in '22 that stayed with us until now. And then mid East crisis. And it's a lot to manage. So I'm incredibly proud of how our team manages through all this and find a way to extend our value propositions. I think the innovation strategy is one that is being proven out to have been a very good choice we made over a decade ago to have ways to defend our value to grow in markets where they're flat or challenged and send our value in weak times or supply shot times like now, and it's creating a lot of strengths in this company. And the circular platform certainly is turning out to be a very good choice that's delivering a lot of growth in this market context. And then, of course, translating all that into cash flow and having a strong balance sheet. So we feel good about how we're navigating with this. We think we have a very meaningful improvement in earnings this year relative to last year. And we're going to focus on what we can control in this chaos to keep delivering for our shareholders every day. Greg Riddle: As that was the last question, I'll say thanks again for joining us. We appreciate you spending time with Eastman. I hope everybody has a great day. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Quaker Houghton First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations. Mr. Dalhoff, you may begin. John Dalhoff: Thank you. Good morning, and welcome to Quaker Houghton's First Quarter 2026 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, April 30, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe. Joseph Berquist: Thank you, John, and good morning, everyone. We delivered a strong first quarter with organic volumes up 3% year-over-year, resulting in our third consecutive quarter of adjusted EBITDA growth. Our performance was driven by new business wins in all regions, highlighted by double-digit organic volume growth in Asia Pacific, where we continue to gain traction across the region. Adjusted EBITDA increased 5% compared to the prior year, building on net share gains that enabled us to outperform our end markets, which we estimate were down approximately 1% in the quarter. Gross margins improved from the fourth quarter, increasing 150 basis points sequentially and 40 basis points year-over-year. The sequential improvement in margins was bolstered by higher utilization of fixed assets and improved operational performance. Market conditions remain soft overall, with pockets of incremental industrial gains tempered by weak automotive production. The hostilities in the straight of our moves are creating inflationary pressure on raw materials and input costs. But so far, it has not had a significant direct or indirect impact on demand. Strong commercial execution from our team and contributions from our recent acquisitions helped offset the underlying sluggish markets, enabling us to deliver organic volume, revenue and EBITDA growth in the quarter despite headwinds and volatility. Turning to the first quarter results. Net sales increased 8% year-over-year, fueled by net share gains of 4% at the top of our target range, along with the contribution from recent acquisitions. This marks the 10th consecutive quarter of net share gains, while our end markets have been consistently sluggish. Organic sales volumes in Asia Pacific grew for the 11th consecutive quarter. While our business in China continues to grow above end market rates, we are also achieving outsized growth in emerging markets such as India, Thailand and Vietnam. Operating margins have expanded in the region as we are benefiting from recent organic investments in localized manufacturing. In EMEA, organic volumes grew 2% in the first quarter as new business wins outpaced persistently tough end markets. Volumes in the Americas declined slightly year-over-year, driven by a lingering customer outage, tariff uncertainty and weather-related disruptions. Despite these challenges, March had the highest volume in the Americas in the last 16 months, signaling improved momentum as we exited the quarter. EBITDA margins declined 50 basis points year-over-year, primarily because of higher SG&A expenditures related to acquisitions, foreign currency and incentive compensation. I would like to provide more color on the ongoing conflict in the Middle East and how we are managing its impact on our business. Immediately after the conflict began, we established an executive level task force to monitor developments, assess potential impacts and coordinate our response. Our top priority was to ensure the safety of our more than 4,700 employees, particularly those living and working in the region. We also took swift action to confirm supply continuity to customers in the affected region. Since then, the task force has remained actively engaged, tracking conditions closely and addressing emerging pressures. From a business perspective, we have proportionately low direct sales exposure to Middle East countries near the conflict area. Our sales to North Africa and the Middle East in 2025 were less than 2% of total company net sales. While first quarter results were largely insulated, we expect higher raw material and shipping costs in the second quarter. To address this, we implemented pricing actions across all regions with some taking effect in April. There will be a typical lag between rising costs and price realization, which we expect will create temporary gross margin pressures in the second quarter. Based on the actions we have taken and additional increases planned for this quarter, we expect to recover margins within 1 to 2 quarters. Meanwhile, we are committed to ensuring products reach our customers without disruption. We have not yet seen a meaningful impact on customer demand, but a prolonged conflict could begin to influence broader economic activity, including forward demand and further cost inflation. With this backdrop, we are focused on what we can control. Today, we are announcing the launch of a new transformation program that will reduce cost and complexity across the organization, optimize our manufacturing network, strengthen sales and technical capabilities and simplify global processes. We will pace investments over the coming months to unlock productivity in a disciplined manner. The first phase is underway through a comprehensive business process review focused on finding cost opportunities and improving master data management. The program will fundamentally change the way we work, and we are looking to modernize the employee and customer experience. In the first quarter, we took steps to streamline our executive leadership structure to sharpen customer focus and accelerate decision-making. This program is central to achieving adjusted EBITDA margins at or above our target of 18%. We expect to exit this year with approximately $10 million in new run rate savings. Over the next 3 years, we see a clear path to delivering at least $20 million to $30 million of sustainable structural cost improvement with much of that target already identified. We have a clear line of sight to a robust set of initiatives, giving us confidence in our long-term transformation path. This new program complements actions that are already underway. The closure of our manufacturing facility in Dortmund, Germany remains on track, and we are beginning to realize the associated financial benefits. We continue to expect approximately $2 million in cost savings from the closure in 2026 and $5 million in annual run rate savings beginning in 2027. We also recently announced the planned closure of our manufacturing facility in Songjiang, China, which will coincide with the start-up of our new facility in Zhongjuang later this summer. Production from Songjiang will transition to the new site as it comes online, enabling more efficient operations and enhanced capabilities. This modern facility will strengthen our ability to serve customers across Asia Pacific and manufacture recent portfolio additions more competitively at the local level. Turning to the outlook. Our view on macro trends is consistent with prior expectations. End markets declined modestly in the first quarter as expected. And while we still continue to predict flat end market conditions for the full year with normal seasonal improvement and a slightly better demand environment in the second half, we expect sequential volume and revenue growth in Q2, driven by seasonal improvement and wrap effect of new and recent business wins. Visibility through the first part of the quarter indicates steady demand. At the same time, we anticipate temporary gross margin pressure related to higher input costs stemming from the Middle East conflict, which is expected to push gross margins below our target range in the second quarter. The situation remains dynamic due to the prevailing market uncertainty. We expect these gross margin headwinds to be temporary, lasting no more than 1 to 2 quarters. Our current estimate is that second quarter gross margins will be 200 to 300 basis points below quarter 1 on a sequential basis. Through pricing actions we are taking, we expect to fully recover gross margins within our target range of 36% to 37% as we exit the year. With the rapid raw material cost escalation in recent weeks above what we experienced at the end of the first quarter and the ongoing uncertainty of the situation, we are in the process of implementing further price increases, which we expect will be in place before the end of the second quarter. We are recovering the cost impact from inflation in a responsible way and collaborating with our customers to successfully navigate the complexity of the current situation. As mentioned previously, the company is also taking action to improve our cost structure. Our long-term earnings profile continues to be resilient. Our local-for-local operating model and deep customer relationships differentiate us and enable new business wins. As a result, even amid heightened uncertainty, we continue to expect revenue and adjusted EBITDA growth in 2026, assuming no significant further deterioration in our end markets because of the Middle East conflict. In closing, I am incredibly proud of our team and their consistent execution in a challenging environment. We are making substantial progress across key priorities, including pursuit of new business, cost structure optimization, while also diligently executing our strategy to create long-term value for our customers and shareholders. With that, I will turn the call over to Tom to walk through the financials in more detail. Tom Coler: Thank you, Joe, and good morning, everyone. First quarter net sales were $480 million, an 8% increase from the prior year. Organic volumes increased 3%, driven by global net share gains of 4% across all regions, with Asia Pacific being the largest contributor. Acquisitions contributed an additional 4% to net sales, primarily related to Dipsol, which will become part of our organic base beginning in Q2. We also had a 4% benefit to net sales from favorable foreign currency translation, primarily due to the euro strengthening against the U.S. dollar. Partially offsetting these items was unfavorable selling price and product mix, which was 3% lower than the prior year associated with lower index pricing, regional and geographic mix. As expected, gross margins improved on both a year-over-year basis as well as sequentially to 36.8%, near the high end of our target range. This was driven by product margin improvement and more favorable manufacturing absorption. On a non-GAAP basis, SG&A increased approximately $16 million or 14% in the first quarter compared to the prior year. This increase was primarily due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 6% higher in the first quarter, mainly due to higher incentive compensation and accelerated depreciation related to our corporate headquarters and lab consolidation in the Philadelphia area. We delivered $73 million of adjusted EBITDA in the first quarter, while adjusted EBITDA margin of 15.1% declined year-over-year due to higher SG&A costs. Switching now to our segment results. Our Asia Pacific segment continues to be a growth engine with organic net sales increasing in 10 of our 11 last quarters and new business wins far exceeding the high end of our total company target range. Asia Pacific sales in the first quarter increased 25% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 10% and a favorable foreign currency impact of 3%. These drivers were partially offset by unfavorable price and mix, which declined 2% in the quarter. Segment earnings in Asia Pacific increased approximately $8 million or 32% in the first quarter compared to the prior year. This was driven by higher top line growth as well as improved product margins and more favorable manufacturing absorption. First quarter net sales in EMEA increased 10% year-over-year, partially due to favorable foreign currency impacts. Higher net sales from organic volume growth and the impact of acquisitions were offset by lower selling price and product mix. Segment earnings in EMEA increased approximately $2 million or 9% in the first quarter compared to the prior year. First quarter net sales in the Americas were in line with the prior year as favorable impacts from our acquisitions and foreign currency were offset by lower organic sales volumes and selling price and product mix. Lower volumes were attributable to a continued customer outage, regional tariff uncertainty and weather impacts early in the quarter, while lower selling prices were primarily the result of our index contracts as raw material costs declined in the quarter compared to the prior year. Segment earnings in the Americas decreased approximately $5 million or 8% in the first quarter compared to the prior year. This was driven by higher SG&A related to selling expense and incentive compensation as well as unfavorable product mix that negatively impacted margins. Turning to nonoperating costs. Our interest expense was $10 million in the first quarter, which was consistent with the prior year and the past few quarters. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding noncore and nonrecurring items, was approximately 28% in the first quarter, which is slightly lower than the prior year and in line with our expectations for the full year effective tax rate in the range of 28% to 29%. And in the first quarter, our GAAP diluted earnings per share were $1.13 and our non-GAAP diluted earnings per share were $1.63, a 3% increase over the prior year due to improved operating performance. Cash generated from operations was $4 million in the first quarter, increasing from a use of cash of $3 million in the prior year. The first quarter is typically our lowest from a cash generation perspective due to incentive compensation payments, working capital investments and the seasonality of our business. The improvement over the prior year was primarily the result of better operating performance and lower cash restructuring costs, which totaled $4 million in the first quarter. Capital expenditures in the first quarter were approximately $11 million, primarily related to the construction of our new facility in China. We anticipate capital expenditures to increase in the remaining quarters as we complete construction in China and finalize the build-out of our new corporate headquarters in Pennsylvania. We still expect full year 2026 capital expenditures to be approximately 2.5% to 3.5% of sales. During the first quarter, we paid approximately $9 million in dividends. We remain focused on our capital allocation priorities and balancing investments for growth with returning cash to shareholders, and we'll continue to weigh opportunistic share repurchases in a prudent manner that optimizes shareholder value. In April, we announced that we entered into an amended credit agreement in which we extended our nearest debt maturity by almost 4 years from June 2027 to April 2031, while also increasing our revolving credit facility availability by approximately $300 million and improving our overall credit terms. The amended agreement also provides us with the right to increase the revolving credit facility by approximately $331 million for additional liquidity. The improvement in our credit terms and increased availability under this new agreement reflects the strength of our balance sheet and are clear indicators of the underlying health of our business and the durability of our cash flows. The new agreement provides increased financial flexibility that will allow us to execute our strategy, achieve our capital allocation priorities and continue investing in growth. We delivered strong first quarter results, continuing to gain share and driving organic volume growth despite ongoing macroeconomic and geopolitical challenges. With a strengthened balance sheet and increased financial flexibility, we are well positioned to continue executing our strategy and creating value for shareholders. With that, I will turn it back over to Joe. Joseph Berquist: Thank you, Tom. We are executing a clear set of priorities to strengthen the business, simplifying how we operate, enhancing our capabilities and putting the right cost structure in place to support sustainable growth. With that, we would be happy to answer your questions. Operator: Our first question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: I wanted to start with just kind of the raw material picture. I think you did a good job kind of articulating the expectation of 200 or 300 basis points of margin pressure next quarter. But maybe just give us some details on what you guys are seeing in terms of raw material costs. I assume that the biggest pressure you're seeing is in crude-based materials, but maybe comment also on what you're seeing. I know we're just getting past an oleo chemical spike, and I think some of those materials also continue to be kind of volatile. And also, if you can cover whether you're having any issues with raw material availability in any parts of the world. Unknown Executive: Yes. Thanks, Mike. Good question. So talking about the general situation. If you think about our raw materials, there's really 3 buckets, right? It's base oils, it's additives and then it's oleochemicals. And right now, as is typical in an inflationary environment like this, everything sort of keys off of what's happening with crude oil, right? And so all 3 of those buckets are higher. In the sort of when hostilities broke out, as I mentioned just a few minutes ago, we put a task force together that day, right, that Saturday, we started looking at what impacts this is going to have on supply, first of all. and then also cost. And I think from a supply standpoint, to your last part of your question, we've been very fortunate to not have any issues. I think the flexibility of our supply chain, the fact that we have this local-for-local approach and really as one of the leaders in the space, I think our relationships and our ability to get product around the world is very good. Overall trend in those 3 buckets or raw materials in general, what we had thought sort of the increase was going to be toward the end of Q1, I would say in the recent weeks, that has gone up more. So we put an increase out at the end of Q1. Some of that became effective in April, more will become effective here in May. And we've already started on another round of price increases just because the cycle is pretty inflationary right now. Will that go further? I personally have my own thoughts on that. I don't believe so. But it all depends. If it does, I think as we did in the past, we have pretty good ability to go out and get pricing, but there is this lag. And so our view of is, as I said, we think it's going to be somewhere between 200 basis points, maybe a little bit more than that. We have index agreements as well. And those index agreements tend to adjust on a quarterly basis. So that's why there's that lag. It's just not something that we can go out and press a button and do immediately. Michael Harrison: All right. Very helpful. And then I wanted to ask about the new transformation program that you guys announced in the press release and in your prepared remarks. Kind of what was the genesis of this program? And maybe just give a little bit more detail on what kind of actions you're taking that are beyond what you got -- the actions that you've announced with previous cost programs that are, I believe, still in mid-flight. Unknown Executive: Yes. We've sunset or I mean I guess there's a few lingering things with prior cost programs. But this is a new program. And the genesis of the program really is, I believe our EBITDA margins need to be above 18% and pushing 20% eventually. And we're in the sort of mid-teens space right now. And I've been in the role now for about 18 months. And I think visibility overall to how the company is operating, some things that kind of jump out to me are spans and layers. We had maybe added some layers of management that weren't there before. One of my philosophies was to bring the decision-making closer to the customer. I really would like to have our culture be one of working managers or hands-on working managers. So -- so just some general like bringing clarity to the org structure and looking at areas where there's redundancy, maybe there's a little bit of load. We've addressed that and are addressing that. I mean this is also about Mike, there's tremendous complexity still lingering from when Quaker and Houghton came together in 2019. That was a huge transformational deal. And while we've integrated very well, we've had great customer retention, and we're able to aspire our customers, I think -- there's also the reality that our master data is a little messy that creates a lot of inefficiency, that creates a lot of manual work. We looked at our business processes and just certain things like how we process intercompany charges amongst ourselves and how many times our customer service people have to touch an order before it gets to the customer; it's really inefficient. And so the key thrust of this is around business process optimization and making sure that we have a Quaker Houghton way of doing things, tied very closely to that is our master data. And we have a very good line of sight to where that's going. And actually think that there's efficiency that's at the end of that process that will -- we can start to leverage things like AI and shared services type program. to make the business more competitive. This is not a reaction to what's happening in the Middle East. This is something that I feel we need to do. It's the right thing to do for the business. We've got to be more efficient. We got to have a more modern employee and customer experience. And it's time to kind of bring the company forward and so we can really start to take advantage of a more modern set of tools. Michael Harrison: That makes sense. And then I guess last question for now is just -- as always, I'm trying to get a little bit of a sharper view on how you guys are thinking about EBITDA for the next quarter? You mentioned the gross margin pressure. Typically, you guys would see some seasonal improvement in EBITDA, but it sounds like maybe that could be completely offset by gross margin pressure. So is it fair to say we're probably looking at an EBITDA number in the second quarter that's pretty similar to what you guys just reported in Q1? Unknown Executive: Mike, I think that's fair. I do think the volume aspect of this surprisingly, in the market that we're in, you would think as volatile as it is, our volume is very strong. So I feel -- I do feel confident that second quarter volumes will sequentially improve, that even where I sit today, I would expect year-over-year improvement. There's visibility to our order book. There's visibility to business that we've won and sort of the wrap effect of that, what's in the pipeline. I mean we have a couple of parts of our business where we're actually adding labor to boost up some of our off shifts to keep up with demand. So the demand aspect of it is very good. And we're putting price in. That price will not all be in, in the second quarter, and there's another phase coming. But I do think from a volume perspective, we expect it to be better and seeing some of that normal seasonality that you see but there will be the slide of gross margin. And I think the math would say we're going to be within range, right, of where we landed in Q1. Operator: Our next question comes from the line of Jonathan Tanwanteng with CJS Securities. Jonathan Tanwanteng: I was wondering if you could talk about the expanded credit agreement you did recently and your thoughts maybe on capital allocation from here. Did you update that? I know that it was becoming current, but the expanded size, did you do that to accommodate your expected operational organic growth? Or did you see more of an opportunity maybe to do share repurchases or M&A here? Maybe just give us a little more color on the opportunities that you see going forward and how you're addressing that? . Tom Coler: Yes. John, this is Tom. I'll share some thoughts on that. I would say, first and foremost, the update to the credit agreement was really about an opportunity to extend maturities, right? So we were going current here in June of this year with maturity of our existing facility in June of 2027. So this gave us an opportunity to extend that out to April of 2031 and add some additional years with respect to the facility. It does add additional capacity for us to really continue to be flexible and use all the available tools from a capital allocation standpoint. We continue to be focused on investing in growth, both from an inorganic standpoint as well as organic growth, things like our new plant in China. And then I think, as I said in my prepared remarks, we continue to weigh how we deploy capital for growth as well as return capital to shareholders through opportunistic share buybacks and continue to pay dividends and those sorts of things. And so I think it's a combination of extending our maturities, some additional capacity, which gives us more flexibility from a capital allocation standpoint. We also improved terms as part of this refinancing of the facility and we have a great and supportive bank group that enabled us to accomplish those things in terms of the maturity and the additional capacity in the improved terms. Jonathan Tanwanteng: Got it. And maybe just to be a little more focused here, do you see opportunity just given the market volatility, whether it's in your own shares or in potentially acquiring tuck-ins or larger players? . Unknown Executive: Yes. I'd say, John, yes to both, right? I think we have done -- it's been a couple of quarters since we've done anything meaningful on share repurchase. But we're not going try to do that. Balance sheet is in a good position. So if the opportunity presents itself, we expect we will do that. I would also say that the M&A pipeline as always, remains active. There are a number of sort of bolt-on tuck-in type of opportunities out there that we think will give us more things in the portfolio that we could sell to our existing customers and those types of deals have been very accretive for the company in the past. And part of our strategy -- it will be part of our strategy going forward. So I would say yes to both questions. And we're really happy we got the financing on it. When we got it done and that the terms and additional flexibility that came with it. Operator: Our next question comes from the line of Laurence Alexander with Jefferies. Daniel Rizzo: It's Dan Rizzo on for Lawrence. A couple of things. As you aim for your 18% to 20% EBITDA margins, once I guess, some of this volatility may be kind of subsides and your restructuring is in place, how should we think about incremental margins kind of in the mid-cycle? I mean it's obviously increasing. I was wondering how we should kind of -- how we could quantify it. Tom Coler: Yes. Dan, it's Tom. Thanks for the question. I think as we're thinking about driving towards that 18% plus EBITDA margin. I think our assumptions relative to our targeted gross margin range remain consistent in that 36% to 37%. I think what you heard us talk about in our prepared remarks and some of Joe's comments is really around this opportunity from a transformational and restructuring program to focus on cost and complexity reduction with respect to our G&A functions, our manufacturing and sledging network. And so as we look out over the next couple of years, where we see some leverage is really as we think about SG&A as a percent of sales, those G&A functions and driving some of that cost and complexity out of the business. And that's really the pathway towards that 18% as well as volume growth and continuing to work around net share gains and some of the things that we've been able to successfully execute. Daniel Rizzo: I'm sorry, did you mention that I not hear what the cash cost of the plan is, the new plan? Tom Coler: No, we didn't mention anything specific about the cash cost of the plan. I think the -- what I said was we will pace this out over time. So for instance, we're not planning to put a big new ERP system in, right? So it's not going to be a huge outlay. I think what's typical here is 1 to 1.5x to achieve the types of synergies that we're looking at. So we're not planning any sort of extraordinary type of investment to get there, Dan. Hopefully, that answers that question. Daniel Rizzo: No, that does. That's helpful. And then my final question. So you guys have done a good job, obviously always of increasing market share. But you have a lot of new products from Houghton and Dipsol. I was wondering how much of your share growth is increased sales to existing customers versus going into like kind of different customers? And how that kind of breaks out? Tom Coler: It's a really great question, Dan. -- it's much easier to go in and what we say is grab a share of the wallet versus opening up a new door with someone that you don't have a relationship with. So proportionately, most of the gains that we're getting are coming from share gain within existing customers, growing that share of wallet, right? It's the customer who may be buying a lubricant from us that we could sell them, grease, specialty grease, fire resistant hydraulic, finishing -- metal finishing type of chemical. So it's really the majority -- high majority is coming from that growing with existing customers, new parts of the portfolio. Daniel Rizzo: That's very helpful. Operator: Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Yes, sorry about that. I hope you guys are well. Congrats on the quarter. I guess, I understand the couple of hundred basis points of gross margin compression, maybe that you're expecting for Q2 because of the lag in pricing for us. I would have 2 questions. So first off, do you expect to fully recover that in the second half, which -- and does that imply that you have to actually price above inflation? And then secondly, I know you guys were successful in recouping inflation in the last inflationary cycle in '22, '23, and you were able to price seemingly above inflationary levels. . But is the demand picture now maybe slightly choppier or less robust and would make that a little bit more difficult or take longer to recoup those margins? Or how should we think about that? Tom Coler: Yes. No, good question, Arun. Thanks for those. I would say, the goal overall is we have these target gross margin ranges. I've talked about the 18% EBITDA, and we're pretty committed to that, right? So that would imply in this type of environment that you've got to stay ahead of inflation a little bit. That being said, we volume to make sure we retain and we don't have a lot of churn and we can continue to stack the wins and the growth that we're seeing going forward is also part of it. About 1/4 of our pricing is on index. So it takes away a lot of the emotional aspects of this. Our customers, I think, understand the situation that we're in right now. And we've also said, look, if things recess. In the cost side, we will act accordingly. And we're not trying to gorse them in any way, we're trying to be very responsible about it, as I said previously. The demand environment right now, surprisingly, is very strong. And will that change? It's possible it will in any type of inflationary environment like that, it could happen but through, say, the first 4 months of the year and visibility to where we are with our demand currently, we're not seeing that. We think will be okay. And then the margin question specifically, we do think by the end of the year that we would get back into the 36% to 37% range. And that's our goal. Arun Viswanathan: Okay. Great. And then I guess a follow-up, maybe I can just ask about the volumes. You said that the volume environment is -- the demand environment is quite strong. Maybe you can just kind of describe that a little bit more in detail because is it steel utilization rates are really holding up and aluminum maybe as well, automotive? Maybe you can just touch on some of the end markets. And also regionally, it seems like, obviously, Asia Pacific has remained relatively strong, and you're benefiting from some wins. But North America and Europe, are you also seeing some improvement? Or how should we think about that? Tom Coler: Yes. No. Look, I think the main takeaway here is we're really punching above our weight. And let's focus on Asia because -- the results are very, very strong, double-digit volume growth. I mean, that's against a backdrop of industrial production actually declined in China in the first quarter and we've seen light vehicle builds really in all regions down between 2% and 4%. So we are outperforming the markets that we're in. We've seen some improvement on the metal side, steel and aluminum production, that can, at times, be a precursor that automotive is going to swing back, right? -- end of Q1, I think, as I mentioned, North America seemed to pick up and little bit in North America will drive our Americas segment? And then typically, as you head out of Q1 in areas like Asia, you put the Lunar holiday behind you and you get into normal seasonality patterns. And I think they had a tough first part of the year, China especially, but areas outside of China; India, Vietnam, Thailand, actually, they had pretty good performance. And so that offsets a little bit what's happening in China. So all in all, like as we head into the second quarter, as I said, I think this sort of normal seasonality returns. That's what it feels like right now. And then us taking share, consistently taking share above market, we would expect that would continue into the year. Operator: Our next question comes from the line of David Silver with Freedom Capital Markets. David Silver: Yes. Good morning. Thank you. a couple of questions. I have a couple of questions. First one, tactical, second one, maybe a little bit longer term. But on the tactical one, and I apologize in advance that this sounds very naive. But I'm leaning on your long experience on the commercial side, Joe. And I'm sure that your company has a very detailed playbook for operating in conditions such as the one we're facing now with volatile feedstock cost pressures. And I'm just kind of scratching my head and I'm saying, why not a surcharge, I guess? In other words, something that can be pegged to something clearly visible to both sides. It might halt some of that 200 to 300 basis point erosion on the way up and the customer gets the assurance that when the relevant cost pressure abates that the pricing that persisted before this will quickly return. But I'm sure your company has a long playbook. Maybe if you could just share some of your thinking about how quicker typically goes about recouping cost pressures in fast-moving markets, such as the one here. Tom Coler: Yes. No, good question. So we do use surcharges. That is something that we do -- and really, you're able to put some of that in immediately, especially when it comes to things like freight. Other parts of the business, I mean, we have to go in and really show the data to the customer. just as our suppliers come to us, we push back and say, well, why is this going up? And I'm going to shop it around and that happens when we talk to our customers as well. So I think the nature of how we in our relationship. We're not a commodity, right? We are really kind of embedded in these plants. We're sitting in the morning meeting. We are part of the really -- become part of their operations in some cases. So we have to bring the data. We have to give them justification. And a lot of times, we have to give them options about what we're going to do about it, right? Can we do something to offset it in other ways through service or bundling a product. So it's a laborious process, but it's also very, very necessary. I think if you're going to have long-term trusting relationships with your customers, that's really the only way we can kind of approach it. We would love to be able to be more efficient and quicker with these things, but it's extremely volatile. And then you run into these situations where every Friday, something changes, right, and have to kind of adjust to that as well. But I think over the long term, David, our goal is to get back to this target range gross margin. That's something that we've always done and have also been pretty open about the fact that it does take us a quarter or two lag to catch up. David Silver: Okay. Great. I have a longer-term question or a question about a longer-term topic. But one of the trends that's going to become increasingly apparent, I guess, over the next couple of years, we'll be reassuring and onshoring of heavy industry here. So with your global footprint, I'm guessing that Quaker has about as good a view on automakers and primary metals activities that might be showing up in the U.S. from some offshore companies. And I was just wondering, does Quaker have a playbook currently to maybe capture a little more than your share of this new investment coming to, let's say, the United States. Is there a process? Do you have to qualify 12 or 18 months in advance? Just -- what is the playbook that Quaker is developing to maybe take full advantage of the coming wave of large investments in automotive and other kind of heavy industry assets here? Tom Coler: Yes, great question. We do have a playbook. And I think that playbook is pretty consistent regardless of what region new capacity is coming online. Look, we are seen as the industry leader. We participate in industry technical groups and forums. And when -- and we maintain relationship with the mill builders in the equipment suppliers. And so when a new installation comes on and you rightly point out that there's a lot of investment in North America right now. We generally know about it in the early phases. We try to be involved on the front end in the design of those systems and more often than not when new capacity comes online, we're the incumbent supplier. So that is something that is part of our playbook. How do we make sure that, that's a valuable approach for our customers. We have our own CNC machines. We have a pilot rolling mill in the company, and we can really do some things on the front end to test and ensure that we're going to have success when they start these mills up and that's something that's really important. I think the other aspect of this is there's been a shift, right? I mean if you look at metal production in China, I think more steel is made there than the rest of the world combined. And when you look at the trends just in the past few years, automotive production in China is starting to really take off. And you're seeing the Chinese brands be more prominent in Africa and Southeast Asia and even in Europe and not so much here yet, but -- but we've always said we're kind of agnostic of where it gets me. And I think just my point is, as that part of the business grows, I think we're very pleased with our ability to kind of grow in a differential way right now in that part of the world. That's something that's been very intentional. David Silver: Okay. Great. I appreciate all the color. Operator: Our next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: I apologize if you already addressed this, but I was wondering if you could talk about the potential for demand destruction or disruption at your customers and what you planned for in your scenario analysis as you consider what would happen if you run or the mid compute was extended. Have you talked to your customers about them? And what contingencies might be and what your earnings profile and the revenue profile might look like if that would happen? . Tom Coler: Yes, John. I mean, look, we talk to our customers every day about that. We're watching that as closely as we can. I think it's a tough thing to predict. I would say right now, there's an equal chance that this thing is prolonged or not prolonged. There's -- I would also say there's an equal chance that there is going to have some impact on demand that could be very, very disruptive or it's going to have no impact, right? And so when we talk about our sort of our model and how we're looking at the year, I'm basing it upon what the most -- the information I have today, which is, as we head into -- we're now well into the second quarter, visibility on what we have, I'm not seeing that sort of catastrophic demand disruption on the horizon. We're not hearing that from our customers, so we're not expecting it at this point. Is it possible it happens? Absolutely. The longer this thing goes on, and the higher inflation goes, it's not necessarily good for anyone's business, right, if that continues. But I think we can't necessarily bake that scenario in although, as I said earlier, there's probably an equally likely chance that happens or it doesn't happen right now. So based upon that, our outlook is kind of like with all the information we have today, the best thing we know and looking at all the empirical evidence we have, we're not seeing that yet. So we didn't bake that into our guide. Operator: And we have -- there are no further questions at this time. I would like to turn the floor back over to Joe Berquist for closing comments. Joseph Berquist: Thank you. Yes, we, again, really appreciate the interest in Quaker Houghton. I want to thank all of our employees for what they continue to do in these really volatile times and especially our employees that were impacted in this -- the region close to the conflict and the amazing work that they've done to keep our customers supplied. So -- appreciate the questions. If there's any follow-up, don't hesitate to reach out to John Dalhoff, and we'll be happy to answer any additional questions you have. Thanks. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to HF Sinclair's Corporation's First Quarter 2026 Conference Call and Webcast. Hosting the call today is Franklin Myers, who is serving as Chief Executive Officer of HF Sinclair. He is joined by Vivek Garg, acting Chief Financial Officer; Steve Ledbetter, EVP of Commercial. Valerie Pompa, EVP of Operations; and Matt Joyce, SVP of Lubricants and Specialties. [Operator Instructions] Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin. Craig Biery: Thank you, Matt. Good morning, everyone, and welcome to HF Sinclair Corporation's First Quarter 2026 Earnings Call. This morning, we issued a press release announcing results for the quarter ending March 31, 2026. If you would like a copy of the earnings press release, you may find it on our website at hfsinclair.com. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release. In summary, the statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. For any forward-looking non-GAAP measures, the company is unable to provide a reconciliation without unreasonable effort due to the unpredictability and uncertainty of certain items. Also please note any time-sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I'll turn the call over to Franklin. Franklin Myers: Okay. Thank you, Craig. Let me add my welcome to all those on this call to the HF Sinclair's first quarter earnings in 2026. First, let me express my gratitude to over 55,000 employees of the company for making the first quarter a good one. As most of you know, first quarter for HF Sinclair can sometimes be challenging due to weather, due to softness in the economic conditions in our markets. And typically, we have turnaround activities with some of our assets. This quarter, our operations ran safely in compliance and reliably, which you'll hear more about in a minute. This reflects the continuing improvement in our operation and is a testament to the focus on excellence by our employees. So thank you, employees of HF Sinclair. During the first quarter, our CEO and CFO, both took leaves of absence as previously described in our annual report on Form 10-K. The Board has the task of addressing the future leadership of the company, and we'll do so with diligence and care. In the meantime, I will continue to serve as CEO and President until decisions in that regard are made. In reference to the ongoing Board process, we will not address those events in that process today. The current executive leadership team and the other employees of the companies are committed to continuing the successful performance of the company, and it is performing at a very high level. Please keep in mind that much of the strategy of the company began in 2021 and '22 with the acquisition of our Puget Sound in the merger with Sinclair. My presence as CFO is to help maintain the focus and commitment to the strategy as set by the Board. I'll remind you that I've been Chairman through that entire time since 1990, and this is an ongoing process that we're pursuing with diligence. Our employees continue to work daily with the desire to operate at a high level to improve our company for the benefit of all constituencies. But before moving on to the reports of the others, we have to acknowledge the military conflict in the Middle East. Our thoughts and prayers go out to members of our Armed Forces involved as those in as an individual is called up in harm's way. We continue to hope for a peaceful resolution. The conflict though has created substantial and material disruption to the crude oil and the necessary -- for crude oil and other necessary prior the advancement of markets around the world. This disruption creates volatility in the markets we serve. The company remains focused on addressing any challenges we have to serve our customers. And in that regard, we remain very nimble as we see events occur because we see volatility in the markets that we've got to address on a constant basis, and it's one that's not without challenge within our industry or our company. But I believe our team is up to the challenge. And I think that we will see and continue to see as others have stress in the world as a result of this, and we've got to just address it to make sure we do our part to try to resolve that stress. With that, I'll turn it over to Steve to take us through some of the commercial issues. Steven Ledbetter: Thank you, Greg, and thank you all for joining our call. During the first quarter, we delivered strong results across each of our business segments, supported by safe and reliable operations and good commercial optimization. With our continued operational focus, we recorded an excellent safety quarter with no Tier 1 process safety events despite the heavy turnaround mode and harder weather season. We are pleased with these results and remain committed to progressing our operational initiatives. Now let me cover our business highlights. In Refining, we completed 2 turnarounds at our Puget Sound and Woods Cross refineries. Despite the heavy turnaround in harsh winter weather we faced, we were pleased with our reliability performance, running crude charge at the upper end of our guided runs coming in at 613,000 barrels per day. We do not have any planned turnaround scheduled until the El Dorado turnaround commences towards the back end of the third quarter. We are encouraged by the refining margin strength in our regions and believe that we are well positioned to capture the current market conditions as we head into summer driving season. Our focus remains on our strategic initiatives and improving throughput, capture and operating expenses. In our marketing segment, we're making great progress with the integration of our previously announced Green Trail Fuels JV. We believe this joint venture will allow us to accelerate growth of the Sinclair brand and expand our footprint. While growing the earnings of this business with exposure to other high-value adjacent revenue streams, we added 25 branded sites in the quarter with more than 100 sites with contracts signed and expected to come online over the next 6 to 12 months. We still expect to grow our number of branded sites by approximately 10% annually. In our Renewables segment, we were very pleased with our team's ability to optimize our business, both commercially and operationally in order to capture the favorable market conditions in the period and deliver strong financial performance. Strong delivery of our feedstock strategy, molecule high-grading and operational excellence have set our business up well to capture favorable market conditions. And we remain optimistic that the LCFS, D4 RINs and producers tax credits will continue to support the renewable diesel margins. In our lubricant segment, we have experienced unprecedented cost inflation across our product portfolio both in magnitude and the rate at which it occurred. In response, the team moved quickly to implement multiple pricing actions aimed at recovering these higher costs in an efficient and disciplined manner. We've seen early progress from these initiatives and fully expect to continue pursuing additional price recovery actions throughout the second quarter as elevated cost pressures persist. Despite the volatility in the broader global supply environment, our supply chain currently remains secure, and we have been able to source the necessary feedstocks to supply our customers at historical rates. During the quarter, we returned $167 million in cash to shareholders, consisting of $91 million in regular dividends and $76 million in share repurchases. Since the Sinclair acquisition in March 2022, we have returned over $4.9 billion in cash to shareholders and have reduced our share count by over 66 million shares. Today, we also announced that our Board of Directors declared a regular quarterly dividend of $0.50 per share, payable on June 2, 2026, to holders of record on May 11, 2026. On the strategic front, we continue to advance the evaluation and planning of our multiphase project to leverage our advantaged logistics and production positions in the Rockies to meet the growing needs of Western markets. At the end of our Q4 Puget Sound turnaround, we successfully brought on another project enabling flexibility to swing approximately 7,000 barrels per day between diesel and jet, depending on the market environment. and this is paying off given the current market conditions. We continue to advance the El Dorado vacuum furnace project to provide improved reliability and yield while allowing up to an incremental 10,000 barrels per day of heavy crude into the mix. This project is expected to come online as part of the fall turnaround. In closing, our strategic priorities have not changed. We will continue to work towards improved safety, reliability and cost efficiencies in refining and renewables and unlocking our integrated value chain while growing our marketing, midstream and lubricant segments. We expect the current favorable market environment to continue into the summer driving season, and we believe our diversified portfolio of assets is well positioned to generate strong cash flows. With that, let me turn the call over to Vivek. Vivek Garg: Thank you, Steve. Good morning, everyone. I'm Vivek Garg, acting Chief Financial Officer, and I'm pleased to be on the call with you today. Let's begin by reviewing HF Sinclair's financial highlights. Today, we reported first quarter net income attributable to Sinclair shareholders of $648 million or $3.56 per diluted share. These results reflect special items that collectively increased net income by $521 million. Excluding these items, adjusted net income for the first quarter was $127 million, or $0.69 per diluted share compared to adjusted net loss of $50 million or a negative $0.27 per diluted share for the same period in 2025. Adjusted EBITDA for the first quarter was $426 million compared to $201 million in the first quarter of 2025. In our refining segment, excluding the lower of cost or market inventory valuation adjustment benefit of $604 million, first quarter adjusted EBITDA was $55 million compared to negative $8 million in the first quarter of 2025. This increase was principally driven by higher adjusted refinery gross margins in the West region and increased refined product sales volume, which were partially offset by lower adjusted refinery gross margins in the Mid-Con. Small refinery RINs waiver granted by the EPA in the fourth quarter of 2025, increased adjusted refinery gross margin by $21 million in the first quarter of 2026. Crude oil charge averaged 63,000 barrels per day for the first quarter compared to 606,000 barrels per day for the first quarter of 2025. In our Renewables segment, excluding the lower of cost or market inventory valuation adjustment benefit of $68 million, we reported adjusted EBITDA of $133 million for the first quarter compared to negative $17 million for the first quarter of 2025. This increase was principally driven by increased sales volume and higher adjusted renewable gross margins in the first quarter of 2026 as a result of the narrowing of Boho spread, higher RINs prices and the recognition of significantly more producers tax credit benefits compared to the first quarter of 2025. First quarter results included prior year production producers tax credit benefits of $49 million that were recognized following the February 2026 proposed ruling by the United States Department of Treasury and IRS. Total sales volumes were 52 million gallons for the first quarter of 2026 as compared to 44 million gallons for the first quarter of 2025. Our Marketing segment reported EBITDA of $28 million for the first quarter compared to $27 million for the first quarter of 2025. Total branded fuel sales volume were 325 million gallons for the first quarter of 2026 compared to 294 million gallons for the first quarter of 2025. Our Lubricants and Specialty segment reported adjusted EBITDA of $103 million for the first quarter compared to adjusted EBITDA of $85 million for the first quarter of 2025. The increase was primarily driven by a large FIFO benefit in the first quarter of 2026 as compared to the first quarter of 2025, partially offset by the dislocation between rising feedstock costs and product sales price increases. During the first quarter of 2026, we recognized a FIFO benefit of $53 million compared to $8 million in the first quarter of 2025. Our Midstream segment reported adjusted EBITDA of $111 million in the first quarter compared to $119 million in the same period of last year. This decrease was primarily driven by marginally higher operating costs resulting from a fuel contamination incident at one of our product terminals in Colorado in the first quarter of 2026. Net cash provided by operations totaled $457 million in the first quarter, which included $119 million of turnaround spend. HF Sinclair's capital expenditures totaled $102 million for the first quarter. As of March 31, 2026, HF Sinclair's total liquidity stood at approximately $3.15 billion, which includes a cash balance of approximately $1.15 billion and our undrawn $2 billion unsecured credit facility. As of March 31, we had $2.8 billion debt outstanding with a debt-to-cap ratio of 22% and net debt to capital ratio of 13%. Now let's go through some guidance items. With respect to capital spending for full year of '26 , there has been no change. For the second quarter of 2026, we expect to run between 600,000 to 630,000 barrels per day of crude oil in our refining segment. which reflects planned maintenance activities at Parco and Navajo and unplanned maintenance at El Dorado in the period. We are now ready to take questions from the audience. Matt, if you could switch over, please. Matt Joyce: The floor is now open for questions. [Operator Instructions] Your first question is from Matthew Blair with TPH. Matthew Blair: Thank you, and good morning, everyone. Your renewables results were quite strong, even excluding the PTC benefit that rolled through. Could you talk about some of the drivers in Q1 that helped push up profitability? And then for the second quarter, what do you think is a good target for utilization? And would you expect even stronger margins, just given that some of the indicators have really moved up in the second quarter? . Steven Ledbetter: Matt, this is Steve. I'll take that one. We were quite pleased with the performance of our RD business. as we've been on this journey to make this business come into profitability, we've said we needed in poor market conditions to get us to breakeven or slightly positive. We achieved that coming out of 2025. And now the market has turned in our favor. I will tell you, though, that it's not all market driven as we've taken a very hard line and look at our feedstock strategy, and that's getting much closer direct to sources near our facilities and making sure that we're prompt and hedging without anything out into the future. So from a feedstock strategy, that's working very well. I would tell you the market placement strategy we've had is working where we're finding other markets to take products to and not be completely dependent on the California market. So we're finding ways to leverage our integrated value chain, both in the Pacific Northwest as well as putting product up into Canada. And then the last one is really OpEx discipline. And that is ensuring that we've taken structural cost out. We have more of that to do, and we're seeing the results there and optimizing our catalyst to ensure that it performs on the longer runs, and we're getting the yields out of it. All of that combined with the overall market favorability, as you know, changed in 2026 to where we are structurally more balanced with domestic feedstock and domestic demand. I would say other helps to that is that just the distillate macro, in general, has found increased value in both the regular ULSD and car market. So we're pleased with what we're doing. There's more to do there. And I think your second question was around our utilization in Q2. We're not going to guide specifics, but we do believe that we will optimize particular co-located kits to the best value, and we see that being north of 70% utilization, net of all of the planned events that we have. So we're pretty excited about what our renewables business looks like now as well as for the rest of the year. Matthew Blair: Sounds good. And then could you also address the lubricants market going forward? Are you seeing global supply reductions as a result of the Iran war and it looks like some of the pricing indicators have started to move up. And maybe you could just talk a little bit about your ability to capture potentially higher margins in lubricants going forward. Matt Joyce: Yes. It's Matt Joyce. I'll take that one. We are seeing a really great market move right now as we have experienced this rapid and cost increase throughout the back end of the first quarter. We do see that being a protracted movement into the second and third quarter. And based on our locations where we produce and how we source our raw materials, we have been able to secure all of the needed raw material supply for the balance of the year. We're able to be supplying our customers at the rates that they're requesting of us and we have seen some growing demand that we anticipate will be with us through the second and third quarters at least of the year as this crisis, it prolongs itself and until the straits open up. But we feel that we're in a really good position to take advantage of those. We've also implemented multiple pricing actions to offset those higher raw material costs and work to capture that on the bottom line. So we'll look to see that come into place later this year as well. . Operator: Your next question comes from the line of Manav Gupta with UBS. Manav, go ahead. Manav Gupta: My question is specifically for Steve. Look, Steve, you have been working very hard for sometime at DINO, bringing about change and we see that in the midstream results, we see that in the lubes results I'm just trying to understand with this management shakeup, has anything changed from your end? Is the strategy the same you're following? And how are you going about building those 2 businesses as you were before the management shakeup took place? Steven Ledbetter: Thanks,. We're not going to comment necessarily on management change, but I think your point is a good one, and that is to reinforce the fact that the executive team that was here to build the strategy is still here and is executing diligently upon that. That includes making sure that we're improving and focusing on our reliability and our safety performance as well as leveraging the integrated value chain and growing those various segments. So you specifically asked about Midstream, we feel, is a key lynchpin to unlock that integrated value chain. We're bidding more value and molecules on our kit to supply our refineries as well as take products to our regions. We've talked about our multiphase project to really unlock our Go West strategy, and we think that's just the tip of the spear here. I'll maybe ask Matt to talk a little bit about what we're doing from a lube's perspective specifically. Matt Joyce: Yes. Manav, as you know, we've continued to high grade the molecules that we have on hand. We're moving into more specialized finished lubricants and specialties applications. We continue to execute on our plan of tucking in those opportunities for acquisition like you've seen with industrial oils unlimited over the past several months. And we're going to look for those opportunities going forward and continue to refine the business and be that value-added supplier to our customers that deliver something that's distinct and sticky as far as the value proposition is concerned. Franklin Myers: And Manav, let me add one thing. This is Franklin. Part of the reason I'm here is to give the executive team the confidence to continue with the plan and making sure that they have the tools and the resources to continue with the actions that Steve and Matt mentioned. There is no let up on the focus of what we're trying to do here. Manav Gupta: Perfect. My quick follow-up is a little bit on the refining macro. You saw some of the global majors report today morning and with not such good earnings on international assets and then guiding down volumes on international assets. And that's a function of crude availability. Now when we come to somebody like a DINO, I'm assuming you're not fighting those issues that crude availability is not an issue for you. So you can run hard into the second and the third quarter. And if you could talk a little bit also about your strategic asset Puget Sound because a lot of shortages are happening in California, how can you use that asset to supply to the market in California? Because, look, your pipeline or the competitor pipelines will take time. But in the near term, you can get to California through Puget Sound. So if you could talk about some of those dynamics? Steven Ledbetter: Okay. Thanks, Manav. From a global perspective, and a crude supply element. We don't face those challenges. As you know, the U.S. refinery complex is probably the most advantaged globally with the most secure crude supply outlets, and we're connected to multiple hubs and run various different grades of crude from Canada to the North Slope to many different types of domestic light sweet crudes at Cushing, and we gather and buy our own crude in the Southwest and use that both at our teaser refinery and moved some of that up into the Mid-Con to run at our El Dorado refinery. So from a crude supply perspective, some of the challenges that our competitors are facing, we do not face just from a supply. Now does it impact the overall price of the crude as it looks to compete to different markets, it certainly does. We've been successful in ensuring that we have a proper approach to buying that crude and that the cracks are supportive to whatever inflationary pressures are associated with the global dynamic. So we don't feel concerned about that relatively speaking to some of the other global issues and are in a good spot to go take advantage of our position. As far as Puget goes, as you mentioned, the West Coast has -- and PADD 5 particularly has been considerably tight. It's getting tighter. We talked about our project to go get there. And as you mentioned, it's a few years out. But you've seen imports reduce as Asian producers have had to curtail runs, and so that just continues to tighten the market. Our approach to get to California, we put in a flexibility project last year that allows us to produce and swell the gasoline pool to either make carb or sell high-valued unfinished components, which, to this point, has been more profitable. So we're moving Alkylate out of Puget into the gasoline pool in California. It's just one element. Further, as I mentioned in my prepared remarks, we put a project into swing diesel to Jet depending on the market environment, and that's paying off greatly, not only to the West Coast, but also into markets in Latin America. So we see the West Coast as a real good opportunity. It's tightened up and we look forward to taking further advantage of that as we develop some of these projects. Franklin Myers: And Manav, part of your question was you said run the assets hard. I want to make sure that you understand that we're going to run reliably and not push our assets -- that's more important to us to make sure we're up as opposed to trying to unduly stress our assets to increase volumes. Manav Gupta: No. My thing was are you running them close to -- some of your peers globally are being first to run assets at 40% and 50% because of crude availability. That was my question. Franklin Myers: Yes. That is not the case. Operator: Your next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: I just want to build on Manav's question around crude and specifically around 2 grades -- has had seen enormous volatility here. And so just how are you guys thinking about the setup for that spread in particular. And then WCS, the outlook as we think about the second quarter, but also the balance of the year. And then Franklin, I had a management question for you as a follow-up. Steven Ledbetter: All right. So this is Steve. I'll take the first one. Franklin, to take the hard one. Okay. So TI, what we've seen is, yes, the spread is widening given the geopolitical elements. Q1, we saw quite a bit higher than $5, and we think that, that will probably continue to be the case, but the curve on TI basically remains very steeply backward dated as things change through this geopolitical event, that curve moves, and so it flattens out. But we are in a position to take -- not have an issue as far as the spread goes from a Brent TI I think the backwardation is something that is -- that we're watching very closely. As you know, we pay a role in separation, and that will impact our late in crude, but we're managing that carefully to go get into the right markets to ensure we can get the margin coverage for that increased cost. You asked about WCS. I think WCS has been a bit better. Some of the pipes coming out of Canada have shown some apportionment -- and I think ultimately, egress will become a problem. I think some of that is also competing with the Venezuelan crude that is now on the market, and that will keep some there, but we see that from Q1 to Q2, we're looking at a $14-ish spread. And remember, we have connected with pipe space right out of Hardisty all the way into our assets in the Mid-Con, and we take advantage of that. But it will depend on what happens longer term as you've seen probably as recently as last night, the presidential permit signed. So there are multiple projects being contemplated to bring additional crude out of Canada either for domestic use or export. And so as that happens, that could force some pressure on the differentials longer term. But there's a lot of time that we want now and then many things can happen on what project goes or what doesn't. But we're evaluating all of them. And I think we're in a really good position to go take a bit of our heavy oil value chain at multiple sites. Neil Mehta: That's really clear. Franklin Myers: You have a question for me. Neil Mehta: Yes, sir. So my follow-up is just on just how you're thinking about the process by which I defined the permanent CEO and CFO. I know there's sensitivity around this and I don't want to litigate the past, but just how is the Board approaching this? What are the characteristics you're looking for over a long-term leader? Are you looking internally, you're looking at external? And just anything you can provide the market would be great. . Franklin Myers: I appreciate your question. We're not going to get into that. We do have a process ongoing. When we're in a position to share that, we will. Let me just make a comment quickly on our Board. We have a very experienced, very high functioning board that I have been in communication with them regularly about this very question and so when we've got something, we'll tell you in the meantime, let me assure you, and some of you don't know my background, I spent 21 years in the C-suite at 2 different S&P 500 companies at all different levels. I'm not a paper CEO with this group. They know I'm here every day, making sure it's going forward. So I don't know that, that reassures you, but the strategy we put in, we're executing on, and there's no let up. And the process will go forward and we will find an excellent leader for this company in due course and we're not going to bottle on it. We are looking at it very seriously. Operator: Your next question comes from the line of Joe Laetsch with Morgan Stanley. Joseph Laetsch: So I wanted to go back to the macro and just given where product prices are today, can you talk about the demand trends that you're seeing within your system? Are you seeing any signs of demand destruction on gasoline or diesel. And then maybe stepping back more broadly, how are you viewing the balances today from both the supply and demand perspective in the Mid-Con and the Rockies. Steven Ledbetter: All right. I'll take that one, Joe, Steve. As far as demand goes, what we saw in the U.S. just for the quarter, U.S. demand was down and gas around 2%, but distillate was up around 4% in our regions that we operate in that more favorable gas was slightly up and diesel was also up. I'll tell you that in the prices, one thing that we're watching, I think you're intimating is price elasticity. And so if you look at through our service centers, we're down year-over-year same-store sales around 2%, but that's against the backdrop that you'll see in some of the consultants' reports in OPUS down about 4.5%. So our portfolio high grading is working, and we're outperforming that. We have started to see some cuts in terms of travel, particularly as jet continues to price up. As you know, the global dimension is heavy distillate supply shortage. So -- they were low, both diesel and jet and they're getting lower. And most of the disruption in the Middle East, they're very much heavy distillate producers. So on the backdrop, that paints a favorable margin picture, but it also creates some concern on what permanent demand structure demand disruption may actually happen. So we're watching that very closely. It's still a bit too early to tell, but we are seeing some slight consider softness as we head in the driving season as people are going to go make those decisions, and we'll just see how that plays out. But I do believe a prompt resolution is going to be more beneficial for the global energy complex than a lingering one. As far as it goes with regards to the Mid-Con, as you know, in Q1 we had Winter Storm firm, which somewhat put a pin in the demand bubble and created a massive supply glut. And so prices were quite low, which led to us rationalizing crude runs and economic sparing in the Mid-Con as it got towards the latter half or latter part of March and what we're seeing in Q2, that inventory picture is really tightening up. And I think U.S. exports of clean product hit a record. So there's products moving into the Gulf to go back supply where they can't get the supply and their current inventory stocks are very low. So Rockies is a little bit of a different story. It's relatively balanced to tight. I will tell you that we have a light planned maintenance schedule across the complex in the U.S. between Q2 and Q3. So any meter disruption will further create a whipsaw in terms of total product supply and demand imbalances. So it's a pretty tight situation but we look forward to the strength of the Mid-Con and the Rockies and our regions for the balance of the year. Joseph Laetsch: Steve, that's helpful. And then following up on your comments on marketing. That segment continues to string together some pretty nice quarters. Could you just talk about some of the outperformance during 1Q and how you see the segment shaping up for the rest of the year here? Steven Ledbetter: Yes. Our marketing businesses, as we've talked about, one of the untapped values of the Sinclair acquisition has been really leveraging that brand and the strength. And we had another good quarter in $2 million plus of the EBITDA. We brought on another new set of sites. But this is -- the value associated with that brand is by getting the full share of what the brand should command. We're growing volume. We saw our volume grow year-over-year 10% plus, which is good. We're seeing that. We've seen about high grading the portfolio. We're beating the same-store sales versus what the market has. So we're taking the portfolio approach of getting to the right areas and maybe pulling some of the assets maybe don't fit with our overall brand promise moving forward. And there's growth in our licensed businesses. DINO has a significant pull on it. and we've yet to go fully develop that. Our Green Trails JV is just the first step of where we think that's truly going to accelerate our growth in the brand. But the adjacencies of the higher-valued revenue streams we're excited about. So it's really just blocking and tackling and being very purposeful about where we're strategically placing our bets, and we see more upside as we move forward. And our business is becoming a material business to the company. Franklin Myers: And everybody loves the green dinosaur. It's a great van. You need to join. Operator: Your next question comes from the line of Phillip Jungwirth with BMO. Phillip Jungwirth: I did want to ask about the Bridger Pipeline expansion, which you referenced earlier with the approval news yesterday. So this goes right down to Guernsey, assuming this gets built, how a fall would you expect this to change feedstock sourcing for your refineries or impact crude diffs. And separately, just anything to note on market impact from the double edge conversion from crude to NGL follows a similar route? Steven Ledbetter: Yes, I'll talk a little bit about the Bridger pipeline. Of course, bringing more crude in the Guernsey will allow some more flexibility into the hub. Whether it goes or not or the level, and we don't know. And so we're not going to speculate on that necessarily, but one thing that we've been focused on in terms of our crude slate flexibility is widening the crude basket, which allows us to go take advantage of dislocated crudes when they present themselves. And as you know, we're connected to the hub that connects both all to our -- some of our Rockies as well down to the Mid-Con. And so to the extent that we see market opportunity, we'll evaluate whether we participate or not, we think we're in a good position because of the flexibility that we put into place to widen our crude basket as well as our connectivity. And your other question was on -- sorry, could you repeat that one? Phillip Jungwirth: Double edge conversion from crude to NGLs. Steven Ledbetter: Yes. I don't know that it has a relevant impact on our specific crude supply set it to something to the overall market differentials. We'll just have to see when we contemplate some of these other projects coming online, I don't think it's a material impact to us either way. . Phillip Jungwirth: Okay. Great. And then you did repurchase some shares in the quarter. Just how are you thinking about capital returns going forward until you have more permanent leadership in place? And should we just stick with the historical framework? And just how tactical do you plan to be, just given the strength in the equities here in the second quarter? Vivek Garg: Yes, that's a good question. Thank you. I'll take that. This is Vivek. So in terms of our share repurchases, we'll continue to execute on our capital allocation strategy. We'll opportunistically repurchase shares under our 2024 share repurchase program. We don't typically guide on the pace or the amount of buybacks. But as we've always shared with the with everyone that we'll continue to execute on our capital allocation strategy, which is driven by free cash flow, capital returns and balanced capital allocation. Operator: Your next question comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Two things, guys, if you don't mind. First of all, SREs, there's -- the new RVO is, I think, here to be confirmed here in the next several weeks. Just want to get your perspective as to given where RINs are currently, what that might mean for you guys, if there's some way to quantify that and expectations of duration, at least through the Trump administration, if that's possible. And then my follow-up is really on product swings. I think in your backyard gasoline has started to get -- the whole slate appears to be getting better. Jet fuel has obviously been extraordinary. What kind of flex do you have to move towards where the advantage products might be today? And what does that look like for you guys in terms of incremental yield. Steven Ledbetter: Doug, this is Steve. I'll take that one. So from an SRE perspective, as you mentioned, the RVO being finalized. What is our viewpoint. I mean you've seen the RIN run to unprecedented records this year. We believe that the RVO is becoming an extreme burden. It's now projected to be $50 billion a year or an equivalent of $0.30 per gallon. Don't know that the latest RVO is helpful to energy cost for either the industry or the consumer. And so what that valuation really looks like for us, we're not going to guide, we believe in the and the SRE was contemplated as part of the original RFS for a reason. And that's to help the smaller refineries who are disproportionately advantaged here. And we believe in that program. We're not going to speculate. We have petitions out currently for 5 of our refineries that we think qualify under the contemplated plan. We're not going to talk about value necessarily, but we do believe that it could be a material relief to the burden that we're facing. How long this thing goes and the duration, there's considerable fight going on associated with the validity, legitimacy, the frame and the shape of the program moving forward, but we're actively involved and our interest will be measured and our interest will be part of the discussion on the solution moving forward. So that's generally our thinking on the RVO, but again, the SRE piece is something we believe in and we will continue to advance and go after that under the current framework of the program. As far as product swings go, yes, I think you're right. we mentioned the PSR project to be able to move and swing between distillate and jet and both of those products are quite good. So the difference between jet and market versus distillate on the West Coast, those are -- some -- each at has been very, very strong. We have the ability to swing anywhere from 10% between gas and distillate across the entire fleet. And we're in a max distillate mode now. Having said that, we also believe that our value chain will allow us to run heavier oil and take care of our retail asphalt business, which enhances our overall margin production. And then we're going and trying to ensure that we're at the top end of those yield curves and running as much premium as we can. So we have the ability to go flex right now at a max distillate mode, but we're watching it and watching it very carefully. Operator: Your next question comes from the line of Jason Gabelman with TD Cowen. Jason Gabelman: Franklin, you mentioned running your refineries responsibly, which is prudent given the margin environment. In the past, DINO has talked about unlocking in addition capacity within the system that would be worth an additional refinery in terms of size. Is that still an aspiration for the company? Or is the 600,000 barrel a day to 630,000 range kind of the upper end of where you expect to run? . Franklin Myers: We have had recent and active conversations of reinvestment into some of our assets to try to increase the throughput over time, not immediately. And so it is something where -- let's think about the sustainability of DINO. We have to look at these assets and understand what our markets demand today, but what they will demand in the future. And as we look at that, and we have free cash flow, some goes back to the shareholders, but some will need to be reinvested not just for maintenance but for improving the complex of our assets. And so yes, the Board will take that up. In fact, it's an item we're going to take up here as we look at the long-term planning. Now I don't want to be held to a volume on where we get to that's going to depend on the -- a lot of planning and -- but if there is opportunity, we believe, to increase. Steven Ledbetter: Yes, maybe just a follow on to that. From an overall value, we launched a few business improvement programs. We've said our key imperatives are to improve reliability and our HSS performance. We're seeing that quarter-over-quarter. So we're starting to see the green shoots as well as unlocking the value of the integrated value and we're starting to see that. So some of the projects that we've invested in, we talked about the PSR project, we talked about the back tower project at El Dorado. Both of those are going to improve our yield as well as capture in terms of generating more value for the same throughput that we're putting through our kits. So crude flexibility. All of those things that we've talked about in the past in terms of optimization, we believe there's value to be had there, and we're seeing some benefits start to show up as a result. Jason Gabelman: Great. My follow-up is just on M&A or A&D, I should say. The Renewable segment certainly had a strong quarter. The margin environment is more constructive. You've seen peers sell down stakes of their renewable diesel businesses. Is that something that you could see doing in the future? And then, I guess, more broadly, just M&A comments on the refining landscape would be welcomed as well. . Franklin Myers: Sure. Let me handle that one. Number one, as a management team, and as a Board, we're charged with looking at the allocation of capital to the assets that we have and trying to determine which ones pay back the best and lean into those and the ones that are more mature take cash flow and lean into opportunities. And then see opportunistically, you've seen in our past, and thank you for this, it gives you a good segue into what I was going to say to wrap up. Going back in time, when we did the acquisitions of PSR and St. Clair. We subsequently did the acquisition -- the reacquisition of our midstream business. They're collectively working together as Steve has talked about the entire value chain. When doing that, if you think about what the company has done and read our report card, we've distributed $4.9 billion, and our market cap today is $12 billion. So think about the ratio of that in 4 years. And in addition to that, our share price has gone from 30 to 60 something. So you look at a rate of return on a company compared to most any other investments you have, not in our complex, but broadly in the mid-cap space or the energy space. We compare favorably with what we've given back. And what's happened is we've leaned into marketing, which Steve has indicated as we've been growing and it adds to the value proposition of what we've had. We've weighted out on the renewable space for the weak players to die during weak markets. And that's what you do in a capitalistic market. You let the weak ones die and you let the strong ones survive. We're not going to be knee-jerk just because we had 1 good quarter and say let's go run and do something. We've waited through the hard times. Let's go harvest these good times. In midstream, we felt like we needed opportunity to manage midstream more tighter. We've talked about some initiatives. There are some others going on. We're going to look at that. We've done acquisitions in both marketing and in lubes, we're going to lean into where we see opportunity and value with our free cash flow. And we see bright days ahead for the Sinclair franchise. When I say love the green dinosaur, it's an affinity brand that people can come to really enjoy and it's 1 that our employees are proud to wear on their shirts and uniforms every day. And so thank you for this question, given me a chance to talk about the successes of our company and how we're going to move forward in the future with this. Greg, do we have anything else? Vivek Garg: Not. I think that concludes our call for today. Franklin Myers: Thank you all for being part of our call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.