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Operator: Good morning, and welcome to the Piper Sandler Company's First Quarter 2026 Earnings Conference Call. Today's call is being recorded and will include remarks by Piper Sandler management, followed by a question-and-answer session. I'll begin by turning the call over to Kate Winslow. Please go ahead. Kathy Winslow: Thank you, operator. Good morning, and thank you for joining the Piper Sandler Company's First Quarter 2026 Earnings Conference Call. Hosting the call today are Chairman and CEO, Chad Abraham; our President, Deb Schoneman, and CFO, Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's First Quarter 2026 financial results, which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements that are not historical or current facts, including statements about beliefs and expectations, and involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in the company's reports on file with the SEC which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad. Chad Abraham: Thank you, Kate. Good morning, everyone. Thank you for joining us. We posted a strong start to the year, generating first quarter adjusted net revenues of $470 million, our tenth consecutive quarter of year-over-year growth, a 20% operating margin and adjusted EPS of $1. Corporate Investment Banking achieved a first quarter record with revenues of $324 million, up 30% year-over-year due to robust corporate financing activity as well as solid contributions across advisory services. . Our Healthcare franchise produced an exceptionally strong quarter, setting a new high watermark in terms of revenues. Results were driven by our medtech and biopharma teams as well as meaningful contributions from Healthcare IT and Services, 2 areas where we have invested in strengthening our capabilities. Within U.S. medtech M&A, we rank as the top adviser based on number of announced deals. Our Financial Services group also registered a strong quarter as they closed several significant bank M&A transactions. We ranked as the #1 adviser in U.S. bank M&A based on deal value announced during the quarter. Our Insurance and Asset Management subsectors also contributed to the strong performance. Advisory revenues were a first quarter record of $251 million, up 16% year-over-year due to the strong performance from Healthcare and Financial Services, and contributions from our Services and Industrials and Energy teams. For the quarter, we ranked as the #2 adviser in U.S. M&A based on announced deals under $2 billion and ranked #3 based on announced deals under $5 billion. In addition, our non-M&A advisory teams remain active and are a growing component of our performance. Our Debt Capital Markets Advisory business recorded a strong start to the year and was a meaningful contributor to this growth. Our deep product expertise, trusted relationships with market participants and close collaboration with our industry teams continue to deliver consistent, high-quality execution for our clients. We are also seeing positive momentum within our Private Capital Advisory Group, where we are leveraging our sponsor relationships and sector expertise to grow market share. As market conditions evolve, we continue to benefit from our broad industry coverage and comprehensive product capabilities. Looking ahead, our industry and product teams are busy advising clients and pipelines remain strong. However, the timing of these transactions may be influenced by market conditions. We expect second quarter advisory revenues to be similar to the first quarter. Turning to Corporate Financing. The equity underwriting market was resilient during the quarter despite the volatility with the fee pool up 73% year-over-year, driven mainly by the Healthcare sector. Corporate Financing revenues for the quarter for $73 million, up 122% from the first quarter of last year. We completed 36 equity, debt and preferred financings raising $14 billion for corporate clients. Activity was led by our Healthcare team, which served as bookrunner on all 23 equity deals they priced during the quarter. Our absolute and relative outperformance was driven by strong equity issuance for biopharma companies. In this sector, we ranked as the #2 investment bank based on the number of book-run deals. Over the last decade, we've built a scaled biopharma platform with deep expertise and products across banking, research, capital markets and sales, positioning us to capture share and drive strong results. As we look ahead, we expect second quarter corporate financing revenues to decline from a strong first quarter. Shifting to talent. We finished the quarter with 192 investment banking managing directors, the highest number in firm history. Development of our internal talent, along with identifying talented partners to join our platform, continues to be a priority as we strengthen our product and sector teams. During the quarter, we promoted 6 of our bankers to Managing Director, and we hired 3 MDs that strengthen our advisory capabilities in Healthcare, IT, European Life Sciences and Upstream Energy. Let me close with a few final points. While the near-term macroeconomic environment remains uncertain, our core strategy is unchanged. We remain focused on advising clients with deep expertise and providing a comprehensive suite of capital market solutions. We are committed to expanding our platform for continued growth while delivering strong margins to our shareholders. With that, I will turn the call over to Deb to discuss our Public Finance and Brokerage businesses. Debbra Schoneman: Thanks, Chad. I'll begin with an update on our public finance business. We generated $24 million of Municipal Financing revenues for the quarter, down 9% year-over-year. Revenues were balanced between our governmental and specialty businesses. During the first quarter, we underwrote 98 municipal negotiated transactions, raising $3 billion of par value for our clients. As we look ahead, our pipelines are strong with clients looking to access the market. We anticipate that second quarter revenues will improve modestly from the first quarter, aligning with the typical seasonality of this business. Turning to our Equity Brokerage business, higher volatility drove increased trading volumes in response to geopolitical events, resulting in record first quarter revenues of $60 million, an 11% increase from the prior year. Performance was broad-based across our trading desks, including our derivatives desk as clients increase their hedging activity. Our platform offers clients many execution and payment channels to take advantage of our differentiated research and trading capabilities. Looking ahead, our results will continue to be correlated with market volatility and trading volumes. We expect our second quarter revenues to decline from the record first quarter levels. While volatility helped our Equity Brokerage business, it negatively impacted our fixed income business. As the quarter progressed, the day-to-day volatility during March significantly reduced our regular-way client activity. We were able to mitigate this reduction by completing balance sheet restructuring trades in conjunction with the closing of bank M&A transactions. We produced fixed income revenues of $50 million in the first quarter, up 6% from the prior year period. The diversification of our product capabilities and client relationships, coupled with our capital-light model, provided a level of resiliency to our results. The near-term fixed income outlook remains challenging. We've experienced a slow start to the second quarter as ongoing geopolitical developments are keeping many clients on the sidelines. Now I will turn the call over to Kate to review our financial results and provide an update on capital use. Kate Clune: Thanks, Deb. My comments will address our adjusted non-GAAP financial results which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. As a reminder, we affected a 4-for-1 forward stock split of our common stock on March 23, and our common stock began trading on a split-adjusted basis at the start of trading on March 24. All share and per share amounts discussed on the call have been retrospectively adjusted to reflect the impact of the stock split. For the first quarter of 2026, we generated net revenues of $470 million, operating income of $94 million and an operating margin of 20%. Net income totaled $72 million and diluted EPS was $1. Net revenues for the first quarter of 2026 declined from the seasonally strong fourth quarter of 2025, but increased 22% over the first quarter of last year. The year-over-year growth was driven by a 30% increase in Corporate Investment Banking revenues. Advisory Services delivered the strongest first quarter on record and Corporate Financing activity was robust. In addition, our Equity Brokerage business achieved strong results. Margin expansion remains a strategic priority as we continue to scale our platform. Current quarter operating income grew 37% over the first quarter of 2025, outpacing our year-over-year revenue growth of 22%. Turning to expenses. We reported a compensation ratio of 61.6% for the quarter, an improvement of 90 basis points from the first quarter of last year, driven by increased net revenues. This improvement in our ratio reflects our continued commitment to exercising operating discipline, while balancing employee retention and investment opportunities. For the first quarter of 2026, non-compensation expenses were $86 million, up 15% over last year, in part due to an $8.5 million litigation-related expense taken during the quarter. This expense relates to the pending settlement of the California lawsuit originally filed in 2014, specific to variable rate demand notes within our Municipal Finance business. Excluding the $8.5 million litigation expense, non-compensation costs for the quarter increased 4% year-over-year driven by higher underwriting expenses associated with increased corporate financing activity and were 16.6% of net revenues. This ratio reflects an improvement of 300 basis points from the first quarter of last year as we continue to drive leverage from higher revenues. Moving to income tax expense. For the first quarter of 2026, our income tax expense was reduced by $7 million of tax benefits related to the vesting of restricted stock awards, which resulted in an income tax rate of 23.4%. Excluding these benefits, our effective tax rate was 30.8%. Now finishing with capital. Our consistent operating discipline and capital-light approach continued to result in strong cash generation to deploy in order to drive shareholder returns. During the first quarter, we returned an aggregate of $171 million to shareholders, which included dividends totaling $101 million or $1.45 per share paid to shareholders through our quarterly and special cash dividends. It also includes repurchases of approximately 884,000 shares of our common stock were $70 million, which offset a significant portion of the share count dilution from this year's annual grants. Lastly, I'm pleased to announce that effective today, the Board approved a quarterly cash dividend of $0.20 per share, a 14% increase from our previous quarterly cash dividend. The dividend will be paid on June 12 to shareholders of record as of the close of business on May 29. We are pleased with our start to 2026 and remain focused on driving long-term growth and further elevating the durability of the platform while generating best-in-class returns. With that, we can open the call up for questions. Operator: [Operator Instructions] We will now take our first question from James Yaro with Goldman Sachs. James Yaro: Chad, I'd love to just get an update from you on whether the upward sloping trend of activity in bank M&A has slowed at all in your opinion or continues? And then maybe to the degree you could also comment on the recent rate vol in the forward curve in particular and whether that should have an impact on the Bank Hedging business and Fixed Income? Chad Abraham: Okay. Well, why don't I take the first question, James, and I'll let Deb take the second one. But on bank M&A, we had a good Q1 with a significant amount of closings. I would say on the announced bank M&A, I do think it's a little slower than we anticipated. We announced a couple more transactions this week. So I would say we're seeing decent volume on some of the smaller transactions, just haven't seen the pace we were seeing on a little bit of the larger transactions. Just as a reminder, that happened a little bit last year, and it picked up as well. So we'll have to see. Debbra Schoneman: Yes. And then on your question relative to hedging activity with banks, our derivative desk has been incredibly busy relative to conversations. We've seen some increased actual activity of transactions being completed. But I think one of the things that you see is when there's volatility while you might naturally think, boy, there should be a lot of hedging, it also makes it challenging to determine how they want to position given that volatility. So definitely, a lot of activity going on there, but nothing that's necessarily outside of the norm. James Yaro: That's super helpful. Maybe just on the equity capital market side. You talked about strength in Healthcare. That's obviously been 1 of the 2 sectors alongside Industrials that has performed very well so far this year. I'd love to just get your sense on based on your backlogs, how sustainable you think the equity capital markets activity could be? And specifically, as it relates to the Healthcare business, which is driving a lot of that, I believe? Chad Abraham: Yes. So it was a good quarter for the market, but it was a particularly good quarter for us just with market share. That happens sometimes with -- if we have a handful of larger fees. Obviously, we specifically said in the commentary we thought capital markets would be down. It's just hard for us to maintain sort of that super outsized market share performance in Q2, but that market remains open and especially how biotech trades. Sometimes that market trades just differently than the overall market. So we feel pretty good about that backdrop, but do not think that, that first quarter market share is sustainable. . Operator: We'll next go to Steven Chubak with Wolfe Research. Steven Chubak: Absolutely. Yes. So I wanted to start with unpacking some of the comments around the Advisory outlook. You mentioned Advisory fees should be down sequentially, not surprising given the choppy macro. I was hoping to get some perspective on which sectors you're seeing the biggest slowdown in deal activity. And based on your current visibility into the backlog, just how long do you expect this moderation or let's call it somewhat of an air pocket to persist? Chad Abraham: Yes. So obviously, in our commentary, we said Advisory would be similar. So I would say I think it sort of depends on the sector. We obviously talked about banks and with announcement volume down in Q2 -- or Q1, obviously, that has some impact on the go forward. We had a spectacular Q1 in parts of Healthcare and Medtech that are sort of hard to repeat. So some of that is just relative to our own performance. But I would say, in the overall market, especially on the sponsor side, while I think sponsors pitch activity has been good. I think the question is how quickly do they launch and do they transact? And so while I don't think there's any real panic, there's also not tremendous urgency. So I think it's -- I think the market is fine. I don't think it's accelerating. And those 3 combinations of things probably drove our commentary. Steven Chubak: Understood. I mean with regard to sponsors, it certainly feels like Waiting for Godot. Maybe just to switch gears and focus on the Software side, just given Technology has been a meaningful contributor to your M&A business historically, we're all hearing of emerging concerns on AI disruption, the SaaSpocalypse, was probably good to speak to your outlook for Software M&A and the willingness of these corporates to consider inorganic growth or even consolidation amidst some of the growing AI fears? Chad Abraham: Yes. So obviously, for us, Technology is one of the areas we've been investing heavily in, but on a historic basis, it's out of our 7 history teams, one of the smallest. So I think on a relative basis, we will be impacted less. But no question, we will be impacted. We actually had a decent Q1 in Technology up from last year. And what I would say with the Software transactions, I think I think the market's slowly figuring out where is the real disruption going to be, where does sort of the data and vertical expertise really sort of find its way through in the new tech market, but there is no question, especially on the larger deal side, things are going to be slower, folks are going to be cautious, valuations are down and valuations are down versus prior financing levels, which makes it hard to transact. I do think that -- we've seen that in other tech cycles. We will see that work its way through the system. And then like you said, just with AI and technology shifts for the survivors, that will probably accelerate other activity. But that's going to take a while to take -- to work out. So I think our expectations are fairly cautious for our Tech and Software business this year. Operator: We'll next go to Devin Ryan with Citizens Bank. Devin Ryan: Want to stay on Advisory and maybe talk a little bit about some of the non-M&A businesses. Obviously, it sounds like private capital is continuing to gain steam. We're still hearing restructuring is relatively active. Can you talk about kind of contribution that you're seeing from non-M&A? And then just more broadly, how that impacts kind of the outlook as you look out over the next year or even 2? Chad Abraham: Yes. Sure. We had a good Q1 in non-M&A. Obviously, we've got the major pieces of that DCM advisory, restructuring and then private capital advisory. For us, sort of the real bright spot in Q1 is even after a good end of the year, our Debt Capital Markets Advisory business had a very good Q1. I would say, restructuring and private capital were fine, but the outsized performance was driven by Debt Capital Markets. I do think relative to private capital advisory now that we're kind of 1.5 years into our acquisition, I'm pretty encouraged by what we're seeing on some of the continuation and other transactions as we've now closed a few, and we have -- and frankly, we have a few more, and it's really across all of our industry teams, which I think -- which is good for us to see. And over time, I think that's going to be more and more of a contributor for us. Devin Ryan: Got it. Maybe one for Deb here. On fixed income revenues, you mentioned kind of resiliency with balance sheet restructuring trades with the bank closings, but 2Q started slowly with clients on the sidelines. Can you just help us understand kind of the moving parts of that? Is that bank M&A, was that interest rates? Is that just market volatility? Just trying to think about what needs to change to kind of bring people off the sidelines? Debbra Schoneman: Yes. I think the biggest thing that needs to change is just volatility needs to come down. Some vol is great for trading businesses, but it's been too extreme, and I think part of that's rate, part of that just is looking at what's happening in the geopolitical environment. So I would say that's the biggest thing that we just need to see some sustained reduction in just volatility in the marketplace relative to the bank restructurings, and that's going to follow the closings of M&A transactions. So that's just something to watch there. And as Chad talked about a little bit of a slowdown in some of the announcements. This is an industry-wide phenomenon, actually. That does ultimately impact our opportunities in, say, the next quarter to be able to have more of those. So I think -- let me know if there's anything else I can add color on there, but I think those are the biggest components. Devin Ryan: Yes. That's great. Maybe if I could just squeeze one in to get Kate involved. Just on the comp ratio and kind of the outlook, obviously, I appreciate the year is still somewhat uncertain, but you started the year with nice revenue growth, some comp leverage, I think, down 90 basis points from the beginning of 2025. So how are you thinking about the ability to drive -- you've been incredibly consistent on the comp ratio, which is great. But like the ability to continue to drive leverage from here off of a better jumping off point for 2026 relative to 2025? Debbra Schoneman: Thanks, Devin. So we're now sort of consistently at the low end of the range that we had previously guided to, which was 61.5% to 62.5%. So pleased with that progress. And also pleased with the leverage we were able to drive in the first quarter, given the improvement in the top line revenue number. That being said, we do have a highly variable comp model, which has allowed us to be as consistent as we have been through the cycle. So while we'll certainly look to drive leverage where opportunities present of certain parts of our comp expense base, that leverage could be a little bit more modest than perhaps you'd see elsewhere. And we're also always looking for additive investment opportunities. So it's a bit of a balance. But we intend to continue to operate within the low end of the range or just below as we have for the first quarter here for the rest of the year. Operator: [Operator Instructions] We'll next go to Mike Grondahl with Northland Securities. Mike Grondahl: Chad, if we think about your Advisory pipeline, there's probably traditionally some activity as you go from winter to spring some inflows, a little bit of outflows. Can you comment at all how winter to spring activity happened this year? Did it kind of stop recently with the war? I'm just trying to get a sense of how different the activity was this year versus more normal years? Chad Abraham: Yes. Thanks, Grondy. What I would say is Q1 is always a challenge for us because it's just seasonally down. And then especially, we had such a just -- Q4 is always good, but last Q4 was really, really strong. So you never know exactly how that's going to impact Q1 pace. So I think the fact that on a relative Q1 basis it was a record, and it was so good. I think we were especially excited just given that was off of a really strong I do think the combination of those 2 quarters, you're always looking at what you're adding and what you're taking. And I think that, that probably drove some of our commentary about why we thought advisory would be similar in Q2. But other than that, nothing sort of extraordinary there. Mike Grondahl: Okay. And then -- what do you think the markets need to see to kind of get back on an upward slope. Is it the Iran war? Is it lower oil prices? Is there -- if you had to call out 2 or 3 things, what do you think it is? Chad Abraham: Yes. I mean, it's hard to just talk about the whole market. I mean, honestly, our -- each of our sort of segments is driven by certain things. I mean in our Energy business now, things are rock and they've got a lot of interesting things going on. We talked a little bit about it. I think in bank land, one of the things that's pretty important is just what's the starting point of stock prices. They're down a little bit and that's not a perfect time to transact. And then just, yes, relative to the sponsor business, I think it's just going to be some stability. It's not like we're not transacting, but sort of a -- and there's really 3 decision points for sponsors. And April is always our heaviest pitch month, and that's true today. So we know what's coming, but then there's a decision point of do you launch before the decision point of do you transact. And so I think it's just certainty of close. And so do we get some resolution on a global macro and do people feel like they're going to hit their valuation points. And we'll learn a lot in the next couple of months here. But the good part is, I think people are at least confident enough in sponsor land to do the pitch, start the process, but there'll be another big decision point this summer about do we launch. Operator: And at this time, we have no further questions. I would like to turn the call back over to Chad Abraham for closing remarks. Chad Abraham: Thank you, Margo, and thanks to everyone that joined us this morning. We look forward to updating you on our second quarter results this summer. Have a great day. Operator: And this does conclude today's call. We thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. First Quarter 2026 Earnings Conference Call. My name is Chloe, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now I would like to turn the call over to your host, Erin Drabek, Vice President of Investor Relations for Arcosa. Ms. Drabek, you may begin. Erin Drabek: Good morning, everyone, and thank you for joining Arcosa's First Quarter 2026 Earnings Call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of the press release issued yesterday and a slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would now like to turn the call over to Antonio. Antonio Carrillo: Thank you, Erin. Good morning, everyone, and thank you for joining us for a discussion of our first quarter results and 2026 outlook. I am very pleased with our performance. We kicked off the year with strong results, made meaningful progress on our strategic transformation, and increased our full year guidance for continuing operations. In the first quarter, we delivered adjusted EBITDA growth of 10% from continuing operations, double our revenue growth, and expanded margin by 100 basis points. The strong performance was driven by robust double-digit top line growth and strong margin uplift in utility structures. Despite typical seasonality and winter weather impacts, Construction Products contributed solid results, and we were pleased to see performance improved as the quarter progressed. Importantly, we recently reached a key milestone in our transformation. On April 1, we announced the completion of the $450 million barge divestiture, a pivotal step in simplifying our portfolio. Now with 2 segments, we're fully focused on Construction Products and Engineered Structures, both well positioned to benefit from infrastructure investment and power market tailwinds in the U.S. We intend to use the net proceeds from the barge sale to reinvest in our growth platforms and manage our debt. In March, we completed a $60 million acquisition of a natural aggregates operation located in Florida with accretive margins that enhance our platform in this attractive market. We continue to have an active bolt-on M&A pipeline complemented by a healthy set of high-return organic growth projects. Our balance sheet is in great shape. And at the end of the first quarter, pro forma for the barge divestiture, net debt-to-adjusted EBITDA decreased to 1.9x, slightly below our target range, providing for both flexibility and capacity to support continued growth. Turning to the outlook. Our full year 2026 guidance now reflects continuing operations only. At the midpoint of our guidance range, we expect adjusted EBITDA of $565 million, up $22.5 million from our previous guidance range, representing 11% growth year-over-year. In Construction Products, our demand outlook remains broadly consistent with the start of the year with new uncertainty created by the conflict in the Middle East, which commenced the day after our February earnings call. While geopolitical volatility is elevated and oil prices have risen sharply, we have not seen that translate into weaker demand in our construction footprint. Within Engineered Structures, our first quarter performance in utility structures exceeded expectations. Momentum has been building in the demand environment for some time, and this strength is aligned with the excellent commercial and operational execution by our team, driving record margin performance in the quarter. As a result, we have raised our expectations for the balance of the year. Reflecting on our journey as a stand-alone public company, we have never been better positioned. Our objective at the time of the spin-off was to grow in attractive markets while simplifying the portfolio and reducing cyclicality. We have succeeded in doing this while strengthening our margin profile and enhancing the company's overall resilience. Across our simplified portfolio, we are aligned to capitalize on durable multiyear U.S. infrastructure-related tailwinds. We're confident that these advantages, combined with disciplined capital deployment and consistent execution, position us to deliver continued shareholder value creation. I will now turn the call over to Gail to provide additional details on our first quarter segment results. Gail Peck: Thank you, Antonio. Good morning, everyone. My comments today will focus on continuing operations. First quarter results for the barge business are included in discontinued operations, and we have eliminated segment reporting for Transportation Products. Starting with Construction Products. First quarter results finished largely in line with our expectations, overcoming a slow start to the quarter due to severe winter weather across our footprint in January. Segment revenues increased 5% and adjusted segment EBITDA decreased slightly. Adjusted EBITDA growth in aggregates and trench shoring was offset by pronounced seasonality in asphalt and lower cost absorption in Specialty Materials. For aggregates, freight-adjusted revenues increased roughly 6%, driven by 2% pricing growth and 4% volume. Adjusted cash gross profit margin increased 220 basis points and adjusted cash gross profit per ton increased 7%. Performance this quarter was led by our Texas region, which benefited from favorable weather in February and March that more than offset the harsh winter conditions throughout the quarter in our East region. Turning to Specialty Materials and Asphalt. Revenues decreased 4%, primarily due to lower asphalt volumes. Revenues for Specialty Materials increased slightly, driven by higher lightweight aggregates volume. Costs were higher year-over-year due to planned maintenance downtime at one of our lightweight plants and a larger seasonal impact from asphalt. The result was lower adjusted EBITDA for the quarter. We expect to see earnings growth and margin improvement for both product lines for the remainder of the year. Finally, our trench shoring business completed another strong quarter of growth with both revenues and adjusted EBITDA up about 26%. Record order levels converted into higher volumes, and customer sentiment remains very positive. Moving to Engineered Structures. Segment revenues increased 4%, led by mid-teen growth in our utility and related structures businesses, more than compensating for lower wind tower revenues, which were expected. Utility structures revenue accelerated north of 15%, supported by both volume and pricing. Significant margin expansion drove a 21% increase in adjusted segment EBITDA. Segment margin increased to a record 21.1%, up 300 basis points year-over-year due to strong utility structures performance. During the quarter, the team successfully executed strategic capacity expansion projects to drive volume and accelerate the delivery of more favorable product mix. We ended the quarter with record backlog for utility and related structures of $558 million, up 28% from the start of the year. Order activity continued to be strong and included a couple of orders for long-term projects that extend into 2028. Customer reservations, which are not included in reported backlog, are also robust. For wind towers, we received orders of $43 million during the quarter for delivery in 2026 and 2027. We ended the quarter with backlog of $600 million and expect to recognize 36% in 2026 and 59% in 2027. I'll now provide some comments on our cash flow performance and balance sheet position. During the quarter, we generated $58 million of operating cash flow from continuing operations, which compared favorably to last year's $21 million use of cash. The increase was driven by higher earnings and a $53 million reduction in the use of cash for working capital. CapEx for continuing operations for the first quarter was $44 million compared to $33 million in the prior year period, which reflects increased investment in our core growth platforms. Free cash flow from continuing operations was $21 million, up from negative $49 million in the prior period. Additional cash activity in the quarter included the investment of $60 million for the bolt-on natural aggregates acquisition and $18 million of share repurchase to offset dilution. Our balance sheet and liquidity position were enhanced by the barge sale. Pro forma for the April 1 closing, net debt-to-adjusted EBITDA is 1.9x compared to 2.3x at quarter end. This reflects $370 million of estimated after-tax net proceeds, of which $83 million was used to prepay a portion of the outstanding term loan balance in April. Pro forma liquidity is estimated at $1.1 billion, including full availability under our $700 million revolver. I'll wrap up with guidance updates on a few items to reflect continuing operations now that the barge divestiture has closed. We now expect full year CapEx of $215 million to $240 million, a slight reduction from the prior range. We anticipate a full year effective tax rate of 16% to 18%, down 1.5 points due to a lower expected state tax rate for continuing operations. The first quarter tax rate of 5.3% was favorably impacted by onetime discrete items. So our guidance implies a quarterly effective rate slightly above the top end of the range for the balance of the year. And finally, we anticipate the full year corporate cost impact to adjusted EBITDA to be approximately $60 million at the midpoint of our guidance range, roughly flat with 2025 as we offset barge stranded costs. I will now turn the call back to Antonio for more discussion on our 2026 outlook. Antonio Carrillo: Thank you, Gail. We have started the year on solid footing, completing the barge divestiture, delivering strong financial and operational results and raising guidance. As a result, Arcosa is well positioned to deliver another year of record financial results for our 2 remaining segments. Our outlook for the year has improved, driven by the strength in utility structures as well as solid execution in the first quarter. At the midpoint of our guidance range, we anticipate revenues of $2.65 billion, up 6% year-over-year and adjusted EBITDA of $565 million, up 11% year-over-year. We expect margin to expand to a record 21.3%. In Construction Products, we anticipate another record year of revenues and adjusted segment EBITDA. In our guidance range, we continue to expect mid-single-digit adjusted EBITDA growth for the segment. For the aggregates business, we are incorporating low single-digit volume growth and mid-single-digit pricing improvement consistent with our February guidance. On the cost side, we're managing increases in oil-related inputs. We're actively deploying fuel surcharges and loading fees in the aggregates operations to combat higher diesel costs and the asphalt pricing is indexed to changes in liquid AC. We're maintaining strong pricing discipline to support solid unit profitability gains consistent with actions we took to address high inflation. Our 2026 outlook is underpinned by infrastructure and heavy nonresidential demand. In Texas, our largest market, we delivered above-average volume and pricing gains in the quarter, driven by healthy demand and favorable weather conditions in much of February and March. While highway lettings have been trending off peak levels recently in Texas, the outlook for state spending growth over the next several years is very positive. In New Jersey, our second largest regional market, the demand outlook is also favorable, as both the Department of Transportation and the Transit Authority have approved budget increases for 2026. We're ramping up for the spring construction season after a very cold start to the year. We believe there is pent-up demand as customers are ready to start their projects and make repairs caused by the harsh winter weather. There is also progress in advancing a multiyear surface transportation reauthorization with initial language expected to be released by the House Transportation and Infrastructure Committee later this month. Within heavy nonresidential, volumes continue to benefit from data center development, reshoring activities in certain areas, and overall demand for new power generation. Additionally, we see continued momentum related to LNG opportunities in the Gulf Coast. Residential remains challenged by affordability, and the recent rise in oil prices has weakened consumer confidence. With a soft start to the spring selling season, we see residential volume recovery pushing out to 2027, and anticipate flat to slightly down residential volume in aggregates this year. We service attractive markets and expect our footprint to benefit when the housing market recovers. In summary, our construction outlook continues to be supported by infrastructure and heavy nonresidential activity in 2026. With the winter season behind us, we're optimistic about a solid construction activity in the quarters ahead, led by healthy demand fundamentals in our largest markets. Moving next to Engineered Structures. We had an excellent start to the year, exceeding expectations for the segment, with outperformance driven by utility structures, our largest business in the segment. Regarding the market outlook, conditions remain very healthy. As we have discussed before, the expansion of data centers and the rise in electricity consumption across the U.S. continues to drive a significant and sustained increase in power demand. Our utility customers have made large multiyear capital commitments to power investments along with ongoing efforts to modernize the grid. As a result, our backlog continues to increase and we are optimizing pricing. We're successfully addressing the recently implemented steel tariffs. Previously, we were exempt from Section 232, as we source our steel from the U.S. for the manufacture of utility structures in Mexico to be sold in the U.S. Effective April 6, these imported structures are subject to a new 10% steel tariff on the full value of the finished products. We have contractual protection in place to effectively pass through the impact. We're optimistic that the joint review of the USMCA later this year will create certainty in the commercial relationships between U.S. and Mexico and avoid tariffs on products made in Mexico that comply with USMCA and are made of U.S. steel. We're advancing several high-return investments in utility structures to align capacity with strong demand, while at the same time, focusing on efficiencies and throughput enhancements within our footprint. We're ahead of schedule with the conversion of the Illinois wind tower plant, which had been idle for several years to a utility pole plant. With critical equipment being installed and commercial success filling our backlog, we now expect to produce large utility poles from this facility by the end of the second quarter. Our new galvanizing facility in Mexico completed its first dip in April, and we should be commercially operational in the second quarter as well. Our expectations are that the expected cost savings from the galvanizing facility will help offset start-up costs in Illinois. Additionally, planning continues for the transition of a second wind tower facility in Oklahoma to produce utility poles. In that plant, current wind tower backlog extends through 2027. We can run both product lines in parallel, and we expect to be moving our people to produce utility poles as wind tower orders are fulfilled. Within wind towers, which represent roughly 10% of full year total company revenues, the team performed well while transitioning to lower volumes. We now have 3 customers in our backlog with the orders received in the quarter, and we're planning for a volume recovery back to 2025 levels next year based on the backlog already in place. With power demand rising and wind energy remaining competitive source of generation, we're optimistic that there will be demand for wind towers after the tax credits expire. With 2 of our 4 wind tower plants under active conversion to produce utility structures, Arcosa will be well positioned to deliver strong returns on the capital invested in the wind business while retaining a great optionality to further expand capacity for utility poles if demand continues to strengthen. Our first quarter beat and guidance raise highlights the significant strength in utility structures that serve as a backbone of the grid modernization. Electricity demand is expanding at a pace not seen in a generation. We now anticipate segment adjusted EBITDA growth of approximately 10% at the midpoint of our guidance range with utility structures more than compensating for a transition year in wind towers. As it relates to our capital allocation priorities, we have an active pipeline of additional bolt-on opportunities, both in natural and recycled aggregates, and expect to deploy capital towards the highest value opportunities. While not reflected in our midpoint of our guidance, we are confident that we can execute on several bolt-ons this year. In closing, we're entering the second quarter with strong momentum and improved balance sheet and additional confidence underpinned by increasing our guidance. The divestiture of our barge business is a significant milestone in our company's evolution and will sharpen our focus on our key growth businesses. We remain proactive in our value creation strategy and are always seeking for ways to deliver more value for our stakeholders. I'm extremely proud of our team's excellent start to the year. We're now ready for your questions. Operator: [Operator Instructions] And we'll take our first question from Julio Romero with Sidoti & Company. Julio Romero: So on utility structures and maybe the Engineered Structures segment overall, the segment margins are very strong here in the first quarter, at a record level, I believe. Can you just help us understand what's driving the margin strength, particularly how much of that is driven by utility structures? And just help us think about how sustainable that margin performance is for the balance of '26? Antonio Carrillo: So let me give you some color. I think we mentioned in our scripts, but the 2 businesses, let's say, it's a K-shape segment. Utility structures are going up pretty significantly. And as we've mentioned before, we expect the wind to come down given that we see 2026 as a transition year. So utility structures has been overcompensating for the reduction in wind. As Gail mentioned, our revenues went up over 15% in the quarter. And margins were extremely strong. Our team performed incredibly well. As volumes come up and we've been able to tweak our capacity across our footprint, the margin has continued to go up. So it was mainly driven by utility structures. On the wind side, I also mentioned we expect this to be a transition year. In the second half of the year, we're going to start ramping up, because we already have the backlog in 2027 to go back to 2026 (sic) [ 2025 ] levels. So ideally, as the year goes by, we should continue to see utility structures continue to perform and accelerate, and wind should, at the end of the year, start accelerating to be able to fulfill our strong 2027 backlog. Gail Peck: And Julio, I think you asked for some guidance as we look forward in the sustainability of the margin. As you pointed out, the segment did report record margins in the quarter. So fantastic performance. Really, all the businesses were in line with our expectations and the outperformance was utility driven. So as we look through the balance of the year, we have raised our margin expectations for the year versus where we were here in February. You can see that in the guide with the EBITDA. The incremental margin on that EBITDA raise is pretty strong. So we do have some -- we are ramping up our Clinton, as we mentioned, that will be operational at the end of the second quarter. But we do still have some start-up costs that we'll incur in Q2, along with some continuing start-up costs on the galvanizer. Those will probably hit their peak level in Q2 before they start abating in the back half of the year. So a long-winded way of saying our margin expectation for this segment has increased, and we would see an annual margin in the 20% range sustainable for the year. Julio Romero: Excellent. Really helpful there. And then second question is, you mentioned that customer reservations for utility structures, which aren't included in the backlog, are also robust. Can you maybe expand on that commentary and how those have been trending relative to historical? And then kind of related to that, you also mentioned in the script about advancing several high-return investments related to capacity and utility structures. Does that go beyond the current conversions of Illinois and Tulsa? Yes, that's my 2-part question there. Antonio Carrillo: Let me start with the first one. As we've always said, we have long-term contracts with our customers. And as our customers' utilities determine exactly what they need, the designs on the poles, et cetera, that's when we include them in our backlog. So as our backlog grows, normally, the reservations also grow. Normally, the reservation piece is about the same size as our backlog. This time, it's probably a little smaller, because we have some additional orders that were outside of our normal contracts. But they normally grow in parallel, both the backlog and the reservations. And we continue to see very strong demand and very strong customer sentiment on what's coming. So very excited about what we're seeing on utility structures. On the 2 main projects that we have, which are the conversion of the 2 plants and the galvanizing -- 3 projects, 2 conversions and the galvanizing, those are the main projects in utility structures. We do have a lot of smaller projects that Gail mentioned in her script that we are trying to maximize our throughput in our plants; for 2 things, one is to maximize the margin profile of the products we are producing in a very tight market; and second, to try to increase our throughput. So lots of small projects in addition to the large projects. Operator: We'll move next to Trey Grooms with Stephens. Ethan Roberts: This is Ethan on for Trey. Great job on the quarter. I wanted to touch on maybe your cost outlook. Any more detail on how to think about the energy exposure across your Construction Products business, how you're navigating that? And any expectations on timing impacts on the margin as we progress through the year, and perhaps in the Engineered Structures business as well, any other inflationary inputs that you're looking at would be great. Antonio Carrillo: Sure. I'll give you conceptually and let Gail give you some numbers. So we use between 10 million and 11 million gallons of diesel in the footprint. And what we've been doing since this conflict started is passing through fuel surcharges and loading fees. So I think we have taken all the actions that we need to take to mitigate all these impacts. And I think we're in good shape. That's on the construction side. On the utility structures and wind, the impact is negligible. We don't have a lot of exposure to diesel. Our main exposure is natural gas. And as you've seen, natural gas, it went up a little bit, but it hasn't had a huge impact. So we don't expect a significant amount of impact there. And I'll let Gail give you some more color. Gail Peck: Yes. And Antonio mentioned the consumption that we have in aggregates, which is obviously clearly our most intensive diesel user. And so we've seen -- as you've heard from others, we didn't see much impact in Q1 as prices started to spike in March. But we're seeing diesel prices up about $1.50 a gallon in our footprint. So if these prices remained at this elevated level, we'd estimate about a 4% to 5% headwind to cash unit profitability for 2026, and that's unabated. So as Antonio just discussed, we have actively implemented surcharges and steps to mitigate that impact. So happy to provide any more color. Antonio Carrillo: A couple of additional comments. I mentioned in my script, but we only have one large operation for asphalt in the Northeast, and our prices are indexed to liquid AC costs. So that's something that we're covered. So overall, I think we are in good shape. One more thing that differentiates Arcosa from many of the peers. We don't have ready-mix. We don't distribute our products. We don't deliver them. For the most part, the diesel is consumed inside our facilities. We don't have a large footprint in trucks delivering asphalt or aggregates or ready-mix or cement or anything like that. So we are, I think, a lot more insulated. Ethan Roberts: Got it. That's all very helpful color. So I appreciate that. And maybe shifting gears a little bit back to utility structures. At a higher level, how long of a tail do you think that this level of utility power demand has? I mean you mentioned in the prepared remarks that some of these contracts extend into 2028. So how long of a tail do you think this has? And of course, what are you seeing here that gives you confidence in raising the guide here in the earlier part of the year? Antonio Carrillo: Yes. Let me start with your second question. We're raising the guide for 2 reasons. Performance has been very good. But we have the backlog already in place to support our guidance. So we have a lot of confidence in what our team is doing, and we have the orders to support our guidance. So that's on the guidance piece. On what gives us confidence? So when you look at -- let's go back 7 years, 6 years, there's always this forecast of investment by utilities in the grid. And the forecast has been strong. And that's why we, 8 years ago, almost when we spun off, we decided this was going to be one of our growth businesses, because we saw significant investment in utility infrastructure that was coming and it was coming fast. But what has happened is that every year since then, things have gotten, let's say, more optimistic about the amount of investment going into the grid. And then AI came and that simply, let's say, supercharged the demand for transmission towers and the investment companies have to do to support growth in power demand. So things have gotten -- they were already looking good and they have gotten better. We recently did market studies to support our expansions. We are not doing them blindly. We talk to our customers. We ask about their demand. We ask about their forecast for the next several years. And our forecast suggests that this has a very long tailwind of sustained demand for many years to come. So I think we're in a really strong position. Operator: We'll move next to Min Cho with Texas Capital Securities. Min Cho: First, on the utility structures, Gail, can you break out kind of price versus volume in the quarter? And maybe talk to any change in mix in terms of larger structures or anything like that, that we should be aware of? Gail Peck: Sure. As we said, we had north of 15% revenue growth in the quarter within the utility structures product line. And really a combination of very favorable volume and price, I would say, with a tilt towards volume, but both are -- just based on the demand environment right now, we're getting a tailwind from both sides of the equation. Product mix, we've done a good job, I would say, from the margin lift with the increase in efficiencies and throughput. We've really worked through, I guess I could say it was lower-priced product, but the market is pretty attractive right now to be able to pull forward some of the improved price in our backlog. So you saw that in the margin lift as well. Maybe I'd turn it to Antonio just to give you some color on the product type and what's driving demand right now, but we're certainly seeing a movement towards larger tower structures as the increased need for transmission expands. Antonio Carrillo: Yes. So I'll give you color. I think what we've seen over the last several years is a trend toward larger poles. And I would say that's our sweet spot. As a company, we pride ourselves in our engineering capacity and capabilities. And I think that's what our customers value. When you go to smaller poles, they're simpler, they're easier to make, and margins in general are lower. We've seen a large move towards larger poles, and that's our sweet spot. And that's why I think Arcosa is in a very strong position, because we are transitioning from a -- we're in a transition year for wind towers. And those towers, as you know, wind towers are very large. So the plants are very nicely suited to transform them into larger utility pole plants, which is what the market needs. And that's what we're doing right now, transforming plants that we had already in place to utility poles. As we move forward, we are very confident in our ability to ramp up Illinois. That's what we do for a living, and then transform Tulsa into another transmission tower plant. And by 2028, we'll only have 2 wind tower plants left, which gives us great optionality. If the utility pole market continues to accelerate, we'll have a lot of optionality to add capacity if the market continues to grow in that way. Min Cho: Excellent. And I know there's been a push or there's been a lot of discussion about the 765 kV transmission lines, which typically require like larger lattice towers. And I believe Meyer has experience with those towers. But do you have the capability and capacity to be able to produce these types of towers for these extra high-voltage lines? Antonio Carrillo: Yes. For the most part, those lines, as you said, have been lattice. As you know, most of the lattice towers are imported. There's a couple of people developing capacity here in the U.S., but for the most part, they are imported. We have the engineering capability to do it and are working on it, but we have not sold those towers in the past. But we are actively working with customers on designing and developing them. And the plants we have converted, the wind tower plants, have capabilities to build those poles if we get to that point. So I think that's one of the things that Meyer, which is our brand for utility poles, is extremely well suited for those changes that are coming, and we're actively pushing for it. Min Cho: Excellent. Let's see. I know that you -- obviously, congratulations on the barge sale, strengthened your leverage here. How are you prioritizing your incremental cash? I know that you mentioned M&A and obviously, you're doing the conversions. But if you can just kind of talk about your prioritization there. And I also saw the share repurchases this quarter. So that would be helpful. Antonio Carrillo: The share repurchases are normally just opportunistic. We normally try to compensate for the compensation dilution. It's not our main capital deployment. We have no plans to increase our dividend at the moment. We've kept it flat for a long time now. And the reason is we always say that we have more ideas than money, which is a sign of a healthy company. We have a robust pipeline of bolt-on opportunities, both on the aggregates and recycled aggregates, and that's always been our priority on the inorganic side. And on the utility structures, it's mainly an organic story. We have a lot of opportunities to continue to deploy capital there. So those are our 2 priorities. How do we continue to increase our footprint on natural aggregates and recycled aggregates, in great locations, with accretive margins, like the acquisition we announced in the first quarter in Florida. And then on the second side is continue to accelerate our transmission tower expansion, so that we can keep up with the market. So I think we have opportunities to deploy the capital. You will see us pay. Gail mentioned, we paid, I think, $83 million in April for our debt. So we will continue to manage our leverage profile as we see fit. Operator: And it does appear that there are no further questions at this time. Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings. Welcome to Fulgent Genetics First Quarter 2026 Conference Call and Webcast. [Operator Instructions] please note, this conference is being recorded. I will now turn the conference over to Lauren Sloane, Investor Relations. Thank you. You may begin. Lauren Sloane: Good morning, and welcome to Fulgent's First Quarter 2026 Financial Results Conference Call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing the financial results is available on the Investor Relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views, expectations and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different than what is described in or implied by these forward-looking statements. Please review the more detailed discussion related to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in the forward-looking statements contained in the company's filings and with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2025, and subsequently filed reports, which are available on the company's Investor Relations website. Management's prepared remarks, including discussion of non-GAAP profit, loss, operating expense, margin, earnings and earnings per share and adjusted EBITDA contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but these measures should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the first quarter 2026 for more information, including the description of how the company calculates non-GAAP income and loss, non-GAAP earnings and loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss and margin and adjusted EBITDA and a reconciliation of these financial measures to income and loss, earnings and loss per share and operating margin, the most directly comparable GAAP financial measures. The company does not provide reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because the information necessary to calculate such reconciliations, including equity-based compensation, tax effects, acquisition-related items and potential impairment, any of which may be material, is unavailable on a forward-looking basis without unreasonable effort and the probable significance of those items cannot be predicted. With that, I'd now like to turn the call over to Ming. Please go ahead. Ming Hsieh: Thank you, Lauren. I will start with some comments on our 2 business lines. Then Brandon will review our product and go-to-market updates for our laboratory service business. And Paul will conclude with the financials and outlook before we take your questions. I am pleased with our first quarter results in our laboratory service business and the momentum in our therapeutic development business. In Q1, we also successfully completed the acquisition of Bako Diagnostics and StrataDx, which contributed our strong first quarter results as we had anticipated. In the laboratory service business, we are seeing that the investments in AI and digital pathology solutions are continuing to work at an accelerated pace, offering new and expanded opportunities for growth and improved operating leverage in the future. And as of today, with our in-house developed platform, EasioPath, we are approximately 100% visual across all our cases. We also accelerated progress on our therapeutic development pipeline in the fourth quarter and expect to continue progress this year. Starting with our first clinical candidate, FID-007, advanced through Phase II with 46 patients enrolled. Last week, we announced that our abstract on the Phase III trial of FID-007 was selected by ASCO as a rapid oral presentation with head and neck cancer track session. The Phase II trial enrollment of FID-007 closed on time, on December 29, 2025. We are encouraged by the early efficacy and safety data. FID-007 combined with Cetuximab demonstrated meaningful anticancer activities and a favorable tolerability profile that at both levels for the second-line treatment of recurrent metastatic head and neck sarcoma cell carcinoma. We anticipate having end of Phase II meeting with FDA for the second half of this year and hope to enter into a Phase III registration trial for the treatment of recurrent or metastatic head and neck sarcoma cell carcinoma patients in the first half of 2027. We are encouraged by our clinical trial progress achieved so far and believe entering into the Phase III registration trial will further increase the probability of success of the commercialization FID-007 for the treatment of recurrent or metastatic head and neck sarcoma cell carcinoma patients who currently have very few effective treatment options. Our second clinical candidate, FID-022 is progressing through Phase I dose escalation with the third dose level successfully completed and the fourth dose escalation is ongoing. We expect to finish the study and determine the maximum tolerance dose level later this year. FID-022, it is nanoencapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian, and bile duct cancers. Overall, I'm pleased with the progress we have made in the first quarter. Our pharma R&D efforts are progressing faster, better and more cost effectively than planned. We look forward to present our detailed findings from our Phase II study on FID-007 at this year's ASCO meeting. We believe that we executed our strategic initiatives and are in a strong financial position to execute our strategies. We are pleased to reiterate our topline revenue guidance for 2026. We are adjusting our non-GAAP EPS and cash balance guidance to reflect cash returned to shareholders, pursued our stock repurchase program and the resulting reduction in the number of our previously forecasted outstanding shares. I would like to thank our employees, partners and stockholders for your hard work, loyalty and a strong quarter. We look forward to further progress in 2026. I will now turn the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory service business. Brandon? Brandon Perthuis: Thanks, Ming. We ended the first quarter at $71.1 million, which was a decrease of 3.2% year-over-year and 14.6% quarter-over-quarter, driven by the reduction in sales to our large customer who has begun transitioning testing in-house, which we discussed last quarter. Breaking it down into our 3 business areas, Precision Diagnostics revenue for the first quarter was $40.2 million, a decrease of 8.8% year-over-year and down 16.5% sequentially. Anatomic Pathology revenue for the first quarter was $25.1 million, a decrease of 0.9% year-over-year and down 7.2% sequentially. For Biopharma Services, revenue was $5.8 million, an increase of 43.2% year-over-year, but down 28.0% sequentially. We were excited to announce during the first quarter that we completed the acquisition of Bako Diagnostics and StrataDx. This acquisition adds to our market presence in Anatomic Pathology and more than doubles the size of our pathology sales team. The focus now shifts to integration, which is off to a very good start. One of the top priorities is to cross-train the Bako and Strata sales team to sell Fulgent pathology services and vice versa. We believe a well-trained, cross-functional sales team will pay dividends as we look to expand our market size in Anatomic Pathology. We've made a few announcements around our new whole genome test. In this quarter, we continue to advance the product. We have now integrated Illumina's TruPath Genome targeting the variant classes that have historically required separate testing workflows such as complex structural variants, repeat expansions in difficult to map regions and variant phasing without parental samples. Unlike traditional long-read platforms, TruPath Genome achieved this through proximity mapped read technology, delivering long-range genomic insights on the same high-throughput infrastructure already powering our genome test without the workflow or scalability trade-offs. Designed to deliver comprehensive results in a single report covering SMVs, CNVs, genome-wide deletion and duplication, mitochondrial variants and repeat expansions across 20,000 genes, our genome test is built on the principle that a rare disease patient shouldn't have to navigate a gauntlet of sequential tests to get an answer. On our last call, we detailed our AI strategy, which involved rolling out several new modules this year. In the first quarter, we went live with a new dermatopathology AI tool. Digital dermatopathology slides often arrive in inconsistent orientation. This slows the diagnostic process and may introduce interpretation errors. The objective was to implement an auto rotation solution to automatically align slides to a standard orientation. Doing so will reduce time spent adjusting images, ensure consistent presentation of structures like epidermis and dermis, improve diagnostic accuracy, enhance workflow efficiency, reduce turnaround time and potentially lower cost. Proper orientation is crucial because pathologists rely on consistent visual cues. When slides are automatically aligned, key structures appear in a predictable orientation. This reduces the cognitive load on the pathologist, allowing them to interpret images faster with fewer errors. It also helps standardize the diagnostic process, making it easier to compare cases and train new staff. Overall, this leads to improved accuracy in diagnosis and a smoother workflow as pathologists spend less time manipulating slides and more time on actual diagnosis. We are excited to announce that during the quarter, we received MolDX approval and pricing for our PGx test. This is a perfect timing with the recent update and positioning from the American Society of Clinical Oncology for pharmacogenomic testing, particularly for the gene DPYD. While ASCO historically stopped short of endorsing universal testing, newer clinical notices and meeting data signal a clear shift toward proactive integration of DPYD testing into routine oncology care. In 2026, ASCO issued clinical notice urging clinicians to prioritize DPYD genotyping as part of the initial diagnostic workup for patients being considered for certain chemotherapy drugs such as 5-FU. This represents a notable evolution from earlier physicians where ASCO and other U.S. bodies did not recommend routine pretreatment testing due to concerns about evidence sufficiency and potential impact on efficacy. The clinical driver behind these recommendations is well established. Patients with deleterious DPYD variants are at a significant increased risk of severe or fatal toxicity from fluoropyrimidines. Studies show that genotype-guided dosing can substantially reduce Grade 3 and above toxicities without compromising efficacy. In parallel, health economic analysis presented at ASCO highlights that pretreatment DPYD testing reduces downstream costs by avoiding hospitalization, intensive supportive care and treatment interruptions. As ASCO, NCCN and FDA guidance converge, ordering behavior is potentially expected to shift from discretionary to routine. Given that fluoropyrimidines are used in a large portion of solid tumors, this translates into a substantial addressable market. We believe this represents a near-term opportunity to scale pharmacogenomics and a longer-term positioning play in precision oncology, where proactive safety-driven testing is becoming integral to therapeutic decision-making rather than an optional add-on diagnostic test. We remain focused on executing our strategy with discipline, investing in opportunities that will drive sustainable growth and delivering long-term value for our shareholders. While the environment continues to evolve, we are confident in the strength of our team, the resilience of our business and our ability to navigate ahead. We appreciate your time today and look forward to updating you on our progress next quarter. I'll now turn the call over to our Chief Financial Officer, Paul Kim. Paul? Paul Kim: Thank you, Brandon. Revenue in the first quarter of 2026 totaled $71.1 million, including $2.6 million from Bako Diagnostics and StrataDx compared to $83.3 million in the fourth quarter of 2025. The decrease in our Q1 revenue was primarily the result of lower volume from our largest customer, as indicated on our last call and timing impact as we work through claims processing backlog. Gross margin. GAAP gross margin was 30.2% and non-GAAP gross margin for the first quarter was 32.3%. The decline in gross margin reflects fixed costs over lower revenue base attributed to the decline in revenue for the reasons I've mentioned. We expect gross margins to normalize as the backlog clears in the coming quarters and as revenue increases. Now turning to operating expenses. Total GAAP operating expenses were $56.1 million in the first quarter, which decreased when compared to $68.8 million in the prior quarter. The decrease in operating expenses was due to a one-time professional liability expense in the prior quarter. Non-GAAP operating expenses remained relatively flat in Q1, totaling $42.6 million compared to $43.1 million in the previous quarter. Non-GAAP operating margin decreased sequentially to a minus 27.7% due to decreased revenue. Our GAAP loss in the current quarter was $24.8 million, an increase from the prior quarter's GAAP loss of $23.4 million and a GAAP loss of $0.08 per share based on 30.9 million weighted average diluted shares outstanding. Adjusted EBITDA for the first quarter was a loss of approximately $15.2 million compared to a loss of $4.5 million in the prior quarter. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization and acquisition-related costs and severance, loss for the quarter was approximately $11 million or $0.36 per share based on 30.9 million weighted average diluted shares outstanding. In the first quarter, we repurchased 2.6 million shares under our stock repurchase program. We continue to repurchase shares into the current quarter, purchasing an additional 0.5 million shares as of today. Since the inception of the stock repurchase program in March 2022, a total of approximately $6.6 million in shares of common stock has been repurchased under the program with approximately $91 million currently remaining available for future repurchases of our common stock. Turning to the balance sheet. We ended the first quarter with approximately $604.7 million in cash, cash equivalents, restricted cash and marketable securities. The $100.8 million decrease in cash from the previous quarter was primarily driven by $56.6 million paid for the Bako Diagnostics StrataDx acquisition and $40.1 million spent on our stock repurchase program. As of quarter end, we have not yet received $106 million federal income tax refund, which has been delayed due to the government shutdown in the prior year and now due to constrained resources at the IRS. Before providing our guidance for 2026, I would like to provide an update on certain drivers shaping our expectations for the year and the anticipated impact from our recent acquisition of Bako Diagnostics and StrataDx. As anticipated and mentioned on our previous call in February, we saw a decrease in revenue from our largest customer, which is moving its testing capabilities in-house. Revenue from this customer this quarter decreased $6 million from the prior quarter. We expect revenue from this customer in the second quarter to continue to be impacted by a significant decrease in volume and expect revenue to potentially stabilize in the second half of the year. We continue to believe this decrease in revenue from our largest customer will be partially or fully offset by the estimated contribution of approximately $53 million from Bako and StrataDx contributing to overall revenue growth in the second half of the year. Bako's revenue will primarily be categorized as Anatomic Pathology. We continue to forecast that for the full year 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile. We reiterate our guidance of total revenue of $350 million for 2026, representing an 8.5% year-over-year growth. We continue to estimate Precision Diagnostics revenues to be approximately $168 million, Anatomic Pathology to be approximately $162 million and Biopharma Services to be approximately $20 million. We expect non-GAAP gross margins for the full year to be approximately 39% as the product mix shifts with the change in our customer composition. We anticipate the gross margins to improve in the second quarter due to the higher forecasted revenue and then to further improve to approximately 42% by the end of the year. We expect non-GAAP operating margin to be a minus 20% for the year. We continue to prioritize investment across 2 key areas: R&D, where we're advancing both our laboratory testing capabilities and clinical study pipeline and sales and marketing where we have grown the team. Our sales and marketing spend this year reflects a full year of our expansion that began last year, combined with the recent Bako and StrataDx acquisition, which more than doubled our sales team. Together, we believe this sets us up with a substantially larger and more capable commercial organization to drive growth going forward. The anticipated spend for the therapeutic development business is approximately $26 million in 2026 as we continue advancing clinical trials for FID-022 and FID-007. We remain committed to the strategic investment in our business, including operational improvements and targeted upgrades to our laboratory infrastructure. These investments are designed to strengthen our competitive position and enhance throughput capacity over time. We believe our foundational technology platform is highly scalable, capable of driving meaningful operating leverage and margin expansion as volumes grow. We believe our business is still on track with our original 2026 revenue guidance. The updates to our EPS and cash guidance are solely attributable to decreased shares resulting from the stock repurchase program and the cash used for these repurchases. Our forecasted average fully diluted share count for 2026 has decreased from 32 million shares to approximately 29 million shares due to the shares purchased so far this year under our stock repurchase program. The decreased share count has an effect of $0.14 to EPS. Therefore, using the updated average share count of 29 million, we expect our full year 2026 non-GAAP EPS guidance to decrease by $0.14 to a loss of $1.59 per share, excluding stock-based compensation, impairment loss, acquisition-related costs, further share repurchases and amortization of intangible assets as well as any onetime charges. Finally, our cash position continues to be strong. Assuming for fiscal year 2026, capital purchases of $12 million spend on our therapeutic development business of $26 million, $14.5 million for the previously disclosed professional liability expense and excluding any future stock repurchases or other expenditures outside of the ordinary course, which could include other M&A, we anticipate ending the year with approximately $636 million of cash, cash equivalents, restricted cash and investments in marketable securities. The $49 million decrease from the original cash guidance of $685 million is directly attributed to the $49 million of stock repurchases made year-to-date. This number further assumes receipt of approximately $106 million in tax refunds, which has been delayed as a result of a Q4 2025 government shutdown and constrained resources at the IRS. Overall, we're proud of the growth we have achieved over the past couple of years, and we're excited by the additional momentum that the acquisition of Bako Diagnostics and StrataDx brings as we look ahead. Together with our strong technology platform, we believe we're well positioned for longer-term growth as our strategic investments, innovations and expanded offerings deliver value. Thank you for joining our call today. Operator, you may now open it up for questions. Operator: [Operator Instructions] Our first question is from Lu Li with UBS. Lu Li: I think the first one, probably sticking to the Precision Diagnostics. If you're excluding the largest customer impact, what is the underlying business growth for the remainder of the portfolio? I was like doing the quick math, it still -- it seems like still like a teens growth. Just wanted to make sure if that's correct. Paul Kim: Yes. So the impact from the largest customer was significant. The amount was substantial for 2025. We are anticipating and have experienced lower volumes from that customer in Q1, and we anticipate those levels to be further down, although not at the accelerated pace as we experienced in Q1. If you strip that away and take a look at the underlying Precision Diagnostics business, your math, we're checking it right now, I think, is consistent, meaning that we do have growth in the precision diagnostics area for this year. Lu Li: Got it. And then maybe switching to the gross margin in Q1. It seems like a little bit lower than, I think, your initial target of 37%. Any reasons why it's a little bit lower? Is it coming out from acquisition or anything else? And then -- yes, I think that will be the question. And then how comfortable you are to kind of like get back to kind of like 40% in the second half? Paul Kim: Sure. Thanks for that question. The lower gross margins are coming from the lower-than-anticipated revenues. Revenues for the first quarter could have been higher, in the millions of dollars than what we posted. And that's largely happening, as we mentioned in prior, the lower volumes from our largest customer, coupled with timing impact from claims delayed in releasing from processing backlog. We anticipate that to normalize here in the coming quarters, which should provide an uplift to the revenue in addition to normalizing our gross margins. The lower revenues also had some weather and seasonality impact, which Brandon will color in. Brandon Perthuis: Yes, certainly, Paul. Appreciate that. Q1 historically has been a little bit softer for us. And it is partially related to seasonality. Like this quarter, we did have our laboratories shut down multiple times due to weather. And in addition, January often sees deductibles being reset. So there's some impact there. But I think Paul covered probably the larger impact areas. Paul Kim: The other final thing -- the other final comment that I will make on the gross margins because that was the original part of your question is, if you take a look at the guidance for 2026, we are reiterating and keeping the $350 million guidance as well as the other financial metric, including gross margins for the entirety of the year. The difference in the update that we provided on the loss is solely due to the stock buyback, the aggressive stock buyback that we have conducted since the beginning of this year. In the first quarter, we repurchased 2.6 million shares. And to date, so far, we've purchased an additional 0.5 million shares. In total, that's 3.1 million shares or approximately 10% of our total outstanding shares or 13%, 14% of our float that's out there. So we believe that the amount and the magnitude of the buyback indicates the conviction that we have not only within our capital base, but our overall strategy and value for the company. Brandon Perthuis: Yes. And Lu, you asked, was there any impact from the acquisition? I just want to cover that. No, there was no impact from the acquisition. Lu Li: Okay. That's very helpful. And then finally, there has been a lot of attention on the CMS CRUSH initiative. I'm wondering if you guys have any in-house view in terms of like the potential impacts to your business? Brandon Perthuis: Not at this time, Lu. We don't have any comment on that. Operator: Our next question is from David Westenberg with Piper Sandler. David Westenberg: So first, Paul, a couple of things. What was -- the contribution from StrataDx and Bako would be really small, right, because it closed on the 17th. But I was just wondering what that was for the quarter. And then you also mentioned kind of some of the collections impacting Q1. So what should Q2 look like? So, like, I know you -- I think you're saying some of that will go into Q2. I don't want to get too aggressive with the number there, but I also want to include that. So how should we think about Q2 given that impact? Paul Kim: Sure. So 2 things. One, the contribution from Bako in the first quarter, you are correct. It was small. It was $2.6 million. And your question about what should Q2 look like? Q2 should be a higher quarter. It will be a higher quarter than the first quarter because of the overall positioning of our base business, but we also get the full quarter of Bako and StrataDx. So, when we take a look at the forecast for Q2, Q3 and Q4, the targets are in excess of $90 million per quarter in terms of revenues. David Westenberg: Got it. Yes, just totally mispronounced that. Anyway, secondly, Brandon, I want to kind of touch onto the key product segments, Precision Diagnostics. In terms of the growth in that area, are there any key products, [indiscernible] launches? Or is it Beacon that helps you grow there? Is it some of the stuff you're going to be doing in rare disease? I mean, what are you excited about there in terms of regrowing to fill the loop of the overall large customer? Brandon Perthuis: Yes. Thanks for the question. I think we benefit tremendously from our diverse portfolio of tests. At this point, we have 22,000 genetic tests that span just about every area of health care. So it's difficult to pick a few different areas out of that where we're particularly excited. But I think it's safe to say within sort of rare disease, the momentum we have with exomes and genomes is pretty substantial. We do believe we have a differentiated product. With our whole exome now including long reads, short reads, as well as full RNA-seq transcriptomic analysis, we are going to make more diagnoses than some of our peers and what we've been able to do previously. Analyzing all 3 of those in parallel is really the best approach to maximize diagnostic yield. So we're really excited with the product development around our whole genome and whole exome products, and we do see a lot of momentum in that space. In addition, we've launched a rapid and ultra-rapid genome. Some of those turnaround times are as quick as 48 hours, which is critical for some of these NICU patients. So certainly see momentum there. Beacon has continued to do very well for us. We now have the largest panel in the industry, up to 1,000 genes, which is fully customizable for our clients. But in addition, our oncology business is doing well. The heme business is doing well. And this momentum -- very recent momentum in pharmacogenetic testing related to this DPYD gene is very tangible. It's very real. We're seeing a lot of requests for this. We do a great job with that test in terms of our turnaround time and our quality. So again, I think we have a lot of different areas for growth and really do benefit from having tremendous capabilities across Precision Diagnostics. David Westenberg: Got it. And then just, I want to talk about -- sorry, the pharma backlog, now this was strong in the quarter, and it is the growth area. So should we expect like visibility for the full year, just given the fact that this is really probably running off backlog? And is the book-to-bill growing in that category, Paul? Paul Kim: Well, we continue to see lumpiness in our biopharma business. We've mentioned this essentially on every call that the nature of this business are large transactions with long sales cycles for better or worse. But the business does have momentum overall, but we're going to continue to see sort of these peaks and valleys until we hit this larger steady state for that business segment. But in the back half of the year, we do have continued growth in Biopharma Services. But again, there will be some up and downs in that area. David Westenberg: Got it. And then lastly, Ming, I wanted to talk about the FID-007. You're in Phase II. You do have the presentation at ASCO. So it does seem to be doing well. Can you talk about what we're needing to look at, at the ASCO presentation or other words to see if you'd advance it to Q3? And at what stage in the pipeline do you consider commercialization? I mean, partnerships, licensing, that other kind of thing in order to monetize that asset. Ming Hsieh: Yes. Thank you, David, for the questions. We are excited to be selected by the ASCO for the presentation. Out of 8,000 applications, we belong to a very small group of companies or the clinical trials to be presented in the area. You may remember, we also published our data last year at ESMO for the clinical results. During that time, our results is significantly better than the peers in the industry. So we are excited about the opportunity, and we're looking very much forward for the ASCO presentation. So that's from the clinical trial side. We are -- have the options for the collaborations with potential partners, but it also -- we want to present the opportunity when we do the collaboration at a strength, not at a weakness. So we do have the cash position to go through the clinical trials by ourselves, but we're also looking for that meaningful partners, not only contributing in terms of the resources for the trials, but also long-term relationships. Operator: There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, everyone. Welcome to Shenandoah Telecommunications First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lucas Binder, VP of Corporate Finance for Shentel. Lucas Binder: Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the first quarter of 2026. Our results were announced in a press release distributed this morning. In addition, we filed our Form 10-Q with the SEC. The presentation we will be reviewing is included on the Investor page on our investor.shentel.com website. Please note that an audio replay of this call will be made available later today. The details are set forth in the press release announcing this call. With us on the call today are Ed McKay, President and Chief Executive Officer; and Jim Volk, Senior Vice President and Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session. I refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements. Additionally, we provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements. With that, I will now turn the call over to Ed. Go ahead, Ed. Edward McKay: Thanks, Lucas. Good morning, everyone, and thank you for joining us today. Starting on Slide 4, I'll share some of our first quarter highlights. During the quarter, we released 22,000 passings to sales, bringing our total Glo Fiber expansion markets passings to 449,000. We added approximately 6,000 Glo Fiber net customers in the first quarter, a 9% improvement over the prior year period, and we now serve a total of 94,000 customers. Our Commercial Fiber business also delivered a strong quarter with 196,000 in sales bookings and revenue growth of 4.7% year-over-year. Collectively, these results demonstrate the excellent momentum we continue to see in our fiber businesses. We were also pleased with our first quarter financial results. Consolidated revenues and adjusted EBITDA grew 4.8% and 15% year-over-year, respectively, and we remain on track to deliver positive free cash flow in 2027. Turning to Slide 5. We highlight our integrated broadband network that spans more than 19,000 fiber route miles across 8 states with over 700,000 total broadband passings. As shown on the map, all planned Glo Fiber markets have now been launched, and our primary focus is adding passings in our existing Virginia, Pennsylvania, Maryland and Ohio markets. We remain on track to complete our Glo Fiber expansion in 2026, reaching 510,000 passings. On Slide 6, our sales and marketing team continues to drive strong growth across our Glo Fiber expansion markets. And during the first quarter, we added approximately 6,000 new customers and nearly 7,000 total video, voice and data revenue-generating units. Our 5-year price guarantee rate card introduced in the second half of 2025 is gaining traction, supported by the expansion of our door-to-door sales channel. Over the past 12 months, we have added more than 23,000 new data customers, more than 26,000 total RGUs as well. Total Glo Fiber revenue-generating units surpassed 110,000 in the first quarter, up 31% compared to the prior year. Moving to Slide 7. First quarter construction was strong with over 22,000 passings added, bringing the total to more than 449,000. Coupled with the continued increase in homes passed, penetration rose to 20.9%, a 30 basis point increase over the fourth quarter and 150 basis point increase year-over-year. Penetration trends across our Glo Fiber cohorts are shown on Slide 8 and reflect blended penetration rates for both residential and small and medium business passings. We are expecting data penetration rates of approximately 37%, 5 to 7 years after launching the market, and our most mature cohorts launched in 2019 and 2020 have now exceeded this with an average penetration rate of 37.5%. In addition to providing the fastest speeds in our markets, we continue to focus on providing outstanding local customer service. As shown on Slide 9, our average monthly churn was 0.92% in the first quarter, which continues to be among the best in the industry. Broadband data average revenue per user for the first quarter was stable sequentially and year-over-year at more than $77. We continue to have success selling up the rate card with nearly 82% of our new residential customers in the first quarter, selecting speeds of 1 gig or higher, including 18% choosing 2-gig service and 5% choosing 5-gig service. Our commercial fiber business is highlighted on Slide 10. In the first quarter, incremental monthly sales bookings exceeded 196,000, driven by strong demand from wireless carriers, wholesale customers and school systems. Our service delivery team installed 167,000 in new monthly revenue during the quarter and the acquired Verizon backlog that drove elevated installation activity in 2025 is now substantially complete. Average monthly compression and disconnect churn remained very low at 0.4% in the first quarter, reflecting exceptional support from both our network operations center and sales team. Turning to Slide 11. We show our operating results for our incumbent broadband markets. At the end of the first quarter, we served more than 111,000 broadband data customers. Data, voice and video RGUs totaled more than 156,000 at year-end, down 4% year-over-year, primarily due to video customers moving to online streaming services. Total broadband passings in our incumbent markets stayed steady compared to the fourth quarter, and we expect to complete 1,800 additional government-subsidized incumbent grant passings in 2026, primarily in West Virginia. As shown on Slide 12, the recently constructed subsidized passings represent a strong growth segment for our incumbent markets with data penetration exceeding 40% within 6 quarters of a neighborhood launch. Average penetration in our 2023 cohorts is over 52% with the oldest cohort reaching 71%. We've already achieved an aggregate penetration of 37% across 23,000 subsidized passings. Moving to Slide 13. Monthly broadband data churn was stable sequentially and up modestly year-over-year at 1.46% for the first quarter. The slight uptick in churn was due to promotional activity from satellite competition in some of our most rural markets without a fixed Wireline competitor. In these markets, we implemented a speed increase late in the first quarter, providing customers with higher speeds at the same price to better differentiate our service from satellite offerings. Across approximately 1/3 of our passings where we face another fixed broadband competitor, our rate card strategy of offering greater value with higher speeds at the same price continues to be effective at mitigating churn. As expected, broadband data ARPU declined 1.6% from a year ago to $82, driven by the addition of new customers with more aggressive pricing in our competitive markets. I'll now turn the call over to Jim to walk you through our first quarter financial results. James Volk: Thank you, Ed, and good morning, everyone. I'll start on Slide 15 with financial results for the first quarter. Revenues grew 4.8% to $92.2 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.4 million or 34.6% due to a 33.7% increase in data subscribers and stable data ARPU. Commercial Fiber revenue grew $900,000 or 4.7% year-over-year, driven primarily by growth among existing customers in the enterprise and carrier verticals. Incumbent broadband markets revenue declined $2.2 million, primarily due to lower video revenue from a 14.6% decline in video RGUs as customers switched to streaming video services and to a lesser extent, lower data revenues due to a 1.6% decline in data ARPU from a more aggressive rate card in competitive markets. RLEC revenues declined $800,000, primarily due to lower DSL revenue from a 28% decline in DSL RGUs and lower government grant support revenues. Approximately half of the decline in DSL RGUs was due to customer upgrades to our broadband service. Adjusted EBITDA grew $4.1 million or 15% to $31.7 million, driven by $4.3 million in revenue growth and slightly higher operating expenses. Adjusted EBITDA margins increased 300 basis points to 34.4% in the first quarter of 2026 as compared to the first quarter 2025 due to a combination of high incremental margins in Glo Fiber, fewer lower-margin video customers and a favorable true-up related to a government grant. Turning to Slide 16. We reiterate our annual guidance for 2026. We expect revenues of $370 million to $377 million, adjusted EBITDA of $131 million to $136 million and CapEx net of grant reimbursements to be $220 million to $250 million. Moving to Slide 17. We invested $75.8 million in capital expenditures in the first quarter 2026 and collected $11.5 million in government grants for net CapEx of $64.3 million. CapEx declined 16% compared to the first quarter of 2025 due to completing 91% of the incumbent broadband markets government subsidized builds to unserved areas in 2025. We have also completed construction of 88% of our target Glo Fiber passings as of March 31 and expect to complete the Glo Fiber expansion by the end of '26. I'd now like to update you on our liquidity and debt maturities on Slide 18. As of March 31, we had $707 million in outstanding debt and $636 million of net debt. We have no debt maturities until 2029. Total available liquidity was approximately $195 million as of March 31, consisting of $44 million of cash and cash equivalents, $27 million in restricted cash, $18 million available under the VFN, $68 million available under the RCF and $38 million remaining reimbursements available under government grants. In addition, the company has over $117 million of VFN commitments that are not available to draw as of March 31. We expect the available VFN capacity to reach the commitment levels with continued growth in the secured fiber network revenues from the ABS entities. In summary, as noted on Slide 19, we have 3 catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. low double-digit adjusted EBITDA growth rates driven by our fiber businesses, declining capital intensity as we exit the construction phase of our business plan and declining cost of capital after refinancing our debt in 2025. Thank you. And operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: First question is just, are you seeing any changes or challenges in adding subscribers given the competitive nature that you're talking about in your markets? Edward McKay: In our Glo Fiber markets, we're not. Our net adds were up 9% over the first quarter of 2025. So we're very pleased with our progress there. We did mention in our incumbent markets, we did see a little bit of churn to Starlink with some of the promotional offers they launched in the first quarter. But other than that, we're on plan as expected. Hamed Khorsand: Okay. And then as far as the change of goes ending your construction phase and going into more of a subscriber growth phase here, are you going to be increasing marketing expense? Or is this -- should we expect just CapEx to decline and it's just going to be incremental here to cash flow? Edward McKay: Yes. I would expect marketing expense to be similar and the primary impact will be the decline in CapEx. Operator: Our next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Yes. Congratulations on the solid results. On your ASP on the Glo Fiber business and the recent areas and trends of moving from just not just 1 gig speed or higher at 82%, but having people want 2% and 5%. Do you think those trends are sustainable over a multiyear period? And do you have any target expectations for customers' needs for higher speeds at 2 gigabytes, excuse me, and above as your penetration rates go to your target levels on the fiber that's been laid in the last few years, meaning your blended ASP at $77, I think in most markets, your 1 gig product is priced around $65. So do you see ASP trends in that business increasing over time? Or is it too early to tell? Edward McKay: I'd say medium term, we are offering 5-year price guarantees on the higher speed tiers. But longer term, I think there's opportunity there. And we were very pleased with the speed mix in the past quarter. The demand is out there for those higher speeds, and we do think that's sustainable going forward. Christian Schwab: Okay. Fantastic. And then on the commercial fiber business, could you just remind us what your growth objectives are there and how you see that market over a multiyear time frame doing for you? And the potential for you to add additional subscribers? Edward McKay: Well, I'll start, and then I'll pass it over to Jim. One opportunity we do see is with the data centers moving out to our more rural areas, we think that's an additional opportunity for incremental revenue. We're really not playing in the hyperscalers space today. There have been several data center announcements in our markets. We think we certainly have the opportunity to win our share of those services, and that would be additive to our current revenue. And I'll let Jim talk a little about the growth projections. James Volk: Yes, Christian, we're generally expecting mid-single-digit revenue growth rates from the commercial business over like a 3- or 4-year period. It's important to note, this is a little bit of a lumpy business. Some of the larger deals like what Ed mentioned that we're working on, on the hyperscalers and some of the carrier business tends to be a little lumpy. But we do have -- each quarter, we're adding more enterprise customers along the way as well. But yes, we think there's a nice growth opportunity here in the mid-single-digit growth rates. Christian Schwab: Great. And then a follow-up on the data center for clarity. Can you just remind us of the miles of fiber that you have and the connectivity potential that you have in data center so people can understand maybe potentially a little bit better why data center customers would be coming to you? Edward McKay: So 19,000-plus route miles of fiber in total. Our fiber network stretches from Chicago all the way to the Washington, D.C., Ashburn, Virginia area. We get major markets in between like Columbus, Ohio, like Pittsburgh. And we have many unique fiber routes. So as these data centers move out further from the metropolitan areas, seeking areas with land and power, we believe we have the opportunity to take advantages of those unique fiber routes that we have and gain some of that business. Christian Schwab: Can you give us an idea what the revenue potential would be not this year, but over a multiyear time frame, given that trend as data centers move out a little bit away from metro into rural areas that might want to take advantage of your 19,000 fiber miles. Can you give us an idea of the revenue potential, not an estimate, but maybe an aspiration or goal that you guys may have for that market? James Volk: Yes, Christian, I think it would be a little premature to get into revenue expectations. But I can tell you, there is about 20 data centers being either built or being built close to our fiber in the 8 states that we operate in. So not clear to me whether all of them are actually going to get built. But if they do get built, we think we're in a prime position to win some business. Operator: [Operator Instructions] Our next question comes from Vikash Arlaka with New Street Research. Vikash Harlalka: There's a lot of concern among broadband investor base around pricing power and broadband ARPU growth for the industry. Do you think that broadband businesses have pricing power today? Or are we entering a period of deflation for the business? And then I have a follow-up. Edward McKay: So I'll say in our Glo Fiber business, we're expecting fairly flat ARPU in the near term. I think over time, we do gain that pricing power. And then our incumbent business, we mentioned earlier, as we've seen some competition in our markets, we have seen a slight decline in ARPU there. So it's -- I think it's a bit of a mix depending on which business you're looking at. James Volk: Add to that. In our incumbent business, about 2/3 of the passings, we are the only fixed wireline provider. So we do think we have some pricing power there as well. Vikash Harlalka: Got it. That's helpful. And then I just wanted to go back to your comment about increased competition from Starlink during the quarter. It sounds like the competition was mainly because Starlink had some promotions. And so did you lose customers on the growth add side or churn or both? And do you see this competition as continuing from here? And if so, what's your plan on addressing this increased competition? Edward McKay: So we only saw the impact in the most rural areas of our incumbent broadband market. We saw really no impact in Glo Fiber and no impact in the majority of our incumbent passings. So what they started offering in the first quarter was $15 off for 4 months as a promotion. But I think the biggest factor was they offered free equipment. It was previously $350 , so we'll see how long this lasts. They could be offering these promotions in preparation for a potential IPO later this year. But we have the ability to increase speeds. So we've done that. Late in the first quarter, we increased speeds significantly in our rural incumbent areas. Most of those customers that left were on legacy rate cards. So we've given those customers more value for the same price, and we think that will help mitigate. Operator: Our next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Yes. Just a quick follow-up on that. Just on the Starlink promotion in your most rural market, these are very slow speeds. Can you just quantify a little bit more clarity around your commentary to compete with Starlink, how you increased -- give us an idea of what speed you were operating at to what speed you can move customers to compete with Starlink because this really isn't the competition for fiber at 1, 2 and 5 gig speeds. Edward McKay: Yes. So in all of these markets, we have the ability to offer gigabit speeds. And I think it was a -- customers were looking for a potentially lower-priced alternative. But when you compare our pricing to Starlink's pricing, after that promotional discount expires, we're actually favorable from a pricing standpoint and a speed standpoint. So we'll see how long these customers stay on Starlink. We certainly think we have the opportunity to win some of those back as well. Operator: Thank you. I would now like to turn the call back over to Ed McKay for any closing remarks. Edward McKay: Thank you for joining us today. We look forward to updating you on our progress in the future quarters. And operator, that concludes our call. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning. My name is Vincent, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited Q1 2026 Conference Call. [Operator Instructions] Mr. Ammar Al-Joundi, you may begin your conference. Ammar Al-Joundi: Thank you, Vincent. Good morning, and thank you for joining our Agnico Eagle First Quarter 2026 Conference Call. I'd like to remind everyone that we'll be making a number of forward-looking statements, so please keep that in mind and refer to the disclaimers at the beginning of this presentation. Next slide, please. We're pleased to announce a solid start to the year with production slightly above budget and with costs in line with our guidance. This solid operating performance, coupled with exceptional gold prices has allowed Agnico Eagle to announce yet another quarter of record net income driven by record operating margins. We are reiterating 2026 production guidance with production expected to be weighted approximately 48%, 52% between the first and second halves of the year. We're also pleased to reiterate our cost guidance for 2026. This is no small task given the uncertainties and pressures in the market over the past several weeks. As you will hear on this call, this has been a strong quarter across all of our businesses. Solid operations, strong progress on moving our growth pipeline forward, continued exceptional exploration results and as mentioned, another quarter of record financial results. My team will go through all of this in more detail in a moment, but let me outline and summarize what I believe are the 3 key messages that are important to take away from this call. One, as mentioned, we're off to a good start to the year with solid operating performance, delivering record operational and financial results. Record mill throughput at Macassa, record development rates at Meliadine, record pit tonnage at Detour. We're delivering these solid operating results while doing an excellent job controlling costs, leveraging off our relentless focus on cost control while benefiting from certain structural cost advantages that derive from our business model, including, for example, in both Ontario and Quebec, where we produce the majority of our gold, all of our electricity is either hydro or nuclear and really not exposed to changes in fuel and diesel prices. With regards to Nunavut, where we do generate our own power through diesel, we've got a lot of that diesel hedged both by necessity because we have to bring the diesel up in advance through a short barge season, and we have it stored up there, but also by some very smart and proactive hedging by our treasury department with regards to diesel exposure. We've also got the benefit of lower employee turnover and the reliable supply chain that comes from being the best customer for decades in the safe regions in which we operate. Two, we continue to strengthen our financial position and to increase returns to shareholders. This quarter, we paid a $1.3 billion 2025 tax catch-up. We distributed $375 million to shareholders. We invested almost $400 million into our high-quality growth projects, all while increasing our cash position by almost $250 million. At these gold prices, we will increase our share repurchases, and we are increasing our normal course issuer bid to $2 billion. And three, and perhaps the most important takeaway, we continue to aggressively reinvest in our business into the best pipeline in the industry, into projects that deliver exceptional returns at relatively lower risk, and we are making steady progress in many cases, ahead of schedule. Dom and Natasha will spend some time talking about the projects they're moving forward to increase production at Agnico Eagle by up to 20% to 30% over the next decade, including Detour to 1 million ounces, Malartic to 1 million ounces, Hope Bay, Upper Beaver and San Nicolas. In addition, with the expected consolidation of our Finnish platform, we now see a path to further growth that comes from building a 500,000 ounce a year multi-decade platform in what we believe to be the most prospective land package in Northern Europe. Guy will spend some time going over some of the continued great exploration results he and his team have generated focusing on Detour and Malartic, but he'll also spend a bit more time talking about this Finnish land consolidation and what he and his team see as a long-term potential well beyond the Ikkari project. Our strategy remains focused, focused on safe, responsible mining, focused on operational excellence, delivering reliable, low-cost production. We have the best land packages in the most prospective and safest gold jurisdictions in the world. We have a path to industry-leading production growth over the next decade. Our execution of delivering this growth remains on track. And at these gold prices, we think we can deliver this growth and reduce share count at the same time. Now before I turn the call over to Jamie, I need to spend a moment on safety. Tragically, we've had 2 fatalities over the past 5 months. This is not acceptable. I recognize and I accept that the responsibility for the safety of our people rests ultimately with myself and with my team. We've mobilized our teams to reinforce across our company and at all levels and to all employees, our commitment to not only deliver on our guidance, but to do so safely and responsibly. There is nothing more important than the safety of our people and our communities, and we commit to do better. With that, I'll turn the call over to our CFO, Jamie Porter, to review our first quarter operating and financial results. James Porter: Thank you, Ammar. As highlighted earlier, we delivered another strong financial quarter, driven by solid operational performance and continued leverage to higher gold prices. We had several record financial results during the quarter, including adjusted net income of approximately $1.7 billion or $3.41 per share and adjusted EBITDA of just over $3 billion. We generated about $730 million of free cash flow in the first quarter. This is particularly impressive given that we paid roughly 50% of our expected 2026 cash taxes totaling $1.8 billion in the quarter, of which $1.3 billion had been previously disclosed as related to our 2025 tax liability. First quarter gold production of approximately 825,000 ounces was actually slightly better than planned with the lower production year-over-year reflecting mine sequencing at LaRonde, Macassa and Fosterville. With the first quarter representing about 24% of the midpoint of our annual guidance and production weighted to the second half of the year, we're well positioned to meet our full year production targets. Total cash costs were $1,093 per ounce and all-in sustaining costs were $1,483 per ounce, reflecting higher royalty costs associated with a significantly higher realized gold price, lower production volumes as expected and a stronger Canadian dollar compared to the first quarter of 2025. Importantly, costs continue to trend within our full year guidance ranges of $1,020 to $1,120 per ounce for total cash costs and $1,400 to $1,550 per ounce for all-in sustaining costs. While we continue to monitor cost volatility, including diesel prices and foreign exchange movements, we believe our regional operating model, local procurement strategies and disciplined hedging program provide meaningful mitigation against potential cost pressures. With respect to diesel prices, our 2026 cost guidance assumes an average diesel price of $0.78 per liter. Direct diesel consumption covering mobile equipment and on-site power generation in Nunavut is estimated at approximately 108 liters per ounce of gold produced, representing roughly 7% of our total operating cost base. We believe that our exposure to diesel price volatility is below industry average, reflecting the fact that the majority of our gold production comes from underground mines, which are generally less diesel intensive than open pit mines. Further, the majority of our gold production is from mines located in Ontario and Quebec, which benefit from access to non-oil-based grid power. Overall, our sensitivity to diesel prices is estimated such that a 10% change in diesel prices results in roughly a $6 per ounce impact on annual total cash costs after taking into account our hedge position. We do not currently anticipate any disruption to our procurement strategy for fuel or other key consumables, and we remain comfortable with our full year cost guidance. We turn to Slide 5. We are in the strongest financial position in the company's history. We continue to deliver meaningful returns to our shareholders alongside further balance sheet strengthening and disciplined reinvestment in the business. During the quarter, we returned approximately $375 million to shareholders through dividends and share repurchases, representing roughly half of free cash flow. As previously announced, we intend to renew the normal course issuer bid in May on substantially the same terms with an increased limit of up to $2 billion. And at current gold prices, we are still targeting returning approximately 40% of annual free cash flow through dividends and buybacks. We will also look for opportunities to offset dilution from the proposed Rupert Resources acquisition, including potentially returning proceeds from portfolio investment sales through additional share repurchases. In parallel, the balance sheet keeps getting stronger. At the end of the first quarter, our net cash position increased to approximately $2.9 billion, giving us one of the strongest balance sheets in the sector. This strength was recognized recently by Fitch, which upgraded Agnico Eagle's long-term issuer rating to A- with a stable outlook. At the same time, we continue to reinvest in the business, advancing our 5 key pipeline projects that are expected to underpin long-term production growth of 20% to 30% over the next decade. We are exceptionally well positioned in the current gold price environment with a continued focus on disciplined capital allocation and long-term shareholder value creation. With that, I'll turn the call over to Dom. Dominique Girard: Thank you, Jamie. Good morning, everyone. In my section, I'm going to talk the update on operation and project for Quebec, Nunavut and Finland. For the first quarter, a good start led by Malartic and Meadowbank on the production, and we are in good position for the full year cost and production. An important milestone in the first quarter at Malartic, where we took the first stope at East Gouldie via the ramp approximately 1 kilometer underground. Why it's important? Based on the 2023 study, we're going to mine there up to 2042. But based on what we know now, we're going to be mining there up to 2060, most probably. Most probably, I will not be the COO at that time, but we have a good bench that's going to take it from there. So it's very positive. And on the shaft sinking, I'm going to talk a bit about that next slide, shaft sinking and also production hoist, it's also going well. The plan is to bring that ore to the surfaces via the shaft mid-2027. Everything is aligned. On the continuous improvement, an important milestone achieved at LaRonde. They were working on that since a couple of years to do autonomous hauling. So it's a good example of leveraging the synergy into the region using the LZ5 expertise. So what is that autonomous hauling? We are taking the ore from the 3.2 kilometers underground up to 2.9 kilometers without drivers. So this is a real example of a positive impact using technology. Instead of operating, let's say, using 4 trucks and 8 operators, for day shift or night shift, those guys in the current situation, they are able to operate effectively 10 to 12 hour per shift just by the time to go underground. Using the technology, we're able to use 2 trucks operating by 1 person, 1 night shift, 1 day shift, so a total of 2, and we're able to operate on a 20-hour basic. So it's a clear example of using technology to improve productivity and very good job done at LaRonde on that. Also in Finland, what we did, we took 3 and 4 people -- key people from each site from mainly Canadian operation. I mean the GMs, the key guys in the continuous improvement, the VP. We bring them to Finland to see what they did there. It was the first time for most of the people, not just to see the reindeers, but also the Finland site. And it was about how they did it in Finland, the mindset on continuous improvement, their leadership and the tools they were using. And it was also a very good opportunity to build a relationship and sharing best practices through our key people into the company. Guy is going to talk about that, but very happy also about the Ikkari, what's going on is very positive for the Finland team. Next slide. On the growth project, at Malartic, the ramp and shaft, as mentioned going well. The pilot hole for the first -- for the second shaft is done down to 1.8 kilometers underground. No issue related to that. And the study continue on the Shaft 2 and Marban and the Wasamac study. It's progressing well, and we're looking to give you an update in September later this year. At Hope Bay, look to the picture. So we are in good position. That was our goal. We are in a good position to potentially announce the construction in May with the Board. So the camp is ready. The fab shops are ready to welcome the construction team. The mill is empty, ready to go. And we are in good position for the engineering. That was one of an important goal. So we're going to be over 50% that guarantee and give us confidence into the cost into the schedule. We're going to give you more detail at the visit at site for the lucky ones that are coming because we're going to have [ Muscat ] on barbecue, charcoal barbecue. So this is -- the team is working on that. That's going to be a good thing. Before giving the mic to Natasha, the visit at Hope Bay, you're going to see the picture over the first 10 years. But we're going to most probably be there for many 10 years. And that's what Guy is going to show you into the car shaft, what is our vision on to the region. And also, the last 2 years, we focused on infilling the patch, the new deposit and to be ready for that study. But Guy is also gearing up to restart treasure hunting into the Hope Bay site eventually more next year and the years after. So on that, I will pass the mic to my great colleague, Natasha. Natasha Nella Vaz: Thanks, Dom, and good morning, everyone. I'll cover the operational highlights for Ontario, Australia and Mexico. So the regions delivered good performance to start the year. At Detour, they hit a quarterly record in tonnes mined, but they also had a record mill throughput for the first quarter with the lowest turnover -- quarterly turnover that we have seen since the mine began open pit operations. Over at Macassa, the mill here also delivered record quarterly throughput as a result of the ongoing optimization initiatives as we ramp up that mill towards over 2,000 tonnes per day by the end of the year. Now despite this progress, total mill tonnage was below plan this quarter, and this was mainly a function of challenges we faced with our old paste plant while commissioning the new one, which we expect to be fully operational in Q2. At Fosterville, they also performed very well this quarter. There was a significant step change in productivity, and that's really due to ongoing mine optimization efforts. Improvements this quarter were seen in both development and stope cycling. And it was the same with Pinos Altos. The team there continues to work very hard on initiatives to safely extract the most value from their assets. Now in terms of initiatives this past quarter, Dom spoke about our knowledge sharing trip to Finland to help other sites understand their continuous improvement journey and really inspire them to do the same. And of course, it was really great to network, to gain alignment to collaborate with other sites. And another good example of collaboration between sites and really maximizing the value of our assets and of our infrastructure was between Macassa and LaRonde. I just want to take a quick second to recognize both teams here. They worked very closely together over the last few months. And with a coordinated effort, they were successful in receiving the approval to allow ore from the AK deposit to be transported and processed at the LZ5 facility. At Macassa, we also successfully completed the installation of the LTE network underground. The connectivity is expected to support a range of optimization initiatives, including the implementation of a dispatch system and enabling the site to obtain short interval control. And this can enable us to make decisions quicker, to become more agile, to become more productive and as a result, further optimize our costs. So these are just a few examples of our ongoing productivity focus and our operational improvement initiatives. Moving to the next slide. I'll give you an update on the projects in Ontario and Mexico. The Detour underground project, that plays a very big role in the plan for the complex to be a 1 million-ounce producer annually. We're still in the early days of this project, but we're making very good progress, and we're advancing on schedule. We continue to advance the exploration ramp and have achieved just over 820 meters of development, reaching a depth of about 147 meters. We also began excavating the overburden for the conveyor portal, which is near the mill and progressed work on the camp extension. And to complement the planned bulk sample, we initiated a high-intensity drill program in an area being considered for mining as early as 2028, and Guy will speak to this program shortly. Over at Upper Beaver, there have been a lot of progress made this quarter with both the ramp and the shaft advancing ahead of schedule. The ramp has advanced over 500 meters in the quarter and has reached a depth of 108 meters. The shaft sinking, which commenced in the fourth quarter of last year, has already reached a depth of 382 meters. And similar to Detour, to complement the planned bulk sample at 760 level, the high-intensity drill program continued during the quarter. Now with respect to San Nicolas, we're waiting on the regulatory decision for key permits. But in the meantime, we're continuing to advance the engineering of the critical infrastructures, which will help further derisk and build confidence in our execution strategy. We're also continuing with the drilling activities focused on condemnation drilling and geological evaluation near the planned mine area. Finally, I'd like to close by just recognizing the teams at our operations and our projects for their very disciplined execution in the first quarter and for their continued focus on advancing our optimization initiatives and our key projects as we move through the year. And so with that, I'll turn the call over to my friend, Guy. Guy Gosselin: Thank you, Natasha, and good morning, everyone. Pleasure again to be able to report on progress we're making in exploration as obviously, this is one of the key components to be able to deliver that 20% to 30% growth that we are promoting. We had an excellent quarter in terms of diamond drilling, completing 25% or nearly 360 kilometers of drilling of our overall budget of 1.4 million meters for the year, having 127 rigs in operation on mine site and key value driver project. We continue to advance in our journey in exploration to make drilling safer and more productive while maintaining a unit cost in the same order than the last couple of years, aiming to offset inflation with gain in productivity. Going to specific projects on Slide 10. In Malartic, 35 drill rigs are in operation, completing 75,000 meters in Q1, 16 underground, 13 on surface in proximity to the Odyssey infrastructure and 6 at our regional target, including Marban deposits across the 3. At Odyssey, as mentioned by Dominique, the shaft and the ramp development are progressing ahead of schedule and the first stope is currently being mined at East Gouldie, which is quite exciting, considering the discovery hole in East Gouldie was made just a couple of years ago in 2018 and that we are already there with the ramp in the shaft because of the great collaboration between the various teams to turn it from a discovery into a mine in such a short period of time. This is impressive. We continue to get strong exploration results at East Gouldie with 6.7 gram over 36 meter on Level 105 in the center of the ore body and also in the internal zone between Odyssey North and Odyssey South with a new structure that returned 9 gram over 53-meter core land. Although we do not have a full understanding yet of the true thickness of that structure, it continued to show the additional upside we see both in the internal zone at Odyssey North and South and in East Gouldie that keeps growing laterally. And on the adjacent Marban project, lateral exploration drilling continued to the west and to the north of the proposed open pit, while we are, at the same time, advancing with the condemnation drilling program to confirm the potential location of surface infrastructure. Now on Slide 11, at Detour Lake, 9 rigs completed close to 40,000 meters of drilling in the first quarter, in line with our budget. Drilling was continued to focus on the Western extension of the ore body to the west of the open pit, where we are contemplating to initiate mining underground early on, utilizing the exploration ramp. Some strong results such as 8.9 grams over 14 meters at 190-meter depth and 10.7 grams over 10 meters at 500-meter depth shows a strong potential for high-grade underground mineralization over a large area that extends over more than a kilometer now adjacent into the west of the open pit, where the exploration ramp is currently being developed. Briefly, at Hope Bay, as mentioned by Dominique, we've had a great quarter in terms of drilling on ice, thanks to the team's great winter drilling program. We started early. We've completed north of 33,000 meters of drilling as of the end of March, and a full update will be provided on the May 19 press release along with the project announcement we've been talking. And finally, on Slide 13, in Finland, I would like to provide some color on the recent announcement we made with an offer to acquire all of the outstanding share of Rupert and Aurion Resources, along with the 70% interest of B2Gold and the Fingold JV. It was a great job by our corporate development team and legal team. With these 3 combined transactions adding to our current landholdings, we will be consolidating close to 2,500 square kilometers, consistent with our corporate strategy of focusing on regional hub, leveraging our 20 years of experience in exploration, permitting, mine construction and operation with a strong social license to operate in the most fertile greenstone belt in Europe. By combining the Finnish workforce of Agnico along with the workforce of Rupert and Aurion and removing property boundaries, we will aggressively explore in the near term, the immediate and lateral extension of the Ikkari deposits as well as the multiple occurrences that were identified on the Fingold JV and the large land position owned by Rupert and Aurion. Personally, it reminds me a lot about Kittila mine acquisition in 2005. At the time of the acquisition, there was approximately 2 million ounces down to less than a kilometer. And 20 years later at Kittila, it grows down to and still open at depth below 2 kilometers with a global endowment of 10 million ounces, considering past production reserves and resources known so far. I see a similar potential on the structure at the Ikkari deposit and as these mineral system are similar to our Canadian greenstone belt that have demonstrated extended vertical geological fertility. By this transaction, we are aiming to deliver in Finland a platform for multiple mines over multiple decades, similar to the 3 regions in Canada that are Quebec, Ontario and Nunavut, where we will be leveraging our regional expertise. And on that, I will return the microphone to Ammar for some closing remarks. Ammar Al-Joundi: Thank you, Guy, and thank you, Jamie and Dominique and Natasha and everyone else on our team. Really exceptional work, really tremendous results, well done. As you can see, we continue to work hard for all of our stakeholders, and we'll continue to build off the same foundational pillars that have defined our strategy and that have served us very well over the past almost 70 years. We will focus on the best mining jurisdictions based on geologic potential and political stability. We'll be disciplined with our owners' money, making investment decisions based on technical and regional knowledge, creating value through the drill bit and through smart acquisitions where and when it makes sense. We are uniquely well positioned with a quality project pipeline, leveraging existing assets in the best regions in the world where we believe we have a competitive advantage. And we will continue to be focused on creating value on a per share basis and on being leaders in our industry in returning capital to shareholders as evidenced by over 43 years of consecutive dividend payments and increased share buybacks. We have a clear and executable strategy to create tremendous additional value per share for our owners well into the foreseeable future with manageable risk, leveraging off existing infrastructure and regional competitive advantages. We have the assets, we have the projects, we have the resources and we have the people. We are making it happen right now. We will stay focused, and we will not be distracted. Thank you again for joining us on this call. And for many of you, thank you for decades of trust and support. We will always work hard to maintain that trust, and we will never take it for granted. Operator, may I ask that we now open up the call for questions. Operator: [Operator Instructions] First question comes from the line of Lawson Winder from Bank of America Securities. Lawson Winder: We'd like to start off with the Finnish acquisition, and we haven't had a chance to ask you guys about this in this type of forum since the announcement. And Guy, thank you very much for the picture you've painted and for the color on getting to 500,000 ounces. But can you help us understand what are the sort of value creation steps over the next 12 to 24 months to get to a better understanding of what that ultimately looks like. So resource update, study, when do you expect permitting to start? And just any other considerations on that sort of time line thinking? I appreciate it. Ammar Al-Joundi: I can start, but maybe Dom and Guy can jump in on more details. The first thing, Lawson, and by the way, nice to hear your voice, the first thing Lawson really was to consolidate all of this property. There's a lot of potential. They're good properties, but they were individually constrained and so that's why it was very important for us. And as mentioned, our entire team, but in particular, the corporate development team and the legal team did a really good job in allowing us to consolidate all of this at the same time. It's really first and foremost, and then I'll pass it over to my colleagues about consolidating what we think is the best land position in Europe. Dominique Girard: Thanks, Ammar. Lawson, Dominique speaking. Maybe I think what on my side, I need to do is to freeze the scope of that one, let's say, without the boundaries, where we should put the mill, the tailings and revamp the schedule, the study based on the new acquisition. And the exploration guys are all excited to add, but we're going to need to kind of try to kick that project for a first start but also to get some flexibility, maybe, for example, at the mill to make sure -- it's always a challenge to get enough detail into the study to push that into the permitting. And that's what we're going to focus by staffing the study team and eventually the construction team. Guy Gosselin: So maybe in complement, Lawson, Guy speaking now. As we discussed in the press release, our plan by removing the property boundary is to have sort of an updated view with the current information by the end of 2027, where we're going to have sort of a better picture of what the optionality that removing the property boundary offer on both the optimum pit design and location of infrastructure. And while we're going to right away, as a matter of fact, start drilling once the acquisition is completed because we know as well that property boundary was also constraining the drilling close to the property boundary. So -- but that's our intent. By the end of 2027, we should have an idea of the kind of a revised concept based on the current information, while we're going to continue to drill and maybe look at other iterations. So maybe like you can refer to what we did in Malartic. We're going to be providing most likely a first version of what it could be and then keep drilling and adjust based on what we're going to discover. Lawson Winder: Okay. That's helpful. And then just a follow-up from me with respect to the Detour Lake underground drill results. There were some really, really substantial intercepts, of course. With the drilling you've done to date, has your understanding of what the Detour Lake underground can be, has it evolved and changed in any way in the past, let's say, 12 months? I mean is it starting to look like it could be a much bigger system? And are you possibly reconsidering what the ultimate development plan might look like Detour underground? Guy Gosselin: Well, I would like -- to me, the area west of the pit is very similar to what was historically mined on the ground at Detour that we are now mining with the pit closer to surface. So obviously, we are showcasing a couple of great results. On average, we think that, that area will be anywhere between maybe 2.5 and 3.5 grams, something like that. And obviously, when you put those some spectacular results along with some others that are in a 2, 3-gram over 20, 30 meter. So it's in line with our expectation. It's aligned with what we're actually just firming up the model of that zone. As you know, we are mindful of the history at Detour. In order to selectively mine a high-grade ore, you need a ton of drilling, you need the right drill spacing. When we are getting there with the ramp, we're going to be soon being able to drill it more aggressively from underground as well from the exploration ramp. So it is shaping up as we thought. It's always an area that I personally liked a lot west of the pit. Natasha Nella Vaz: Lawson, just to add to that, it's Natasha, by the way. Just because of the -- we do have a study team looking at this and looking at different iterations as we proceed with the exploration program. But with the combination of the exploration success and the high gold price environment, there is definitely optionality here at Detour. So it's fairly early stages, I would say, but the team is looking at different trade-offs for potentially a higher milling capacity, a larger underground, potentially another pushback at the pit. But again, very early days. Operator: Your next question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: In the quarter, there was an announcement about a Nunavut collaboration agreement with B2Gold. Can you maybe just talk about the thinking behind that and what you hope to learn from their operations at Goose? Ammar Al-Joundi: Well, we -- it's Ammar here. I'll start and then maybe Dominique or Jean can comment. In general, we always like to try to work with our colleagues and our peers. We have a lot of experience in the areas we operate. We think we have some competitive advantages, but we're not so naive to think that we know everything. So any time we get an opportunity to work with our peers to see what they're doing, we take advantage of that. I think our owners would want us to do that. And also from B2's perspective, they're good people. We know them well, and they think that we do a good job where we operate, and they want to see if they can learn a little from our operations as well. So it's just the kind of stuff that we want to do in the industry. I think that's probably enough on that. Fahad Tariq: Okay. And then maybe just one for Jamie. I noticed the buyback pace slowed down quarter-over-quarter in the first quarter. Is that just a function of the pretty significant cash tax payment. And can you just remind us of the minimum cash you'd like to keep on the balance sheet going forward? James Porter: Yes. No, that's exactly right. I mean we said we put out our guidance in February that we'd be targeting returning about 40% of our free cash flow through a combination of the dividend and the share buyback. Our free cash flow was lower in Q1 as a result of the cash tax payments. So I think our -- the percentage worked out to closer to 50%. It was $150 million of shares repurchased in the quarter, which was half of what we did in Q4. That will ramp up certainly in Q2 and through the rest of the year as our free cash flow is expected to be higher. In terms of minimum cash balance, I mean, I think we're comfortable where we're at now with $3.1 billion of cash, $2.9 billion of net cash, between $3 billion and $5 billion I think that's a good position to be in, in terms of just giving us financial flexibility to be able to execute on our strategy. But yes, definitely higher share buyback activity expected through the remainder of the year. Operator: Your next question comes from the line of Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I appreciate the additional disclosure on the energy sensitivity side of things. I had a question in terms of the Hope Bay project update later this month. Looking at the current market for prices, there's obviously been a high degree of inflation. How are you thinking about incorporating some of those input prices for that project update and thinking about maybe the near-term impact versus what otherwise would a long-term, much more reasonable price be? Ammar Al-Joundi: Josh, it's Ammar here. I'll start and then Dom will jump in. In my experience, the most important thing in building projects is to get the engineering done and to have the execution plan well laid out. We have seen some inflationary pressure, but actually, it hasn't been that bad. And the team, as Dom said, I mean you looked at the picture, the camp is going to be there. The backup power is there, the mill building, half the mill building is there. Water treatment is there. So we're coming to this with an advantage of infrastructure in place, which allows us to execute. I mean it's all about execution, but also exceedingly important is the amount of engineering the team has done, which allows them to get a much better control overall on execution and, therefore, on cost. Dom? Dominique Girard: Yes, Josh, we -- in May, we're going to give more detail on the economic. That that's going to be obviously positive economics. And our assumption are based on the long-term view, we're going to give you some sensitivity to understand how that could impact, and we don't know the future. But as Ammar mentioned, we're -- I'm very comfortable where we are right now. We've been mining in Nunavut over 17 years, and we've built already 3 projects with Meliadine, Meadowbank and in Amaruq. So that's -- it's a good time for Nunavut to add another -- it's going to be over 400,000 ounces per year, and that's going to bring us to potentially 1 million ounces per year into the Nunavut platform. Joshua Wolfson: Great. And then another, I guess, 2-part question for Malartic. I mean first question there is what drove the grade improvements this quarter? And I guess we saw something similar last year. Should we expect to see it going forward. And then second part is just on the September update that you referenced. Given that we had expected, I guess, the shaft project completion not really until year-end and then a larger update in the second half of next year, how should we be thinking about what information is disclosed ahead of that completion in September? Dominique Girard: Yes. Just for the grade, it's a question of sequencing mainly into the Barnett pit. That's the -- that's the only thing that changed that. And I will let Jean-Marie to answer on the second part. Jean-Marie Clouet: Josh, yes, in September, the plan would be to provide an update. So the last update really for Malartic was in June 2023. What we want to reflect in September is the update in the reserve resources that we've seen over the last few years and also start giving a better idea in terms of how the second shaft, Marban and Wasamac start to fit together, start giving ranges around what we think it will cost and operating. But you're right, the studies will be later in the year, but we should be able to provide a very good picture of what Malartic will look like to get to the 1 million ounce per year. Operator: Your next question comes from the line of Daniel Major from UBS. Daniel Major: Ammar and team, first question on the Finland acquisition and then around the kind of balance sheet and capital returns. First question is, was there a reason for using Agnico shares rather than cash specifically? And then I guess the second part, you alluded to exceeding the 40% cash flow payout potentially in order to reduce the share count following the acquisition. Can you give us a sense of kind of quantum you could be at $3 billion to $5 billion of net cash quite quickly through the year. Should we expect that as a limit to the cash balance you'd want to hold and how that would flow through to the buyback? Ammar Al-Joundi: Well, thank you for the question, Ammar here. I'll answer the first one, and maybe, Jamie, you can answer the second question. With regard -- it's a very good question on why we use shares instead of cash. And the answer is we wanted to use cash and they wanted 100% shares. I think their view and rightfully so is Agnico shares are good shares to have, and they wanted 100% shares. We used full cash on the other deals. And I think Jamie, as part of his answer to the second, can also incorporate how we hope to offset a little bit of the share issuance through the rest of the year. James Porter: Yes, absolutely. So I think in our disclosure, Daniel, we referred to potentially increasing repurchase activity based on the sale of some of our portfolio investments. So if there's opportunities for us to do a little bit more based on our views on valuation, we will do so. With respect to kind of minimum cash balance, where we are now, I'd say, is we're very comfortable. And as the cash balance increases, we'll look at even more activity under the share buyback. But I'd say the minimum target is 40%. We may be able to exceed that based on either our free cash flow performance or the proceeds of the sale of some of our investments. Daniel Major: Okay. And then my next question is on San Nicolas, actually saw Teck in Anglo American yesterday and discussed the project a little bit. But I mean it feels like it's somewhat subscale at 50% for either yourselves or the other partner. Have you had any discussions around the ownership of the project? And would you be keen to consolidate if the opportunity arose? Ammar Al-Joundi: Yes. I think we would look at it. We still think it's a good project. I don't want to forecast what our colleagues and our partners are thinking. But obviously, if they said, "Hey, would you want to look at it," we'd look at it. Daniel Major: Okay. Great. And then just one quick one, if I could. On Finland. I noticed Boliden deferred a pushback at Kevitsa because of the change in the taxation for the mining sector in Finland. Can you just give us any color about how you're seeing that landscape with respect to Kittila and the new acquisitions? Dominique Girard: Yes. Yes, there's tax change in Finland. And this is included into our evaluations as well as our life of mine at Kittila. Yes. James Porter: I was just going to add, the industry is lobbying the government to look at potentially changing the structure of those taxes to make certain additional things that are deductible to offset the impact. But all that was factored into our modeling. Operator: Your next question comes from the line of Bennett Moore from JPMorgan. Bennett Moore: Congrats on the record quarter. I guess following the land consolidation in Finland and as you continue to think about the company's next leg of growth beyond the early 2030s, where does Australia fit in this picture? Do you see similar opportunities around Fosterville? Ammar Al-Joundi: Well, thank you for the question. Actually, I was just out in Fosterville about a month ago. And I mean it's such fantastic people but we spent a lot of time on some recent I would say, very good exploration results in and around Fosterville. I think as some of you know, we've consolidated some land. That part of Australia was the original gold rush. And nobody is really focused on it for decades. And it's still very early, but I was quite pleasantly surprised with some of the results they were getting and the enthusiasm they had. Now we get questions all the time about the rest of Australia. We think Australia is a great place to mine, not just for gold. But I mean, you know us, we are very careful about what we do. We're very disciplined. And right now, we are -- we continue to be focused in Australia at Fosterville and the team we have there and the opportunities around that. Bennett Moore: Then I think it's been about 6 months since you launched the Avenir business. So just wondering how this is progressing, what sort of new opportunities the team may be evaluating. And then maybe if you could also comment on what sort of critical mineral opportunities there may be around the Lapland Greenstone belt as well. Ammar Al-Joundi: Well, I mean, it's a good -- I'll ask Guy to talk about sort of base metal and critical metals in the Lapland belt because there are some. Just with regards to Avenir, it's a really enthusiastic team. They are looking at a lot of things. What I would say is that they are naturally narrowing down what they're looking at and becoming more focused. It's an exciting business to be and in. It is a separate entity. We are supportive of it. And just to repeat, we're not obliged to do anything, but it does give us an opportunity to see things that are well considered. And maybe, Guy, you can talk about non-precious opportunities in Finland. Guy Gosselin: Yes. So yes, so in addition, obviously, of what triggers our primary interest, which is the structure around the circle line and the main break. We also know that it's the same -- to the north of that, that's the same rock package that hoists basically the given the Kevitsa in the Sakatti deposit that are nearby that are nickel, copper, PG and even at the old Pahtavaara mine, there was some evidences of massive sulphide that are potentially kind of a sign. So we have all of the ingredients. But for us, we see that as potentially an add-on and our primary focus remains to fully explore for gold. And if there's something else because there's the fertility of the rock is there, we'll see. Operator: Your next question comes from the line of Anita Soni from CIBC World Markets. Anita Soni: I just wanted to ask a little bit about the cadence of the production ramp over the course of the year. So I think you said that in Q2, it will be similar to Q1 production. And in Q1, there were, I guess, a couple of challenges with Kittila coming off of the shutdown and then the weather just impacting the restart there. So what are the things that are kind of offsetting in Q2 if Kittila is going to ramp back up. And I would assume it's the Caribou migration that I should be modeling. And then going into the back half of the year, what are the things that are ramping up. It's the AK project, right, at Macassa? Ammar Al-Joundi: Anita, it's Ammar here. It's -- honestly, it's more just mine sequencing and where we are on the plan. There's -- you've got a good point on specific items that were in the first quarter. There are always -- and we try to spread it out through the year when we have maintenance, when we have shutdowns, we try to, as you mentioned, exactly right, there's always the uncertainty of the Caribou season. But I think our team is really quite exceptionally good at taking all of that into account and projecting through the year. We don't typically give 48%, 52%. We decided we wanted to do it because we just wanted people to know that actually everything is going quite well. And as mentioned, the first quarter was actually a little bit above budget. So there's nothing in particular. It's mostly just mine sequencing and various other elements that come into it. Anita Soni: And then just from a longer-term capital allocation question, a lot of those questions have been asked and answered. But I just wanted to get an idea of as you think about the cash balance increasing, where do your priorities lie in terms of capital, just rank them again in terms of capital return to shareholders. And I mean, the balance sheet is pretty strong at this point, and you're accumulating a lot of cash. So where does reinvestment into the business now fall into the -- has it moved up over the capital return to shareholders? James Porter: Yes. Thanks, Anita. I'd say, I mean, reinvestment in the business is always a very high priority, right? The 5 key value driver projects that were that we're advancing our 30% to 60% IRR projects in the current gold price environment. So we want to invest as much as quickly as we can in those. And we're doing that. I mean our capital spending has increased from $2.3 billion last year to probably $3 billion this year all in, and we'll look to continue to find opportunities to accelerate that to bring that production forward. Beyond that, I'd say right now, in this gold price environment, we're fortunate in that we can do it all. We can afford to reinvest aggressively in the business. We can afford to deliver very strong returns to shareholders. I mean, 40% is kind of the floor for this year of our free cash flow being returned, I think, is quite attractive, and we can continue to strengthen the balance sheet. Having that $3 billion to $5 billion net cash position just gives us the -- again, the financial strength and flexibility to be able to execute on our business strategy even in a much lower gold price environment. So I don't think our priorities have really changed. We'll continue to look for opportunities to accelerate reinvestment in the business while strengthening our financial position and delivering strong returns to shareholders. Ammar Al-Joundi: It's a -- we understand the questions. The exact position of cash on the balance sheet is as much an art as it is a science. It's a $100 billion company, whether it's $3 billion or $4 billion or $2 billion, really, that's up to the discretion primarily of the CFO and treasury -- but I just want to make the point having been a CFO myself, it's not like there is an exact perfect number. What you want to do is look at all the circumstances at the time, make sure you have -- the most important thing a CFO has on his table is liquidity for the company. And so I think Jamie and the team are doing a great job balancing everything. Operator: Next question comes from the line of John Tumazos from John Tumazos Very Independent Research. John Tumazos: Thank you very much for your service to the company. I'm trying to make a back of the envelope concept of the Ikkari mine or Central Lapland new mine coming in 2034. Is a fair guess 15,000 tonnes a day times 2.25 grams times 95% recovery to get to the 500,000 ounces and that, that might cost $1.2 billion when we get to 2034, all those years out. Ammar Al-Joundi: Yes. It's -- John, first of all, I'd like to thank you for your service to the industry. That's a very nice introduction. It's -- we're still early in looking at that. It's -- maybe we can go through some of the details offline. I don't know, John, did you want to -- I mean, we got to be careful because these are very, very early, and we're working on it, but go ahead, John. John Roberts: I can step in. First of all, John, I'm very surprised with your question because I was expecting that you were asking how we were able to put all of this together at once. So a bit disappointed with the question. But on this, listen, 10,000, 15,000, we will have to define it and a function of the throughput, we will arrive with the minimum of, let's say, 200,000 plus, we'll be careful before we will provide any number. but I'm more focused on looking what it will be one day. And as Guy described, it's a high potential. And I think this is where I would like that we bring most of the attention, what it can be eventually. So we are excited with the consolidation and stay tuned because I think moving forward toward the end of 2027, we'll have more to say. Guy? Guy Gosselin: So John, what we are referring to in our press release is a platform of 500,000 ounces when combining Kittila and Ikkari together. That's currently and still we need to work if we can make it bigger than that, and we cannot work on the -- but just to make it clear, the 500,000 is just solely for Ikkari. It's our vision of the platform for the time being. John Tumazos: Let me ask another one, if I may. And thank you for the clarification. I was assuming we were only talking about the new property. I was guessing the CapEx and then the consideration for the 3 purchases -- and on the 4.22 million ounces of current resources slightly larger than the 3.5 million ounces of reserves. And $1.2 billion development capital, it works out to $1,268 an ounce acquisition and CapEx to develop. Should we be assuming that the resources are going to double or triple and that that's not the new normal for how much we're going to pay for developing mines. Ammar Al-Joundi: John, it's Ammar here. And I think this is probably the way that we look at it. The acquisition cost worked out by our internal assessment. And remember, we know this project quite well. We've been there for 6-plus years looking at it. We acquired it effectively by our own internal models at quite a good discount to NAV, just based on what we felt on our own, what we thought were fairly conservative. So we've acquired an asset in a region we know well that we have been looking at for 6-plus years at a considerable discount to NAV, and we got the rest of the land package for free. So we're excited about it. We think it makes a lot of sense. I can't get into all of the numbers, except to say in our usual fashion, we did an awful lot of homework before we decided to proceed. Operator: Your next question comes from the line of Tanya Jakusconek from Scotiabank. Tanya Jakusconek: My first question is for Dominique. Dominique, I hope that snow will be gone from Hope Bay when we're up there. That picture showed quite a lot of barbecue. I just wanted to ask because we capital increases lately at some of the projects out there, should we still be thinking that $2 billion for Hope Bay would be a reasonable capital for 10-year mine plan that you've been talking about? Dominique Girard: Tanya, yes, we see a bit of inflation, but it's going to be below 2.5 for sure. And the thing we need to finalize, we have a very good now, let's say, level of engineering, but there is a decision that we're taking, for example, to fast track Patch 7 and to do more ounces earlier, for example, to start the mill right up at 6,000 tonnes per day, it's going to be a ramp-up, but the mill is going to be designed right upfront at 6,000 tonnes per day compared what we did with Meliadine. And also, for example, we're looking to add one more wing to keep the drilling ongoing and to let Guy doing treasure hunting onto the property. So there's a decision that we're taking internally that at the end of the day, affecting the initial CapEx, but it won't be a big surprise. It's going to be slightly over $2 billion. Ammar Al-Joundi: And the changes are not so much inflation. They're more instead of ramping up the mill in 2 stages just because of the economics, you just do it all at once. And as Guy said, do you invest in some peripheral infrastructures so that we can continue to accelerate exploration. Tanya Jakusconek: Okay. That's helpful. Over $2 billion slightly because of plant rather than inflation. Ammar Al-Joundi: Yes, yes, sure. Tanya Jakusconek: Okay. Now that I have you on, just 2 quick questions for you. You mentioned the strategy in Australia, which was to focus around Fosterville and drilling that platform to see what you have there. In Mexico, besides San Nicolas, is that -- do you have anything else that you're looking at to expand that platform? Ammar Al-Joundi: At San Nicolas? Tanya Jakusconek: Mexico itself. Ammar Al-Joundi: Well, it's -- so we are looking at opportunities to expand San Nicolas. But beyond that, Tanya, there's really nothing substantial that we're seeing as an opportunity in Mexico. Tanya Jakusconek: Okay. And then my final question, Ammar, for you. It's always tragic to hear about fatalities for everybody in the mining industry. And so my question to you is from your tragic incidents that you had at your mine sites. What have you learned? And what changes to procedures and processes have you put in place from these learnings? Ammar Al-Joundi: Well, thank you for asking because it is very important, Tanya. Look, I think that we've learned what we already know, which is never ever slow down in emphasizing the importance of safety. And sometimes it's really disappointing. It's the routine things, the things that people do every day that they get too comfortable with. That's human nature, and it is our job to really just push it. What we did was we mandated a stand down, where we took every employee in at all of our sites, every single one and reemphasized it. We have a very sophisticated and comprehensive safety program like most of our peers. And frankly, it's really devastating to have had those fatalities. Tanya Jakusconek: So it seems that it was just routine so nothing that you would have changed, I guess, is what you're saying from procedures and processes. Ammar Al-Joundi: Well, I mean, I think that, yes, I don't want to get into detail. There's a lot of work still ongoing. These weren't things that -- well, actually, Carol, why don't you jump in, sorry. Carol-Ann Plummer-Theriault: Tanya, as you can understand that it's -- any loss of life is a tragic loss of life. In both of these instances, the in-depth investigations are still ongoing. The authorities are involved and the regulatory authorities and so on are involved in these investigations as well. So we can't share the results of these investigations yet. But certainly, there are learnings around this. We're sharing to the degree possible, not just internally, but to industry peers where there has been something that we can start sharing immediately to make sure that these types of accidents couldn't happen elsewhere. And really for us, we're really, as Ammar said, reemphasizing just the importance of safe production and making sure that we're following our procedures and always looking for the risks in the workplace and how we can mitigate those risks. So to that end, we've been looking at major hazards, which are the hazards of things that could actually be a life-changing accident and putting in place critical controls. So we're continuing down that road. And I think that's a really important step for us as we continue on that journey towards zero accidents. Operator: There are no further questions. I'll turn the call back over to Ammar. Ammar Al-Joundi: Thank you, everyone, for joining us. And everyone, have a nice weekend. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to ACCO Brands First Quarter 2026 Earnings Call. I will now hand the conference over to Christopher McGinnis, Director of Investor Relations. Please go ahead. Christopher McGinnis: Thank you. Good morning, and welcome to the ACCO Brands conference call to review our first quarter 2026 results. Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands; and Deb O'Connor, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, noncash goodwill and intangible asset impairment charges, bargain purchase gain and other nonrecurring items and unusual tax items and include adjustments to reflect the estimated annual tax rate on quarterly earnings. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP financial measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now I will turn the call over to Tom Tedford. Thomas Tedford: Thank you, Chris. Good morning, everyone, and thank you for joining us today for ACCO Brands first quarter earnings call. Last night, we reported first quarter results with sales and adjusted EPS above our outlook. We also reiterated full-year guidance. We are pleased with the strong start to the year, and the results indicate we are executing well on our key operational and strategic initiatives. First quarter consolidated sales grew 8%, higher than our expectations, driven by favorable comparable sales and better first quarter performance from the EPOS acquisition. Additionally, as expected, foreign exchange had a significant positive impact on revenue in the quarter. In the Americas segment, sales growth was driven by favorable currency translation, computer accessories and the EPOS acquisition. Sales for computer accessories within the segment were strong, reflecting new products and a meaningful end-user pipeline. In North America, early purchases of back-to-school products were better than anticipated. While it is still early, we are confident in the upcoming back-to-school season due to increased listings and the absence of order cancellations due to tariffs in the prior year. For the season, we are expecting back-to-school sales to be flat to up low single digits. Sales of office products were down across the segment, but the rate of decline improved. In Latin America, sales improved due to a combination of a change in go-to-market strategies and new products. Turning to the International segment. Sales growth of 15% was driven by favorable currency translation and the EPOS acquisition, which I'll discuss in more detail shortly. The rate of decline improved in the quarter, reflecting the positive impact of price, broad-based improvement in core category demand and favorable mix. Our overall strategy remains focused on expanding our product range in faster-growing categories with an emphasis on technology peripherals. Our target for 2026 is for peripherals to grow to represent 25% of the company's projected revenue. In support of our strategy, our acquisition of EPOS was completed in the first quarter. We are excited about the potential of this addition to ACCO Brands. The integration is on track with expected 2026 sales of approximately $80 million over 11 months of the year and a modest contribution to profit. As a result of the acquisition, Jeppe Dalberg-Larsen, President of EPOS, will now lead Technology peripherals for ACCO Brands. Jeppe has over 20 years of experience leading technology peripheral businesses and is a strong operator who will drive our growth initiatives. This change in leadership is another step to better position ACCO Brands to execute on our strategy of expanding our global market shares and enhancing our product portfolio and technology peripherals through organic and inorganic initiatives in these large and growing categories. Pivoting to gaming accessories. The global gaming market faced headwinds in the first quarter from broad industry challenges and softer consumer spending. Our PowerA brand is well positioned to capitalize on 2 significant catalysts that we believe will improve performance throughout the year. The continued adoption of Nintendo Switch 2 consoles by the consumer and the expected fourth quarter release of Grand Theft Auto 6. Additionally, our product pipeline is robust as we are expanding our gaming portfolio to include simulation as well as a revamped audio offering. Our leading product portfolio, the important work we do with OEMs and our strong channel partnerships give us confidence in the back half of the year. In Computer accessories, the Americas delivered solid sales growth. In the International segment, sales were down versus the prior year as we comped a large government order in the U.K. in 2025. Normalized, computer accessory sales in the segment were up modestly year-over-year. We have an expansive range of new products and an improving pipeline throughout 2026 that will support our growth objectives. Transitioning to our cost optimization work, we continue to execute on our cost reduction and footprint optimization program. We remain on track to achieve the $100 million cost reduction target by the end of the year. Some of our projected savings, however, may be offset by rising costs due to the ongoing conflict in the Middle East. We anticipate fuel costs and certain raw materials to increase globally with the impact weighted towards the back half of the year. The company is carefully monitoring the situation and has taken appropriate steps to mitigate these potential impacts. We have considered these developments in our guidance, however, recognize this is a dynamic situation that is evolving daily. While consumers and some customers may be more conservative in the near term due to economic uncertainties, our tight cost controls and growth initiatives give us confidence in the year. In summary, I am pleased with our first quarter results. I am proud of our strong execution against our value-enhancing initiatives and the progress we are making on our strategy to transform ACCO Brands into a more focused, efficient and growth-oriented company. I will come back to answer your questions. Now let me turn the call over to Deb. Deborah O?Connor: Thank you, Tom, and good morning, everyone. As Tom mentioned, first quarter sales and adjusted EPS were above outlook. Comparable sales improved with a better mix of product sales as well as back-to-school order timing earlier than anticipated. Reported sales in the first quarter increased 8% with comparable sales down less than 3%. Growth in the quarter was driven by FX and the EPOS acquisition. Comparable sales reflect growth in Latin America and computer accessories in the Americas as well as lower declines in several core categories. Gross profit for the first quarter was $107 million, an increase of 7%, with the margin rate of 31.1%, down 30 basis points. The margin rate decline was attributable to lower priced product mix. Adjusted SG&A expense of $95 million is up modestly to the prior year, with the increase largely due to unfavorable FX and the EPOS acquisition, significantly offset by cost savings. Adjusted operating income for the first quarter was $12 million, up $5 million versus the prior year, reflecting cost savings somewhat mitigated by organic volume declines. Before turning to segment results, let me provide some detail on the bargain purchase gain related to our acquisition of EPOS. This $38 million gain represents the purchase price of EPOS compared to the preliminary fair market value of the business, which is primarily from working capital. As Tom mentioned, the integration of EPOS is on track, and our outlook includes $80 million of 2026 sales with a slightly higher gross profit rate than our consolidated average and neutral to adjusted EPS. We remain on track to deliver the outlined $15 million in cost synergies in 12 to 18 months. We recorded $7 million in restructuring charges, primarily related to this acquisition, most of which will be paid out in the next year. Let's turn to our segment results for the first quarter. In the Americas segment, sales were up 3% with comparable sales down 2%. We had good growth in computer accessories and in Latin America, which was offset by our core office products. The early purchase of back-to-school products was comparable to last year, and we expect the full season to be up modestly. The Americas adjusted operating income was $13 million in the first quarter, up approximately $3 million with the margin rate improving 140 basis points to 7.2%. The margin rate improvement was driven by cost savings. In the International segment for the first quarter, sales were up 15%, with comparable sales down approximately 3%. The improvement in the rate of the decline in comparable sales was driven by new products, and we also saw increased purchases of office products due to the lower year-end buying we highlighted in the fourth quarter. International adjusted operating income was $11 million, with the margin rate at 6.7%, consistent to the prior year. Free cash flow in the quarter was $1.4 million, comparable to last year and in line with our plan. Inventory was up $67 million since the start of the year. $27 million of that increase was related to EPOS, while the remaining increase was attributable to seasonal inventory build and higher tariff costs. During the quarter, we returned $7 million to shareholders in the form of dividends. At quarter end, we had approximately $252 million available for borrowing under our revolver and finished the quarter with a consolidated leverage ratio of 4.1x. Now let's move to the outlook. For 2026, we are reiterating our expectation for full year reported sales to be flat to up 3% and adjusted EPS to be within the range of $0.84 to $0.89. This outlook reflects a prudent sales expectation in the back half of the year given the global environment. We also anticipate cost increases in the near term, which we have considered in our guidance. Free cash flow is expected to be within the range of $75 million to $85 million, with approximately $25 million in restructuring payments and $15 million in CapEx. Lastly, we anticipate a consolidated leverage ratio within a range of 3.7x to 3.9x. For the second quarter, we expect reported sales to be up within a range of 1% to 4% with a lesser benefit from FX. We expect adjusted earnings per share to be within the range of $0.24 to $0.28. While the current environment remains dynamic, we are confident in the future of our company. We have no debt maturities until 2029 and a long history of productivity savings and cost management. Our strategy pivot is an exciting opportunity for ACCO Brands to accelerate growth and potential value creation for our shareowners. Now let's move on to Q&A, where Tom and I will be happy to answer your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Greg Burns from Sidoti. Gregory Burns: So with the guidance for the year, given the strong first quarter, why wasn't there more flow-through to the rest of the year? I know you talked about maybe some macro uncertainty, but why aren't we seeing maybe a little bit more of a flow-through for the balance of the year? And then how much FX and acquisition-related growth is baked into that flat to up 3% revenue for the year? Deborah O?Connor: Greg, it's Deb. First of all, the first quarter for us is a pretty small quarter. As you know, we typically had the bulk of our profits come in 2Q through the rest of the year. So it's always a difficult quarter to gauge your full year on. We're pleased with how we ended the first quarter, obviously. But in this environment and with all the global uncertainty with the Mid East and everything else, we just prudently left our -- and reaffirmed our guidance for the full year. And that's where we sit. And if you look to the full year, we have about 5% still coming from the EPOS acquisition. So very consistently throughout all the quarters next year. Foreign exchange is about 1%. So this first quarter had 6%. Future quarters have anywhere from 1% to kind of flattish. So we end the year with about a 1% impact. Gregory Burns: Okay. Great. And then in terms of EPOS could you talk about the opportunities to expand that brand globally, the timing of maybe some of the initiatives you have around that? And also, can you just help us better understand EPOS' position or position within the prior ownership? Like why wasn't the brand more successful in kind of growing into new markets? Thomas Tedford: Yes. Greg, this is Tom. Let me address the first part of your question initially, and then we can get into the second piece to the extent that we can. We are early in the integration process with EPOS. We're very pleased with what we've learned so far, and we certainly have growth synergies that we have targeted as a part of the acquisition thesis. We believe it's very complementary to our Kensington business. We recognize that it's a different product category. However, it likely goes through the same routes to market globally. And we think there's opportunities as we look ahead to pair the product along with our robust Kensington portfolio to offer a one-stop solution for enterprise attachments when laptops and desktops are deployed. So we think there's some significant opportunities as we look ahead to drive growth. Clearly, we're focused at the moment on integration and delivering the synergies while maintaining the growth initiatives that we have in both businesses. I don't want to comment on the historical performance of EPOS. It was under different ownership. I don't know if it was a highly strategic element of the Demant business, and I don't want to speculate as to why they struggled. I just want to reiterate to you that we feel very confident in the business and the products and frankly, the leadership of the team. And that's why we've announced a change in leadership and a change in focus with our organizational structure, and we have Jeppe leading it. So we're optimistic about the future. We're excited about the brand, and we look forward to positive business results from EPOS this year and beyond. Operator: Your next question comes from the line of Joe Gomes from NOBLE Capital. Joseph Gomes: Congrats on the quarter. So this is a follow up on EPOS. I don't know is there anything that you could point out that drove the segment outperforming expectations? Or did you just kind of go in with low expectations? I don't know if there's anything you can point out there, provide a little more color on that EPOS outperforming. Thomas Tedford: Yes. That's a good question, Joe. Candidly, we weren't really sure the uncertainty of an acquired business and the potential disruptions in integration. We just found it prudent to be careful with our guidance assumptions for the business. We're learning about it more and more. As I said earlier, we're very optimistic about its contributions to our business this year and beyond. But candidly, it was just our lack of really visibility into their forecast given what we knew, we thought it was a prudent thing to do to be careful with the numbers that we included in our models. Joseph Gomes: Okay. And then maybe I don't know if you could provide any more color on the early back-to-school. It sounds like it's performing a little bit better than maybe people had initially anticipated. I don't know if you can talk about inventories and what your customers are saying to you, kind of feedback you're getting from them on the whole back-to-school program. Thomas Tedford: Okay. Yes, it's early, Joe, obviously. We're in the process of shipping early orders, which predominantly are direct import orders from Asia. As we spoke in our prepared remarks, we believe the season is going to be up modestly. We feel good about our brands based on their performance last year in which ACCO Brands' portfolio of brands took market share in the U.S. and in Canada. So we're optimistic about the season. We have good line of sight to the initial orders. They're at or better than our current forecast. So early indications are strong, and we hope that the sell-through isn't impacted by some of the uncertainties and potential inflation based on the conflict in the Middle East. But given what we know today, we feel very good about back-to-school this year. Operator: Your next question comes from the line of Kevin Steinke from Barrington Research. Kevin Steinke: You mentioned that you saw growth in Latin America. And I know that region was a bit more challenged last year. You talked about consumers trading down, product choices, et cetera. But you mentioned that, I think in your prepared remarks that you shifted your go-to-market strategy. So maybe can you comment on that a little bit more? And did that contribute to the growth you saw in the first quarter? Thomas Tedford: Yes, Kevin, good question. Latin America was a good performing part of our business in the first quarter this year. And you're right, we managed it well. We implemented changes to meet the consumer where they are. We recognize that it's a constrained environment in both Mexico and Brazil. We've adjusted our product assortment. We've adjusted our go-to-market strategies, our incentive plans for our sales reps, and we've adjusted pricing where it was appropriate. So the combination of the strategies that we deployed in the market at the back half of last year have better positioned our product assortment for growth. And we'll continue to refine it as things continue to change, but we feel really good about where we are today in Latin America. Kevin Steinke: Okay. Great. And just following up on gaming accessories. You talked about the expectation of a stronger second half of 2026 and the reasons why it makes sense. You did mention some industry challenges currently. Is that just related to softer consumer spending? Or is there anything else that you would mention in terms of just the challenges you mentioned for the industry? Thomas Tedford: Yes. We believe it's largely related to a softer consumer. In the first quarter, if you think about the sequencing of our annual sales, a lot of it is reliant upon holiday and holiday was relatively weak for gaming in Q4, which left some inventory opportunities for retailers, which presented some challenges for us in Q1. But what I do feel good about is our brand. Our brand has taken share each month in the first 3 months of the quarter. We think we're well positioned as we discussed in our prepared remarks for the balance of the year. And candidly, we're excited about our new product assortment. So we think a lot of good things are in store for PowerA in 2026. Kevin Steinke: Okay. Understood. And as you mentioned, you're kind of factoring the potential for a softening in customer demand. Given the macroeconomic uncertainties, which makes sense to be prudent. But have you actually seen any noticeable signs of softening demand yet? Or is that just at this point, just trying to be cautious given the environment? Operator: Yes. We haven't to date. We think if there is a challenge with demand, it won't be felt until later in the year. And as Deb mentioned in her prepared remarks, we have seen some early indications of some cost increases, predominantly driven by fuel. And we are taking the necessary steps internally to protect profitability and to position ourselves to deliver the year based on what we see today. But from a demand perspective, we have not seen pressures on demand yet. Kevin Steinke: Okay. So have you -- do you have planned price increases in the pipeline currently or just kind of monitoring the situation on the cost front? Thomas Tedford: Yes, a good question. It's actually both. We do have some planned price increases that we are going to market in different geographies across the globe, and we'll continue to monitor the cost environment, and we'll take actions if necessary. Operator: Your next question comes from the line of William Reuter from Bank of America. William Reuter: My first one, clearly, you guys had some tariff cash payments last year. Can you share with us the magnitude of those? And in the event that you do get a refund, I guess, have you applied for refunds? And if you do get that, how would you allocate that cash? Deborah O?Connor: Yes. So -- we have talked in the past about our claim and how we have put it forth and that we feel very comfortable with the amount. And we're talking somewhere in kind of the $25 million range. We don't expect anything in 2026, and we'll watch it as it goes. William Reuter: Okay. And then on that, not expecting anything in '26, is that based upon the status of your claim, whether it was liquidated or not liquidated and the timing of what that may be? Because I think that there are a lot of signs that indicate some refunds may be paid this year. So is it just conservatism on your part or based upon the unique attributes of your claim, you just know it won't be this year? Deborah O?Connor: Yes. It's interesting. I would say maybe a little bit of both. But to be paid this year, there's a lot that has to happen at the government and different places like that. So who knows, to your point. And then we do have some claims that are a little more complicated that we anticipate coming in later. William Reuter: Got it. That's helpful. And then as you see things now, I know that you manufacture a portion of your products and you also have third parties that manufacture others. Is there any sort of a sense for what the headwind based upon current oil prices may be this year in the back half? Thomas Tedford: We've built our best thinking into our current guidance. That may be why you don't see us taking guidance up for the full year based on the over delivery in Q1. We've done our best to project what we think the impacts are going to be. But as you know, this has been a dynamic situation. We're optimistic that it ends relatively soon, but we've taken into account a prolonged disruption based on the conflict in the Middle East in our guidance. William Reuter: Got it. And then just lastly for me. Is there anything -- any commentary about this computer peripherals growing to 25%? I'm not even sure what products you're including in that. But any comments about the competitive dynamics of those categories? It would seem to me you may be going up against some big companies, but I'm certainly not a tech analyst. So anything you could share? That's it. Thomas Tedford: Yes, happy to. So technology peripherals, let's start there. It consists of our brands, Kensington, PowerA, LucidSound and EPOS. So it's not just computer accessories, it's computer and gaming products that we sell globally. We think those are large TAMs, growing TAMs and TAMs in which we have relatively small shares in. And so we think the dynamics for future growth are very positive. And we're working hard to position our brands to take market share in each market that we compete in globally. Operator: At this time, there are no further questions. I will now turn the call over to Tom Tedford for closing remarks. Thomas Tedford: Thank you, everyone, for joining us. We are pleased with our first quarter results and expect the combination of the EPOS acquisition, momentum from growth initiatives and positive foreign exchange to drive revenue improvement in 2026. Our commitment to operational excellence through continued cost management and productivity programs position us to deliver improved profits and cash flow. With our optimized operational structure and momentum with leading brands, we have a strong platform to generate consistent free cash flow while strategically repositioning ACCO Brands towards faster-growing technology peripheral categories. I want to thank our dedicated team and recognize their efforts and congratulate them on a strong first quarter. We appreciate your interest in ACCO Brands. I look forward to talking with you when we report our second quarter results in July. Operator: This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Greetings, and welcome to the Proto Labs First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Johnsrud, Investor Relations. Thank you. You may begin. Ryan Johnsrud: Thank you. Good morning, everyone, and welcome to Proto Labs' First Quarter 2026 Earnings Conference Call. I'm joined today by Suresh Krishna, President and Chief Executive Officer; and Dan Schumacher, Chief Financial Officer. This morning, Porto Labs issued a press release announcing its financial results for the first quarter ended March 31, 2026. The release is available on the company's website. In addition, a prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss today include non-GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non-GAAP results. Now I will turn the call over to Suresh Krishna. Suresh? Suresh Krishna: Thanks, Ryan. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. We are off to a strong start in 2026. First quarter revenue grew 10% year-over-year as we delivered another record revenue quarter. I am very pleased with the balanced execution reflected in our financial results. We achieved double-digit revenue growth significant gross margin expansion and improved operating leverage. Importantly, this reflects not only continued momentum but measurable improvements in customer engagement, growth and operating performance. These financial results are a credit to the hard work and dedication of our employees as they continue to execute with discipline across the business. I'd like to thank all Proto Labs team members for their outstanding quarter. So far, in 2026, we continue to see strong traction with larger strategic customers contributing to our higher revenue per customer and reinforcing this as a key long-term growth driver. During the quarter, revenue per customer grew 20% year-over-year, providing evidence of the momentum we have with enterprise customers. In U.S. we grew 12%, marking the fourth quarter in a row of double-digit revenue growth in the region. I want to acknowledge the leadership of Sean Farrell, and the regional sales and customer success teams for driving that performance. Double-digit growth and significant margin expansion in the first quarter led to strong cash flows and earnings, reflecting in the strength of our business model. In the first quarter, we achieved Proto Lab's highest non-GAAP earnings per share in over 5 years. Our strong results were fueled by exceptional demand for our CNC machining service, which grew over 20% year-over-year in the U.S. driven by continued strength in aerospace and defense including space, exploration, satellites and drones as well as strong growth in robotics. As we saw in the last quarter, well-funded and innovation-driven markets where speed, precision and digital manufacturing are critical, continue to rely on Proto Labs as we deepen relationships and strengthen our position as a strategic partner. In April, we joined the Space Foundation, a global space community supporting collaboration and education. This move strengthens our presence in this fast-growing ecosystem as aerospace innovation accelerates rapidly in the new space age. With organizations like NASA, Lockheed Martin and Northrop Grumman as long-standing customers, we continue to support leading-edge programs where speed, precision and reliability are critical. This is especially apparent following ARTEMIS 2 and its successful Lunar mission. Overall, our first quarter performance reflects continued progress on executing our strategy, which remains centered around serving customers across the product life cycle while building on the core strengths that differentiate us. As a reminder, our long-term strategy is anchored in four pillars: Elevating the customer experience, accelerating innovation, expanding production and driving operational efficiency. While these pillars will guide our business in the next few years, we are encouraged by the early traction we are seeing across each area. As we focus our investments and prioritize work around these pillars we drove higher revenue per customer, strong growth in CNC machining and operating margin expansion. We continue to see expanding engagement with larger strategic customers in aerospace and defense and medical, reinforcing our conviction that production will become a meaningful long-term growth driver. We achieved AS9100 certification in our European operations during the first quarter, which expands our ability to support aerospace and defense customers globally. We are now better positioned to deliver high-quality aerospace grade parts while helping customers regionalize their supply chains and reduce disruption. This milestone strengthens our global capability and credibility in aerospace and defense and expands our ability to capture production programs globally. Moving to our 2026 operational changes. As we've said in our last earnings call, 2026 will be a year of transformation and acceleration focused on improving the customer experience and building systems that will scale Proto Labs over the long term. On our fourth quarter call, we discussed several organizational and operational changes that position Proto Labs for faster growth and improved profitability. The first change we discussed is ensuring we have the right leadership, structure and operating mechanisms in place. Our product and technology teams are now combined under our CT AIO, Marc Kermisch, ensuring product and technology are aligned and is essential as we accelerate our organic innovation road map to improve our offer and the customer experience. The second operational change in 2026 is enhanced focus on continuous improvement and quality. In April, Jonathan Blaisdell, joined Proto Labs as Head of our Proto Labs Business Excellence Systems. Jonathan has over 30 years of continuous leadership at Danaher and most recently at Polaris, where he helped embed a lean management system, driving operational and financial improvements. At Proto Labs, he will focus on strengthening our management system, operating rhythms and problem-solving capabilities, so our regions and service lines can execute more effectively at scale and drive productivity. We are already seeing tangible quality improvements in our injection molding operations during the quarter, we made investments to drastically improve quality with our largest, most strategic injection molding customers. This will improve customer friction and help us expand our production offer. Importantly, the work we are doing is already driving operational benefits and will continue to unlock speed and leverage throughout 2026. Next, we have established our global capability center or GCC, in India, which will serve as a critical enabler of our long-term strategy. We are in the process of building out our team and presence in the region. We look forward to providing additional updates on our progress in the future. Lastly, the fourth change we called out is a strategic reset in Europe. We have taken deliberate actions to reset the business in Europe, including targeted reductions in the first quarter to align cost structure with current revenue levels and improvements in go-to-market operations. We started some of Europe go-to-market work in late 2025, including alignment to core industries and simplify and increased customer engagement. I'm proud to say that these efforts are beginning to yield early results. with the region delivering 11% sequential growth in the first quarter, a sign that our teams are executing with discipline and focus. These early improvements are an important step towards stabilizing performance and positioning Europe to contribute to both growth and margin expansion going forward. I want to thank our European colleagues for their continued dedication as we reset this important part of our business. In closing, as we continue to progress through 2026, our priorities remain clear: elevate customer experience, accelerate innovation, expand our production capabilities and continue operating with discipline. Execution across these areas is already translating into improved growth and engagement, and we believe it positions Proto Labs to deliver accelerating revenue growth and expanding profitability over time. I am encouraged by our strong start to 2026 and confident in our ability to execute our strategy and deliver durable long-term value to customers and shareholders. With that, I'll turn the call over to Dan to walk through our financial performance and outlook in more detail. Dan Schumacher: Thanks, Suresh, and good morning. I'll start with a brief overview of our first quarter results. followed by our outlook for the second quarter of 2026. First quarter revenue was a company record $139.3 million, up 10.4% year-over-year. In constant currencies, revenue grew 8.7%. U.S. revenue grew 11.8% year-over-year, while Europe declined 3.4% in constant currencies. . First quarter CNC machining revenue grew 17.6% year-over-year in constant currencies. As Suresh stated, we continue to see very strong demand for our machining services across several key end markets, most notably, space exploration, satellites, drones and robotics. U.S. CNC machining revenue grew 23% year-over-year. During the quarter, we executed targeted pricing actions in line with machining market dynamics. Injection molding grew 3.5% in constant currencies as we drove strong performance in large orders with strategic customers. 3D printing revenue was flat year-over-year in constant currencies as growth in the U.S. was offset by weak demand in Europe. We are still seeing strong demand for metal 3D parts in the U.S. And year-over-year, DMLS revenue growth was nearly 30%. Sheet metal grew 2.3% year-over-year in constant currencies, driven by solid growth in aerospace and defense and industrial tech. Shifting to margins. Non-GAAP gross margin was 46.2% in the first quarter, an expansion of 140 basis points, both sequentially and year-over-year. Higher factory gross margins drove the increase via both volume improvements and pricing increase. Also, mix was a tailwind in the quarter as higher margin factory revenue grew faster than network revenue. First quarter non-GAAP operating expenses were $48.9 million, up $1.8 million compared to the prior year due to higher contractor, license and demand generation spend. On a percent of revenue basis, adjusted operating expenses were 35.1% of revenue, down 220 basis points year-over-year. This decrease was driven by a combination of 3 factors: First, we made targeted cost reductions in the first quarter, mostly in Europe as part of our strategic reset. There were also some reductions in the U.S. as we look to fund our strategic projects. Second, employee costs were lower than anticipated as we ramp hiring for our strategic pillar projects. We expect to increase SG&A spend throughout 2026 as we invest to execute our long-term strategy. And third, as part of our drive operational efficiency pillar, we are in the early innings of finding savings and efficiencies that will allow us to invest in growth areas. Adjusted EBITDA was $22.8 million or 16.3% of revenue up from $17.4 million or 13.8% of revenue in the first quarter of 2025. First quarter non-GAAP earnings per share were $0.54, up $0.21 year-over-year driven by volume, factory gross margin expansion and leverage on our operating expenses. $0.54 is the high adjusted EPS figure we've reported since the third quarter of 2020. We generated $17.5 million in cash from operations during the first quarter. Proto Labs continues to lead the digital manufacturing industry and cash generation, reflecting the strength of our business model. On March 31, 2026, we had $158 million of cash and investments on our balance sheet and 0 debt. Our outlook for the full year and second quarter of 2026 is outlined on Slide 14. We still expect full year 2026 revenue growth of 6% to 8%. For the second quarter, we expect revenue between $140 million and $148 million. At the midpoint, this implies 7% revenue growth year-over-year. We expect foreign currency to have a $500,000 favorable impact on revenue compared to the second quarter of 2025. Our earnings guidance incorporates the following assumptions for the second quarter of 2026. Non-GAAP add-backs will include stock-based compensation expense of approximately $4 million, amortization expense of $900,000 and restructuring and transformation costs of $600,000. We also expect a non-GAAP effective tax rate between 25% and 26%. In summary, we expect second quarter 2026 non-GAAP earnings per share between $0.50 and $0.58. That concludes our prepared remarks. Sashi open -- please open the floor for questions. Operator: [Operator Instructions] The first question is from Greg Palm from Craig-Hallum. Greg Palm: Congrats on the solid results. Can you maybe give us a little bit more color on cadence of the quarter. I think you had mentioned that January had started off slow if I recall correctly. So what did you see February, March? What are you seeing so far in April? And just from like an upside standpoint, I think you called out A&D space, but any other end markets that maybe surprised you a little bit to the upside. Dan Schumacher: Yes. One thing for the quarter, although Europe was down 3% year-over-year, they were up 11% sequentially. So we're seeing some good traction within Europe. Suresh talked about the Europe reset, and we're seeing some benefits and some stronger performance in Europe as we're moving quarter-over-quarter. In terms of what we're seeing, seasonality like in April, that's reflected in the guide. So we have a really decent start to April, and that's reflected in the number that you see, which implies sequential growth quarter-over-quarter, Q1 into Q2. It continues to be the same. We're seeing strong growth from our large customers. We're seeing strong growth from aerospace and defense end markets. I would also say computer and electronics and industrial commercial machinery performed well as well. And we're seeing that strength continue into the second quarter. Greg Palm: We shift gears to the network. So that was down sequentially barely up on a year-over-year basis on a constant currency basis. What -- any reason for the decel? What are you specifically seeing in that business? Suresh Krishna: Greg, we are -- overall, we are very happy with our double-digit growth, and this is the second quarter we've delivered that. We will see fluctuations between our fulfilled methods between factory and network. We did see some weakness in network demand in 3D printing. And we are making some changes in our go-to-market areas so that we can work to accelerate network revenue growth in the future, much as we work to drive growth in our factory business. Greg Palm: And I might have missed it, but did you give a network gross margin. Dan Schumacher: We did not. Suresh Krishna: We did not. We can get it for you. Dan Schumacher: Greg. Network gross margin was 31%. Operator: The next question is from Brian Drab from William Blair. Brian Drab: One thing that stood out to me this quarter was the injection holding business and the growth sequentially. I know you called out that the primary growth came from CNC machining year-over-year, but this injection molding result is the best result you've had, I think, in 8 quarters, are you seeing some traction from the new initiatives that you talked about last quarter? What is the main thing driving that growth? And do you think that this kind of $51 million revenue level could be the base like baseline revenue level for the year and we're going up from there or something unusual in the first quarter? Dan Schumacher: Yes. Brian, we're seeing traction really with some of our larger customers in terms of getting larger orders through injection molding. It's all the things we've talked about in terms of what we're working on from an injection molding perspective. Injection molding is a service that over time, there's less prototype that we're doing, and there's more production that we're doing. And we're just getting better and better at that with our customers. And you can see that in the sequential growth that you talked about. It's about meeting customer specifications as it relates to injection molding, especially on the larger orders. And they're really using us because we do have -- we can both schedule out over time, orders that they need or if they need them quickly, we can turn them faster than anybody else. So we're getting good traction on some of these initiatives that we've talked about on injection molding, and you can see that in the results. Brian Drab: And then you outperformed in terms of revenue growth in the first quarter. You maintained the full year guidance, can you just talk about your thinking and what you're seeing maybe in the macro or in your business that prevented you right at the moment from raising the guidance for the full year for growth? Dan Schumacher: We had a great Q1, Brian. And we're always trying to be appropriately conservative when we provide the outlook to the market. The business is performing well. But I looked at that and balance that with macro uncertainty over the long term and the visibility that we have kind of moving into the future. If you take a look at that 6% to 8%. It would be normal seasonality as you go through the year. where we gave you the midpoint of the guide for the second quarter, which is up sequentially Q1 to Q2. Normal seasonality is you're up -- you're either flat to slightly up Q3 and then you're going to be down due to the holidays in Q4. That's really what's built into the full year guide. We're 1 quarter in. We held it to where it is, but there is a certain amount of conservatism in there just based on the macro environment. Operator: The next question is from Troy Jensen from Cantor Fitzgerald. Troy Jensen: Congrats on really nice results here. Quick question for us, rasher. I guess I'd be curious to know your thoughts on how much of Proto Labs has production exposure. I've always thought of injection molding is primarily all production because you produce some out of parts, but I don't know if you've tried to figure out what percentage you have exposed to prototyping versus production and how that's changed over the past year or so. Suresh Krishna: Again, I think we said it in our strategic plan. We are early in our journey to build the capabilities needed for production. I don't know if you've given out in terms of percent what it is, but we are building it and more customers in our interactions with our bigger strategic accounts, they want us to get into production, and that's what we're building out as part of our strategic pillars is to be able to do more production for them. Absolutely, we see more interest in injection molding and in 3D printing as well. And we continue to gain some of these orders that gives us longer runs. We are still further away from getting to give you guys an ARR kind of number because they're still early in this production journey. Troy Jensen: How about just capacity levels right now in the factory? Any needs for investments given the accelerated growth here? . Dan Schumacher: Yes, Troy. We don't -- capacity, yes, from the perspective of mills. And DMLS, we're adding DMLS metal 3D printers. We have enough space. But as you know, in our digital manufacturing model we can scale very quickly. What we're running into capacity issues is just on the number of machines and certain services. Specifically, CNC machining, obviously, you can see because of the growth, and I also mentioned in the U.S., we have around 30% growth in metal 3D print. So we're adding DMLS printers as well. . Troy Jensen: And then just 1 more for you, Dan. Can you just touch on gross margin thoughts going forward and can we keep them above 46% here? Dan Schumacher: Yes. So the guide has gross margin flat to slightly down quarter-over-quarter. With that being said, I expect full year gross margins to be slightly up. on the year just based on what we saw in the first quarter and what we're seeing -- what I'm projecting for the second quarter. Gross margin is highly dependent on what our mix is and what we're seeing from a pricing perspective, we're going to continue to monitor market dynamics around pricing, and we'll adjust pricing as necessary. But I'm really pleased with the execution we've had as it relates to that, and you can see that in our margins. . Operator: The next question is from James Ricchiuti from Needham & Company. James Ricchiuti: First congrats on the quarter. Dan, maybe first question for you. You gave some context in terms of how to think about gross margins as we go through the year. It appears that you're also thinking more about adding some additional sales and marketing expense as you go through the year to pursue some of the growth initiatives that you're targeting. How do we think about maybe OpEx as we look out beyond the June quarter? . Dan Schumacher: Yes. I would expect OpEx to increase quarter-to-quarter. I described it on the call, we made some actions both in Europe -- and in the U.S., the Europe actions were part of the Europe reset, and the U.S. actions were to fund that strategic investments. And I expect us to invest as we go through the year. A lot of that investment is going to go into R&D. You're going to see some capital investment as well as it relates to software development as we go through the year. And these are to fund those strategic pillars, which should provide us both innovation for top line growth over the long term as well as efficiencies as we reduce the friction both with our customers and with our employees internally. So yes, there's going to be further investment as we go through the year, but that's to build traction and a strong return on the long term by funding the strategic buyers. James Ricchiuti: I also wanted to ask a follow-up. Just on what you're seeing in Europe. I know it was nice sequential growth that you're you registered in Q1. Where are you seeing the most traction? Is this from the changes you're implementing? Is it -- are these perhaps coming from any one vertical or are they coming from new customers, different business lines. I wonder what -- if you can just elaborate on the early progress you're seeing there? . Suresh Krishna: Yes. Thank you. We -- as we said, we took deliberate actions to reset the business in Europe. We made targeted reductions in the first quarter. In terms of our go-to-market changes, we started to align our sales and marketing resources around core industries, aerospace and defense and medical. And we are increasing focus on targeted customer engagement. And that is working for us. It's, again, very early what we are doing in Europe. And we are seeing the benefits of that come through in the first quarter. But again, as I said, we are very early in this effort so far. James Ricchiuti: And lastly, if I could just slip 1 in, some very nice growth in revenue per customer for contact. Again, similar type question, are you getting more traction? You called out a couple of verticals, but I'm just wondering where are you seeing the most progress in terms of driving revenue per customer? . Suresh Krishna: Yes. We are definitely -- we are very pleased with the engagement we are getting from our largest customers, most strategic customers. We spend a lot of time talking to them. And we are seeing most response in aerospace and defense and drone companies our specialty, which is speed, reliability and quality resonates a lot with these industries right now. They are high innovation. They like our speed with innovation and our ability to take them all the way through the life cycle of the part all the way into production. And that's what is resonating and giving us more share of wallet. Dan Schumacher: What I would tell you as well is as we do customer surveys, one of the things they do like about us is as we have more human interaction with them, with our experience in manufacturing and our experience in actually making the part, helping them through the process so that they're -- we're delivering what they need, and that makes that customer stickier and order from us more often. As we do more of that, that leads to really that expansion and how many orders, how many parts those customers end up buying for us in a given period. . Suresh Krishna: Yes. And these industries, as you know, are early in the innovation cycle. These are long investments, early in the innovation cycle, and we will benefit a lot as these industries continue to scale, and we get in early in the innovation cycle. Operator: This concludes the question-and-answer session as well as today's teleconference. You may all disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. Welcome to today's Colgate-Palmolive First Quarter 2026 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Executive Vice President, Investor Relations, Claire Ross. Claire Ross: Thank you, Drew. Good morning, and welcome to our first quarter 2026 earnings release conference call. This is Clay Ross, Executive Vice President, Investor Relations. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2025 annual report on Form 10-K and subsequent SEC filings, all available on our website for a discussion of the factors that could cause actual results to differ materially from these statements. These remarks also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in Tables 3 and 6 of the first quarter earnings press release. A full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release. Joining me on the call this morning are Noel Wallace, Chairman, President and Executive -- Chief Executive Officer; Stan Sutula, Chief Financial Officer; and John Faucher, EVP, M&A and Special Projects. Noel will provide you with his thoughts on our results and our 2026 outlook. We will then open it up for Q&A. Noel Wallace: Thanks, Claire, and good morning, everyone. We're pleased with how we started the year as we delivered strong top and bottom line growth. Organic sales growth accelerated from the fourth quarter, driven by improved volume performance, particularly in Asia Pacific. Excluding the impact of private label pet food exit, we grew both volume and pricing in all 4 categories and 4 of 5 divisions. Our sales growth was led by emerging markets, the regions where our strong global brands generally have higher market shares and the greatest scale advantages. We believe emerging markets are accretive in terms of growth prospects and are investing in them accordingly. And we use the strong net and organic sales growth to deliver gross profit, operating profit, earnings per share and free cash flow growth while still increasing investment in our brands and capabilities. This encouraging start to the year gives us confidence in our outlook for the balance of the year, though significant increases in raw material and packaging costs, we have built into our guidance to reduce our expectations for gross margin for the year. When I spoke to you on our Q4 2025 call, I talked about the strength of our 2030 strategic plan. It's the choices that we made in building this plan, along with the flexibility that we've built into our P&L that allow us to deliver short-term results in a volatile environment while simultaneously building for the long term. And best-in-class companies need to do both short-term results and long-term strategy. Our global brands are driving broad-based growth by geography, by category and with volume and pricing. Our investments in advertising through our omnichannel demand generation model keep our brands top of mind with consumers in the moments that matter, and we continue to drive higher ROI even as we increase spending. We have built our capabilities in areas like innovation, data, analytics, digital, AI, and we'll continue to invest behind them and scale them across the organization. This leaves us well positioned to delight consumers with perceivable superior products to accelerate category growth and drive market share improvement. We believe our efforts in RGM, Promo AI and funding the growth give us the ability to drive profit and EPS growth even in a period of significant cost inflation. And our strategic growth and productivity program is another great example of how we're working to deliver in the short term while building up for our 2030 strategy. This morning, we announced an update along with annualized savings target of $200 million to $300 million, with the majority of the savings focused in 2027 and 2028. This is not an extension of the program as we still expect the program to be completed by the end of 2028. The savings will enable us to fund investments in capabilities to deliver on the 2030 strategy as well as to drive consistent compounded dollar-based EPS growth. More importantly, the changes we are making to our organizational structure by reducing complexity will help us build a more agile company that can thrive in an omnichannel environment. There is still uncertainty in how the rest of 2026 will play out, where oil will be, what will happen with interest rates, how the consumers will respond. But I can tell you is that we believe we've built a model that can deliver in this environment while setting us up for long-term success. And with that, I'll take your questions. Operator: [Operator Instructions] The first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So Noel, I just wanted to focus on volume mix. You clearly had strong results in emerging markets in Q1. Last year, you talked about reallocating marketing spend to some higher growth areas and opportunities. So I wanted to get a sense of how tangible the payoffs are from those efforts. Is that showing up in the Q1 results? And really, the question is how sustainable the volume strength in emerging markets might be going forward with those efforts, but also if you're seeing any negative impact post-Iran? And maybe while we're on the subject, on the other side, just North America continued to lag in Q1 and volume/mix. You did talk about improvement in Q2 in the published remarks. But just wanted to get more detail on the plans there, the level of improvement that might be realistic in North America. Noel Wallace: Yes. Thanks, Dara. Let me take the volume piece first. Clearly, globally, we're seeing volumes still be rather sluggish in our categories. So in that environment, you can imagine we're particularly pleased with the acceleration of volume growth in the quarter, certainly from the fourth quarter. And we saw that across almost all divisions and all categories, which is particularly pleasing to us. The broad-basedness of that growth, so to speak, is clearly showing up in the fact that emerging markets have accelerated. Asia Pacific was a big driver of that. We continue to see the interventions that we're taking with the Hawley & Hazel business, pay dividends for us moving forward. I wouldn't say we're completely out of the woods yet. The category continues to be pretty sluggish in China, but our business is executing better against the intervention strategies that we put in. The Colgate business continues to perform well. Latin America from a volume standpoint continues to hold its own, driving nice volume shares through the quarter. Africa, Middle East and Europe continued to do better than we expected, quite frankly, given some of the pricing that we've taken in those regions. And I think that's the other point. The strength of our brands is allowing us to drive that volume share. And that -- coming back to the initial part of your question, that the fact that we've continued to sustain high levels of advertising investment, particularly in emerging markets has allowed us to accelerate the growth. That, combined with good RGM, we had a good balance, obviously, of pricing in the quarter as well. So overall, we're very pleased with the volume results. Going on to North America. Listen, I was pretty clear on the fourth quarter call that North America was going to take some time. The interventions are in place. I know John and Shane are working very diligently on a strategy reset for North America. That's going to include some real brand interventions, accelerated innovation, more RGM, better execution, getting our promotion strategy right with some of the key retailers. So there's a whole myriad of different initiatives being taking place. And we started to see some of those come through in the back half of the first quarter. Volume was a little dampened by the fact that some of the shelf resets were later than we expected. The new product that we shipped in the first quarter came later as well. We started to see that accelerate as we exited the quarter. So plans in place to address North America overall, quite pleased with the sequential volume growth across all of our business, particularly in emerging markets. Operator: The next question comes from Filippo Falorni with Citi. Filippo Falorni: I was hoping you can give a little more color on the cost inflation that is currently embedded in guidance. I know you changed your gross margin guidance to down year-over-year versus up prior previously. So how much incremental cost inflation are you assuming? What are your assumptions on kind of like the crude oil underlying? And maybe if you can talk a little bit about a high level of the potential offsets as you get into the back half of the year and as we start thinking about next year as well? Noel Wallace: Yes. Let me just address it from a macro standpoint, I'll let Stan provide some more detail. Clearly, the assumptions that we have embedded into our guidance for the year include the $300 million of additional raw materials. We're assuming oil roughly at around $110. I think importantly, strategically, as we've always gotten ahead of the cost environment, we need to ensure that our operating units are planning for these types of inflationary environments that are coming. Clearly, we'll wait and see. There's a lot of ups and downs moving around the world, so to speak, on oil pricing. But for us, strategically, it's important that the operating units start to build this into their strategies on how they want to execute some of the strong innovation plans that we have for the balance of the year, how we execute funding the growth for the rest of the year. So again, we feel it's very prudent to get those numbers out there, and we built that into our guidance. Clearly, some of the inflationary environment has forced us to take the gross margin down for the year. But overall, we still feel we're well in line with our guidance on earnings per share. Stan? Stanley Sutula: Yes. Let me pick that up. Our assumptions for the year embedded in our gross profit margin guidance includes roughly $110 on average for the remainder of the year and the associated impact that has on raw and packaging materials. Since the fourth quarter call, we've seen an additional raw materials and logistics impact for the year of roughly $300 million. And you should think of that as roughly 2/3 raw materials and 1/3 logistics. The biggest incremental impact, Filippo, is coming from oil byproducts: resins, petrochemicals, fats and oils. And we now expect that spending in those areas to be up more than 20% year-on-year for the full year. So you can see the impact that, that has. Our logistics costs are up nearly 10% impacting both ocean and land freight. So that's what led us to take a look and put that into our guidance. And offsetting that is the work around RGM productivity across the entire P&L, which allows us to maintain our guidance. Unknown Executive: Filippo, just one other point I'd make on that is, yes, remember, the logistics goes into the SG&A not in the gross margin. So there will be an incremental impact in SG&A from that. Operator: The next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I guess I had a quick question on your guidance. You maintained your top and bottom line guidance, but you highlighted gross margins will be more pressured. So maybe first, could you just maybe touch a little bit further on some of the key puts and takes on the gross margin headwinds. But ultimately, I'm curious if you see scope for incremental pricing. And then second, you talked about the flexibility you have to potentially pull forward some cost savings or productivity initiatives. So any more color on that would be helpful. I'm thinking about in the context of your ability to deliver on the bottom line. But I guess, ultimately, wondering if we should realistically think about your EPS coming in closer to the midpoint of your range or possibly below. Again, I'm just trying to understand how much flexibility you have there. Noel Wallace: Bonnie, thank you. So our guidance reflects what we believe is the increased volatility that we see today in the current environment. And clearly, we had a strong start to the year. So we've maintained our organic sales growth guidance in the 1% to 4%, and we're waiting to see what -- quite frankly, what impact that has on the consumer moving forward. I would say, currently, we're not seeing a significant impact, but time will tell. From an earnings standpoint, we're watching oil and other commodities, as you can imagine, to see where these prices settle out, but we feel very comfortable with our current range of low to mid-single digits. I would suggest you reflect the lower gross margin in your algorithm. It includes our increased oil and commodity assumptions for the balance of the year. As Stan just mentioned, with oil at a price of $110 for the balance of the year works out to an incremental $300 million across the board, including logistics in that number. So as you think of the rest of the income statement, understand that we remain deeply committed to offsetting as much of that as we possibly can. Clearly, the RGM efforts that we're executing across the world, we will possibly be taking pricing that will come through improved premium innovation as we execute some of the new product launches we have throughout the year. We'll look at price pack architectures as well. We'll look at mix opportunities as we move through the balance of the year. And as Stan rightfully called out, I mean, obviously, our SGPP program will allow us to offset some of that as well. But for right now, the clear indication that we have is margins will likely be down. And so we want to be prudent in getting that number out there ahead of time. Stan, anything to add to that? Stanley Sutula: No, just we have a regular productivity program outside of SGPP and our teams do an exceptionally good job executing that. So we'll be looking to drive that productivity. That is not just in the cost line. That also impacts SG&A. So as we look to drive that productivity, that will be one of the other flexibility points that we execute on. Operator: The next question comes from Peter Galbo with Bank of America. Peter Galbo: Noel, I was actually hoping to pivot back to APAC. You called it out in your prepared remarks as a source of strength. And in the prepared remarks, I think you noted India very briefly, just as kind of the main driver. So hoping to unpack that a little bit more, just India growth in the quarter? And then any help around just whether GST is really aiding that business and what you've seen so far? Noel Wallace: Yes. Thanks, Peter. I can't give a lot of detail on India. They haven't announced officially their numbers, but we did say, obviously, the growth in Asia Pacific were strong, and you can clearly connect that back to the 2 largest markets, which are China and India. So as I look at Asia Pacific in general, I'm really pleased with the acceleration that we saw in the first quarter. As I mentioned on the first question, we're not out of the woods yet on Hawley & Hazel, but they're making some very significant improvements in their execution and the strategic interventions we've taken over the last year are starting to take hold. One, we've accelerated innovation in that market. We're seeing that through the dual tube technology. That's in some of the prepared charts that we shared with everyone earlier. Clearly, that's having a great impact. We're getting our omnichannel execution, much more effectively implemented across the different platforms that exist, including Douyin. And so we feel good about where Hawley & Hazel is going. We've got some good brand work going on in the balance of the year, investment levels continue to be strong. And you couple that with the strength of the Colgate business in that market, which is executing very, very well. The Colgate business delivered mid-single-digit growth in a flat to declining market. So again, very encouraged by what we saw across China. That being said, if you go across the rest of the region, Philippines performed well. Thailand performed well. Malaysia performed well. Australia, a little softer than anticipated. But overall, Asia doing quite well. And clearly, some of the volume drivers that we -- volume acceleration we saw in the quarter was coming out of that region. Operator: The next question comes from Peter Grom with UBS. Peter Grom: So I was hoping to get some perspective on Latin America. Another strong volume quarter. Can you maybe just give us some more context on category growth and market share performance in the region? And Noel, you sounded pretty confident on emerging market growth from here in your response to Dara's question. So curious, just as you look ahead, do you expect this momentum to continue? And maybe specifically, do you expect to see continued balance from a volume and price perspective? Noel Wallace: Peter. Listen, Latin America continues to execute very, very well. We've got really -- I was down in Mexico and Brazil and Argentina in the last month and really pleased to see how some of the strategic capabilities that we're building and driving from the center, Latin America is definitely at the forefront of executing some of those. Clearly, their omni demand generation work is excellent, some of the work they're using AI for is excellent. RGM continues to be best-in-class and their in-store execution and driving numeric and weighted distribution across some of our adjacency categories looks terrific as well. So overall, they're executing terrifically and you saw the obviously mid-single-digit growth coming out of them and particularly the growth being Mexico and Brazil driven. So excellent results from that perspective. The innovation, I'll talk to for just a moment in Latin America, and we're seeing that across emerging markets. I talked a lot about that last year, how we're truly trying to step up innovation across all price points. And I think that bodes well as we set up an environment that will be more challenged from a consumer standpoint. We clearly expect emerging markets to continue to drive the growth for the balance of the year, and that will be driven by some of the changes that we've made on accelerating innovation at the lower price points and mid-price points while continuing to see the biggest strategic growth opportunity to be in the premium side. So you'll see that unveiled. The purple launch that we had in Asia that we've carried through Latin America now is doing very, very well. Our Home Care launch and some of the adjacencies that we've gotten into and the relaunch of our core business on Suavitel is performing quite well. So the good news is we have ample opportunities across the innovation to continue to drive growth. And I think some of the capabilities that we're executing from the center and Lat Am taking on gives us great confidence that they'll continue to perform well in the quarter. Operator: The next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was just hoping to know if you can elaborate a little bit more on the -- how competitive the U.S. Oral Care businesses now? And I understand there were some setups on the innovation side. And historically, you have had a higher volume share, which sets you well for this type of like more RGM-driven market. So I was hoping to see how you left the quarter, you exited the quarter. And as you said those, if you see sequential improvement in market shares and how you're seeing that setup going to the balance of the year? Noel Wallace: Yes. Thank you, Andrea. Yes, very much the case. We expect sequential improvement in North America moving forward. The innovation came late in the quarter. We're getting that executed and some of the early signs are encouraging. But clearly, a lot more work to do in North America. And I have been through some of the strategic interventions that we're taking. I'm quite pleased with some of the decisions they're taking. The environment, to your point, is quite competitive. We see quite a bit of our competition spending a little bit more money on couponing. Nothing tremendously unusual, but one of our competitors certainly trying to drive more volume in that regard. So we will step up our investments in North America. Clearly, as we look at the balance of the year, that's a strategic growth opportunity for us, particularly in toothpaste, the toothbrush business continues to perform very well. And we're starting to see nice growth with some of the other categories as well. We've taken a much more aggressive stance on innovation, both in Home Care and Personal Care and particularly the early signs on Home Care are encouraging. So sequentially, the business should improve as we move through the balance of the year and shares should come right behind that. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Just given the inflation is picking up over the course of the year. I just wanted to see if this adjust or alters your plan for pricing perhaps specifically in emerging markets where our pricing can move a bit quicker and whether that's factored in your outlook? And just as a follow-up on North America, the margins were a bit light this quarter. Any context on that and how you see those tracking from here? Noel Wallace: Yes. First on -- we'll watch the consumer very, very carefully. Clearly, there's been some compounded inflation over the last couple of years. We've seen that obviously lead to a little bit more of the sluggishness that we're seeing in the categories, but the categories have not worsened. And in fact, we think emerging markets are picking up a little bit. But we're going to watch that very, very closely. That being said, I mean, the key focus for most companies today is the inflationary environment and your ability to get pricing in the category continues to be critically important to maintain the margin dollars and the spending in the categories. And so I think you'll see pricing still come through as we move through the balance of the year. But that needs to be coupled with strong innovation. If we have the right value proposition, across our different price points. Consumers are willing to pay more. We've seen that coming out of COVID when we saw the inflationary environment then. So the key for us is getting the innovation executed and maximizing the opportunities we see both at the top end of the market in premium as well as making sure that we have a choiceful offerings at the bottom end of the market. So the answer to your question on pricing, we will take pricing where we see the opportunities. More of that will be innovation-led as we move through the balance of the year. But part of the reason why we wanted to get the raw materials into our guidance is to make sure the operations are planning accordingly. And we want to be very thoughtful about them thinking about where the cost environment is going so they can maintain the investment in the P&L moving forward. Stanley Sutula: I'll pick up the gross profit margin piece in North America. So their margins obviously are significantly pressured by tariffs on a year-on-year basis. If you recall, there was minimal tariffs in the prior year, but North America incurs the vast majority of them, and obviously, higher raw material costs. So we are lapping the highest gross profit margin quarter last year with no incremental tariffs and that year-on-year impact, we expect will be less going forward. Within North America as well, the actions that we're taking -- the raw materials is the biggest impact that we have. We will continue to drive the productivity to look to improve that margin and then the tariffs will normalize as we go through the year. Noel Wallace: Yes. The other thing I would add is the cost environment obviously is an industry issue and impacting everyone. So my sense is you will see some pricing move through the categories over time as people try to offset the inflationary environment moving through their P&L. For us, being proactive is very important to ensure that we protect the margin lines in the P&L to ensure we maintain the investment. Operator: The next question comes from Robert Moskow with TD Cowen. Robert Moskow: Noel, I was wondering what made you decide today or just recently to expand the scope of the SGPP program to $350 million to $500 million (sic) [ $550 million ]. What held you back last year from making that your original recommendation to the Board. Does it have anything to do with the higher cost environment that we're in now? Noel Wallace: No. I mean, the latter part of your question, no. I mean, clearly, we've been very proactive on putting that program together. And these programs are complex. I mean they involve a lot of different inputs and a lot of different assumptions, which the team here painstakingly goes through to ensure the assumptions are correct. I think what's so pleasing about the program, the fact that we got ahead of it is that we've seen the execution from our teams on the ground be a lot better than we expected. And a lot more ideas have come to the table as they thought it through in terms of the opportunities they have to simplify the operational structure of our business and drive more accountability across the enterprise. And so we're pleased with the fact that the programs have come in better than we anticipated, and there's been a lot of very interesting ideas that came through. You don't necessarily always know those. You know the big ones from the start. But the more important ones are how the operations are thinking about structuring themselves in a more efficient manner and those seem to be coming through. Let me turn it over to Stan, who has been driving this from the top and doing a wonderful job in making sure the teams are really proactive in thinking about the opportunities that we can go after. Stanley Sutula: Thanks, Noel. So first of all, the strong execution from the teams, when they -- when we first went in this program is a little bit different than some of our previous ones that it was addressed a little bit more methodically on addressing structure through spans and layers and items like that. The strong execution has gotten us to the high end of the initial targets. And then as Noel mentioned, we've identified additional opportunities since that launch of the program as teams look to simplify the operations, enhance the efficiency of how we operate day-to-day. Importantly, we're not extending the program. So this is going to still end by December 31, 2028. But as a result of these actions, we now expect that we'll be able to generate $200 million to $300 million of savings over the term of the program. And the majority of those savings we expect will flow through in '27 and '28. I think also an important note, as we said when we launched this program, we'll utilize these savings in 2 primary areas: to fund incremental investments, accelerating growth as part of our 2030 strategy, and that, of course, bottom line contribution. And we'll balance those based on the opportunities that we see and the overall market conditions. Operator: The next question comes from Olivia Tong with Raymond James. Olivia Tong Cheang: You flagged that even with the cost inflation headwinds, your plan to stay disciplined on brand spend. Clearly, a lot of your peers feel the same. But I'm wondering how your strategy and management of brand spend potentially pivots given the cost environment, looking for additional efficiencies, for example? And what's your view also on how this could impact the promotional environment? Noel Wallace: Yes. Listen, I think most of us in the industry understand that innovation is a clear driver of sustainable long-term growth. And the exciting aspect for us is the flexibility that we have in the P&L to ensure that we're supporting our innovation in a meaningful way. And that will continue to be the strategy that we adopt. That's been successful for us over the last couple of years, and we'll continue to execute that. And the combination of our strong funding-the-growth, our RGM and the productivity initiatives that Stan just took you through, give us confidence that we can continue to invest at healthy levels behind our brands, and that will help drive category growth in the long term. So clearly, we see an opportunity to elevate top line investment. I talked a lot about omni demand generation, and we're putting a significant amount of time within the company to truly understand the pressure points in omni demand generation and making sure that we have the appropriate understanding insights to drive persuasion and excitement behind our brands. And that might include different platform advertising, that might include increased focus on social commerce or agentic commerce. So we clearly, are understanding where the profit pools are, the revenue pools are, so to speak, and using our money wisely, and we're spending significantly more time understanding ROI as more of our money moves into digital advertising. So overall, we feel the increased advertising is something that will benefit us, benefit our brands. We're not necessarily suggesting that's going into promotion at all. Quite frankly, on the contrary, we expect our advertising, our thematic brand building work to be much more effective as we move forward as we accelerate advertising, particularly in some of the key geographies where we need more aggressive intervention relative to the success we're having. We also have brands where the advertising is driving real momentum across the world. Hill's is a great example of that, and we'll continue to accelerate growth in that part of the business where we're seeing great returns on that investment. Operator: The next question comes from Robert Ottenstein with Evercore ISI. Robert Ottenstein: Great. So I was wondering if you can talk a little bit more about Hill's, which has largely gone unnoticed so far in this call, except for your last mention. Can you -- first off, how is the category doing? Is there any signs of improvement? And then second, following on that competitive activity, how your innovations are going, how household penetration is. And then taking out the private label side, would you expect the core business to accelerate as the year goes? Noel Wallace: Yes. Robert, thanks. And thanks for bringing up a wonderful business that continues to perform exceptionally well. They had an impressive quarter in arguably what's a tough market. We delivered solid organic, I would say, both volume and price ex private label at 4.8%. The U.S. grew at 5%. So excellent growth on a top line basis way outperforming the market, which is roughly flat right now. As you saw in the prepared remarks, private label is a 260 basis point negative. That will continue to taper off. It will probably be on the total company, 20 to 30 basis points of negative impact in the second quarter, and then we should be out of that by the back half of the year. Our volume continues to be impressive on that business, excluding the impact of private label, volume was up 1%, which is terrific. We're seeing Science Diet and Prescription Diet continuously grow, particularly the Prescription Diet business had an exceptional quarter. We had double-digit growth in some of the areas that we wanted to go after, particularly on some of the strong indications that we're focused on. Importantly, as I mentioned on the fourth quarter call, we're seeing broad-based growth across that business across all of the key growing segments. The only part of the category that's suffering more than others is a dry dog. And we've seen that category continue to slip, and our growth was not where we'd like it to be. But across the growing segments, whether it's wet, whether it's cat, whether it's Small Paws, we continue to see nice, nice growth. We're gaining share across almost every single channel across the innovation that we put into the market, which is terrific. We're gaining shelf space based on the strong growth that we're bringing to our retailers. So overall, we feel very good about the business. We feel very good about the innovation cycle coming through the balance of the year. And the supply chain, as we've talked about a couple of times, continues to perform exceptionally well, giving us a lot more flexibility and leverage as we move through -- as we look through the P&L. So overall, the business is in good shape. We'd like to see the category turn a little bit more. I think that's going to take some time. But we feel we've got real growth opportunities in some of those segments I mentioned that we continue to be under-indexed in. Operator: The last question will come from Michael Lavery with Piper Sandler. Michael Lavery: I actually wanted to come back to Hill's, and I know you gave a lot of color just then, but I was wondering if you could unpack that consumer a little bit and just maybe what, if any, risk from higher gas prices on how they think about maybe trading up or getting a pet in the first place or just some of the kind of ways you see where that consumer sits in some of the various markets and if there's ways to think about how sustainable the momentum is from their point of view. Noel Wallace: Yes. Thanks. Recall and remember that we compete at the super premium end of the market on Hill's. And clearly, we'll continue to focus on real value-added innovation particularly on Prescription Diet side, which is an area where when you have a sick pet, you're very -- have to spend more money to address those issues in the Prescription Diet formulations that we have are absolutely outstanding and addressing a lot of the health concerns that pet owners have. And given the vet endorsement that comes behind that brand that allows us to continue to justify the premium price, obviously delivered by the strong efficacy that's delivered through that product. We're not immune, obviously, to the compounding inflation that will likely come in the market over the next 6 to 9 months based on where energy prices are today. But as I mentioned upfront, no different on the Hill's business, we have to continue to drive real value-added innovation into the category. Innovation that means something to the consumer. And the Hill's business clearly is -- at the center of that is the science. The science that we bring to the market is clearly differentiated in a very meaningful way. Hence, we have such strong endorsement from vet professionals to recommend the product. And that's the case across all of our advocacy-driven brands, whether it's oral care, whether it's skin health or others, will continue to drive real science-based innovation to make sure that we're bringing real value. And you balance that with a strong innovation across some of our big core businesses around the world, we find that we'll figure out ways to at least address some of the inflationary concerns to the consumer, but we're not immune to it. We're going to have to watch that very carefully. Okay. Well, thank you. I appreciate everyone, and thanks for listening in on the call today and your interest in the company. I hope you share our confidence that we have, the short-term plans in place, and more importantly, investing in the long-term capabilities of the company to continue to drive superior returns in what is obviously a very volatile operating environment. I want to make sure I thank the 34,000 Colgate people around the world who do just extraordinary work in a very difficult environment to deliver strong results and their tireless effort needs to be recognized and thanks. So we look forward to our next discussion. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's call. You may now disconnect.
Operator: Good day, and welcome to AIG's First Quarter 2026 Financial Results Conference Call. This conference is being recorded. Now at this time, I'd like to turn the conference over to Quentin McMillan. Please go ahead. Quentin McMillan: Thanks very much, Michelle, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks may also refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at aig.com. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Peter Zaffino: Good morning, everyone. Thank you for joining us today to review our first quarter financial results. Following my remarks, Eric Andersen will provide his initial perspectives on AIG and share some commentary on the quarter. And then Keith Walsh will provide more detail on our financial performance. Jon Hancock will join us for the Q&A portion of the call. We had a very strong start to 2026 and delivered an exceptional first quarter, the strongest first quarter that we've seen since I've been at AIG. During my remarks, I will share key first quarter highlights and discuss our outstanding progress towards our Investor Day objectives, provide a perspective on the Property market, since it's receiving a lot of attention this quarter, and outline the progress we're making on our AI and digital strategies. Before we get started, I'd like to take a moment to address the ongoing conflict in the Middle East and what it means for our people, our clients and the broader environment in which we operate. We have a significant number of colleagues in the region, and their safety remains our top priority. From the outset, our teams quickly shifted to enable remote operations, and we remain in close contact to make sure our colleagues have the support and resources they need. The impact on our industry will continue to evolve, and we remain focused on managing risk in a complex global market. Demand for expertise in property and energy, trade credit, and political risk insurance is increasing as clients navigate heightened uncertainty related to shifting trade policies. The direct impact on AIG is not material based on what we've seen to date, but we're not complacent. We're monitoring accumulation risk, adjusting underwriting guidelines where warranted, stress testing our investment portfolio and staying very close to our reinsurance partners. Just as important, we are continuing to stay close to our clients and brokers, helping them understand coverage, navigate claims issues and manage through this volatile environment. Now let me turn to our results. We had an excellent start to the year and have been very focused on advancing our strategic investments and delivering on the ambitious 3-year guidance that we provided at Investor Day in 2025. In order to achieve these objectives, we intend to continue delivering balanced net premiums written growth with excellent accident year combined ratios to support earnings expansion across our core businesses, while also focusing on our nominal expense base. Net premiums earned growth is expected to benefit AIG in the back half of 2026 and as we enter 2027. In the first quarter, General Insurance net premiums written increased 18% year-over-year on a constant dollar basis, driven by our Global Commercial Insurance business, which increased 21% year-over-year and our Global Personal Insurance business, which increased 11% year-over-year. All 3 business segments performed exceptionally well, supported by our recent strategic transactions, our differentiated reinsurance strategy and profitable organic growth that's in line with market peers. I want to provide a little bit more context on reinsurance. As I discussed during our fourth quarter call, AIG achieved enhanced terms and conditions and favorable pricing during the January 1 renewal cycle. We negotiated substantial year-over-year savings, which included the Everest portfolio, providing a meaningful tailwind to our net premiums written in the first quarter. It's worth noting that AIG's property catastrophe placements have lower modeled attachment points and higher exhaust limits for each geography on a risk-adjusted basis. For AIG, our strategy of maintaining a consistent low net retention for natural catastrophes through the cycle means that we will benefit from more attractive reinsurance pricing as evident in the positive impact to our net premiums written. We've discussed our Global Personal Insurance business in prior quarters, and I want to recognize the significant improvement in the financial performance, which has been deliberate. We grew net premiums written 11% in the first quarter, benefiting from the restructuring of our related reinsurance treaties and organic growth along with meaningful improvement in the expense ratio, which decreased 410 basis points. The accident year combined ratio as adjusted improved 570 basis points to 89.9%. The calendar year combined ratio was 89.4%, a strong improvement from 107.9% in the prior year. We continue to make outstanding progress in our Global Personal Insurance business. Shifting back to overall General Insurance financial results. The expense ratio was 29.3%, an improvement of 120 basis points year-over-year. The accident year combined ratio as adjusted was 86.6%, an improvement of 120 basis points year-over-year. The calendar year combined ratio was 87.3%, an improvement of 850 basis points year-over-year. Adjusted after-tax income per diluted share was $2.11, an increase of 80% year-over-year. Core operating ROE was 12.2%. Overall, we achieved very impressive financial results across the entire company, another exceptional quarter of execution from all of our AIG colleagues from around the world. Turning to capital management. During the quarter, we returned $760 million of capital to shareholders, including $519 million of share repurchases and $241 million of dividends. As we announced yesterday, the AIG Board of Directors approved an 11% increase in our quarterly dividend to $0.50 per share starting in the second quarter of 2026. This marks the fourth consecutive year of double-digit percentage increases and reflects the Board's confidence in our strategy and AIG's long-term outlook. Our total debt to total adjusted capital ratio was 17.7% at quarter end. As we discussed on our last earnings call, we've continued to reduce our ownership of Corebridge Financial. At the end of the first quarter, our equity interest in Corebridge was approximately 5.6%. We anticipate fully exiting our position by selling down our remaining stake in 2026, subject to market conditions. We expect the primary use of these proceeds will be for additional share repurchases. As we look ahead, AIG has tremendous financial strength and strategic optionality to execute against our objectives, profitability ambitions and our capital management priorities. Turning to the Property market. On our second quarter call last year, we spent time discussing the market's competitive dynamics and providing detail on our portfolio. I wanted to provide a further update based on current market conditions and the pricing pressure we have seen across the market on the U.S. large account segment. As a reminder, we have multiple points of entry into the global property market where we deploy capital for the best risk-adjusted returns. First, our balanced and profitable International Property business represents approximately 40% of AIG's $6.5 billion gross premiums written Property portfolio. I'm using gross premiums written because it's more accurate reflection of our performance without the impact of reinsurance. As a point of reference, the International Property portfolio's calendar year combined ratio was on average in the low 70s across 2024 and 2025. The International Property market rate environment is very different from the U.S. International pricing was down 4% in the quarter. And this was only the second quarter of rate reductions that we have had in the last 5 years. In the U.S., we have a strong performing Retail Property portfolio, which is majority shared and layered, and had calendar year combined ratios in the 70s in 2024 and 2025. In Excess & Surplus Lines, the Lexington middle market portfolio has performed exceptionally well. This has been one of the fastest-growing segments in Property and continues to deliver one of the best combined ratios in our Global Property portfolio. We've been deliberate in our growth and believe our AI implementation, which I will discuss later in more detail, will further enable this. The Lexington large account shared and layered business in Excess & Surplus Lines, which is less than 10% of our Global Property portfolio, has been under significant pricing pressure over the last year, and that's a different story. Given continued pressure on rate on a policy year basis and our general observations, we have been contracting our Lexington large account portfolio, and you should expect that to continue throughout the year if the current market environment persists. We have been and will continue to be more selective on new business within the portfolio, which decreased 19% year-over-year. Across the portfolio, we are willing to non-renew accounts that no longer meet our expected risk-adjusted returns. As part of this disciplined approach to underwriting, we're able to quickly redeploy capacity to areas of the market that provide more attractive opportunities for profitable growth. Now I want to discuss the progress that we continue to make on AI and digital. After years of extensive work exploring how to embed AI into our underwriting workflow, we outlined our blueprint at our Investor Day in 2025. That work reinforced our conviction that AI has the potential to materially improve performance and drive better solutions for our clients and for AIG. Our approach to using AI has been focused on 3 important components. First, you have to have an understanding of the technology and capabilities of large language models. Second, you have to have pattern recognition in order to know how to apply AI to your business. And third, you have to have a culture and a track record of execution in order to effectively deploy AI within an organization. While we expect the technology would develop meaningfully over time, we could not have predicted the rapid pace of advancement over the last 9 months or the breadth of AI's potential application. We started our AI journey at the core of our business in underwriting, where we felt the impact will be most profound. At the time, large language models could handle discrete tasks like answering a question or reviewing documents with limited autonomous time. In 2025, we launched Underwriting by AIG Assist to help our underwriters review our submissions with more and higher-quality information in a fraction of the time. After a successful launch, we began to deploy AIG Assist across 8 lines of business. We're very encouraged by the impact on underwriting metrics and improved data quality. In Lexington middle market property, which is an area we have targeted for growth, AIG Assist has helped deliver a 30% improvement on quoting more submissions, reduced time to quote for the underwriters by 55% and increased binding of submissions by approximately 40%. Now with advancements in reasoning models, AI agents can review, challenge and eventually recommend underwriting observations so that our underwriters can make more informed decisions and provide more robust insights to supplement their experience and underwriting judgment. We're advancing our business model and AI implementation programs to leverage this potential. To illustrate the magnitude of recent advancements in AI, when we began our work with Claude 2.0, AI agents could operate autonomously for less than an hour. Today, they can run autonomously for as long as 30 hours. This quarter, in close partnership with Palantir and Anthropic, we've begun the next phase of agentic AI at AIG that builds on early successes of AIG Assist. Using Palantir's Foundry platform, we expanded our ontology, a digital map of our business that included our underwriting processes, workflows and data relationships. This ontology, coupled with orchestration, will enable us to deploy multiple AI agent teams to integrate with our core systems, which will improve decision-making and reduce costs over time. As the logical next step in our AI deployment, we're creating a multi-agentic solution with a strong orchestration layer that coordinates specialized and trained AI agents to seamlessly supplement our underwriters' analysis and should further augment our underwriters' ability to assess risks and rate and provide coverage with real-time alignment. In this phase, we expect each AI agent to be purpose-built for a specific underwriting function. For example, one agent may handle submission ingestion and data extraction, another may perform risk evaluation against our underwriting guidelines and another could benchmark pricing against our portfolio targets, all with a collaboration agent to synthesize input from other agent large language models. These agents will communicate and handoff work to each other to augment our underwriters just like a well-functioning underwriting team, but operating at machine speed and with inherent consistency. To illustrate an example of how quickly agents can learn a business, I want to outline a beta test that was recently conducted by Anthropic. As part of a closed evaluation, Anthropic hired a professional claims adjuster to review 100 claims, ranked each as fraudulent or legitimate, and document the reasoning. Claude was then used to assess the same 100 claims. Claude's determination aligned with the adjusters 88% of the time, a very strong baseline for an out-of-the-box model with no claim-specific tuning. Fast forward to today, the latest version of Claude can elevate the performance of an entire claims team, surfacing patterns across submissions that are easy to miss when reviewing files one at a time, making our most experienced adjusters even more effective. Large language models can now hold a full file of claims information in context, every endorsement, every loss run, every guideline and reason across it with an audit trail. Examples of what Claude routinely flags include time line inconsistencies, geolocation mismatches, linguistic fingerprints, prior claim patterns, document tampering signals and coverage gaps. The intuitive nature of the large language models and its ability to learn all of the information the claims expert had access to demonstrates the potential of large language models to work alongside our underwriting and claims professionals to drive improved data, decision-making, more timely responses and more accurate outcomes. Importantly, we will be able to see what every agent is doing and can intervene in real time, if needed. Human oversight is and will continue to be essential to our underwriting processes. Overall, we're very pleased with the progress we're making, and we are beta testing the use of multi-agentic solution to enhance our team's productivity, efficiency and learning and development. AIG entered 2026 with significant momentum, and our performance in the first quarter was outstanding. We achieved impressive results in a complex operating environment, and have a very good foundation to accelerate our strategic progress. Finally, as I discussed last quarter, Eric Andersen joined AIG in February and will officially become our next CEO on June 1. Building on his decades of experience in the industry, Eric has hit the ground running, developing a detailed understanding of AIG, our business and our functions, and engaging with key stakeholders, including the AIG Board, colleagues, rating agencies, regulators and our clients, brokers and partners. We look forward to Eric's impact on leadership in 2026 and for years to come. Now let me turn the call over to Eric. Eric Andersen: Thank you, Peter. Good morning, everyone. I'm excited to join you today, and I'm honored to be part of AIG's leadership team at this pivotal juncture in the company's journey. I will begin by sharing my perspectives on AIG over the last 90 days since joining the firm. As you know, I served for decades as one of AIG's largest trading partners, and AIG has played an important part in my 3-decade-long career in insurance. In that time, I came to know the company extremely well, and gained deep appreciation for the valuable role it plays in the Global Property and Casualty Insurance market. Like many in the industry, I was impressed by the successful execution of the organization's transformation under Peter's leadership over the last several years. The company's balance sheet strength, improved underwriting, balanced portfolio, and ambitious strategic direction and powerful momentum were clearly evident. The time I have spent over the last several months meeting with colleagues, clients, distribution partners and other stakeholders have been invaluable and validated my earlier observations. AIG has demonstrated its ability to drive sustained profitability while balancing disciplined capital management with financial flexibility and building for the long term. This flexibility has enabled the execution of our recent transactions, which are already proving to be accretive to AIG's 2026 earnings. Our culture of underwriting excellence is firmly embedded across the company and is a defining attribute in which our team has great pride. Deep expertise, coupled with our commitment to prudent risk-taking, solidify AIG as a market leader, well-positioned to advise and serve clients in today's complex environment while utilizing reinsurance strategically to control volatility. As Peter has shared in depth, we are implementing a leading AI strategy designed to rapidly evolve alongside other advances in technology to deliver growth, data insights and quality decision-making. We expect our strategy to enable our businesses to be more effective over time. We have outstanding leaders. Our colleagues are highly engaged and the company is well aligned to deliver on our ambitious strategy and objectives. Before joining AIG, I thoroughly reviewed the strategy and how the company's plans for the future were outlined in our 2025 Investor Day. I believed in the strategy then and today, I want to reaffirm my commitment to the strategy and delivering on our Investor Day financial guidance, which includes: delivering operating EPS compound annual growth of over 20% over the 3 years ending 2027; driving core operating ROE of 10% to 13% through 2027; improving General Insurance's expense ratio to less than 30% by 2027; supporting the increase in our dividend by 10% in 2026; and achieving improvement in Global Personal Insurance combined ratio to 94% by 2027. I am encouraged by the strength of our results and I'm even more encouraged by the opportunities ahead. Our ability to grow is supported by our unique global platform, diversity of our products and distribution channels, risk expertise, complex claims capabilities, leadership across admitted and non-admitted markets, Gen AI capabilities and our spirit of innovation. I'm also committed to maintaining our underwriting discipline and culture. One of my personal priorities will be to work very closely with our clients and distribution partners to provide tailored solutions that address the rapidly changing risk landscape. As one of the largest U.S.-domiciled global insurers, we are proud to leverage our deep expertise in marine and war insurance and have joined other U.S. insurers in supporting the U.S. International Development Finance Corporation's Maritime Reinsurance plan to help restore confidence to the markets and support the flow of commerce in one of the world's busiest trade routes. This initiative builds on AIG's history of playing a central role in both public and private industry-led initiatives to deliver critical insurance solutions to respond to complex situations. Turning to our first quarter financial results. Let me provide an overview of our performance in General Insurance. First quarter net premiums written growth was superb and representative of our intent to position our business favorably regardless of challenges in the market environment and to capitalize on our recent strategic actions. North America Commercial net premiums written increased 36% year-over-year, with the growth largely driven by reinsurance changes and the Everest renewals in our Retail business. We continue to achieve double-digit growth in our Retail Casualty portfolio as the market conditions are largely disciplined in liability lines. Retail and Lexington property benefited from our successful January 1 reinsurance renewals. However, as Peter discussed, the U.S. Property market environment remains very competitive, and our teams are continuing to take a highly disciplined approach to the layers in which we participate and how we deploy line sizes as we continue to navigate the current rate environment. In Financial Lines, our team successfully continued to recalibrate in competitive D&O market segments where we are focusing on the value proposition of our differentiated offering and industry leadership. Western World, Glatfelter and Programs each had solid growth, which has been deliberate and Programs benefited from our new special purpose vehicle with Amwins. International Commercial net premiums written increased 12% year-over-year with the majority of growth coming from the Convex whole account quota share, Everest renewals and reinsurance changes, as the team prioritized organic growth discipline in a generally challenging rate environment. Global Commercial retention remained very strong at 88%. North America Commercial retention was 88%. And International Commercial retention was 89%. Global Commercial new business was $1.6 billion, including Everest renewals, an increase of 42% year-over-year. Our team has continued to make very good progress with the conversion of the Everest portfolio. Retention is performing within our expected range, reflecting strong support from our clients and broker partners who are intentionally choosing to work with AIG in a competitive market. The collaboration between our team and Everest has been extremely productive, delivering mutually-beneficial outcomes for both organizations. As Peter mentioned, Global Personal Insurance had a very strong quarter with underlying growth initiatives beginning to gain traction. The team has done significant work to improve profitability and growth over the past year, and we believe we should see continued progress in these areas. Before I close, I want to recognize the efforts of our team across the globe. They are doing an exceptional job navigating a dynamic market, prioritizing business with the highest risk-adjusted returns and collaborating with our clients and broker partners to identify optimal risk solutions. I'm looking forward to getting out on the road to meet more of our colleagues, clients, partners and investors around the world in the coming weeks and months. Our first quarter results were outstanding and reflect robust progress on our strategy, substantial growth and sustained underwriting excellence. This has been an incredible way to start the year from which we will continue to build on our tremendous position of strength. In closing, I am very excited to work with my fellow AIG colleagues to lead this remarkable company into the future. I want to thank Peter for the extraordinary accomplishments under his leadership to position us for success, and I look forward to continuing to work together as we capitalize on our strong foundation, disciplined capital management and sustained momentum. I'll now turn the call over to Keith. Keith Walsh: Thank you, Eric, and good morning. As Peter and Eric mentioned, we had a great first quarter, and I'm going to provide some additional detail. Adjusted pretax income was $1.5 billion, an increase of 65% from the prior year quarter. Underwriting income more than tripled to $774 million year-over-year, driven by lower catastrophe losses, improved accident year underwriting results and higher favorable prior year reserve development. Accident year underwriting income adjusted for catastrophes, rose 17%. This reflects transaction and organic growth while improving our underwriting margins, an excellent result in the current environment. On a constant dollar basis, General Insurance gross premiums written of $10 billion increased 7% year-over-year. Net premiums written of $5.6 billion increased 18%, reflecting strong growth across all 3 segments. For full year 2026, we continue to expect low to mid-teens net premium written growth in General Insurance. Net premiums earned were $6.1 billion, up 5% year-over-year. Moving to our underwriting ratios. General Insurance accident year combined ratio as adjusted was 86.6%, an improvement of 120 basis points from the prior year quarter. This improvement was driven by a lower expense ratio of 29.3%, reflecting increased operating leverage and expense discipline. Over the past several years, we have made significant progress in reducing our cost structure and improving the expense ratio while investing for the future. As individual quarters may reflect seasonal variability when thinking about the expense ratio run rate, it's better to look at the trailing 12-month trends and to model any improvement on a year-over-year basis rather than sequentially. The accident year loss ratio as adjusted of 57.3% was flat year-over-year. Total catastrophe losses for the quarter were approximately $180 million, with the largest losses attributable to winter storms. Prior year development, net of reinsurance and prior year premium, was $132 million favorable and included $127 million of favorable loss reserve development, $26 million of ADC amortization and roughly $21 million of reinstatement premiums. The favorable development was driven primarily by continued favorable loss experience, most notably in U.S. Property and Financial Lines. Overall, the General Insurance calendar year combined ratio was 87.3%, an 850 basis point improvement year-over-year. Moving to segment results. North America Commercial accident year combined ratio, as adjusted, was 85.5%, an increase of 120 basis points over the prior year quarter. This was primarily driven by a 90 basis point increase in the accident year loss ratio as adjusted due to changes in business mix as we reduced certain Property Lines and earned in more Casualty business. North America Commercial calendar year combined ratio was 85.5%, an outstanding result and an improvement of 840 basis points from the prior year. International Commercial accident year combined ratio as adjusted was 85.1%, an improvement of 30 basis points, driven by a 50 basis point improvement in the expense ratio. The International Commercial calendar year combined ratio of 87.3% improved 90 basis points year-over-year and was the 12th consecutive quarter of sub-90% combined ratio, underscoring the strength and consistency of the portfolio. Peter described the performance in Global Personal, and I'm going to add some highlights. We continue to improve underlying profitability and delivered strong performance across both net premiums written and underwriting income growth. Accident year combined ratio as adjusted was 89.9%, a 570 basis point improvement compared to the prior year quarter. The calendar year combined ratio improved over 18 percentage points year-over-year to 89.4%. We are encouraged by the progress we're making as actions we have taken to reposition the portfolio continue to earn in. Moving to pricing. We continue to take a disciplined approach to underwriting and pricing, prioritizing lines and accounts where we see attractive risk-adjusted returns. Starting with North America Commercial. Excluding the Property business, our North America Commercial renewal pricing increase was 7%, largely in line with loss cost trend. In North America Casualty, the overall pricing environment remains favorable with pricing in retail Excess Casualty up 14% and Lexington Casualty up 8%. In U.S. Financial Lines, pricing was flat, reflecting continued moderation of price reductions aligned with our team's strategy to drive rate in targeted D&O segments. In North America Property, overall pricing decreased 11%. The market remains competitive, as Peter described in his remarks. In International Commercial, overall pricing was down 1% and was slightly positive, excluding Financial Lines in the first quarter. Casualty pricing improved in the quarter, up 5%, benefiting from positive rate change on auto. Property pricing was down 4%, with modest variation by region while Japan continues to deliver both positive rate and pricing. Global Specialty pricing was down 1% and Financial Lines pricing was down 4%, a continuation of trends from the fourth quarter for both of these lines. Moving to Other Operations. First quarter adjusted pretax loss was $125 million versus the prior year quarter loss of $66 million. The difference was driven by lower net investment income and other of $54 million compared to $110 million in the prior year quarter, owing to lower parent liquidity levels in addition to lower Corebridge dividends. Given current short-term interest rate levels, we expect the second quarter Other Operations net investment income and other line to be in the range of $30 million to $40 million, subject to market conditions. Moving to General Insurance net investment income. First quarter General Insurance net investment income was $864 million, up 17% year-over-year. The increase was driven by our core fixed income portfolio, which grew net investment income by nearly 20% over the prior year quarter. This reflects the benefit of our proactive strategy to reposition the public fixed income portfolio. During the first quarter, we continued to reinvest at higher yields with the average new money yield on our core fixed income portfolio roughly 80 basis points higher than sales and maturities. The annualized yield was 4.61%, a 51 basis point improvement over the prior year quarter. The strong growth in our core fixed income portfolio was partially offset by lower alternative investment income, which was $6 million compared to $43 million in the prior year quarter. Private equity returns yielded 1.6% in the quarter, below our long-term expectation. It's worth noting that the private equity results are generally reported on a 1 quarter lag. Given the market volatility experienced in public markets throughout the first quarter, we expect second quarter alternative returns to remain below our expectations. Next, I want to spend a few minutes on our private credit portfolio, as we've slowed our deployment in this asset class given market conditions. We define private credit very broadly, as in everything that is not a public security. It includes commercial mortgage loans, investment-grade private placements, asset-backed finance and direct lending. Our direct lending exposure is about $1.2 billion, less than 1.5% of the General Insurance investment portfolio. It is a diversified portfolio of middle market loans with an average loan size of about $6 million. We hold all direct lending on our balance sheet, not through business development companies, and the software exposure is approximately $130 million or just 16 basis points of the General Insurance portfolio. We will continue to deploy funds in a wide variety of assets with key managers, including our new partners, CVC and Onex. Book value per share at March 31, 2026, was $75.82, up 6% from the prior year quarter, reflecting strong growth in net income as well as the favorable impact of lower interest rates, partially offset by capital return to shareholders through dividends and share repurchases. Adjusted tangible book value per share was $70.85, up 4% from the prior year quarter. In summary, we delivered a strong first quarter with excellent underwriting results. With that, I will turn the call back over to Peter. Peter Zaffino: Thank you, Keith. Michelle, we're ready for questions. Operator: [Operator Instructions] Our first question comes from Meyer Shields with KBW. Meyer Shields: Peter, I just want to start by saying, I've seen you take two companies from death's door to top tier, so congratulations on a phenomenal career. The big picture question that we're just trying to figure out now is that as leading carriers and brokers, both successfully adopt AI, how does that impact what the carriers pay to the brokers? And since you've been on both sides of that desk, I was hoping you could talk about how you expect that to play out. Peter Zaffino: Yes. Look, thanks for the question. And how we interact with the brokers, I think, is going to be more of how we all get so much more efficient in exchanging data and information on submissions. I mean, look between me and Eric, you've got two people here that have a lot of broker experience. And they do a lot more than gather data and do placement. They're giving massive advisory to industry groups across the globe. I think scale will matter over time. And as we look at the way in which data is being ingested through the mechanisms of a variety of large language models, I think we will be able to augment information that we get in submissions to be able to make better underwriting decisions. And what I was trying to give in that claims example in my prepared remarks is that not only are large language models sort of out of the box, not tuned, very capable and can give insight, but as they start to get trained a bit through experts, everybody benefits. And so the large language model gets more proficient, but also so does the underwriter, so does the claims executive in terms of what they learned in that calibration. So I think in the future, as enterprise becomes a much bigger part of large insurance companies and large insurance brokers, the ability to collaborate will get even stronger. Meyer Shields: Okay. That's very helpful. And then this is probably a smaller scope question. But I was hoping for any insight in terms of the impact of pricing on the Everest business. I know there's a mix of Property and Casualty. But I'm wondering how AIG's current pricing is impacting the gross premium volumes that you're bringing over from Everest? Peter Zaffino: Yes. Let me make a couple of comments, and then I'll ask Jon to maybe give a little bit of detail as he's been so intimately involved. Look, we looked at the portfolio in its entirety. We've been working very closely with Everest in the conversion. We've actually brought a lot of employees from Everest to AIG, and they've been doing a tremendous job. So they know the book. It's not as though you're handing off a portfolio from Everest to AIG without any insight. We have people here, terrific executives. Adam Clifford is running a lot of our International Commercial, doing just a fantastic job. And this has been a book that has been coveted by a lot. I mean we talk to brokers, there's a lot of inquiries about the portfolio. I don't want to go back to AI. But when we worked with Palantir on the ontology, we were able to get a look at the portfolio within a week about every upcoming month as to what the submission activity is going to be and what we like for pricing and what we thought we needed to restructure. And so we got ahead of that with the underwriters. And as Eric said in his prepared remarks, the conversion has just been outstanding, which just means that our broker partners want the conversion to go from Everest to AIG and the clients want that. And so I think that is really what I would want to take away and that the expectations in terms of loss ratio and combined ratio will be in line with what AIG's business has performed. But Jon, maybe you want to give a couple of examples. Jon Hancock: Yes. Thanks, Peter. I won't repeat things that you've said, but we're really pleased with this transaction. Everybody knows it's a renewal rights deal on business that we really like and complements our own portfolio. And I agree with Peter here. The biggest compliment I can give this book is that everyone else is chasing for it. And if you don't believe Peter, if you don't believe me, go ask the brokers because everybody is chasing for this business, so we take that as good. And when we talked about it last quarter, every indication we gave there still holds true. Now that the retention and the conversion is really strong, the ratios actually are just as we expected. We're 5 months into converting business, but obviously, we're a lot longer into that to understanding the portfolio through our underwriters, through our actuaries, through our partnership with Palantir and the way we did that. And we knew there were places in the portfolio where we'd want to reprice, restructure, play on different parts of the programs. And we're doing that. But there's also some other benefits here. We're collaborating really well with Everest. That's helped get that real support from our broker partners, that real will from our clients, they want to come to AIG. But it's also meant that we've been able to combine layers, everything's within risk appetite, take lead positions from follow positions. And as Peter said, we picked up -- we've been targeted. We picked up some real good talent on the way. That's great for our ongoing business, but it's great for helping us manage the Everest portfolio as well. Operator: Our next question comes from Brian Meredith with UBS. Brian Meredith: First, Peter, I just want to congratulate you also on this incredible transformation that you've led here in your tenure at AIG. It's really been impressive and wonderful to follow as an analyst. Yes. I guess the first question I have, I want to dive a little more into Lexington and the E&S markets here. Not only are the Property market is incredibly competitive, which you've been talking about here. But we've also heard from some companies, you're starting to see some cracks in Casualty, maybe some moderation in pricing rates, heard about terms and conditions softening up as well as maybe business moving back to the middle market from the E&S market. I'd love to get your perspective on that. Do you agree with it? And then what is the potential implications for AIG's growth in margins as we look forward here over the next, call it, 12 to 18 months on that? Peter Zaffino: Okay. Thank you. Let me try to unpack how you like -- approach like Lexington, and I think it's important to differentiate between sort of the large accounts, shared and layered, and then some of the middle-market business. I don't want to repeat what I said in my prepared remarks, but we see in the shared and layered in E&S and Property, rate decreases far and away cutting into margin and we're going to need to shrink the portfolio in the current environment. Just the one thing I would say is that we have a tendency as an industry to lock everything at the moment. We're coming into wind season. We're coming into an environment where there has been a lot of delegated authority, a lot of MGA writings and when there's CAT, sometimes it clears out, and there's opportunities. So we want to be positioned to take advantage of that. I would say the middle market, I outlined it in the Property sort of section, it has performed exceptionally well. There is a little bit more of a competitive rate environment, certainly in the middle market. But we see significant submissions, we see opportunities. They're selective. But I think as we start to get AI more embedded into Lexington, it's not because we see massive growth opportunities because the market is there. We see opportunities because we're not able to service the incredible submission flow, which has still been very strong. So I think there's going to be pockets of opportunities in the mid-market on E&S. And don't forget, like in the way in which wholesale brokers position themselves, I always put it into 3 buckets. One was pure E&S. The other was they became placement mechanisms for the 40,000 independent agents that exist within the United States that wanted more market and then they had the delegated authority MGA. So we're really kind of focusing on the middle bucket in terms of where we look at middle market, Property and Casualty. I do think the Casualty has become a little bit more under pressure from rates. I still think that we have very good returns, and we'll just watch that very carefully as we go into the back half of the year, but it's not in the same bucket as the way the property has been performing. Brian Meredith: Got you. Got you. And in terms and conditions, anything you can say there? Peter Zaffino: I think that's, like, on the ground, Brian. Like it depends on the industry group. It depends on the size and the class. I think, look, there -- in these markets, there tends to be a little bit more in terms of conditions. But what we're seeing is nothing that is concerning or a trend across the portfolio. Brian Meredith: Great. And then a follow-up, maybe more for Eric. Eric, so you're coming to a company now with significantly improved operationally, profitability, et cetera, et cetera, but also has a tremendous amount of excess capital. I'm just curious on kind of your thoughts on deploying that excess capital, thoughts on M&A and maybe how to increase the operating leverage here at AIG? Eric Andersen: That's a great question and thanks. It's great to be here. And just -- I know you said it, but I'll say it, too. The work that Peter and the team has done has just been outstanding in terms of organizing the firm. Listen, I think the opportunity is in front of us today with the plan that we've laid out right now in terms of how do we drive our organic growth, how do we continue to execute on the transactions that have been done, how do we evolve our offerings to meet our clients' needs in this risky environment. There's an awful lot to do over the next 12 to 24 months, just building on the strategy that we've laid out and really look forward to working with the team to make that happen. Peter Zaffino: That's great. And I would say, Brian, having been here for almost 9 years. We worked really hard to build that capital position, gave us the option value to do Everest, gave us the option value to assume risk for Convex. Eric and the team will be looking at opportunities. As the market gets more complicated, I think that comes with opportunity. And so like we have really worked hard on ROE. We know we have capital that we can grow into and we wanted just to provide AIG with as much option value as possible. Operator: Our next question comes from Bob Huang with Morgan Stanley. Jian Huang: Also I just want to echo what Meyer and Brian said. Peter, as a former librarian, if you write a book, we'll definitely read it. So just to put it out there. Peter Zaffino: Thank you, Bob. But I'm not writing a book. Jian Huang: Okay. No, totally understandable. So my questions are all on AI. I know there's a lot of emphasis on AI. So my question is a bit theoretical. So apologies in advance. When you talk about multi-agent collaboration and build out in underwriting functions, departmental level capabilities and then also the orchestration layer governing on top of it, it doesn't sound like a simple efficiency gain, but much more of a broader organizational and structural integration around AI. So is it fair to say 5 years down the road, 10 years down the road, there should be global-wide capability around that integration and coordination. And then there is a future state where your underwriting and your understanding of risk would be much more uniform globally. Does that sound right? I mean, is there like a future where the functions and then the coordinations will be globally across departments in underwriting? And then that's essentially where the differentiation between you and other more regional underwriters should be? Is that the right way to think about it as we think about AI integration going forward? Peter Zaffino: Well, 5 to 10 years, we couldn't predict a year out. I mean when we did Investor Day, that's why I wanted to highlight some of the significant changes in AI deployment and AI capability. I do think there's great opportunities to learn from different parts of the world and to be able to apply the ingestion, the large language model learning, multi-agent orchestration in terms of helping decision-making. Look, I think the most complicated part of the world is going to be Europe just because of GDPR and the use of data. It's very hard. And we've talked to a lot of our stakeholders there. It's very hard to beta test or roll something out in Europe without it being tested somewhere else just because of the complexity of how you're allowed to use data. So I think that -- look, there's a lot of differences across the world. A lot of Asia is very digitally enabled and very tech-oriented and believe that rollout and implementation, you have like different businesses that you need to customize. We're doing that in our Japan business. But I absolutely think in a 5-year period that the global capabilities in terms of the AI orchestration across an organization, just not in underwriting but across from front to back office will be profound. And I don't -- look, we're a large company, so I'm going to be biased, but I think you need to have size, scale and ability to beta test and try to work through this in order to get the most out of it. Jian Huang: Okay. Really appreciate that. Second question is around the AI expense costs. You talked about implementing Claude 2.0. Claude 2.0 has a lot of more token ingestions and inputs and things of that nature. As we think about just AI being much more of a variable cost rather than a fixed cost, when we think about your expense as we think about expense going forward, right? Can you maybe help us think about how that factors into your ROE considerations and things of that nature? Peter Zaffino: I think as we get into like '27, '28, not to punt to the poor, Eric, but like I think you'll start to get a lot more clarity in terms of what the expense components are of how we deploy it and what the benefits are on the revenue side. We've just begun. There's a lot of opportunities on the expense side. And why I haven't really spoke a lot about it is one is our first case was to go to the heart of the company, which is underwriting and then to go to claims. That's what we do. We're underwriters, and then in moments that our clients need us, we have to be able to deliver the best claims organization in the world, which under Julie Chalmers' leadership we're doing. So as we continue to move forward with the implementation of that, you're going to start to see benefits and efficiencies. What we're starting to work through now is more enterprise and how you actually can take the orchestration of agents. And we've moved more from Gen AI to agentic and now, we are going to look at how do you use autonomous with a lot of guardrails and supervision to work through reengineering our workflow. And with that, there's going to be a multi-agent orchestration. I can't give you a time frame. It could be '27, it could be '28. But I think there's going to be a lot of efficiencies that will create the bandwidth to reinvest in the business. And so how we're thinking about it at AIG is more capabilities, more insight, more benefit for brokers and clients, create our own bandwidth for investment by reengineering process and having the ability in certain markets to be able to grow exponentially when there's opportunities. Operator: Our next question comes from Michael Zaremski with BMO. Michael Zaremski: Great. Just a question on the loss ratio, which has been excellent. But I just wanted to -- it's one of the main questions we get from clients. You've done a great job explaining why the reinsurance helps ameliorate some of the downward pricing impacts. Your reserves look even healthier year-over-year. But ultimately, you're still living in a soft market. So I just wanted to make sure we heard that there's some core loss ratio impact as you mix into Casualty. But beyond that, should we just be -- just a little bit of kind of pressure from the soft market? Or I just want to make sure we don't get too maybe complacent or comfortable with just how excellent the loss ratio has been. Peter Zaffino: Yes. Thanks for the question. I think we saw in the first quarter evidence of the shift in mix of business with the accident year loss ratio increasing slightly by 50 basis points. Now the reinsurance did benefit that, meaning there's more net premium written and then there's a little bit earned in the first quarters, which will help us as we get into the second, third and fourth. But yes, as we look to grow organically more in casualty because we think that the pricing environment and the risk-adjusted returns are above loss cost and want to continue to do that, and we are doing that organically. And then the conversion of Everest on a Casualty basis as well as Financial Lines will change the mix a bit. And then the Property, it's hard to predict. I mean, I would expect that, that will, in the E&S, start to decrease how much we'll see where the market is, but we ought to expect E&S in the sort of shared and layered to decrease. But I tried to break out the overall Property portfolio, which has performed exceptionally well, and we got a 40% International business that is very predictable rate environment is not the same. And the other thing I would note, Mike, is that when the market was really in our favor a couple of years ago, and we were getting significant cumulative rate increases, we didn't always recognize that just in the loss ratio. We continue to build margin. We continue to put more into the overall loss ratio to make sure what we're seeing was going to be accurate. And as it emerged, it was better than we expected. So I think when you look at the loss ratios, why I broke down the reinsurance is that the reinsurance benefits because if you just say, look at our cost of goods sold, we buy a lot of property per risk, a lot of CAT, we're taking no more risk. I mean, so that's the other thing I just want to make sure I'm emphasizing is that when you look at the reinsurance and the savings, that's on same-store sales. Same attachment points, modeling goes up, it helps on the risk-adjusted basis. AALs, like there was no compromise there. We have a property per risk cover that's very comprehensive that we got benefits from. Every excess of loss treaty that we placed at 1/1 was at or better in terms of terms and conditions and pricing. And so that will benefit us. And then, yes, could there be some deterioration in the Property attritional loss ratios, which were exceptional? There could be. And so that will have a mix where the loss ratio could go up based on that mix over time. But we're highly confident that we can offset that with expense discipline, earned premium growth and the expense ratio will go down. Keith, he's already getting nervous, I can see him, that I'm going to give too much guidance. But I think when you look at what we put out in terms of the trailing 12 months, we're really getting after expenses. On a nominal basis, company has been incredibly disciplined and always performs exceptionally well. And then you have earned premium coming in. So I would expect the expense ratio to benefit the loss ratio, will reflect the mix, and we're going to watch the margins and make sure that our accident year loss ratios reflect our observations on the business performance. Michael Zaremski: That's thoughtful and helpful. And just lastly, as my follow-up for Eric. Congrats, we're looking forward to working with you. I mean, I don't expect you to kind of be able to specifically preview any changes you might make when you're officially in your seat. But just curious, you've been there for a bit now. Would you say there are some major changes or major projects you feel strongly about starting once you're in your seat based on what you've seen at AIG so far? Eric Andersen: No, that's a great question and I appreciate it. Listen, I would say other than -- let me maybe go back and tell you what I've been doing over the last 90 days and give you a little bit of context. So other than the onboarding process, in terms of digging deep into the firm itself, I've had a chance to meet with a lot of colleagues, a lot of clients, all of our distribution partners, and really excited about the vision and the strategy and where we are as a firm. And as always, it's always about execution, right? Can we continue to work with our clients and partners and develop those deep relationships? Can we continue to build a great business that obviously, you've all been recognizing today over the next journey? And listen, I think the strategy that we laid out on Investor Day, how we actually want to deploy capital, how we want to position the company to help our clients. I love where we are. I was excited about it coming in. And 90 days in, I feel even more strongly about where we are today. So I would expect, as you look at the rest of the year, I would say we are going to drive hard on the existing strategy and look to perform. Peter Zaffino: Thanks, Eric. And I want to thank everybody for joining us today. There's a few thank yous that I want to say before we leave. One is, I want to thank the sell side very much because it's been 9 years of complexity and your ability to dive in, try to be constructive, help learn so you can educate a variety of stakeholders has been hugely beneficial, and I'm very grateful for all that you did to allow us and enable us to make the progress that we did. I want to thank our employees. They did an incredible job. I've only worked in big companies for the 35 years that I've worked after college. And so I have a perspective. And in great companies, a lot of times, the positions matter. You need very talented people to be in those positions, but it's the positions and the people. At AIG, it's the opposite. It's the people that made a massive difference and the positions ended up becoming a big part of how we structure the company, but the will to win here is like nothing I've ever seen. And they've done an incredible job. They accomplished an incredible amount and just keep it going because like the best days are ahead for this company, and there's no doubt about it. And I just want to wish Eric the best of luck. As I said, the company is in great hands. Eric's been a student of the business and a practitioner for 3-plus decades, and this company is going to go from strength to strength. So I just want to thank everybody, and have a great day. Operator: Thank you for your participation. You may now disconnect. Everyone, have a good day.
Ashley Curtis: Good morning. I'm Ashley Curtis, Assistant Vice President of Investor Relations, and I would like to welcome you to Tanger Inc.'s First Quarter 2026 Conference Call. Yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation. This information is available on our IR website, investors.tanger.com. Please note, this call may contain forward-looking statements that are subject to numerous risks and uncertainties, and actual results could differ materially from those projected. We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information. This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management's comments include time-sensitive information that may only be accurate as of today's date, May 1, 2026. [Operator Instructions]. On the call today will be Steve Yalof, President and Chief Executive Officer; and Michael Bilerman, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A. I will now turn the call over to Stephen Yalof. Please go ahead. Stephen Yalof: Thank you, Ashley, and good morning. I'm pleased to report another strong quarter for Tanger, reflecting continued momentum across our leasing, operating and marketing platforms and successful execution of our growth strategy, all contributing to our increased full year 2026 guidance. Our first quarter financial and operating results clearly demonstrate the strength and consistency of our business. Core FFO was $0.59 per share, up 11% from the prior year. Occupancy ended the quarter at 97%, up 120 basis points year-over-year. Sales productivity increased to $482 per square foot on a trailing 12-month basis, and OCR remained stable at 9.7%, providing additional room for rent growth. In April, we announced a 7% increase in our dividend supported by our earnings growth and conservative payout ratios. These results reinforce the core point that our integrated leasing and marketing strategies underpinned by disciplined operating asset management and financial strategies are working together to drive sales, traffic, NOI and long-term value for our stakeholders. As we've shared over the past 8 quarters, we continue to execute to our center merchandising strategy. The evolution of our tenant portfolio is reflected in the progress that we've made, replacing underperforming retailers in our centers with more productive and highly sought after ones, creating a flywheel that drives traffic, sales increases and ultimately rent revenue growth. Our belief in the strength of our portfolio is evident in our continued strategy to renew fewer tenants and replace them with new concepts, retailers and uses across our platform. This is demonstrated by our leasing results. Retailer interest across our portfolio remains strong. In the last 12 months, we executed 651 leases totaling 3.4 million square feet, representing record production for Tanger, blended rent spreads of 10.5% reflect ongoing strength with retenanting spreads exceeding 26% with little new retail development coming online and a consolidating department store business, we see this favorable supply and demand dynamic continuing. Our shoppers are demanding new brands, better food and beverage and more entertainment options, and we are delivering through a steady pipeline of elevated retail, restaurants and service users, many of which are new to Tanger. This strategy is improving the utility of our centers and ultimately driving more shopper visits and longer dwell times, all contributing to increased sales productivity across our portfolio. Occupancy was up meaningfully for Q1 year-over-year. As is typical, the sequential change was due primarily to seasonal patterns. We are handling closures strategically with permanent backfill deals already in our pipeline and our strategic temp program, bridging select spaces until the right long-term deals are successfully executed. Our marketing platform continues to serve as a key differentiator. We're delivering more value in new ways and to new shoppers, expanding our reach through broadened channels, and we are growing our Tanger proprietary loyalty program while providing value and personalized offers that today's shoppers expect. With over 200 on center events and activations in the first quarter alone, our community engagement events enhance the customer experience, customer visit frequency and dwell time and solidify our position as an important stakeholder in the communities we serve. These highly successful on center initiatives contributed to the growth in traffic we enjoyed this quarter. We are also thrilled with the success of our partnership with unrivaled sports, the nation's leader in youth sports experiences and their rapidly expanding Ripken Experience platform. As their exclusive shopping center partner in our shared markets, Tanger centers are on the itineraries of thousands of young athletes and their families traveling to our markets. This is just one example of how we're capturing the momentum of sports tourism, and we are excited to continue growing these partnerships. We continue to monetize our center traffic through our marketing partnership business. Strong demand from both retail and nonretail partners for on-center activations, digital media and experiential campaigns are large contributors to this growing revenue driving business. and we are further expanding these capabilities across our portfolio. We are increasingly leveraging technology to support and enhance our platform, enabling AI across the organization to improve workflow and drive operational efficiency. As an example, our multilingual AI chatbot now handles more than 80% of customer inquiries, servicing our shoppers, suppliers and tenant retailers around the clock thereby, saving time, money and increasing productivity. Our asset management initiatives continue to drive value through peripheral and brand activations, merchandising optimization and investments in our centers. Population shifts and residential densification in many of our core markets is creating demand for more restaurants, service and entertainment uses. These projects enhance the customer experience, support leasing momentum and drive continued sustainable NOI growth over time. Our strong balance sheet and low debt-to-EBITDA ratio provides the ability and flexibility to invest in our portfolio and seek opportunities for external growth. In an uncertain macro environment, Tanger's value proposition continues to resonate with shoppers and retailers alike. Our open air centers, compelling brand mix and focus on value positions us well across economic cycles Favorable market conditions supported by growing local populations, limited new retail center development and consolidation and department store business continue to contribute to broad and diversified leasing demand across our portfolio, creating an engine for sustained long-term growth. I want to thank our Tanger team members for their hard work and dedication as well as our retail partners loyal shoppers and shareholders for their continued support. I'll now turn the call over to Michael to review our financial results and updated guidance in more detail. Michael Bilerman: Thank you, Steve. For the first quarter, core FFO was $0.59 a share compared to $0.53 a share in the prior year period, which represents an 11% increase predominantly driven by solid internal growth, contributions from our recently acquired centers and modestly higher lease termination income. Same-center NOI, which excludes lease termination income, increased 2.6% and in the quarter with revenue growth coming from higher rents, higher tenant reimbursements and higher other revenues. While we remain disciplined with cost management, the quarter's NOI growth was impacted by elevated snow removal costs, which had been contemplated in the full year guidance range that we provided last quarter and as we discussed on our last call. Our balance sheet remains in excellent shape, and we are well positioned with the flexibility to invest in our portfolio, pursue selective external opportunities and address upcoming debt maturities. At quarter end, net debt to adjusted EBITDA was approximately 4.8x and our interest coverage remains strong. All of our debt is at fixed rates, inclusive of our swaps and with a weighted average interest rate of about 4% and a weighted average term to maturity of approximately 4.5 years once our upcoming near-term maturities are addressed. Our leverage remains below peers as well as below our targets, benefiting from the strong continued EBITDA growth that our platform and company generates, in addition with a below average dividend payout ratio of only 53% of our funds available for distribution, we are retaining additional free cash flow after dividends supporting future growth. In January, we completed a number of significant capital markets transactions, which we discussed on our year-end call that increased our debt capacity, enhanced our liquidity and extended our debt duration lowered our pricing and expanded our bank group. We currently have over $1 billion of immediate liquidity and this includes our cash on hand, short-term investments, the delay draw term loan proceeds and the full availability on our lines of credit, which provide us significant flexibility to fund capital investments, pursue disciplined growth opportunities, advantage our upcoming maturities, which includes the $350 million of unsecured bonds that come due this September and the potential early redemption of our $115 million mortgage in Kansas City, which matures late next year. Subsequent to the payoff of these loans, our only significant maturity will be our unsecured bonds, which totaled $300 million in the summer of 2027 and no other significant maturities until 2030. And now just turning to our guidance. Based on our strong first quarter performance and the outlook for the remainder of the year, we have increased our full year 2026 guidance and now expect core FFO per share in a range of $2.42 to $2.50, which represents 6% growth at the midpoint. Same-center NOI growth guidance remains at 2.25% to 4.25% for the year, and our guidance does not assume any additional acquisitions, dispositions or financing activity beyond what has already been completed to date. We are encouraged by the consistency of our results, the strength of our balance sheet and the visibility into the continued growth that our leasing, marketing and active asset management can produce. We remain focused on disciplined execution and prudent capital allocation to drive long-term value for our shareholders. We look forward to seeing many of you at upcoming conferences and property tours. And with that, operator, we'd be happy and ready to open the call for questions. Operator: [Operator Instructions]. And our first question comes from the line of Andrew Reale with Bank of America. Andrew Reale: First, just on the leasing side. I mean, demand seems to be continuing unabated. That's obviously supporting your remerchandising efforts. So first, do you expect retenanting spreads can continue to sort of run in this mid-20% area through the balance of the year? And then just on retention, Remind us what the retention rate is today. And when might you start to manage retention back up to historical levels? Stephen Yalof: Thanks for the question. With regard to spreads, we're very optimistic about our ability to drive rent in our shopping centers. As sales continue to perform the way sales are performing, I think that gives us the opportunity to continue to grow our rents. With regard to I guess, the second half of your question? Sorry, Andrew. Ashley Curtis: The second half. Well, you've been running reductions for. Stephen Yalof: Our current retention, we're anticipating about 80% of our to renew about 80% of our roll this year, which is probably the lowest it's been in the past 5 or 6 years. just because we see great upside and great opportunity. There's a very deep pipeline of tenants that want to be in our shopping centers. And we're going to take advantage of that opportunity. Our retenanting spreads are far higher than our renewal spreads. So in this environment, with limited new development and department stores in many of our geographies closing. We understand the retailers really want to put their brands in front of the customers, and we think our open-air shopping center platform is exactly in place that they want to do it. Ashley Curtis: Okay. And then maybe just on the same-store growth. You noted that was burdened by snow removal in the quarter, which was no surprise. But I'd be curious if you could quantify where that same-store growth would have been ex the snow removal. And then your range still implies a somewhat broad range of outcomes. So I was wondering if you could maybe speak to some of the swing factors that could still drive you to the high or low end of your same-store range through the balance of the year. Michael Bilerman: Thanks, Andrew. So the snow relative to last year you've [indiscernible] about $0.01 that impacted it year-over-year. So probably about 100 basis points to that same center growth in the first quarter. As you saw, the expense growth was about 4%, and we've been able to keep our expenses at pretty low levels. As you mentioned, that was contemplated in the full year guide, which is why the 2025 and 4.5% has maintained. At this point of the year, it's still early, and we have a lot of confidence in our business, a lot of confidence in the range. We still run a very operationally intensive business. So as we move through the year, there's going to be some variability still on sales. As you saw in the first quarter, our percentage rents were up, but there's still uncertainty as we move through the year. There's obviously still as we are retaining a lot of space, the downtime and the ability to bring those tenants in on time. We still have an uncertain macro environment. And so there's things that could take us at each part of the range. But as we sit here today, we're optimistic that we can continue to deliver solid growth. And with the amount of leasing that we've done, we'll be able to update you in 90 days. Operator: The next question is from the line of Craig Mailman with Citi. Craig Mailman: I know you touched on the higher lease termination fees really just being part of that intentional remerchandising effort. Could you just walk through how much of that is sort of F&B related as you guys progress that initiative versus just traditional retail and kind of what the as you guys are looking at that, the NPVs that you're looking at to take, I know your downtime is less than others in your space, but even so the downtime, the TIs, can you just kind of walk through the economics of that thought process? Michael Bilerman: Sure, Craig. I think you hit it at the beginning that these are deals that we have to agree to. These are negotiated transactions where a tenant has a lease. And if they want to get out we have to come to an agreement of value that we want to get out of it. And if we have certain opportunities. We're going to take that advantage to get an NPV for a significant amount of the rent that's due to us under the lease. And so in this case, there's not a lot of space but it had some term in credit, and we were able to bank that and then go ahead and release the space. Our TAs are pretty low relative to other asset classes. And so that term fee allows us to fund that and then be able to create growth with a better tenant down the road. Craig Mailman: And then just on the F&B side, I mean part of that question was just how much of it is that initiative? And I guess, IND baseball partnership, things like that, where these sports initiatives, I'm assuming part of that appeal is the F&B part. I mean I know the retail is also interesting to them as they try to kill tie between games and things. But kind of what's the -- as you guys craft those partnerships, like how much is the move towards F&B a bigger piece of that as you guys trying to get that type of customer in the door. Stephen Yalof: So for us, I think 1 of the things we've been talking about with regard to the evolution of our portfolio over the past 5 or 6 years, was that as demographics have shifted. Our centers have become a little bit more of the go-to local shopping destination for the communities that we serve. And in light of that, we found that, that consumer is looking for a lot more than just a shopping experience when they come and they visit us. So using peripheral and, in some instances, some of the in-line space to create food and beverage opportunities has served us extraordinarily well because we're seeing customers come in and take on multiple visits. So that would be a piece of our business has been a really important strategy. As we talk about the Cal Ripken partnership where we have a lot of overlap between where they have their setups and where we have shopping centers across the country, I get a prudent beverage part of our shopping center platforms is critically important. Because we'll get those families in between games that want to come to our properties. They'll want to shop, but they'll also want to place to dine and be entertained. So that plays perfectly into the strategy that we've been executing to for the past number of years, we can now take advantage of it because we're able to provide that customer and the families, the things that they're looking for as they have some downtime. So it's been turned out to be quite a fruitful partnership and one1 that we're looking to grow this year and in future years. Operator: Our next question is from the line of Michael Griffin with Evercore. Michael Griffin: Steve, I'm curious if you can expand a bit on to any insights into shopping patterns or customer behavior you're seeing at your centers. Just given higher gas prices over the past couple of months, is there a worry that a sustained increase here could impact demand for shopping at your centers? Or have you not seen that so far? Stephen Yalof: Well, I'm really impressed with how resilient our customers have been. We went into 2026, thinking that we had a whole host of tailwinds that we're going to serve as a great increase to both traffic and sales. And I guess with the crisis of the Middle East and gas prices being what they are, that being we still were able to drive an increase in sales and an increase in traffic in the first quarter. So the resiliency of the customer has been a wonderful thing. I think it goes back to what I said to Craig in the previous question, we're no longer just reliant on that drive to tourist customer coming to our centers where that gas price issue was a much bigger issue in years past. Now because we're part of that local shopping experience for a lot of our customers. I think the gas issue as far as where they choose to travel has been somewhat mitigated. Obviously, everybody is still competing for share of wallet. So as gas prices go up and our customer becomes more constrained. Thankfully, our shopping centers or from value every day. And I think that value proposition where our customers, which are typically an aspirational customer, they're looking for the brands they love at the best possible price every day, and that's what we offer across our portfolio. Michael Griffin: Steve, that's very helpful. Maybe switching to external growth next. Michael, I'm curious, it looks like the balance sheet is primed to go on offense, given the capital markets execution at the beginning of the year. Can you talk a little bit about the opportunity set in the transaction market today? Are you seeing more deals on outlets versus lifestyle centers? And can you talk about what returns you're underwriting to maybe relative to your cost of capital? Michael Bilerman: Thanks. Our pipeline remains active, and it remains active across the two unique verticals that we are active in, which are both complementary and synergistic to each other between the outlet business and the open-air lifestyle business. And where we're really leaning in is where our platform can add value. Where can we see value from our leasing, operating and marketing platforms and what can we do to drive value of that asset from an asset management perspective. We're optimistic that we can continue to find opportunities but we're not programmatic. It's a big country, and we'll announce deals when we do them. What we're really looking for, Griff, is the ability to go into an asset. It's not that initial yield. It's the growth that can be attained over time so that we're driving an attractive return on our invested capital. I would say there's more product coming to market as I think retail overall, there's a lot of positives that you're seeing from a demand perspective. Obviously, you know about the low supply and generating the returns relative to other asset classes, there's definitely more interest. We think we are pretty unique as an owner operator to be able to come in to certain assets and drive growth overall. Unknown Executive: To share a little bit on the leasing between the two platforms. Yes. So from the standpoint of just -- look, we have a tremendous amount of demand in both platforms. And being involved in the lifestyle platform has absolutely opened up the ability to bring some of those brands that historically have not been in the outlet channel into the outlet channel. And as you know, Michael, we are hybrid-ing some of our assets on the outlet side. And we're seeing great sales increases. We're seeing, as Steve mentioned, an increase in traffic, and that has to do with us having that blend of both full price and all. Operator: Our next question is from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just hoping you could talk a little bit about the bankruptcies or closures and how that may affect results or the trends of growth in same-store and otherwise, for the balance of the year, given what's been announced today and how we should incorporate that in our forecast. Michael Bilerman: Thanks, Juan. As we discussed last quarter, our range contemplated range, our guidance range had a range of credit outcomes. And at that point, we obviously knew about any Bower, Francesca's and Saks. I think you saw some of that impact in the first quarter. where those bankruptcies happened, but the other part is if you look at our leasing activity, we've already executed more of our renewal activity than we did last year. And as Steve talked about in the opening comments, we've already executed backfield deals either on a permanent basis or a short-term temp basis for a lot of that space. And so our guidance range of 2.25% to 4.25% still contemplates and takes into account all of these risks. And I would just say from a cadence perspective, we would expect 2Q to have most of the brunt of that those tenants have come out, we put temper firm as those come into the back half of the year. And so you may just see a little bit of a different seasonal impact as we move through the year, but coming out with pretty attractive growth at 3.5% at the midpoint. Juan Sanabria: Okay. So the cadence of the second quarter it would be both on occupancy and same-store NOI or just to confirm. Michael Bilerman: You see it more on same center than you will in occupancy because occupancy is period end, and we may have temp in there, but just from the timing during the quarter, you may see some of that from a revenue perspective as we build that firm and rent basis through the end of the year. Juan Sanabria: Great. And then just as a follow-up, you mentioned the closures of department stores as a benefit to your centers. Just curious if you have any case studies what a department store closure in your trade area where there's an overlapping Tanger Center has meant for sales or for traffic? Anything that you could highlight as -- and as an output of what we're seeing with the consistent kind of closures and whittling down of the department stores? Stephen Yalof: Yes. Look, when we saw -- particularly in the Southeast, where we have most of our shopping centers, we saw over the past couple of years, closing some of the majors, those brands are looking for a place to replace that sales volume. In some of the markets, the only place to do so is in one of our shopping centers. places like between Hilton Head and Myrtle Beach, Daytona, Florida, Charleston, Savannah, A lot of those centers were built 15 or 20 years ago where they didn't have sort of proximity to the large regional shopping centers because the retailers wanted to -- we're concerned about that wholesale sensitivity. Now what we're finding is people are moving closer and closer to those geographies and looking for those particular brands and the stores that they were shopping have started to close we see either retailers getting bigger in our centers or opening up new stores and taking their footprint -- making their footprints larger and larger across our portfolio. Operator: Our next question is from the line of Greg McGinniss with Scotiabank. Greg McGinniss: So it's no secret that the acquisition environment is particularly competitive right now, but we've also seen your weighted average cost of capital improved with the higher equity value, strong balance sheet. Can you give a little more color on transaction market? Are you seeing much worth acquiring? What makes the asset attractive to you today? And what sort of cap rates or IRRs are you targeting? Michael Bilerman: Thanks, Greg. The market is competitive, but at the same time, there's more product on the market. And so I think you have those two things going at the same point. And at our size, we don't have to do a lot. We're just over a $6 billion company. And if we're able to find really interesting, unique assets that fit our platform and when you look across our 41 assets, we're in a lot of places that other people aren't. We operate with boots on the ground at every single one of our assets. These are very operationally intensive assets that are supported by a national platform that has deep experience from a leasing, operating and marketing perspective. And we think that's a big competitive advantage when we look at assets within the outlet side of our business as well as open air lifestyle, and we're optimistic that we'll be able to continue to find product to grow this platform accretively. And as you said, our cost of capital has improved, but at this point, we're sitting on significant both leverage capacity being down at 4.7%, 4.8% from a debt-to-EBITDA perspective. but also from just a pure liquidity perspective, with over $1 billion of immediate liquidity, we have the ability to deploy capital without the need to raise additional at this juncture. Greg McGinniss: Okay. And then where do you see the biggest opportunities kind of within the portfolio to improve tenant offering over the next few years? And given the level of demand that you're seeing, does this open up additional potential densification or redevelopment opportunities? And I guess following along with that, where do you see as the kind of minimum underwriting threshold for that type of investment? Stephen Yalof: I'll let Michael talk about the investment side, but just the opportunities. I think we still have a lot of opportunity in our organic portfolio. So as we're incredibly active out in the acquisitions market right now, as Michael just talked about, the ability to take whether it's a Saks box or repurpose some of these stores that have closed due to bankruptcy or as I talked about at the beginning of the call that we're at an all-time low in terms of our retention rate we're creating these new opportunities across our portfolio because we're at a point in time where retailer demand is high and demand and supply of space is low. So where our retenanting spreads far ops renewal spreads and we've got the opportunity to leverage our capital in order to make some of these changes across our portfolio, we're extraordinarily active. Leasing at 3.4 million square feet over the past year is an all-time high. I think that's reflective of the tenant size market. So we're very active. We're playing in that arena in a big way. And from an organic point of view, I think there's a lot of growth potential for us downstream. Michael Bilerman: Yes, Greg, I think we -- as the portfolio has continued to improve from a merchandising standpoint, that gets more opportunity. And the other factor that's coming in is the markets that we operate in have seen significant population growth. When you look at our entire portfolio, we've grown the national average and within the local parts growing even faster than the MSA. So as we invest capital, we see a very positive double-digit returns as we invest that capital to either densify, whether it's on our peripheral land or redevelop within the center to create even more space for our tenants. Operator: Our next question is from the line of Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I guess you just went through how you don't need to raise equity at this point, which makes sense. I'm just wondering if you could go through maybe what situation or conditions would make you issue again, given where leverage is, is it really dependent on acquisitions? Or yes, what could drive that in the future? Michael Bilerman: Follow about being prudent and disciplined and depending on the level of external growth, we would look to obviously maintain a conservative balance sheet. As we sit here today, as you know, we're generating between $80 million and $100 million of free cash flow after our dividends. We're growing our EBITDA. So there is natural built-in leverage capacity or capital capacity even if we don't raise equity. And if you think about, we've deployed $800 million over the last 3 years, we've only -- we've raised small amount of equity relative to that size as we've taken advantage of that free cash flow and EBITDA growth and actually over the last number of years, we've actually delevered a half a turn. So we feel good about where we are, and we would look at equity at that time depending on where the market is. Caitlin Burrows: Okay. Got it. And then maybe, again, on the leasing side, you guys talked about how you're kind of managing retention because the interest in the tenants is so high. Could you give some more color on which kind of tenants that are driving that retenant and activity? And then as you think of all the properties you own, are you seeing that interest kind of trickle down further into maybe some of the properties that are not your top performers? Stephen Yalof: Yes, Caitlin, it's -- we talked about our -- we have about 67% of our renewals done, and that was a strategic and surgical approach this year because we have tremendous demand with new brands that want to be in our portfolio. And so we jumped out in front of it. We got a lot of it done. So the team can focus on the new business. And as you know, we've put a lot of effort and time and power behind our expansion with food, beverage and entertainment. If you go back to 2019, where our portfolio was very heavy, footwear and apparel is about 80% of our tenant mix. It's now down to 70%. It's because we're going after entertainment brands. We're going after health and beauty brands, we mentioned food HomeGoods is a growing category in our portfolio. So there's a lot of demand. We're going after the retenanting, the returning spreads, as you know, are higher than our renewal spreads. So that's where our strategy is. And we're going to continue to go after that because that's where we see the greatest opportunity to grow NOI. Operator: Our next question is from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I guess sticking with that last line of questioning or the discussion there, Justin, can you talk a little bit more about that mix today between some of the traditional outlet retailers and mixing in some of the full price or non-outlet retailers, what that mix looks like today, how it's sort of evolved over the last, say, 2 years or so? And then how much does that equation tilt over time across the portfolio toward non-outlet or full-price tenants? Stephen Yalof: Yes. So we look at every one of our properties on a market-by-market and case-by-case basis. You take an asset like Deer Park, Long Island, where it's a very densely populated community that we serve. That property has the opportunity to be more hybrid in nature versus you take a center like severe ville, Tennessee, where that is a power shopping outlet experience. So we look throughout our portfolio, to, and we're going to determine which centers have the opportunity to be more hybrid and bring in some more of that full price mix. But we also have to keep in mind, it's very important. Our consumers come to our centers and they're looking for the world's best brands at the best possible value. So that's on us to determine the right mix type of full price in the outlet channel, and we're going to do that on a case-by-case basis throughout the portfolio. Todd Thomas: Okay. And does this change the way we should think about the portfolio's occupancy cost ratio target over time? I think we used to talk about the portfolio sort of being in the maybe 12% or 13% range. It's 9.7% today. As we think about that long-term target bringing in more non-outlet retailers does that sort of change the formula for the way we should think about the portfolio and potential for rent upside over time? Stephen Yalof: Yes, it does. I think at 9.7%, I think there's still a lot of headroom for us to continue to grow rents. You got to remember, our 9.7% has stayed flat, but our sales performance has gone up. So that still means that our NOI continues to grow, but we're going to continue to push rents. We see that opportunity by replacing a lot of the underperforming retailers with better performing retailers. We talked I guess, a year ago about Sephora coming into our portfolio, and they are delivering on the sales line. And if you take a look at who they replaced, we're seeing great sales upside opportunity. that sales per square foot is the number upon which the OCR is based. And as we continue to grow our sales performance on a per square foot basis and drive rents, it has a multiple effect on our ability to grow NOI Todd Thomas: Right. What have OCRs look like on like new lease deals, say, over the last 12 months on a trailing 12-month basis? Is there a way to quantify that and help us just kind of understand where new lease deals are getting executed? Stephen Yalof: Todd, it's going to be a range of different OCRs there depending on the type of industry or use of these tenants, depending on the center, depending on how we view the tenant at the center. There's a lot of different factors that are going to go into that. And so it's hard to give an average on those, but we definitely see upside opportunity relative to the in-place OCR across the portfolio. Operator: Our next questions are from the line of Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Pretty fulsome answer so far. Maybe a question on your assets, I think, that are going to see some significant as a landlord, you always want other people to invest right next to you. As you think about your Kansas City and your National Harbor assets. Maybe you can talk a little bit about what you're seeing there and what the potential is. And what you might -- what that might do to those centers? And what kind of investments you could contemplate as the Kansas City Chiefs build their stadium next to the legends -- and as the sphere gets built right next to the National Harbor outlet. Stephen Yalof: Floris, thanks a lot for that question. I talked earlier about organic growth. Organic growth means taking advantage of opportunities on the the existing portfolio. And in the case of Legends, we just closed on a pad right at the entry as an existing restaurant. We see great long-term upside opportunity on that pad. Similarly in National Harbor, we're working with our partners, who we co-own that shopping center with on some future development there as well in light of the fact that the sphere is building on the adjacent property at the MGM in that marketplace. But that's just 2 of 41 centers in our portfolio. And we spent a tremendous amount of time looking at the future opportunities. If you look at Foley, Alabama, we're in the process of doing a remodel and redevelopment of that center because it enjoyed over the last 4 or 5 years, great permanent population growth. And where that center typically serves a tourist market, we're seeing huge upside in the Ripken partnership in the sports tourism business, but also as the local population continues to grow, and that customer relies on that shopping center to be the place where they do most of their shopping we're finding adding additional uses, restaurants, entertainment uses will give the customer the opportunity to come and shop with us far more frequently. That narrative is playing out across our entire portfolio. It's been a strategy of ours for the past 5 or 6 years. We've been executing to it. Justin talked about the new uses that we're putting in the shopping centers. And I think we're going to continue to see that helped us continue to drive NOI long term and sustained in that existing portfolio. Operator: The next question is from the line of Mike Mueller with JPMorgan. Michael Mueller: I guess first, are there any outlet development opportunities on the horizon? Or is it just nothing making sense for you today? And I guess, similarly, you bought some chunkier lifestyles. Are there any meaningful expansion or outparcel opportunities with those? Stephen Yalof: Football, I think there's a number of great markets where -- and outlet centers are coming closer and closer to the main markets it's opened the door for a number of great markets to build outlet shopping centers, evidenced by our center that we built a few years ago in Nashville. The economics right now of building new versus acquiring just our added imbalance -- so we think it's a better use of our capital to acquire in this current market. But that doesn't mean we won't maintain our pipeline of future locations -- so when that dynamic changes, we'll have an opportunity to perhaps get back into some development. With regard to the outparcel business, here, we are proactively seeking out parcels in adjacencies across our entire portfolio. Most notably is the one that we did in Arizona just a couple of years ago where ADOT put a large chunk of land that's immediately adjacent to our Glendale asset. And we took that down. We've now fully brought that space online with a number of different uses a multiple multi-tenant building that helps us take advantage of new food and beverage and entertainment opportunities that are not only adjacent to our property, but literally sit on the same campus as State Farm Arena and Glendale Entertainment District. The synergy of which has created a great flywheel for us to maintain growth and continue to grow that as one of our most productive assets in our portfolio. Michael Mueller: Got it. Okay. And I guess second, how big is the pool of temp tenants that you look to backfill with? And is there a rule of thumb for -- that we should be thinking of in terms of a split between tenants that you'll line up that are using it for incubator test base versus others that just may make kind of a recurring business out of these shorter-term stores? Stephen Yalof: Yes, there's a number of different uses. But we talked about the strategy of 10 years. Obviously, the cheapest rent in our portfolio is a temp tenant that goes in on a 30-day lease and will move from space to space, and keep spaces occupied while we have some frictional vacancy and we're waiting for new tenants to come in. The most expensive leases in our portfolio are the ones where the retailer wants to come in for the Halloween season or the holiday season, and we take advantage of those opportunities if we have vacant space to bring tenants in for that, too. But I think what you're referring to is the pop-up strategy, look, there's a lot of barriers to entry in the outlet business for retailers because many of those retailers aren't ready to sign a 10-year lease, day 1, not knowing how much excess inventory they have or if they'll be able to continue to flow goods into a store to create a sustainable business. In that connection, we've done a really good job working with retailer partners to give them the opportunity to sort of try before they buy using that pop-up strategy to see if they'll be successful. And we've had some great results doing that. We've also tried some retailers where it simply didn't work out. But some of the great results are our partners inventory burgers, our partnership with Vineyard Vines, with UGG, and some of these stores that start out as short-term pop-up leases that ultimately convert into higher paying rent tenants over time that proliferate across our portfolio. Operator: Our next question is from the line of Naishal Shah with Green Street. Naishal Shah: This is Naishal on for Vince today. I was just curious if you could shed a little bit more light on what is expected for property operating expenses for '26 versus last year? I appreciate this is probably a very lumpy line item and once you may be elevated given the snow removal costs. But any color you could provide would be helpful. Michael Bilerman: Hi, Naishal, we guide same center NOI. We don't break out sort of expense relative to revenue in part because there's different strategies. And as you said, the OpEx is more variable, and we will be able to provides as we drive overall NOI growth, you'll see continued growth overall in the top line, and we try to mitigate as much of that expense pressure through just cost containment measures ultimately to drive as much long-term NOI growth within our business. And I think you look for the last -- for 5 years, we've been able to drive pretty attractive same-center NOI growth and we continue to see opportunities to grow our revenues, as Steve talked about, still being at 9.7% OCR, the leasing demand that we're seeing, the growth in our other revenues. And then from a sales perspective, you've seen our sales now go over 84 a foot, yet our OCR is still very low. And so we feel like that provides us continued opportunity to drive revenue. And then we look at every one of our operating expenses to try to mitigate as much of that expense growth as possible, some that's in our control and obviously some that were holding to the macro environment. Naishal Shah: Great. And then maybe just a quick follow-up. On the occupancy composition today, could you shed maybe a little bit more light on [indiscernible] portfolio today as a percent or as a proportion of total occupancy and how this compares with previous years? Michael Bilerman: Sure. We're about 10% today. We came down a little bit coming out of the fourth quarter which is always a seasonal high. And as we move -- will probably have a little bit higher temp as we move through some of the bankruptcies in the near term and then exit the year into '27 with a higher permanent base. Operator: Thank you. I'll now turn the call back over to Stephen Yalof. Stephen Yalof: Thank you very much. As many of you are aware, Mr. Tanger will be retiring from our Board next week. And I'd like to take a moment to say thank you. Thank you for building this foundation of this great company, and thank you for your years of leadership and mentorship to me and our management team. I look forward to our continued relationship as we remain an adviser to Tanger. And now I'd like to turn it over to Mr. Tanger. Steven Tanger: Good morning. Next week, as previously announced, I will retire from Tanger's Board and step into the role of Chair Emeritus. An opportunity, I am honored to accept. Since taking Tanger Public 33 years ago, this journey has been defined by the support, trust and friendship of the investor community, and I am deeply grateful to each of you who has been part of that history with us. I have great confidence in the strength of our board, our leadership and the entire Tanger team, I know the future of this company is in very capable hands, and I could not be more excited about the path ahead. Thank you again for your continued support of Tanger. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Greetings, and welcome to the Weyerhaeuser First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Andy Taylor, Vice President of Investor Relations. Thank you. Mr. Taylor, you may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's first quarter 2026 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported first quarter GAAP earnings of $156 million or $0.22 per diluted share, net sales of $1.7 billion. Excluding special items, we earned $77 million or $0.11 per diluted share. Adjusted EBITDA totaled $308 million, a 120% increase over the fourth quarter. These are solid results, and I'd like to thank our teams for their continued focus and operational performance. Through their efforts, adjusted EBITDA improved across each of our business segments compared to the prior quarter, a notable achievement against the backdrop of elevated macroeconomic uncertainty. Before getting into the business results, I'll provide a quick update on previously announced actions to optimize our portfolio. In February, we completed the divestiture of non-core timberlands in Virginia for $192 million. And in April, we received $22 million in proceeds following the transfer of our timber licenses in British Columbia to the buyer of our Princeton Mill. This represents the final proceeds associated with the Princeton transaction. I'll also highlight some recent advancements associated with our Wood Products growth strategy. First, we were excited to preview two new products, AeroStrand and Pro Panel at the International Builders Show in February. We're committed to delivering products that meet the evolving needs of our customers, and these represent the first of many new and innovative products that we intend to introduce over the next several years. Feedback thus far has been overwhelmingly positive, and we expect strong demand for both products as we bring them to market. And finally, we expanded our distribution footprint in the first quarter, opening a new location in Billings, Montana, and announcing a new facility in Gallatin, Tennessee, near Nashville, which will be operational by year-end. Both sites support our strategy for continued growth of Weyerhaeuser's proprietary products in strong and underpenetrated markets. With these new facilities, our distribution network expands to 22 locations. And as we laid out at our Investor Day, we see opportunities for additional growth through 2030. Turning now to our first quarter business results. I'll start with Timberlands on Pages 6 through 9 of our earnings slides. Excluding a special item, Timberlands contributed $57 million to first quarter earnings. Adjusted EBITDA was $120 million, a 5% increase compared to the fourth quarter. In the West, adjusted EBITDA was $58 million, a $13 million increase over the prior quarter largely driven by higher sales volumes and seasonally lower costs. Starting with the Western domestic market, log demand and pricing improved in the first quarter as mills responded to strengthening lumber prices and seasonally lower log supply. As a result, our average domestic sales realizations increased moderately compared to the fourth quarter. Our fee harvest volumes were slightly higher and per unit log and haul costs decreased as we made the seasonal transition to lower elevation and lower-cost harvest operations. Forestry and road costs were seasonally lower. Moving to our Western export business. Log markets in Japan were muted in the first quarter in response to ongoing consumption headwinds in the Japanese housing market. As a result, our customers' finished goods inventories remained elevated and log prices decreased. Despite this dynamic, our customers remain well positioned relative to imported European lumber, which continues to face headwinds in the Japanese market. For the quarter, our average sales realizations for export logs to Japan were moderately lower and our sales volumes were moderately higher, largely due to the timing of vessels. Turning briefly to China. We remain in the early stages of reestablishing our log export program to strategic customers in the region. However, our shipments have been limited to date, largely driven by ongoing weakness in the Chinese real estate sector and the seasonal slowing of construction activity around the Lunar New Year holiday. For the first quarter, we delivered one vessel to China, which was comparable to the prior quarter. Turning to the South. Adjusted EBITDA for Southern Timberlands was $62 million, a $7 million decrease compared to the fourth quarter. Despite improved pricing and takeaway of lumber, southern sawlog markets remain subdued in the first quarter as log supply outpaced demand given drier-than-normal weather conditions. With respect to Southern fiber markets, demand and pricing moderated in the first quarter as mills reduced consumption ahead of spring maintenance outages and in response to lower takeaway of finished goods. On balance, demand for our logs remained steady given our delivered programs across the region, and our average sales realizations were comparable to the fourth quarter. Our per unit log and haul costs were also comparable and forestry and road costs were higher. Our fee harvest volumes were slightly lower in the first quarter. In the North, adjusted EBITDA was comparable to the fourth quarter. Turning now to strategic land solutions on Pages 10 and 11. As a reminder, this is the new name for our Real Estate, Energy and Natural Resources segment. Starting this quarter, we're expanding our disclosure for this segment to three business lines: Real Estate, Natural Resources and Climate Solutions. The new name reflects our broadening scope and growth focus across these businesses, and the new reporting structure enhances the cadence of disclosure for our Climate Solutions activities. In the first quarter, Strategic Land Solutions contributed $169 million to earnings. Adjusted EBITDA was $193 million, a $98 million increase compared to the fourth quarter. This reflects a very strong quarter for the segment, largely driven by the timing and mix of real estate sales and the completion of a $94 million Conservation Easement transaction in Florida. As we discussed last quarter, the conservation transaction conveyed approximately 61,000 acres of Weyerhaeuser Timberlands to a larger wildlife corridor, restricting future development and protecting habitat for a variety of species. Notably, the easement allows Weyerhaeuser to retain ownership of the land for continued sustainable forest management. As for the rest of the segment, real estate markets have remained solid year-to-date, and we continue to capitalize on steady demand and pricing for HBU properties with significant premiums to timber value. For the quarter, our results reflect a sizable increase in real estate acres sold, which is a typical trend for this business in the first quarter. Our average price for real estate sales declined from the record level achieved last quarter, which benefited from several high-value development transactions in South Carolina. Now moving to Wood Products on Pages 12 through 14. Excluding a special item, Wood Products contributed $14 million to first quarter earnings. Adjusted EBITDA was $71 million, a $91 million improvement compared to the fourth quarter, largely driven by an increase in lumber and OSB pricing. Starting with lumber. First quarter adjusted EBITDA was $27 million, an $84 million increase from the prior quarter. The framing lumber composite strengthened in the first quarter as buyers work to replace lean inventories into the spring building season, but face supply constraints from previously enacted curtailments and closures. While this dynamic was felt across the North American market, it was most acute in Southern Yellow Pine, which experienced a significant price increase during the quarter. For our lumber business, average sales realizations increased by 15 -- by 13% compared to the fourth quarter. Our production volumes increased as we return to a more normal operating posture following market-related production adjustments in late 2025. As a result, our sales volumes increased slightly and unit manufacturing costs were lower. Log costs were comparable to the prior quarter. Now turning to OSB. First quarter adjusted EBITDA was $3 million, a $13 million increase compared to the fourth quarter. OSB composite pricing entered the year on an upward trajectory as demand improved slightly leading into the spring building season. By February, pricing stabilized and remained steady for the balance of the quarter. As a result, our average sales realizations increased by 8% compared to the fourth quarter. Our production and sales volumes were slightly lower, largely driven by temporary winter weather disruptions early in the quarter. Unit manufacturing costs were slightly lower and fiber costs were slightly higher. Adjusted EBITDA for engineered wood products was $39 million, a $10 million decrease compared to the fourth quarter primarily due to lower average sales realizations for most products and higher raw material costs, most notably for OSB web stock. Our sales volumes for solid section products increased slightly, while I-joists volumes were comparable to the prior quarter. Unit manufacturing costs were also comparable. Although EWP sales volumes and pricing held up reasonably well, demand was softer than our initial expectations early in the first quarter. That said, we saw a slight uptick in order files in March, and we expect our sales volumes to increase seasonally in the second quarter. Moving forward, demand for EWP products will remain closely aligned with new home construction activity, particularly in the single-family segment. In Distribution, adjusted EBITDA improved by $7 million compared to the fourth quarter, largely due to higher sales volumes. With that, I'll turn the call over to Davie to discuss some financial items and our second quarter outlook. David Wold: Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 16. We ended the quarter with approximately $300 million of cash and total debt of $5.4 billion. During the quarter, we repaid our $150 million, 7.7% notes at maturity. We returned $151 million to shareholders through the payment of our quarterly base dividend and approximately $10 million through share repurchase activity in the first quarter. Capital expenditures were $112 million in the first quarter, which includes $30 million related to the construction of our EWP facility in Arkansas. As we previously communicated, we anticipate approximately $300 million of investments for Monticello in 2026, and as a reminder, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our cash return framework. During the first quarter, we generated $52 million of cash from operations. It's worth noting that first quarter is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. First quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment decreased by $27 million compared to the fourth quarter primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the second quarter are presented on Page 18. In our Timberlands business, we expect second quarter earnings before special items and adjusted EBITDA to be comparable to the first quarter of 2026. Turning to our Western Timberlands operations. We expect steady log demand in the domestic market in the second quarter as mills respond to improving lumber takeaway through the spring building season and build log inventories ahead of fire season. At the same time, log supply is expected to increase as weather conditions improve seasonally. On balance, this should translate to a fairly stable domestic log market. We anticipate our average domestic sales realizations will be slightly higher than the first quarter as price increases in April are expected to hold steady through quarter end. Given seasonally favorable operating conditions in the second quarter, our fee harvest volumes and forestry and road costs are expected to be higher, and per unit log and haul costs are expected to increase as we move to higher elevation sites and in response to elevated fuel costs. Moving to our Western Export Program. We anticipate log markets in Japan and China will remain relatively stable in the second quarter, albeit at reduced levels. As a result, our log shipments and pricing are expected to be comparable to the first quarter. That said, export costs have increased in response to the Middle East conflict. Turning to the South, log inventories were elevated at the outset of the second quarter, and log supply is expected to increase seasonally. As the quarter progresses, we anticipate relatively stable sawlog demand, while fiber demand remains soft in response to spring maintenance outages and lower takeaway of finished goods. On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region, and we anticipate our sales realizations will be comparable to the first quarter. Our fee harvest volumes and forestry and road costs are expected to be higher due to drier weather conditions that are typical in the second quarter, and we anticipate moderately higher per unit log and haul costs, largely due to increased fuel costs. In the North, our average sales realizations are expected to be moderately higher than the first quarter due to mix and fee harvest volumes are expected to be significantly lower given spring breakup conditions. Moving to Strategic Land Solutions, or SLS. We continue to expect full year adjusted EBITDA of approximately $425 million. And given our new segment disclosure framework, basis is now provided as a percentage of total SLS sales and is expected to be between 20% to 30% for the year. Real estate markets have remained solid year-to-date, and we expect a consistent flow of transactions with significant premium to timber value as the year progresses. Additionally, we expect to deliver steady growth from our Climate Solutions business in 2026. For the second quarter, we expect SLS adjusted EBITDA will be approximately $70 million lower and earnings will be approximately $80 million lower than the first quarter of 2026, driven by the sizable conservation unit transaction in the first quarter. We expect this to be partially offset by stronger results from our real estate business due to timing and mix. For our Wood Products segment, we expect second quarter earnings before special items and adjusted EBITDA to be comparable to the first quarter of 2026, excluding the effect of changes in average sales realizations for lumber and OSB. Notably, we expect improved sales volumes across all Wood Products businesses as we get deeper into the building season. This will be offset by higher costs in the second quarter, largely driven by inflationary pressures related to transportation and certain raw materials as well as planned annual maintenance outages at three of our OSB mills. As for product pricing, we're encouraged by the recent upward momentum in lumber. As shown on Page 19, our current and quarter-to-date average sales realizations for lumber are significantly higher than the first quarter average, while OSB realizations are slightly higher. For our Lumber business, we anticipate higher sales volumes and slightly higher log costs in the second quarter. Our unit manufacturing costs are expected to be comparable to the prior quarter. For our OSB business, we expect higher sales volumes and moderately higher fiber costs in the second quarter. Our unit manufacturing costs are expected to increase, largely due to the previously mentioned planned outages and higher prices for resin. For our Engineered Wood Products business, we anticipate higher sales volumes for all products in the second quarter and comparable average sales realizations. Raw material costs are expected to be slightly higher. For our Distribution business, we expect adjusted EBITDA to be slightly higher compared to the first quarter as sales volumes increased seasonally. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, Davie. Before wrapping up this morning, I'll make a few brief comments on the housing and repair and remodel markets. Starting with housing. After a lackluster 2025, the housing market remains largely stuck in second gear. Based on conversations with our homebuilder customers, the biggest issues continue to be weak consumer confidence and ongoing affordability challenges. And more recently, the conflict in the Middle East has reinvigorated inflationary pressures and elevated uncertainty around the economy. Further, after briefly dipping below 6%, mortgage rates have ticked back up to around 6.3% here recently. Given these headwinds, the spring building season has gotten off to a somewhat softer start than we were expecting at the outset of 2026. However, we're still fairly early in the year. So there's certainly time for the housing market to pick up some momentum, especially if we see a resolution in the Middle East or if mortgage rates trend lower. I'd also note a few positives on housing. First, we did see a much better March starts number than we were anticipating. Plus, we've seen a slight pickup in mortgage applications here recently. Additionally, there have been some positive developments on the policy front with recent executive orders and the potential for bipartisan legislation on housing, which could be an additional tailwind over time. But that all being said, in the near term, I suspect we'll continue to see choppiness in the housing market as consumers navigate ongoing affordability challenges and uncertainty around the economy. Our longer-term outlook on housing fundamentals, however, remains favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to the repair and remodel market. Activity has been steady, but has lacked a clear catalyst, largely driven by many of the same factors impacting the residential construction market. We do expect to see the typical pickup in activity as we get deeper into the building season, and more broadly if interest rates move lower, and we get some improvement in existing home sales. In addition, we think the dynamic around deferrals of large discretionary projects over the last few years, will ultimately serve as a tailwind, particularly as the macro environment improves. But similar to the housing market, a material pickup in repair and remodel activity likely will require an improvement in overall consumer confidence. Putting the near-term uncertainty aside, our longer-term outlook continues to be positive as many of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. In closing, we delivered solid results across our businesses in the first quarter. In addition, we advanced key growth initiatives in our Wood Products business and made progress on actions to further optimize our portfolio. We're encouraged by the recent increase in lumber prices, and we're well positioned to navigate a range of market conditions, and we remain focused on serving our customers, driving operational excellence and advancing our strategy to accelerate growth and deliver significant long-term value for shareholders. With that, I think we can open it up for questions. Operator: [Operator Instructions] Our first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is looking at the Wood Products. It's nice to see how the margins there came back specially in lumber. Can you talk about your ability to continue to drive profitability really across your wood products. As you think about the potential for prices to hold maybe flat sequentially, especially with lumber, and how the changes in supply and demand are -- and your positioning relative to that will come into play? Devin Stockfish: Thanks, Sue. I think that's a really good question, particularly with respect to the supply demand dynamic. Obviously, we have been operating in a challenging housing environment over the last several years. And that's put a lot of pressure on pricing across most of our products, and that's true across the industry. One of the things that I think it's really important to understand about our business and the potential for profitability is that -- of course, we would like to see housing improving, and I do ultimately think that will happen for a variety of reasons, and we've discussed that in previous calls. But ultimately, what drives profitability in our business is the supply-demand dynamic across our product lines. And I think you saw a really good example of that in the lumber business in Q1. We would love to see housing starts at $1.5 million. But as you look back over the last several decades, there have been plenty of moments in time where we've made significant profits with housing starts well below 1.5. It really comes down to what is the supply-demand dynamic in each individual product line. As we saw lumber prices really at on an inflation-adjusted basis, historic lows last year, we saw the market respond by shutting down and curtailing mills. And that supply impact is really one of the key drivers for what happened with lumber prices in Q1. And so I think that's just a really important thing to keep in mind is that, yes, we think housing will improve, but ultimately, it's about supply-demand dynamics in each product line. Of course, we've been very focused on all the things that we're supposed to be focused on cost, OpEx, we've layered in innovation. We've got really strong brand recognition, customer support, so we're out there battling every day. We've got a lot of upside as you see pricing improve, and you started to see some of that in lumber in Q1. And certainly, at some point, when we see the housing market really return to a more normalized level, there is just a tremendous amount of upside across our businesses and wood products. Susan Maklari: Okay. That's great color, Devin. And then maybe sticking with Wood Products, it's great to hear the innovation and the new products that you launched the Builder Show this year. Can you talk a bit about pipeline that you have there. And as AeroStrand and some of these other offerings, momentum, what that means just in terms of your ability to drive above-average growth? And as Monticello comes online, how you can fill that volume, and what that will mean for the business as well. Devin Stockfish: Sure. One of the things that we've really been focused on over the last few years is better leveraging the resources and capabilities that we have around new product development, particularly in our Wood Products business. We've always had just remarkably strong wood scientists. We've got some brilliant people here in the wood products space, I would say, arguably, we've underutilized them over the last decade, but we've really ramped up that effort. And the new products that we brought out at the Builder Show, Pro Panel and AeroStrand are really the first big ones that we're bringing to market, but we've got a long pipeline. And at the end of the day, it's really all about how do we serve our customers? How do we solve problems for our customers, reducing costs, improving efficiencies helping deal with all of the issues around weather and code. We're in business to serve our customers. And I think one of the ways that we can do that going forward, and I think really distinguish ourselves in the market is through this new product development. So we've got a healthy pipeline, and we're expecting to continue to bring out new products and, I would say, accelerate that as we move forward. But we're really excited about these two. AeroStrand, in particular, that's based off of our timber strand technology. We're going to have a lot more opportunity as we bring Monticello up next year. And so that's just another example of how broad-based the opportunity set is for that timber strand technology. And one of the reasons we're really just so excited about Monticello coming up next year. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: So I was wondering if you could update us on your view in terms of how tariffs and duties will play out over the course of the year relative to your business, Devin. And then relatedly, just -- it's nice to see lumber pricing higher. And certainly, you had a very, very strong operating quarter across from our vantage point across all your businesses. There's been a little bit of a pullback in Southern Yellow recently. What do you think is driving that? Devin Stockfish: So maybe I'll hit the lumber piece, and then Davie can touch on some of the impacts from the tariffs on the business. From a lumber standpoint, we obviously saw a nice run in Southern Yellow Pine and really across the composite, but mostly in Southern Yellow Pine in Q1. I think that was really driven primarily by two key things. Number one, we just saw a lot of supply come out of the system last year. As we've said over the past couple of years, probably 50-ish mills have been shut down or curtailed. And so part of that was just less supply, and that was against the backdrop of coming into 2026. I think just for risk mitigation, a lot of the dealer networks and customers, generally speaking, were carrying pretty lean inventories. And when we moved into the spring building season, there was just a bit of a scramble to get product. You've seen that level off a little bit here in Southern Yellow Pine. It's been a little volatile over the last few weeks. But ultimately, between treaters and multifamily, I think Southern Yellow Pine should hold up reasonably well going forward. I would note, we've also, at the same time, seen a pretty nice run-up in Douglas fir prices. And so obviously, we benefit there. But ultimately, it's really just about, as I said earlier, supply and demand. And we still, I think, have some opportunity for repair and remodel to pick up a little activity, particularly as we come out of some of the colder months in Northern region. So our view is lumber prices at the aggregate level should hold up reasonably well. There may be a little bit of volatility here in the near term with Southern Yellow Pine. But still view that as an opportunity, particularly as you see less SPF coming into the U.S., that's just an opportunity for Southern Yellow Pine. Davie, do you want to speak to tariffs? David Wold: Yes, sure, George. So with respect to tariffs and how that impacts the kind of the cost and procurement on our end. It's another inflationary pressure. Obviously, we've been living in an environment where there's been some level of inflation, a little bit elevated over the last several years. So it's another thing that our teams have to be focused on. Most notably, that's going to affect us in our CapEx program, whether it be steel and aluminum, thinking about the cost inputs there and a variety of other elements across the supply chain in that realm. But ultimately, we've been aware of the tariffs for well over a year, incorporating that into our capital pipeline and the analysis on how we think about the return profile particular project. So like any other inflationary pressure, it's something that we're dealing with, but our teams are focused on disciplined cost execution, ensuring we can minimize the cost there, and we're still looking to get very favorable returns across our capital program. George Staphos: Davie, I appreciate that. Just on duties, what's your view, Devin and Davie, on where duties may reset come late summer versus where they're at right now? Devin Stockfish: Yes. The preliminary results from the AR7 have dropped the duties about 10%. So if that comes in more or less on track where the preliminary duties were set, that would mean the all-in duties would come down from about 45% down to 35%. So that's both softwood lumber duties as well as the 232 10% tariff. And then that should come in somewhere around August, oftentimes, that gets pushed back a little bit into the fall, but that's the general time frame. Operator: Our next question is from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Congrats on a good quarter. Devin Stockfish: Thank you. David Wold: Thank you. Ketan Mamtora: Maybe to start with Devin or Davie, can you talk a little bit about the inflationary pressures you are seeing and specifically thinking about resin for OSB and in general freight transportation costs. Is there a way to quantify either in some sort of sensitivity or just sort of ways to think about what the potential impact could be. David Wold: Yes. You bet, Ketan, it's Davie. I'll take that one. We are, of course, as you'd expect, we're seeing the impacts of higher energy costs as a result of the conflict in the Middle East in several places across our business. In Timberlands, most notably, that's going to be in log and haul costs, fertilizer, transportation as well as ocean freight for our export business. On the Wood Products side, to your point, yes, we are going to see that in resin and additive costs as well as transportation as we think about getting products to customers. Right now, when you take all of that together across the businesses the headwind on a gross basis is about $10 million a month. But that said, we're able to offset a majority of that headwind. As always, we're focused on leveraging our procurement, logistics expertise, to minimize the cost and really focusing on disciplined execution, but we're also able to share some of those costs with vendors and customers, whether that be through log and haul rates or via the delivery costs that are typically passed along to customers. So the net effect of that that's incorporated into our guidance for the second quarter. Of course, we're going to continue to monitor how the macro environment evolves, while continuing to be focused on disciplined execution and cost control. Ketan Mamtora: Understood. Very helpful. And then just switching to capital allocation. Leverage has climbed to sort of 5%, a little over 5% recognized at Q1 as a working capital use quarter, but to the extent we are in this higher for longer environment thousands remains depressed, you've got Monticello investment this year as well. How are you thinking about, one, just sort of the level of leverage and sort of potential options that you could look at to lower it over time, maybe? And would that involve potentially kind of selling from timberlands? David Wold: Yes. Look, as we've said, maintaining that investment-grade credit rating, that's foundational for us. We're going to leverage, or we're going to manage our leverage to a mid-cycle target and we have a lot of flexibility and levers across a wide range of market conditions. I think just to put this in perspective, we're clearly operating at a cyclical low in earnings, and that's going to impact our trailing leverage metrics, particularly when you think about the very low pricing environment we saw over the second half of last year, that's still heavily weighed on that ratio. So again, that 3.5x net debt to EBITDA target is designed to be evaluated over the cycle, not at the trough. And so when we look at leverage through mid-cycle ends, we remain very comfortable with our balance sheet and expect leverage to improve naturally as that EBITDA normalizes. I mean you can do the math on, it doesn't really take that much improvement from current levels to get back to the the 3.5x target. And then just as we think about the capital allocation priorities for the year and how we're navigating that our approach is really going to remain consistent and disciplined. As you know, we're going to evaluate every dollar that we spend and ensure it's allocated in a way that creates the most value for shareholders. We do have approximately $300 million teed up for Monticello this year as well as we're going to continue to invest in our business on a programmatic basis. specifically to that Monticello [indiscernible], and I think it's worth noting that the timberland divestiture, the Princeton proceeds we received in the first quarter, that alone would offset a significant portion of the expected Monticello spend over the course of 2026. So again, we feel really good about the strength of our balance sheet, the work that we've done over the last several years to strengthen and improve the portfolio, and we've got a lot of levers as we navigate these conditions. Operator: Our next question is from Kurt Yinger with D.A. Davidson. Kurt Yinger: I was hoping to start off on the wood products side. Can you just talk a little bit about demand patterns you saw with home center customers over Q1? And maybe specifically looking at March and April, whether the seasonal pickup that you might typically expect occurred or perhaps is just delayed a little bit and pushed back a little bit later. Devin Stockfish: I'd say, overall, the -- it's a mixed view here. When we talk to our customers, I'd say crossed R&R generally, but that includes home centers as well. There's been different views depending on geography, and I do think you've seen the professional segment holding up better than DIY, probably also seeing a little bit more focus on smaller remodeling projects, which typically use a little less wood. So it's been sort of mixed, I would say it's solid. But certainly, we haven't seen as meaningful a pickup because maybe sometimes you do this time of the year. But nevertheless, we still think we're still in the heart of pair and remodel season, some of the colder areas are really just starting to get into the warmer season, and we have a while to go before the South really dialed it back for kind of mid-summer heat. So again, sort of a mixed story to date on R&R thus far. Kurt Yinger: Okay. That makes sense. I appreciate that. And then on EWP, realizations have come in a little bit the last two quarters. Some folks have kind of talked about a bottoming having been found on price in the last couple of months or so. How would you just describe the market balance today in early Q2. Are there any kind of green shoots you're seeing either from a demand or kind of competitive dynamic perspective? Devin Stockfish: Yes. I mean at a high level, a lot of what's been going on with EWP is really just the story of what's happening with family housing. And as we've said, it's just been a more challenging single-family environment here recently, and that's created some downward pressure on pricing. As we think about seasonally, we are seeing a bit of an uptick as you expect. We've seen order files pick up a little bit as we got into March and April, and so that's certainly a positive. I would say just from a pricing standpoint, again, it's very regional in terms of the dynamic. And so that's sort of how we're managing demand and pricing across our portfolio is really market by market. Ultimately to see a meaningful pickup in EWP demand and ultimately, pricing. I think you're just going to have to see improvement in single-family housing, unlike lumber and OSB, where you see a little bit more R&R demand on the EWP side, it's really residential construction primarily. And so we view it as being stable. As we guided for Q2, we think we're going to see comparable pricing with upside on sales volumes, but that's kind of really where we are right now. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: Devin, first, just a question on the very strong or what looks to have been very strong cost performance, particularly in lumber, OSB as well in what presumably was an inflationary environment. I mean, by my numbers, and they could be wrong, it looked like your lumber cost per unit were the lowest they've been for several years. Anything that you want to call out to help us understand, and how sustainable that is, or was it more onetime-ish? Devin Stockfish: So overall, Mark, I think this is really just the continuation of the OpEx and cost focus that we've been working on for a number of years. One of the -- obviously, there are some inflationary pressures, particularly with the Middle East. That's going to be a cost headwind that we have to overcome. But what I would say is just given the tougher operating environment, it's just yet another reason for us to be really clamped down on costs. And so I think from a controllable cost standpoint, the team in Wood Products, and this is really true across the whole business, but they have just been very, very focused on every dollar they spend and making sure that we're being just really, really vigilant on the cost side. You combine that with -- as we moved into Q1, we were able to operate at more normalized rates. For the back half of last year, we were operating a little less than we ordinarily would just because of market conditions. When our business can run full, we are in a very, very strong cost position. And so I think it's just a combination of continued vigilance on controllable costs and really operating the mills at normal levels, that really puts us in a good cost position. So there's no reason to think that, that can't continue going forward. Mark Weintraub: Okay. Great. And I'm just curious because I thought I heard you said volumes were a little bit weaker than you had expected, but you were -- but at the same time, you just said you were running full. Did you build some in? I guess we could see this in your financials, et cetera, but had you built inventory in the first quarter, or how do we square... Devin Stockfish: I'd separate that. So I think what I said was really just with respect to the back half of last year, we were operating a little below normal because of market conditions. We did build a little inventory separately on the lumber side and OSB for that matter just because we typically build a little bit of inventory in Q1, just so that we are prepared for the full building season, which is pretty typical. So nothing outside the norm on inventory build. Mark Weintraub: Got you. And then shifting gears, what might you be seeing on like the solar leasing front, et cetera? Obviously, with energy costs having gone up a lot, is that trading any added impetus for people to start having conversations with you? And any color you can give us on how things feel is, we're getting closer to times where some of those options should be coming up for potential exercise. Devin Stockfish: We're seeing some really nice momentum across the renewables business, both in terms of converting leases into operating solar facilities. We've got one operating now. The next one should be operating any day now. We've got three currently under construction. By the end of this year, we could have 4 to 6 under construction. So the pipeline is developing nicely. And I think interestingly, we've just seen a whole lot of activity on the new option front. We've had a whole wave of solar options that we've signed up here recently and even on wind. Now those will come -- the wind will come along a little later just because the time line to put wind facilities up is a little longer. But overall, the interest level in renewables has been very strong this year. Operator: Our next question is from Hamir Patel with CIBC Capital Markets. Hamir Patel: Devin, there were two new OSB mills supposed to start up later this year. Just given the relatively sluggish demand backdrop. Do you think we'll see supply additions being delayed into 27? Devin Stockfish: It's hard for me to speculate on that. I have seen some articles written on delays there, but I don't have any specific knowledge of that. That's really going to be something they'll have to decide against the current market backdrop. I'm not sure I have a whole lot to add there. Hamir Patel: Fair enough. And just the last question I had on your Log Export business, how is the initiatives to grow Southern Yellow Pine exports progressing? Devin Stockfish: It's going really well. Now obviously, the transportation costs associated with the Middle East conflicts are going to be a headwind that we have to move through. But overall, I'm just really pleased with how that's developing, particularly in the India market. We've really gotten some nice traction with the customer base there. I think there's a lot of opportunity to continue to grow that. We're continuing to work on really driving costs out of the supply chain. That's particularly the case with our break bolt program out of the Gulf South, I think we have some near-term opportunity to take out some meaningful costs there, which will just make us even more competitive from a cost standpoint. So we're excited about it. We're looking to grow the India program. And again, we're going to have to overcome some additional costs from a freight standpoint, but I think we can do that. And even beyond India, just the opportunity in Cambodia, Vietnam, Thailand, we've seen some good strong customer interest there. I think ultimately, there may be some opportunity to export into Europe. We've had some initial conversations with some sawmill customers there. So I think there's a lot of opportunity, and we're going after it. Operator: Our next question comes from Anthony Pettinari with Citi. Anthony Pettinari: If I look at Timberland's results in the 2Q outlook, it seems like first half Timberlands EBITDA could be down year-over-year, maybe 25% from the first half of '25. And if you think about kind of big picture earnings improvement drivers for Timberlands going forward, is it just really about lumber recovery flowing through the Western log prices, or do you see kind of meaningful scope to improve log prices in the South or reduce costs or any kind of idiosyncratic items around weather that we should keep in mind? Just wondering kind of big picture as you think about Timberlands earnings improvement really going forward. What are the building blocks? Devin Stockfish: Sure. I'll give you a few comments on that. So first and foremost, what's been happening in the Timberlands business. And I would say this is mostly a Western comment, is with lumber prices being at historic lows, that put a lot of downward pressure on log prices. And you can see that really over the last few quarters. Now we saw log prices start to improve in Q1, and they've continued to improve into Q2, but there's still -- if you look back over the last several years, they're still at relatively low levels. So really, as we think about the near term, particularly as you've seen Doug fir prices going up here recently, that gives us a little bit more room to push log prices in the West. And so I would expect that to happen. It's still a very tensioned wood basket. So I would say, number one, it's been a pricing issue primarily in the West. Number two, from a volume standpoint, if you look back over the last couple of quarters, particularly in the West, but a little bit in the South because of some weather issues volumes have been down a little bit. If you look at 2026 as a whole, what we said is, in the South, volumes will be up slightly, harvest volumes and in the West are going to be comparable. So when you sort of chart that out over the course of the year, there's some upside from a volume standpoint. I'd say the other piece that's really of late been an issue is on the cost side. Obviously, as Davie mentioned, with some of the issues with the Middle East, that has put some incremental cost pressures are, and we're going to have to figure out a way to overcome those. I don't think that is structural going forward. But look, ultimately, if transportation costs are up, we're going to have to find a way to push that through on the price side, and we'll work that. There may be a lag. But ultimately, that's certainly something that we can work through. And I would say even beyond that, when you look out into the future, as we said at our Investor Day, we do think there's a significant amount of volume increase coming in the West. And so it's been a little bit more challenging on the Timberland side over the last couple of quarters, but we certainly see that improving over time. Anthony Pettinari: Okay. That's very helpful. And then just switching gears, with distribution understanding it's not the biggest part of your business. But with the greenfields, is the goal there really to enter new markets where you're not present or underpenetrated or to sell more of kind of high-value EWP and new products. I'm just wondering if you could talk about what you're trying to accomplish with the greenfields versus just leveraging existing distributor relationships? Devin Stockfish: Yes, you hit it. I mean the principal rationale there is we sell currently about 50% of our EWP through our distribution business and what we found in and really trying to dial this into key growth markets and really important building markets is that when we have our own distribution sales force on the ground in those markets, we're able to push more volume and gain market share for our EWP products. So that is the primary rationale. I would say over and above that, there's also opportunity. We obviously sell commodities through our through our distribution businesses as well. And so there's another channel that we can move that product. And the team has done a really nice job building out vendor partnerships with decking and siding, and so there's a sales profit opportunity there, too. But the primary rationale is really to drive EWP sales and growth in markets that we feel like we're currently under-penetrated. Operator: Our next question comes from Hong Zhang with JPMorgan. Hong Zhang: I guess my first question, with the runoff in lumber prices, are you seeing any changes in valuations volumes [indiscernible]? David Wold: Sorry, you cut out there a little bit on -- do you mind repeating that question? Hong Zhang: Yes. With the run-up in lumber prices, are you seeing any changes in valuation or just the amount of product coming to the market when it comes to Timberlands transactions? Devin Stockfish: No, not really. The timberland market really don't change a whole lot quarter-to-quarter, week to week. It's just really more long-term price appreciation. So you don't necessarily see timberland values moving with lumber prices not in the near term. Now obviously, if there was a longer-term structural change in lumber prices, that ultimately could flow through, but you don't typically see that in the near term. Hong Zhang: Got it. And I guess just sticking to the higher lumber prices. Are you seeing any operators that previously shut down mills start to restart the mill in response to pricing. Devin Stockfish: As a general matter, no, once the mill has shut down versus taking extended 2-, 3-week outages when a mill goes through the process of actually closing down and laying off their employees, it's pretty unusual for them to come back. And so we really haven't seen that. I will say around the margins, we've seen it a little bit, and this is really a southern statement. I do think, particularly as you were in the back half of 2025, we saw a lot of mills that were not operating full out. So maybe at a reduced posture, certainly not running over time. And so there was a little slack capacity in the system for mills in many instances across South. You probably have seen a little bit of pickup there as Southern lumber prices have picked up. But I wouldn't say it's significant, at least not from our vantage point. Operator: Our next question comes from Mike Roxland with Truist Securities. Michael Roxland: First one, just on the SLS guide. Based on your 2Q outlook for EBITDA, if I -- what age should be around $320 million, but you're guiding 2026 to $425 million, implying a significant step down into. So realizing that you had some one-off benefits from real estate in 1Q, but you also got to a pretty strong Q2, what gives you the confidence that you could have such a step down in the back half of the year? David Wold: Yes, Mike, thanks for the question. It's pretty typical for us to be fairly front-loaded in our Strategic Land Solutions business. I think if you look at it over the last several years, you'll see that pattern. That's some timing and mix. We -- so as I think about the second half of the year, we'll see a little bit of that mix play out over the second half, but nothing unusual there in terms of the trends that we're expecting as always if we continue to see strong real estate markets, we can look to adjust. But for now, I think that $425 million is a good guide on what we were thinking about for the year. Michael Roxland: Got it. Okay. And then Climate Solutions, you had sales of $100 million -- $111 million in 1Q, a big increase year-over-year, quarter-over-quarter. Davie, what drove that? David Wold: Yes. It's the conservation easement that we pointed out in the first quarter, large transaction, $94 million. So that's the biggest component of that. Michael Roxland: Got it. Perfect. And last question real quick. Just following up on an earlier question in terms of EWP. Margins in EWP are now at about to over 17% in 1Q. It seems like prices may have declined more than you expected. I think you were calling for last quarter, modestly down, price was down about 4% to 5% sequentially. So I'm just wondering I understand the backdrop in find me, but have your competitors been more aggressive trying to drum up business? Or has the competitive landscape changed such that there's increasing competition to drive sales, which has negatively impacted pricing more than you expected. Devin Stockfish: Well, I would say just as a general statement, our competitors are always aggressive in trying to get business. That's no different now than it's ever been. Obviously, when you have housing starts down a little bit relative to where they were a few years ago. There's less pie to go around, so people are battling it out. Where we compete, obviously, we have to be thoughtful about price, no question about that. But I think where we try to compete in the market is we have a service model that I think, is valuable to our customers. We have high-value products. We're continuing to innovate to make sure that we're trying to solve our customers' needs. So we're not necessarily battling it out for the lowest price opportunities. We're trying to serve long-term strategic customers with the value proposition. So the competitive dynamic is tough. It's always going to be tough, and you just have to find a way to win regardless of where you are in the cycle. Operator: Our last question will be from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Just a couple of quick questions. What is driving the strength in Douglas fir prices here recently? Devin Stockfish: Yes. I think we've just seen primarily an uptick in demand coming out of California. We've seen a little softening last year, I'd say, broadly speaking, the California market. That's picked up here recently, and that's a lot of where that Doug fir product goes. And so I think that's been a big driver. And it's -- generally speaking, there's only so much opportunity for supply. You hadn't seen that supply, maybe dial back as much as we've seen in some other geographies. And so there's just not as much incremental supply to meet that demand as it improves. Ketan Mamtora: Understood. Okay. And then just one last one. Are you seeing any signs of increased use of Southern Yellow Pine in new residential construction, I'm thinking about profits and those kind of things. Devin Stockfish: We are. I think there are a few things going on here. First and foremost, there's just a lot less SPF coming into the U.S. today. And that's a function of some long-term trends with beetle infestation, regulatory dynamics that have made it very challenging to make lumber or in Canada. That's also a function of the duty tariff dynamic that we have in place. So there's just overall less SPF coming into the U.S., which creates an opportunity for both Douglas fir, but also for Southern Yellow Pine. I think additionally, at least in the recent past, there was an opportunity because of the delta between SPF and Southern Yellow Pine prices to go out and really market value. But I would say, just broadly speaking, as you look at where supply is increasing, and where supply is decreasing, there's just going to be more Southern Yellow Pine. So that's a trend that is going to continue. I think you've seen probably a little bit more traction here recently, I would say, for Weyerhaeuser specifically, we've been active on that front. We've got some products or warp stable products. That's a really nice transition product for folks that have historically used SPF to move into Southern Yellow Pine. So I think you picked up some momentum there, and I would expect that trend to continue really as we move forward. Operator: There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: Okay. Well, thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great 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, and welcome to the TPG's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. You may begin. Gary Stein: Great. Thanks, operator, and welcome, everyone. Joining me today are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter; and our President; Todd Sisitsky are here with us for the Q&A portion of this call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures. We believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the first quarter. We reported a GAAP net loss attributable to TPG Inc. of $123 million and after-tax distributable earnings of $282 million or $0.70 per share of Class A common stock. We declared a dividend of $0.59 per share of Class A common stock, which will be paid on May 26 and to holders of record as of May 11. I'll now turn the call over to Jon. Jon Winkelried: Good morning, everyone. Thank you for joining us. TPG entered 2026 with strong momentum following a record year of capital formation and deployment. Our first quarter results reflect the continued acceleration of our growth objectives across the platform. Our fee-related earnings grew 36% year-over-year and exceeded $1 billion on an LTM basis for the first time in TBG's history. Our after-tax distributable earnings per share grew 46% compared to the first quarter of last year, and total AUM grew 22% to $306 billion. Our capital formation deployment and realization activity, each delivered a step function increase year-over-year, growing 75%, 96% and 103%, respectively. . Our performance this quarter is particularly notable given the complex macro backdrop. The convergence of AI disruption, private credit stress and geopolitical conflict has created significant market uncertainty. However, our business is intentionally built to be resilient through cycles. Our long-duration capital base provides earnings stability and embedded growth, and we've delivered some of our best-performing vintages during periods of dislocation. We view the current environment as an opportunity, and we've never felt more confident in the positioning of our franchise and our ability to successfully execute on our growth drivers. Our clients are leaning in and looking for additional ways to partner with us and the momentum across our business continues to accelerate. Before I review the quarter, I want to provide additional context on 2 areas that are top of mind for our investors. First, the AI transformation and its implications to our investing business; and second, the state of private credit through the lens of our portfolio. I'll start with AI. AI has created significant disruption as well as opportunity across sectors, particularly in software. As we assess the impact of AI, we continue to see meaningful value in certain enterprise software models and the strong performance across our software portfolio reinforces this view. We've evaluated each of our software companies through a framework based on offensive opportunity and defensive risk, and of high conviction that the vast majority are well positioned to benefit from AI. Our software portfolio today is relatively young with an average hold period of approximately 3 years. We are investing significant capital and specialized resources to ensure that these companies take full advantage of the opportunities that AI unlocks. Overall, our software companies continued to deliver strong results and are increasingly leveraging agenetic solutions. This momentum was clearly reflected in the first quarter with aggregate bookings in our TPG Capital and TPG Growth software portfolio growing more than 20% year-over-year. Looking ahead, the impact of AI remains dynamic across industries and will continue to be an important input into our disciplined investment approach. TPG's relationships and differentiated access to leading AI companies gives us real-time visibility into how business models are evolving. These insights directly inform our investment decisions and value creation plans, and we remain highly confident in our ability to continue delivering strong performance for our investors. Turning to private credit. While the asset class has been under heightened scrutiny more recently, our credit portfolios are healthy, and we have strong conviction in the long-term growth outlook for our business. Private credit has become an integral part of the global financing ecosystem, as borrowers with increasingly complex capital needs seek speed, flexibility and execution certainty. Although some retail-oriented credit vehicles are experiencing elevated redemptions in the current environment, Institutional demand for enhanced yield continues to increase. As we look across our credit business, we're seeing accelerating growth driven by several dynamics. First, our strong performance. During the quarter, each of our credit strategies outperformed their respective benchmarks. Our returns remain at or above our targeted ranges, and we continue to maintain very low and stable loss ratios. Additionally, given our de minimis software exposure and credit, our portfolios are well insulated from broader industry concerns. Second, our differentiated credit strategies are resonating with clients who are increasingly looking to diversify their private credit exposure. Our direct lending business, Twin Brook, operates in the lower middle market, which is characterized by strong lender protections and more favorable competitive dynamics. Twin Brooks strategy is built around rigorous underwriting and cash flow lending with no ARR loans or PIK at origination. Its portfolio largely consists of senior secured first lien loans with financial covenants. In addition, as the revolver lender, Twin Brook benefits from an embedded early warning system to proactively identify and manage company-level stress. Third, while private wealth represents a relatively small portion of our capital base today, we continue to experience strong demand for our products in this channel. In the first quarter, TCAP our nontraded BDC reported gross inflows of $193 million and redemption requests of $31 million, representing just 1.3% of total shares outstanding, well below the industry average. TCAP ended the quarter with $4.7 billion of AUM, up 33% year-over-year. Additionally, given our attractive mix of credit strategies and strong performance our clients have expressed interest in a TPG multi-strategy credit interval fund, which we plan to launch next year. And finally, current market dynamics are creating a compelling deployment opportunity in private credit. Having successfully scaled our capital base through 2025, we're well positioned with $19 billion of credit dry powder to execute on a broad range of opportunities. Now I'll review our activity in the quarter. Coming off a record 2025, we raised more than $10 billion of capital in the first quarter, which increased 75% year-over-year. In credit, following last year's positive inflection point, our baseline capital formation has fundamentally re-rated higher, and we raised $4.4 billion in the quarter. Notably in February, we closed our long-term strategic partnership with Jackson Financial which is off to a strong start and tracking ahead of our plan. We received $2 billion of initial commitments into our asset-based finance business, which we've started to deploy. And last week, we closed the Jackson rated note feature in our middle-market direct lending business. Looking ahead, we're focused on continuing to expand our credit capabilities across the return spectrum to reserve our broader base of clients. In private equity, we raised $4.9 billion in the quarter, including $925 million towards a rolling first close for RISE for our Impact Fund. We also raised additional capital for TPG 10 and Healthcare Partners III, bringing total capital raised for these 2 funds to nearly $13 billion including commitments that are signed but not yet closed. In real estate, we recently began raising for our fifth trip opportunistic fund and second, Japan Value Fund and expect to launch our sixth Asia real estate fund in June. Additionally, in our net lease business, we established several new strategic partnerships, raising $1 billion for our fifth fund through April, and we expect to complete fundraising in the second quarter. Within the private wealth channel, in addition to TCAP, we continue to see strong inflows into TPOP, our perpetual private equity product. Across the TPOP strategy, monthly subscriptions increased throughout the first quarter, driving $545 million of inflows and bringing total AUM to $2.1 billion at the end of March, just 10 months after our initial launch. Overall, we remain on track to raise more than $50 billion this year, supported by the strength and stability of our institutional client relationships drives a wider dispersion of performance across the industry we believe we're well positioned to continue taking market share given the differentiated returns we've delivered for our clients. Moving to deployment. We continued our robust pace with more than $14 billion invested in the quarter which nearly doubled year-over-year. In credit, we deployed $5.7 billion of capital, up 42% year-over-year. This includes $2.5 billion in our asset-based finance business, where we continue to expand our market-leading position and home equity-related mortgage finance. We also completed several transactions in equipment finance receivables as well as a new or upsized flow arrangements in both consumer and home improvement lending. In middle market direct lending, despite the macro headwinds, Twin Brook generated $1.8 billion of gross originations in the quarter. Twin Brook's existing portfolio continues to be a powerful source of embedded origination with add-on acquisitions representing approximately 50% of deal flow in the quarter. We also added a dozen new borrowers, bringing our portfolio to more than 310 companies. In Credit Solutions, we're seeing a growing demand for flexible, customized capital solutions as borrowers are increasingly seeking execution certainty amid heightened volatility. Stresses in certain parts of the credit market are creating attractive opportunities to lend to high-quality companies facing balance sheet pressure. During the quarter, our credit solutions team led a $450 million financing for a new joint venture with Xerox to manage and unlock value from certain IP assets. This deal demonstrates TPG's ability to provide creative, liquidity-enhancing solutions to address long-term capital structure needs. Across our private equity strategies, we deployed nearly $7 billion of capital in the first quarter, which represents 2.5x the capital invested in the prior year period. As we've highlighted previously, our approach to investing and portfolio construction continues to be a differentiator for TPG by leveraging our proprietary sourcing engine, deep operational capabilities and extensive experience built a distinctive private equity portfolio. In our 2 most recent TPG Capital Funds, 9 and 10, approximately 2/3 of our investments have been corporate partnerships or carve-outs with meaningful downside protections, including several with put rights. These features provide increased transparency into exit timing, counterparty certainty, and, in some cases, minimum return thresholds, which are particularly compelling in the current environment. Complex corporate carve-outs are a core strength of our platform and have generated strong historical returns for us. Our corporate partners often retain an ongoing equity ownership stake, creating strong alignment and shared incentives around long-term value creation. In March alone, we closed 4 carve-out transactions in TBG Capital. Across our GB secondaries business, our investment pipelines are accelerating as sponsors increasingly use solutions-oriented capital to drive liquidity. We expect industry deal volumes this year to exceed 2025, which was a record year for single-asset CVs. During the quarter, our GP Solutions and Life Sciences funds partnered to close a $3.8 billion continuation vehicle for Curium Pharma, which is a global leader in nuclear medicine and diagnostics. Curium exemplifies the power of TPG's platform as 1 of the few scaled investors in GP-led secondaries with deep health care and life sciences expertise. The deal was sourced and completed through the close collaboration of our investment professionals across 4 platforms and 3 geographies. We believe this is the largest single asset CV ever completed in Europe. Within our Impact platform, the opportunity set continues to expand globally, driven by powerful and evolving market dynamics, rising residential and industrial electricity demand, together with rapid scaling of AI and data centers, is placing unprecedented strain on power systems around the world. At the same time, the ongoing disruption across global energy supply chains, driven by geopolitical conflict is accelerating the push for greater energy independence and security. Against this backdrop, we see a substantial and growing need to modernize and expand critical energy infrastructure and services, and TPG is playing a leading role in meeting these significant long-term capital requirements. In the first quarter, Rise Climate announced the acquisition of Sabre Industries, a leading infrastructure for power utilities, data centers and telecom. Sabre's mission-critical solutions are needed to support the modernization and reliability of Americas electrical grid and to meet the increasing demands of large-scale data center development. Turning to real estate. We had an active deployment quarter across our strategies with $1.8 billion invested. TPG Real Estate closed 6 investments in the quarter, including a high-quality senior housing portfolio as well as a scaled grocery-anchored retail platform. Both are in needs-based sectors benefiting from recession resiliency, and limited supply growth. Additionally, in Asia, we continue to capitalize on differentiated supply-demand dynamics and demographic shifts. We recently acquired a number of office assets in Japan where office fundamentals remain strong with low vacancy rates. We also initiated a multifamily development project in Seoul, and South Korea's rental housing market is undergoing a structural transformation driven by smaller households and rising homeownership prices. Finally, we're off to a strong start for monetizations in 2026 with nearly $9 billion realized in the first quarter, which doubled year-over-year. This included the sales of One Oncology to Syncora and TPG Capital and Intersect's digital power business to Google and Rise climate. These 2 strategic exits were both achieved less than 4 years after our initial investment, generating highly attractive returns and demonstrating the power of TPG's corporate relationships and innovative deal structuring. Before I hand it over to Jack, I want to highlight our continued momentum in launching and scaling new businesses. Organic innovation remains a core tenet of our growth as we strategically expanded into areas where we believe we have a right to win. Over the past 3 years, we've raised approximately $13 billion of capital across our new and emerging strategies, and we expect to meaningfully scale that over time. To share a few highlights. First, in TPG Sports, we raised $1.1 billion for our inaugural fund through the end of April and recently announced our first investment to acquire Learfield, a leading media and technology company powering college athletics. Second, Advantage Direct Lending, our new core middle market direct lending strategy has deployed nearly $600 million of capital across 16 investments through April, and we continue to receive strong investor interest. And lastly, Tika, our growth, our Asia growth equity strategy has built a compelling portfolio across health care and technology, capitalizing on the opportunity set across Australia and Southeast Asia. We expect to complete our inaugural fundraise over the summer. The success of these strategies and other new initiatives is a testament to our long-standing partnership approach and identifying and building next-generation investment opportunities with our largest institutional clients. I'll now turn the call over to Jack walk through our financials. Jack Weingart: Thank you, Jon, and thank you all for joining us today. TPG had a very strong start to the year, driving significant year-over-year growth despite a volatile macro backdrop. I'll begin by reviewing our financial results in the quarter and then provide an updated outlook for the remainder of 2026. We ended the quarter with $306 billion of total assets under management, which grew 22% year-over-year. This was driven by $56 billion of capital raised and $22 billion of value creation, partially offset by $28 billion of realizations over the last 12 months. Our fee-earning AUM grew 23% to $175 billion at the end of March. AUM subject to fee earning growth totaled $45 billion at the end of the quarter. including $33 billion of AUM not yet earning fees, with the largest component coming from our credit platform. Following a very successful credit fundraising period, we're well positioned to deploy capital into an expanding set of compelling opportunities in the current environment. Our credit platform generally earns fees on deployment, and we have visibility into approximately $140 million of annual revenue opportunity as this capital is put to work. We reported fee-related revenue of $557 million in the first quarter, up 17% year-over-year. This was driven by management fee growth of 15% and transaction and monitoring fee growth of 33%. Excluding catch-up fees, management fees grew 3% sequentially and 18% year-over-year. On the capital markets side, our revenue opportunity has continued to grow due to our robust deployment pace as well as the broadening of our capabilities across all platforms and geographies. In the first quarter, we generated fees from 25 different transactions across 9 strategies, demonstrating our continued success in diversifying this revenue stream. We believe our capital markets business will continue to be a significant contributor to our FRR growth over time. Fee-related earnings for the quarter were $247 million, which grew 36% year-over-year. As John mentioned, on an LTM basis, our FRE crossed $1 billion for the first time in our firm's history. This is a significant milestone for TPG and represents a 31% annualized growth rate since our IPO. Our FRE margin was 44.3% in the quarter, which is a 620 basis point expansion from the first quarter of '25. As expected, cash comp and benefits were seasonally elevated in the first quarter due to a $15 million employer tax expense associated with the annual vesting of RSUs. We continue to realize the benefits of greater operating leverage across our firm and remain confident in our ability to achieve a full year 2026 FRE margin of 47%. We generated $68 million in realized performance allocations in the quarter exceeding the $50 million we had previously guided to. This was anchored by the strategic sales of One Oncology and Intersect Power. Looking ahead, while the current market volatility may impact the timing of realizations across the industry, we maintain an active pipeline of liquidity prospects across each of our strategies and expect to continue generating strong DPI for our fund investors. Moving to our balance sheet. We used our revolver to fund $500 million investment in Jackson common stock in connection with the closing of our strategic partnership in February. We subsequently issued $500 million of senior notes and used the proceeds to pay down our revolver. Consequently, our interest expense increased to $26 million in the quarter and as of March 31, we had $2.3 billion of net debt and $1.7 billion of available liquidity to fund additional growth initiatives. The seasonal RSU vesting I discussed earlier also generated tax deductions, resulting in an effective corporate income tax rate of 8.3% in the first quarter. We expect our tax rate to remain in the high single digits to low double digits until we utilize our remaining deductions. Altogether, we reported first quarter after-tax distributable earnings of $282 million or $0.70 per share of Class A common stock. Moving on to value creation in our investment portfolios. In private equity, fundamentals across our portfolios continue to be strong. While valuations for certain companies experienced multiple compression, reflecting broader public market valuation and resets, underlying financial performance remains healthy. Our portfolio companies across our capital growth and impact platforms generated LTM revenue and EBITDA growth in the mid- to high teens, continuing to outperform the broader market. During the quarter, the value of our PE portfolio declined 1%, reflecting generally lower average valuation multiples, partially offset by strong earnings growth. Turning to credit. The performance of our portfolios across strategies continues to be strong, resulting in attractive returns relative to public benchmarks. Our credit platform appreciated 2% in the first quarter and 11% over the last 12 months. Digging a bit deeper, in middle market direct lending we continue to see the benefits of our disciplined underwriting and our focus on the senior most part of the capital structure. Our portfolio has maintained a conservative average loan-to-value of 42% at closing and our borrowers continue to generate healthy organic EBITDA growth. As a result, nonaccruals remain extremely low at just over 1%, and our average interest coverage ratio has held steady at over 2x. Credit Solutions, we continue to deliver significant alpha by providing highly negotiated bespoke financings, focused on senior secured cash pay instruments, often attached to specific assets and collateral. In the first quarter, our second and third flagship funds generated time-weighted net returns of 2.4% and 6%, respectively. Both funds meaningfully outperformed the U.S. high-yield bond index, which was negative for the same period. Our strong performance was driven by broad-based appreciation across our portfolios and the successful monetizations of several positions, including XAI, DISH DBS and Optimum communications. Lastly, in asset-based finance, our portfolios are anchored by strong structural protections and collateral support across our high conviction investment themes. Our first ABC funds net IRR since inception remains in the top half of its target range at 11.6% at the end of the first quarter. Our mortgage Value Partners Fund generated net returns of 1.3% in the quarter, bringing LTM returns to 8.2%, outpacing many broader credit indices with significantly less volatility. Our real estate platform appreciated approximately 2% in the first quarter and more than 8% over the last 12 months. These returns were driven by the continued strength of our data center, industrial and senior living portfolios in the U.S. and hospitality and office investments in Asia. Turning to our fundraising outlook. We continue to expect capital raising to exceed $50 billion this year. Following the $10 billion we raised in the first quarter, we expect our remaining fundraising to be weighted toward the back half of the year, driven by the following: in private equity, first, the completion of our TPG Capital 10 and Healthcare Partners 3 campaigns by the end of the year; second, final closes for our [indiscernible] climate private equity funds, TRC 2 and the Global South initiative. As of the end of April, we've raised $9 billion across the 2 funds and related vehicles, including capital that's been committed but we'll close on a later date. We expect to complete our campaign in the third quarter. Third, continued progress across our climate infrastructure, GP solutions, tech adjacencies, Rise, Sports and Asia growth equity funds. And fourth, initial closes for our next-generation funds for Peppertree and TPG. In credit, I would highlight the following: further commitments from our long-term strategic partnership with Jackson to our middle market direct lending platform. final closes for our sixth Twin Brook direct lending and second asset-based credit drawdown funds, an initial close for our fourth essential housing fund, additional closes for hybrid solutions, continuous fundraising across our evergreen vehicles, including Advantage Direct Lending and the formation of additional CLOs and various SMAs. In our real estate platform, we continue to expect 2026 to mark the beginning of a multiyear major fundraising cycle. This includes the next vintages across our TPG real estate partners, Asia real estate, Japan real estate value and TPG AG U.S. real estate strategies. Finally, I'd like to share some thoughts on Private Wealth and our progress and priorities in the channel. Retail investors remain under allocated to the private markets with less than 5% penetration today and significant runway for future growth over many years. We view the near-term industry headwinds in credit retail vehicles as cyclical rather than structural and continue to see strong demand across the industry in private equity, infrastructure and secondaries, with early signs of renewed interest in real estate as well. At TPG, we believe we are well positioned to grow in the private wealth channel. I spend a meaningful amount of my personal time on our wealth efforts, and the feedback I've received from distribution partners and financial advisers has been overwhelmingly positive. Our differentiated investment style and strong performance are truly resonating and demand continues to grow for TPG's products. As a result, our private wealth inflows in the first quarter grew more than 130% year-over-year. Looking ahead, we see a clear path to accelerating inflows and as we continue to grow with our existing partners and expand our distribution network globally. Earlier this week, in fact, we formally launched TPOP with an important new international distribution partner, which will begin contributing capital in June. And we have several additional distribution partners in the pipeline for TPOP in the coming quarters as we continue to strategically build out our global distribution footprint. In addition to expanding distribution for existing evergreen products, we're actively working on launching new products, including a nontraded REIT as well as a multi-strategy credit interval fund. Similar to TPOP, these funds will provide investors with exposure to the full breadth of our investing strategies across each asset class. Overall, we expect our private wealth franchise to be a significant contributor to TPG's long-term growth. The strong financial and operating results we reported today, including crossing the $1 billion LTM FRA threshold this quarter, are a direct result of our multiyear focus on scaling our investment platforms and driving meaningful operating leverage across our firm. As we head into the balance of 2026, we have clear line of sight into continued growth and margin expansion, and creating meaningful long-term value for our investors. With that, I'll turn the call back to the operator to take your questions. Operator: [Operator Instructions] We will take our first question from Glenn Schorr with Evercore. Glenn Schorr: With so much good stuff going on, forgive me, I'm going to pick up the 1 issue that it can possibly find. So I'm curious if you could help us think through the marks in PE in the quarter. It seemed to be very focused on the 2020 and prior vintage, which is a good chunk of the net accrued. So the question is just how broad are those a few specific names, how broader it is Obviously, we want to know if there's how much software related. And then how you feel about now with the markets up and these these fresh remarks, how you feel that the exit environment is for that piece of the portfolio. Very much appreciate it. Jack Weingart: Glenn, thanks for the question. I would characterize this, as I mentioned in my comments on the call, the overall private equity valuation change during the quarter was really driven by us choosing to take down our valuation multiples consistent with what we saw in the public markets. Like we always do in our valuation process, we take into account multiple factors. We rerun DCF analysis. We do look at public market comps, private market comps, transactions in the company's equity. And overall, I would characterize it as a broad-based decision to reflect market changes during the quarter, which as of March 31, we don't refresh that during the month of April because we value as of the end of the month. Obviously, things have bounced back a bit during the month of April. But we did take multiples down broadly and it was offset by very strong earnings growth. And to give you a little more color behind that, in the TPG Capital portfolio, the overall impact of earnings growth was an increase -- would have been an increase in values by $1.2 billion. The impact of multiple reductions was negative $2.4 billion. So it really was strong earnings growth, offset by broad-based changes in our valuation multiples. In our growth platform, it would have been an increase of $600 million from earnings growth, offset by $1.1 billion of value decline from bringing valuation multiples down. So that's kind of the overall characterization of what drove the changes Obviously, if market conditions continue to improve, will reflect those increasing valuation multiples on [indiscernible]. Todd Sisitsky: Yes. I mean each one of these valuations is also company by company. And Glenn, the thing I just want to make sure I added here, I'm really excited about this portfolio. We move through different cycles. Good markets, bad markets, this is a portfolio across private equity, I think we'd be excited about in any environment. And it's continued to perform very well. It's been very steady quarter-over-quarter. Some of those leading indicators, the software bookings, as Jon mentioned, actually are stronger still. The other thing I just would point out, we had 2 strategic exits in the context of the quarter, which were important, 1 on to Google and on to Syncora. And both of those exits happened at premiums to our marks, so I think our track record of trying to be down the middle, but also great opportunities for upside around strategic exits is pretty consistent. . Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping to dig a little bit more into the credit business and how it's positioned for current environment. We've seen accelerating fundraising from you guys there for the last couple of quarters. And to your point, the dry powder remains quite elevated. As you look out into the opportunities that are likely to present themselves in the next 12 months, which part of the credit verticals do you expect to be most active? And are there any implications on the fee rates, we should consider as well because I think those do differ quite a lot by different verticals like I think credit solutions lower. So kind of deployment outlook and the blend of that on the fee rates. Thanks. Jon Winkelried: I think as you can tell from the quarter and our results, deployment opportunities have been healthy. And I think we continue to see that the case as we continue through the year. I would say that just to start with where you ended, looking at our Credit Solutions business, based on what we see going on in the markets overall, the increased volatility, there are areas where there is balance sheet stress in the market. There's much more dispersion in terms of how certain names in the credit markets are being valued. And with the interconnectivity, besides, obviously, the quality of our of our capabilities and our team and credit solutions with the interconnectivity that we have also across the firm, the connectivity with our private equity franchise, what we're seeing is opportunities being sourced on both the credit side of the house and on the equity side of the house that are providing really interesting financing opportunities for us in credit solutions. And I would say the pipeline of opportunities there has never been stronger. And we're trying to do exactly what you would expect you would do, which is to sift through what the opportunity set looks like to find things that are going to be the most interesting to us and that we choose to execute on. You're right that, obviously, that tends to be with it being sort of a value-add part of the market, that obviously tends to be a higher fee construct pool of capital. But I think that overall, I think we're going to continue to see a lot of interesting opportunities there. And I would say that the we feel like we're in a category of very few firms in terms of our capability set there, both looking at historical capability and returns -- and the -- in this environment, as our LPs are looking around for opportunities to deploy capital, where should they be shifting. I mean, I think that -- between the fourth quarter of last year, and the first quarter of this year. The conversations we're having with LPs, I would say, are distinct in the sense that people are really trying to find the areas where premium returns will be available in the market as a result of what's going on. So I would say that the kind of questions that were getting from our LPs is creating an increased focus on people wanting to partner with us to deploy capital in those kinds of opportunities. And then the second area I would say is in our asset-based finance business and in structured credit broadly, I would say if there's an area where I see the opportunity for us, both as a result of both our insurance relationships as well as large institutions looking to diversify exposures, looking to diversify exposures away from EBITDA risk. We continue to see that as a very substantial growth area for us across a number of different verticals in that space, whether -- whether it's whole business securitization, whether it's residential -- the residential mortgage market, nonqualified mortgage market, things like that. So I would say that those are the 2 areas where I would point you to. Operator: Our next question will come from Craig Siegenthaler with Bank of America Securities. . Craig Siegenthaler: I wanted to follow up on a comment you made earlier in the call relating to your software ebook. Jon, you talked about investing significant capital and specialized resources to ensure that these companies take full advantage of the opportunities that AI unlocks. Should we assume that this could include fall investments, and does that mean that Fund X could invest in a Fund VIII portfolio company? And then separate from your existing portfolio companies, what is your appetite to lean into cheaper public software valuation today and take privates over the near term. Jon Winkelried: Okay. I'm going to let Todd take . Todd Sisitsky: First, just on the more specific question. the way that we really -- unless it starts at the outset when we have an investment at the end of a fund life, we do not start to cross and come in from new funds. What we do at the end of a fund cycle is that we maintain reserves in order to be able to support companies for, hopefully, offensive and also for defensive reasons. And so we feel comfortable with the reserves we have and the funds that we have in the ground. I think your broader question is, do you see opportunities? And the answer is yes. We're very selective. There are a series of characteristics of things that we look for in software companies. And from our perspective, we have seen some really interesting opportunities. So if you look at what we've done recently, just to give 2 quick examples and maybe give some color to that. both of what I'm going to describe are sort of following that carve-out and corporate partnership dynamic that has been such a rich area for us as a private equity franchise. The first is [indiscernible] , which is essentially the merger of 2 carve-outs at very attractive multiples for market leaders in the industrial software space, something we've studied for years. It's a software space that's very closely integrated with operational systems and real-world workflows, which makes it quite defensive. And we see a lot of opportunity from an AI application standpoint. These have been companies that really haven't got that degree of focus. And an investment that we have in the table, partner with an ePlus management team. So those were 2 of the carve-outs actually that were completed in March. Another one we just finished carving out, we've owned for about a month [indiscernible] U.K., it's a health care IT business, again, playing to both our strength in software and health care. It's a data asset with a firm perimeter, so clear data mode. It's deeply embedded across the U.K. health care system. Again, that we've owned it for about a month. We've already launched our first AI-based product. Both of these businesses are very defensive. We feel comfortable and excited about the entry multiple and we have great teams to drive them. So we feel like there's a lot of opportunity out there. James Coulter: Jim Coulter, Craig, I just note also that having watched disruption cycles over time, What's interesting to me about this 1 is that the early discussion has been all on defense, which is probably appropriate. But I suspect about 9 months from now, there's going to be a shift in tone to the second question you asked, which is where can firms like ours play offense on AI. I personally believe this will be the most positive weapon that we've seen in a long time in private equity because we are and particularly at TPG, we are change agents, and this is going to be a great opportunity for change. So I suspect we'll be talking about defense for the next 3 to 6 months. By the end of this year, I think we'll probably be talking about offense and which firms can play that in this environment. . Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just to shift the conversation a little bit back to the impact franchise. I appreciate your comments, Jon, on the need for higher -- with the higher electricity demand, given AI data center build-out, maybe if you guys could comment on how you see this playing out over the next 1 to 2 years, both on the data build-out and also the supply chains that you mentioned that distressed from geopolitical issues and the stress on fossil fuels, and whether you see this as being a reacceleration of the energy transition team? And then how can you position TPG to benefit from that, specifically on deployment? And then also more fundraising within the climate franchise broadly? James Coulter: Thank you for that question. It's Jim Coulter. We haven't touched on this for a few calls, so it's probably a good time to check in because it's been both a fascinating and quite positive period in particularly the climate portion of our Impact platform. As Jon mentioned, fundraising has picked up after what was a natural pause in the middle of last year. and we're over $11 billion now fund cycle versus a fund cycle last time at [indiscernible], and we're heading towards our final closes. But what's more interesting is what's happening on the ground because while the discussion of decarbonization has gone down, maybe crowded out by other concerns, climate has gotten worse and the actual activity has gone up spending was up quite substantially globally. And even in the U.S. last year, as we talk about electricity, over 90% of the electricity addition was renewables, and it should continue in that direction for the next few years. And it's not just about decarbonization, it's obviously about electrification. As you think about energy, Fossil fuels are advantaged for heat renewables are advantaged for electricity. And finally, energy security, the straighter moves may be bad for many things, but it's good for our business here, which is people are concerned about their on the climate side because people are concerned about their energy supply chain and renewables is 1 way to address that around the world. So if you take that into our business, if you look at our last year, in spite of the lower discussion of this part of our business, it was our biggest deployment year and our biggest realization year. And if you look underneath that, you find quite interesting activities of $6 billion data center initiative with Tata, India, $5 billion sale of our digital power business to Google. At the same time, we're launching the largest battery project in the world in California grid services at Pike. So a real pickup, I think, overall in what's happening in the business and a pickup that I think should accelerate in future years. So we have a product that's on the right side of this trend. And frankly, on the right side of carbon, which long term, I think, is a good place to be. And I think that will bode well. Our clients have figured that out also. The private market has figured that out. And it's interesting, the public market has figured that out, lot of discussion in the MAG 7, but the Clean Energy Index absolutely trounce the MAG 7 last year. So this kind of activity level, I think, bodes well for the future with the understanding that these markets are always fascinating complex. Operator: Our next question comes from Ken Worthington with JPMorgan. Kenneth Worthington: So it was a good deployment quarter, transaction fees and capital market fees were strong this quarter. You've got some pretty big deals in pipeline. I think Hologic just closed, Curium, VM, Kinetic. How should we think about some of these bigger deals translating into capital markets and transaction fees as the time comes. James Coulter: Look, as you know, the translation of deal flow into capital markets fees will be deals deal dependent. On larger deals, we're more likely to use the syndicated loan markets, which don't translate quite directly as through to us placing the entire debt capital structure. On logic, we did play an important role, but it was a more broadly syndicated debt capital structure. We do, as I mentioned on the call, we continue to believe that capital markets is a real business that we continue to build. We've built it across the entire firm. We're just starting to see the benefit of that in areas like the credit business. So there's like kind of a long-term growth trajectory to that business, predicting in 1 quarter is hard. We don't have visibility into a quarter like Q4, where we had a massive quarter based on a handful of very concentrated large deals, but we do have visibility and continued long-term growth of that business. Kenneth Worthington: Okay. So nothing to call out for 2Q? James Coulter: No. Operator: Our next question comes from Brian McKenna with Citizens. Brian Mckenna: Okay. Great. So what in you hear from your larger LPs as it relates to the lower middle market direct lending strategy. Performance at Twin broke remains quite healthy and differentiated cap return 2.5% net in the first quarter, 10.5% net last year. So I'm wondering if there's a -- this differentiation is starting to accelerate institutional flows into the strategy. Jon Winkelried: Good question. The answer is yes. I think that -- and I think the performance combined with the fact that we -- 1 of the interesting aspects of the market over the last several years has that just been very little dispersion within the lending space, whether or not you're looking at upper middle market or lower middle market. And it's been sort of very consistent, steady and spreads generally quite compressed in the market. we're starting to see that change. Portfolios are not all acting the same. And as a result of that, we're seeing differences in terms of how we're performing relative to perhaps other pools of capital. And so as a result of that, it goes back to -- I think I mentioned it just briefly before. The conversations that we're having with our institutional clients are all focused on how to think about diversification across the space. And I would say that this -- the dislocation to the extent there's been some dislocation and nervousness about certain parts of the market, I think that has woken up a number of institutional LPs to look at their allocations and think about diversification and what parts of the market haven't they paid as much attention to. And naturally lower middle market is now getting more attention as a result of that. The structure of the business, as I mentioned in my comments, is quite different. In the upper middle market, you're competing essentially -- upper middle market direct lending is competing directly with banks and broadly syndicated loans. Our business does not compete with banks. In our business, we also are usually the only lender or certainly the lead lender. And as I mentioned in my comments, -- we're also controlling the revolving -- the revolver within the context of the relationship. And so that gives you certain advantages in terms of understanding what's going on inside these companies on a real-time basis. So our clients are really figuring this out. And we're seeing quite a bit of interest in the space. and I think it's going to continue to grow. The other thing, I guess, I would say, which is important in terms of the dynamics of the flow is that again, a substantial portion, almost half of our flow is internally generated by the existing portfolio in terms of add-ons. So that's Also, when you think about a risk-controlled way of allocating capital, you know your portfolio, obviously intimately well and have relationships with the sponsor. So as a result of that internally generated flow, the risk dynamics of how we're allocating capital also are slightly different. So I think it's an area where we've got clearly increased interest. You also are seeing the -- on the BDC side, you're also seeing differentiation there now. just by virtue of the flows that I talked about as it relates to TCAP, you're also seeing differentiation in the market there as well. So we're very encouraged by what's happening. Operator: Our next question comes from Mike Brown with UBS. Michael Brown: I believe you guys have exposure to some of the large AI LLM companies in your private equity portfolio, some of which could be candidates for the public markets over time here. Can you maybe just outline where those positions sit from a fund perspective? Is it the growth or maybe tech efficiency fund? And how those are currently marked and maybe how you would think about that realization strategy and pacing if and when some of those companies ultimately go public. Todd Sisitsky: Yes, absolutely. Thanks for the question. we have, as you said, a portfolio of AI focused companies. And they are primarily in our tech adjacency fund in TPOP, they include Anthropic and OpenAI and SpaceX. We have a few other investments that we've been doing a lot of work on that would end up in capital and hybrid. So it actually it's a pretty broad exposure across our private equity platform. And our view is that's been great, not only for the investments, which continue to move in the right direction for us, but also for the connectivity to all of the open AI players, which has been very helpful for us, both in creating opportunities and engaging with our own portfolio companies and building our own expertise. So I think that will continue to be a vibrant part of what we're doing, and certainly helps that we're -- have our team on the private equity side based in San Francisco. . And then on the exit front, I think it's hard to tell. Of course, we're not in control of a number of those companies. So you're reading the headlines won't be that much different -- that different from what we know. I do think that we should expect somewhere between 1 and 3 of the large companies to go public over the course of the next year to 18 months and probably 1 or 2 of those in a shorter time frame. Operator: Our next question will come from Ben Budish with Barclays. Benjamin Budish: I wanted to ask about some of your upcoming fundraising and thoughts on what the sort of distribution environment means. Over the last few years, there's sort of been a increasing trends towards flagship fundraising is taking longer, a smaller first close, bigger final close. Curious near term, it sounds like you've got a pretty good line of sight. But how are you thinking about the potential cadence of the real estate funds, which you indicated are about to come back in size and be raising over the next couple of years, how does LTE appetite look like for that asset class? And what sort of macro factors should we be looking at that will inform whether or not we get back to a more normal fundraising cadence or what we've seen lately the sort of elongated cadence? Jon Winkelried: Well, let me just comment on the real estate part of it, maybe then Jack could give a little color on sort of the kind of pattern of fundraising. But on the real estate front, we've talked now for probably the better part of the last 1.5 years about both the kind of the renewed interest that we're seeing from institutional LPs in the asset class. We've been in a fortunate position in that we've had quite a bit of dry powder in the space. And as a result of that, have been pretty active in terms of taking advantage of opportunities that have been created as a result of the interest rate cycle that we went through and some of the other dislocation factors, whether it was COVID, the dislocation in office, and then obviously, the spike in interest rates. That created a dynamic where there were a lot of assets that were frozen. There were a lot of managers, I think, in the space that basically were kind of handcuffed in terms of their ability to be proactive we have fortunately not been in that position. So as a result of that, the last -- I'd say the last year plus, we've seen some of the best opportunities that we've seen in a very long time. And we see a sort of a structural shift in the market in terms of the competitive dynamic as well as who has capital to solve problems in the space. I mentioned in my comments, a couple of really interesting deployment opportunities that we've had versus things like grocery-anchored retail, where we've made a big investment opportunities that we see in Asia. Japan, as an example, with office and hospitality, we're seeing global opportunities across the space. And as we've begun to roll out our fundraising progress in our opportunistic fund and our Asia fund, our net lease fund I think we see a significant increase in interest across both the high-return opportunistic space as well as what you would think of as kind of income-oriented opportunities in real estate. Jack mentioned briefly in his comments, some the beginnings of what we see as retail demand in the space as well. not surprising that some form of real assets that generate income would be interesting in this environment. So I think we're quite bullish knock wood, that these fundraisers are going to be strong -- we're going to get very strong reception in the market. Jack Weingart: Yes. I was -- alongside real estate, I would think about Pepper Tree the infrastructure business focused on cell towers, where a lot of the same dynamics exist and what we've launched the next-generation fund from [indiscernible] we're seeing equally strong demand there. When I talked in my comments about the back loading of the remainder of our fundraising for the year, I'd say there are really 2 things behind that. One is that most of these -- most or all of the real estate and Pepper Tree fundraising that we're talking about is really going to have closings for the first time in the back half of the year. So that's going to be a natural kind of picker to fundraising in the back half of the year. The other dynamic is the barbell effect in private equity. We continue to see very strong demand. I think you asked about realizations. We continue to be differentiated with LPs in our consistent production of DPI. That's not a limiter for us in demand for investing with us in private equity. We did have an unusually successful start to the TPG Capital campaign with TPG 10 and Healthcare Partners raising over $12 billion last year. The remainder of that fundraising, we have good visibility on, but it's going to have the natural typical barbell effect where the remainder of the capital chose not to come in the first close because they want to come in towards the later end of the close, which will be the back half of this year. Operator: Next question will come from Steven Chubak with Wolfe Research. Steven Chubak: So I wanted to ask on AI risk across the broader portfolio. You spoke of the comprehensive review of the software book, noted the vast majority of the portfolio companies and software arguably beneficiaries of AI. Just wanted to see if you've done a similar review assessing AI risk across the broader private equity portfolio beyond software. And just given the negative PE marks that you noted were largely attributable to changes in multiple versus any signs of deteriorating fundamentals. Whether that change was a function of multiple contraction in the public markets or just internal expectations for EBITDA growth to potentially moderate across the broader portfolio? Todd Sisitsky: Yes. Just to start on the last part of your question, it was distinctively just the public marks coming down and us see like you need to flow those through. As Jack pointed out, that was the end of the quarter was a particularly low point at least recent low point in the market. But it was -- there's no change in our view with the prospects of these businesses. And in fact, again, there are some indicators that feel like they ticked up. To your broader question, we have done a systematic review of the risks in and outside of software. Software does feel like the area that's most exposed to AI. When we look across our private equity portfolio, the TPG Capital business is the 1 with the most software exposure. As we've told you before, we sold everything in TPG 7 a 2015 vintage fund. So there's -- all the software businesses are out of that fund. TPG 9 and 10 is a very -- those are 2 recent portfolios 10s really just being built. We feel very good about those portfolios. The businesses are really well positioned relative to AI. That was a core part of our deal underwriting in all of those cases. So leases with TBG 8. As a reminder, we've now returned half of that fund in cash. And the remaining value of $13.7 billion, I think our work showed us that we had that we would characterize in the mitigate category where we do perceive some material risk from AI. So we're, of course, supporting the companies in the mitigate category. We see a lot of upside in the broader portfolio in that fund. In fact, over 60% of that fund is in what we characterize as outperforming strong momentum. And within that group, we see a number of companies that we do believe have breakout potential of the upside. So in any event, that's how we've done our work as it relates to AI exposure. Operator: Next question comes from Arnaud Giblat with BNP Parabas. Arnaud Giblat: Thank you. Good morning. A question on FRE margin guidance. Given the strong fundraising pipeline you have, deployments and the likely impact on positive development on transaction fees and content core year-on-year this quarter. I'm just wondering how I square this up with your 47% guidance for FRE margins. Is there something to be aware of in terms of cadence of cost growth? I'm just trying to reconcile the potential upside I see here. Jack Weingart: Look, we've been consistent in talking about the fact that we are going to drive FRE margin expansion over time. We are going to keep investing in our business, too. We're going to keep -- we see lots of areas that we've talked about on the call that we're investing behind growth. The other thing I'd point out is assuming we hit our 47% margin target this year, it was 45% last year it was 40 on a blended basis when we closed the Angelo Gordon acquisition and the 45% margin last year add that unusually strong fourth quarter with the transaction and monitoring fees driving FRE margin up to 52%. So 47% margin this year, I think, would be very healthy and would reflect continued operating leverage. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Just wanted to ask around the fundraising outlook. So you maintained your sort of $50 million-plus guide gave lots of color on the back half ramp and the products that will drive that. But I wanted to ask more from the client perspective, like -- are there any geographic regions that are driving that? Is it re-ups, share of wallet expansion, new LPs. Would love additional color on that front with regards to fundraising. Jack Weingart: Yes, I'll start. It's Jack. I wouldn't call anything notable in terms of changes in mix. We've got, as you know, a very broad and deep set of institutional clients. and the same geographic mix we've experienced in prior funds. We see about the same in the current set of funds. I mentioned private wealth, private wealth will be a part of that will be a bigger part of it this year than it was last year. but it won't be a main driver. This will still be driven primarily by our large institutional relationships around the world and by our effective success at cross-selling and doing more across businesses with our biggest relationships. Jon Winkelried: The only thing I would add is that we have talked over the course of the last year plus about the growing number of strategic partnerships that we have, large strategic partnerships with institutional clients that have been partners of ours for a long time. And we've talked also about the fact that we continue to see the largest pools of capital in the world wanting to do more with fewer and selecting us as a core institutional partner. And in a number of cases, we have created strategic partnerships where we have, to some extent, I would say, enhanced visibility in terms of their partnership and their intent to partner with us across a range of strategies. And so that also is a growing source of confidence as we go into these -- as we go into periods where, obviously, there's volatility in the world, et cetera. But I would say that, as Jack said, it's not a mix shift, but it's helpful that we're a partner of choice for the largest pools of capital in the world and they want to do more with us. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: I always want to ask about AI. I hope if you could update us on how you're deploying AI across the firm today. where it has meaningfully materially improved your processes? What sort of ROI you're seeing? And if you could talk about some of the use cases that you're looking to put into production over the next 12 to 24 months? . Jon Winkelried: Thanks, Mike. Well, a couple of things. I mean I think we had for a while now, and I think we've communicated this when we have a group of engineers and a team within our tech group that has been developing tools that have been rolled out systematically to the firm built on some of, obviously, the large language models, but customized for what we're doing here at the firm. We have very high engagement across the firm in terms of productivity tools, probably something approaching 80% of the firm now is using -- are using these tools on an active daily basis. So that's obviously a productivity tool, and we're strongly focused on continuing to train people to use those models very effectively. . So we have coaches that are roaming around the firm actually helping people figure out how to be more productive. The second thing I would say is that within our services organization, we are beginning to look at our we're beginning to look at head count, if I can use that term, both on a kind of a human and also agentic basis? And where are there opportunities for us to enhance productivity and in some cases, limit head count growth as a result of using AI agents and certain seats to do functions that we think currently we can do in an accurate and effective and efficient way. And so that's already part of our planning process as we continue to think about our use of the tool. I think the other thing, and Todd alluded to this before, is that we have -- remember, we're -- our firm in many respects, is centered in San Francisco. We are basically walking distance from the large LLM companies. And we have invested in them. We have ongoing important relationships with them which will probably end up creating -- you'll probably see us creating ongoing types of -- ongoing interesting partnerships with a select group of those companies. And so I think we have very good access to understanding how to engage and use the tools and also get the resources, frankly, because resources resources are, in some respects, the scarce commodity right now in terms of engineering talent or people that really understand how to implement enterprise engagements in these models. And I think we feel like both doing that internally here as well as our portfolio of companies is something that we feel we're very well positioned to do Operator: And it appears that we have no further questions at this time. I'd like to turn the call over to Gary Stein for any closing remarks. Gary Stein: Great. Thank you all very much for joining us today. If you have any follow-up questions, please feel free to reach out to the Investor Relations team. Otherwise, we'll look forward to speaking to you again next quarter. Jon Winkelried: And that was Gary Stein. Thanks, everyone. Operator: Ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.
Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Mike Dillon, Vice President, Investor Relations and Treasurer. You may begin. Michael Dillon: Good morning, and welcome to GrafTech International's First Quarter 2026 Earnings Call. Thank you for joining us. Joining me on the call are Tim Flanagan, Chief Executive Officer; and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments on our first quarter performance and key strategic initiatives. Rory will then provide more details on our quarterly results and other financial matters. After brief closing comments by Tim, we will then open the call to questions. Turning to our next slide. As a reminder, our comments today may include forward-looking statements regarding, among other things, performance, trends and strategies. These statements are based on current expectations that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website at www.grafech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim. Timothy Flanagan: Good morning, and thank you for joining GrafTech's first quarter earnings call. While the graphite electrode industry continues to navigate a period of transition, we are starting to see signs of improvement, and GrafTech is well-positioned to capitalize on the recovery ahead. At the same time, geopolitical conflicts are generating macro uncertainty and energy market volatility. Against this backdrop, our priorities remain clear: drive disciplined commercial execution, continue improving our cost structure, maintain strong liquidity, operate safely and position GrafTech for long-term value creation. In all of these areas, we'll continue to take decisive actions to support the long-term viability of our business. To that end, let me provide an update on several of our key strategic initiatives that leverage the commercial, operational and financial progress that we've made over the past couple of years. Starting on the commercial front. For some time, we've been clear that pricing levels have not reflected the indispensable nature of a graphite electrode nor the level of investment required to maintain a stable, reliable supply for the steel industry. That's happened even as steelmakers in the U.S. and Europe have announced cumulative price increases over the past 5 quarters for finished steel products of approximately 50% and 25%, respectively, reinforcing the disconnect between value creation in the steel industry and the pricing environment for graphite electrodes, a mission-critical consumable. In response, we are actively pursuing both market-based and policy-driven solutions as part of our disciplined approach to addressing this condition. On March 26, we announced that we're increasing our graphite electrode prices by a minimum of $600 to $1,200 per metric ton, depending on the region. From a customer's perspective, this represents a $1 to $2 increase or less than 0.5% of the cost to produce a ton of steel. This increase will only apply to volume that was not yet committed as of that date. This price increase represents only a first step to restoring pricing to levels that safeguard regional graphite electrode production and continuity of supply for our customers. And as we remain focused on value over volume, we'll continue to walk away from volume opportunities that do not meet our margin requirements. So still early on, we've been encouraged by our customers' reaction to the price announcement and the reflection of the price increase in recent tenders. As of today, more than 85% of our anticipated volume is committed in our order book, mostly at price points that reflect market pricing at the end of the fourth quarter of 2025. However, we're pleased to see the positive pricing momentum, which will lay a critical foundation as we begin the 2027 price negotiations later this year. To further support these efforts, we are actively engaged in advocating for GrafTech in our key commercial jurisdictions as part of our commitment to fair trade and market stability. In the U.S., this includes our support of trade cases filed earlier this year related to the imports of large diameter graphite electrodes at unfair prices. In April, the International Trade Commission announced the preliminary determination that there is a reasonable indication that the domestic industry is being materially injured by imports from China and India that are being sold in the U.S. at far less than fair value and subsidized by those governments, respectively. As a result of this determination, the U.S. Department of Commerce will continue its investigation. We're very encouraged by these developments and remain confident that the Commerce and that the ITC will complete a thorough investigation and take the necessary actions to address these unfair trade practices. As we assess progress towards constructive pricing and supportive trade actions, we continue to evaluate the level of production capacity we need to maintain and the level of volume we will deliver to the market, reflecting our commitment to take decisive actions and support the long-term viability of our business. We also continue to assess the industry-wide impact of recent geopolitical developments, particularly the effect on key graphite electrode inputs, including oil-based raw materials, energy and logistics. Disruptions in the production and transportation of oil out of the Middle East are having a significant impact on the global oil market. This in turn has translated into higher decant oil prices, the key raw material for petroleum needle coke. While the needle coke market has been relatively flat for the past 2 years, we anticipate that higher input costs and potential disruptions in decant oil availability for certain needle coke producers will provide a catalyst for needle coke pricing. In addition, shipping disruption and rising geopolitical risk continue to reinforce the need for supply chain security. We are beginning to see a shift in sourcing behavior for certain steel producers with an increased focus on regional production and surety of supply to safeguard continuity of their operations. In this regard, we're well-positioned to meet the needs of our customers. Our strategically positioned global manufacturing footprint provides a competitive advantage given its proximity to large EAF steelmaking regions. Further, we have surety of needle coke supply through our vertical integration with Seadrift, which sources all of its decant oil needs from domestic producers. Lastly, regarding the impact of the conflict on GrafTech's cost structure, our efforts over the past several years have created a more agile, more efficient manufacturing footprint that positions us well to control production costs while navigating a dynamic macro environment. We expect incremental improvement through operational efficiencies and disciplined production management. As a result, our current expectation is that we'll achieve a modest year-over-year reduction in cash costs, consistent with our guidance at the beginning of the year. However, the extended duration of the conflict in the Middle East and the resulting longer-term impact on the oil and energy markets remains uncertain. Ultimately, sustained increases in our key input costs will require us to take further action on electrode pricing. Stepping back as it relates to the graphite electrode and needle coke industries, we are seeing an inflection point take shape. The near-term pricing environment is improving and the long-term fundamentals remain firmly intact. Electric arc furnace steelmaking continues to gain share globally, driven by decarbonization trends and structural shifts in steel production. This transition supports long-term demand for graphite electrodes and in turn, petroleum needle coke. We expect further synthetic graphite and petroleum needle coke demand to result from the building of Western supply chains for battery needs, whether for electric vehicles or energy storage applications. We applaud the efforts of policymakers, both in the U.S. and the EU as we begin to develop a joint Critical Minerals Action Plan. This action plan establishes a framework for the 2 trading partners to coordinate policies to ensure supply chain resiliency for critical minerals such as synthetic graphite as they explore potential trade mechanisms, including order-adjusted price floors. Furthermore, there is overwhelming evidence in trade cases across multiple jurisdictions that whether it's to support the establishment of a supply chain that doesn't exist outside of China today or to protect those industries that do, pricing support for materials that are critical for national and economic security are an absolute must. Against this backdrop, GrafTech continues to take proactive measures that seek to capitalize on these emerging opportunities. These include ongoing engagement with the U.S. administration at various levels to help inform and shape critical mineral policies as it relates to graphite electrodes as well as battery materials, within the EU, supporting the ongoing efforts of the European Carbon and Graphite Association as they advocate for stronger European steel and graphite electrode industries and demonstrating our technical capabilities through partnership and engagement with various agencies, research institutions and companies. Let me pivot to our current thoughts on the steel industry trends as context for the rest of our discussion and our performance and outlook. Global steel production outside of China was 212 million tons in the first quarter, up approximately 1% compared to the prior year with a global utilization rate of approximately 67% for the quarter. Looking at some of our key commercial regions using data recently published in the World Steel Association. For North America, steel production was up 2% in the first quarter compared to the prior year, driven by 6% year-over-year growth in the United States. And we're seeing this trend continue into Q2 with the AISI reporting that weekly U.S. capacity utilization rate at 80% for just the second time in the past 2 years. This is a clear signal that EAF steelmaking activity and therefore, demand for our electrodes is gaining momentum in an important commercial region. Conversely, in the EU, steel output for the first quarter remained depressed, declining 3% compared to the prior year. However, as we've noted previously, indicators of a rebound in the steel market have started to appear both in the EU and globally. Turning to the next slide and expanding on this point. In April, World Steel published their latest short-range outlook for steel demand. Globally, outside of China, World Steel is projecting 2026 steel demand to grow 1.9% year-over-year. For the U.S., World Steel is projecting 1.7% steel demand growth in 2026. Along with this demand growth, favorable trade policies are expected to further support U.S. steel production. For Europe, World Steel is projecting a return of steel demand growth in the near-term, forecasting demand growth of 1.3% for 2026. This reflects some of the demand drivers we've discussed in the past earnings calls, including initiatives to increase infrastructure investment, defense spending, representing key steel-intensive industries. In addition, key policy initiatives in the EU are expected to support higher levels of steel production in this important commercial region for GrafTech. Specifically, provisions within the Carbon Border Adjustment Mechanism, or CBAM, implemented in early 2026 will make certain steel imports into the EU less competitive. Further in April, the EU approved the proposal initially made by the European Commission in 2025 to significantly increase trade protections on steel. These new measures, which will be effective at the beginning of July, will cut tariff-free steel import quotas nearly in half, double the above quota duties to 50% and introduce melt and pour disclosure rules to prevent circumvention. All this is expected to boost domestic steel production with some analysts projecting capacity utilization rates in the EU could increase from current levels around 60% to potentially 80% over time. Overall, we continue to project that globally outside of China, demand for graphite electrodes will increase in 2026 with all major regions expected to contribute. GrafTech is uniquely positioned to capture a disproportionate share of that growth. Before I hand the call over to Rory, I want to circle back on one of the key priorities I mentioned in my opening comments, operating safely. Our team continues to do just that, and I want to thank them for their efforts. For the first quarter, our total Recordable Incident Rate was 0.35, a further improvement over the full year rate for 2025. Sustaining this momentum will remain a critical focus as we work relentlessly towards our goal of 0 injuries. But with that, I'm going to turn it over to Rory, who will provide more color on our commercial and financial performance for the quarter. Rory? Rory O'Donnell: Thank you, Tim, and good morning, everyone. Starting with our operations. Our production volume for the first quarter was 29,000 metric tons, resulting in a capacity utilization rate of 65% for the quarter. On the commercial front, our sales volume in the first quarter was 28,000 metric tons, an increase of 14% compared to the prior year. As we remain focused on value over volume, we continue to prioritize business that meets our margin expectations while expanding our presence in higher-value regions, particularly the United States. To that end, we delivered 37% sales volume growth year-over-year in the U.S. for the first quarter. For the full year, we remain on track to achieve our original guidance of a 5% to 10% year-over-year increase in total sales volume, reflecting further market share gains. Of our anticipated 2026 volume, we have more than 85% committed in our order book to-date, which provides good visibility as this is tracking ahead of where we were at this point last year. Turning to price. Our average selling price for the first quarter was approximately $3,900 per metric ton, which represented a 5% decline compared to the prior year and sequentially a 2% decline compared to the fourth quarter. As we take stock of our pricing action, we are encouraged to see that the trajectory of our pricing is beginning to turn. While we continue to operate with disciplined commercial standards, we are encouraged by the positive pricing momentum, which, in addition to our pricing actions, also reflects the improving backdrop in EAF steelmaking, all of which is positioning GrafTech to capture significant long-term value as fundamentals continue to improve. Turning to the next slide and expanding on costs. For the first quarter, our cash costs on a per metric ton basis were $3,848. While above the level reported in the first quarter of 2025, this represented a 4% sequential decline from the fourth quarter. As we have noted in prior calls, we will have periodic quarter-to-quarter fluctuations in our cash cost recognition as a result of timing impacts. However, our underlying cost structure remains significantly improved compared to the prior periods. And we will remain focused on further optimization opportunities, including procurement and production efficiency and cost management across the organization, including in response to the geopolitically driven cost pressures that Tim spoke to. Importantly, we continue to achieve all of this while maintaining our dedication to product quality and reliability as well as upholding our commitment to environmental responsibility and safety. Overall, cost discipline remains a cornerstone of our strategy, and we are pleased with our ongoing progress towards achieving our long-term expectation of cash costs being approximately $3,600 to $3,700 per metric ton. Turning to the next slide and factoring all of this in. For the first quarter, we had a net loss of $43 million or $1.66 per share. Adjusted EBITDA was negative $14 million compared to negative $4 million in the prior year, primarily due to the decline in our average price. Turning to cash flow. For the first quarter, cash used in operating activities was $15 million. Adjusted free cash flow was negative $27 million compared to negative $40 million in the first quarter of 2025 as the prior year reflected a planned inventory build in the first quarter compared to a more neutral impact of working capital in the current year. On a full year basis, we continue to project a modest increase in our net working capital levels, reflecting our anticipated volume growth. As we have noted, to the extent that conflict-driven impacts on the oil and energy markets result in sustained increases in the carrying cost of our inventory, this will need to be reflected in our graphite electrode pricing moving forward. Lastly, regarding CapEx, we continue to anticipate a full year spend will be approximately $35 million, which we believe is an adequate level to maintain our assets at current utilization levels and support targeted investments in productivity capital. Turning to the next slide. We ended the first quarter with total liquidity of $329 million, consisting of $120 million of cash, $108 million of availability under our revolving credit facility and $100 million of availability under our delayed draw term loan. As a reminder, the untapped portion of our delayed draw term loan is available to be drawn until July of 2026, and our expectation remains to draw on this residual portion, most likely by the end of the second quarter. As it relates to our $225 million revolving credit facility, which matures in November of 2028, we had no borrowings outstanding as of the end of the quarter. However, based on a [ springing ] financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million less currently outstanding letters of credit, which were approximately $7 million at the end of the first quarter. More broadly, as it relates to our liquidity position, our pricing actions announced in the first quarter will set the stage for a more constructive pricing going forward, particularly as it relates to 2027 negotiations that are set to begin in the back half of 2026. As a reference point, based on current utilization rates, each $100 improvement in our average selling price would equate to approximately $12 million of incremental liquidity. In conjunction with the other key initiatives that Tim spoke to, it is expected to result in a marked improvement on our financial performance in 2027 and beyond. As such, we believe our $329 million liquidity position, along with the absence of substantial debt maturities until December of 2029, provides a strong foundation from which to execute our strategy, capitalize on improving market conditions and position GrafTech for meaningful long-term value creation. In closing my remarks, I would like to extend my gratitude for the outstanding commitment and hard work demonstrated by our team members worldwide and thank our customers and our investors for their continued partnership. I will now turn the call back to Tim for a few closing comments. Timothy Flanagan: Thank you, Rory. This remains a pivotal time for GrafTech and our broader industry. Near-term demand fundamentals are beginning to improve. Our price increase actions, favorable trade rulings, supportive policy action and strong EAF steelmaking trends from key customers are all reinforcing the pricing recovery thesis. Further, long-term growth drivers, including decarbonization, the continued shift to electric arc furnace steelmaking and the growing demand for needle coke and synthetic graphite are firmly in place. As the only pure-play graphite electrode producer outside of India and China, we remain firmly resolved to support the continuation of these dynamics. To that end, we will continue to operate with urgency, adaptability and the conviction to act decisively in the pursuit of long-term value, all of which will position GrafTech to capitalize on the structural trends that are set to shape the future of our industry and to deliver long-term shareholder value. To that end, I want to sincerely thank our entire team around the world for their remarkable efforts, resilience and commitment during this difficult time. That concludes our prepared remarks, and we'll now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Bennett Moore of JPMorgan. Bennett Moore: I wanted to start on the cost inflation side. I think all your EU energy needs are covered for this year, but if you could confirm that. And then maybe if you could help frame what sort of inflation you're seeing from decant oil? And has this started to put upward pressure on needle coke? And if not, when do you think we could start to see that flow through? Timothy Flanagan: Yes. Thanks, Bennett. So on the EU energy costs, you're right. We are nearly fully hedged on those. We have fixed price contracts going through the end of the year. So that's a good thing for us. We're happy to have that in place. Moving on to the decant oil question. Just to dimensionalize it, and I think we've talked about this before, decant oil as a percentage of our total production cost is around 25% of it. The pricing that we realize on decant oil is not necessarily directly correlated to just the Brent curve. We price off of other index as well, such as the HSFO and the like. And there's also premiums and discounts applied based on quality and such. So it's dangerous to correlate exactly the forward curve on Brent to our cost of decant oil and needle coke. But I will tell you, I'm very happy to say that we've taken a good look at the futures markets. We've looked at analyst consensus. and we've built that into our cost forecast, which, as you saw in our release this morning, we're maintaining our cost guidance for a low single-digit improvement over 2025. So luckily -- or not luckily, but very prudently, we've managed working capital, which has given us a little bit of a cushion to tolerate some of these headwinds on the decant oil market if those assumptions come true. Again, our supplier diversification and the timing of our purchases is important to managing that cost. So we'll continue to do that. A reminder from our year-end call, we're in the middle of planned major maintenance at our Seadrift facility. So a lot of our oil purchases were brought forward in the first quarter in anticipation of that, so we can exit the turnaround at Seadrift with enough inventory of decant oil to produce. So that's another factor to consider. But we have headwinds as does everyone else. It's dangerous to index right off of the Brent curve if you're looking forward, but we've incorporated all this into our guidance, and we're happy to maintain that previous cost reduction guidance. Rory O'Donnell: And Bennett, maybe I'll chime in on the needle coke market as a whole. I think the oil markets certainly have moved up. And while we source from different things and have a number of constructs that help us keep our pricing in check, I think it is a bit of a proxy for what some of the other decant oil producers globally are experiencing and other needle coke producers are experiencing globally. So I think that combination of higher oil prices at this point in time as well as just the overall supply disruption, right? A number of the needle coke producers source their oil out of the Middle East, the Chinese and some of the Japanese producers. And so that disruption is going to have an impact on the market as well. So I would expect as we get into the second half of the year, you'll see a marked increase in needle coke prices on the merchant side, which, again, being vertically integrated for us helps us out and would expect that market to tighten up quite a bit. Thus far, we haven't seen huge moves. I think we've seen about $175 or $200 increase in the Chinese market for needle coke. And I think that's largely a reflection of people fulfilling already committed tons here early on, but we certainly expect that market to move quite a bit in the back half of the year. Bennett Moore: Great. And then coming to pricing, it's great to hear that momentum is moving in the right direction following the recent hikes. I know you don't want to probably get into the detail of quarterly guidance on pricing, but do you think 1Q could be a trough for the year? When might we start to see it inflect at least directionally higher within your results? Rory O'Donnell: Yes. Thanks, Bennett. I'll give you directional commentary. I won't get into specific levels. But I think we're pleased with where the price increase adoption is at this point in time, right? We're now a little bit more than a month out since we made the announcement of $600 to $1,200 across various regions, and we're seeing success in that in all the regions that we sell into. I will tell you that right now that there's limited volumes that will actually be delivered in the second quarter, and that's just the phasing of when we made the announcement, when our negotiations took place. So probably 90% of the volume that will be impacted by the price increase will happen in the second half of the year. So I wouldn't expect to have a big change in ASP in the second quarter, but would really see that start to materialize in the third and fourth quarter. But again, pleased with where that's at, at this point in time. Operator: Next question comes from the line of Arun Viswanathan of RBC Capital Markets. Arun Viswanathan: So a few questions. So first off, I think I heard you say that your cash costs should be in a $3,600 to $3,700 range. And so if I think about your average price in Q1, which was $3,900, and then maybe I take the midpoint of what you've announced, $900. And so that would get you to $4,800. Is that the right way to think about maybe Q3, Q4 potential pricing? And then given that -- and would you be at that cash cost level, so maybe you could see kind of $1,000 EBITDA per ton range or maybe you can kind of just help us frame what the path to profitability is and what that looks like and maybe a time line, maybe Q3 or Q4? Timothy Flanagan: Thanks, Arun, and let me try to add some clarity to that. So I think it's a fair proxy to take the midpoint of the range because, again, that range is over all of the regions and the jurisdictions that we sell. But let me remind you, when we made the announcement of the price increase, we were approximately 80% committed, right? So the 20% of the sales we have to go would be influenced or impacted by that price increase. And again, we're pleased with where those negotiations are and the uptake we're seeing from customers at those price levels. But you can't just apply it to all the tons. You can only apply it to the incremental tons. But what's really important about this is how it sets up the third quarter and the fourth quarter negotiations and the momentum. I mean this is the first time we've seen in a number of years, quarters, any sort of positive price momentum on the electrode side. And really, that's a reflection of not only just market conditions, but better demand. We mentioned that you saw utilization rates in the U.S. ticked up over 80% last week. I think there's concerns around supply security, just given some of the disruption in the transit markets and just overall geopolitical elements that are going on in the world as well as the cost pressures that are front and center for everybody. So this is really about positioning for that next major round of cost or price negotiations for customers as we head into '27. But certainly, anywhere that we can push pricing here in the back half of the year, we will. Arun Viswanathan: Okay. And if I could just ask a follow-up. So Obviously, there is a lot of electrode production by Japanese producers and Koreans, also Korea is involved and there's a fair amount of needle coke production in that region. So however, we know from following what's going on, on the chemical side there's been massive disruptions and many of those facilities are down. So electrodes have suffered from weak pricing for a little while, and our explanation would be oversupply in the electrode market. But has the conflict potentially -- could it result in maybe some permanent structural reduction of capacity, especially in that region? And could that help kind of the long-term supply-demand balance and pricing power that you expect in electrodes going forward? Timothy Flanagan: Yes. I mean it's hard to say what the conflict is going to do. But I think certainly in the -- what it's going to do to long-term supply and demand balance. I mean, I think it all depends on the extent and duration of the war and the impact. But certainly, as you look at oil inventories globally coming way down and the continuation of the supply disruption, I would expect that you would certainly see a marked or meaningful impact in the second half of the year in terms of not only pricing but potentially supply for those who are struggling to get needle coke and other raw materials that are important to produce electrodes. So it will be yet to be seen what it looks like globally for the long term. But certainly, I think there'll be some disruption in the back half of the year. And again, I think that's why we like our position where we've maintained Seadrift as a meaningful part of our portfolio and the vertical integration that it provides our operations and what we can offer customers from a surety of supply perspective. Arun Viswanathan: Okay. And then just lastly, maybe you could comment on the -- your expected success on these price increases, is it -- do you feel like competitors are in the same boat and are using this as an opportunity -- and are they acting rationally or is there oversupply? And would they use this opportunity more as an opportunity to reclaim share? And I know you guys have been on a multiyear share recovery journey. So where are you on that as well? And do you foresee any headwinds in recovering that share now with increased competitive activity or not? Timothy Flanagan: Yes. Thanks, Arun. And I don't think I can comment or will comment on how other companies or competitors are thinking about their pricing strategies. But what I would say is there have been tenders in the market since we've announced the price increase, and we find those tenders in all of the regions. And we have won more of those tenders than we've lost at this point in time, which would suggest that customers are acknowledging either the value proposition that we're delivering or the essential nature of electrodes to their operations and are willing to pay a higher price to ensure that they get that. So if there are people out there looking at this as a volume player or share grab, I think we're still having success on what we're seeing from a tender perspective. And that's what gives us the positive viewpoint and outlook as we head into the back half of the year and start negotiations again, which are a few months out, but that's probably what I'd say there. I think just for reference, right, if we think about history here, if I'm a steel producer, if we looked over the last 20 years, electrodes represent roughly 1.1% of the selling price of finished steel. Today, that sits at 0.74%. And if we took where finished steel is right now, whether it's in the U.S. or the EU, pricing should be somewhere in the neighborhood of $7,000 a ton. So there certainly is a disconnect in the market. And I think the market participants understand that and see that, and that's why we're having some success on the price increase. Operator: Your next question comes from the line of Abe Landa of Bank of America. Abraham Landa: Maybe just focusing again on this like Middle East conflict, potential exposure, et cetera. Just kind of breaking out more the direct and indirect exposure within the cash COGS. I think you broke out decant 25%. That's helpful, so we don't have to explore that. But maybe between energy, logistics, maybe some other indirect exposure or direct exposure. And then I guess, of that potential exposure, what is fixed? Obviously, it sounds like energy is fixed and what is potentially variable? Rory O'Donnell: Yes. Thanks, Abe. So I would say beyond decant oil, of course, energy, electricity and natural gas are probably the next biggest chunk. I mentioned when Bennett chimed in about the fixed price contracts we have in place for most of our consumption for the rest of the year in Europe. So not a lot of direct exposure there. As far as natural gas goes, same thing in Europe, we have the same type of strategy around that. But between decant oil and the electricity, that's a big, big chunk of our variable costs. So from a fixed standpoint, there's a small amount of things that are exposed to the disruption in that market or the market shock of some of that pricing. But we're pretty comfortable that we have operational strategies, production scheduling tactics and things like that to take advantage of some of the rates that are available to us in other jurisdictions as far as time of consumption, extent of consumption, congestion credits, things like that. So I would say that focusing on the energy costs and our strategies around that as well as the comments I made earlier on our risk mitigation and our estimates around exposure to the oil markets, that covers the majority of that direct or indirect exposure to the impacts of the conflict. Abraham Landa: That's very helpful. And then I know decant is 25%. Do you have like a similar number for electricity and nat gas, kind of like those other elements? Rory O'Donnell: Those 2 together are about 10% to 15%. Abraham Landa: Very helpful. And then kind of continuing on this Middle East conflict theme. I guess within the Middle East, like -- I mean, we've seen stories of steelmaking being disrupted in that region. I mean, are you seeing that kind of reduced demand for electrodes in that market? I know it's a pretty popular market for imports of Chinese, Indian graphite electrodes. Are you seeing disruptions within the Middle East market? And then are you seeing any potential spillover to other markets related to the conflict? Timothy Flanagan: Yes. I think certainly, steel production in that region as well as the accessibility of that region, most of the product that we would sell into the Middle East would go via vessels and the availability of vessels and the cost and the access to that is pretty limited right now. So from our perspective, we're not moving a lot of volume into the Middle East right now. It's not a big market for us relative to the U.S., the European market as well as Japan, Korea and Taiwan. But yes, so not a lot of volume going into that region and certainly seeing a disruption and maybe that presents some opportunity when and if the conflict gets resolved and there's some inventory rebuild that needs to take place. In terms of spillover into other regions, no, I think there's probably been some modest opportunities in Europe for volumes that were otherwise coming out of the Asian market that either because of extended transit times or just supply disruptions as a whole, maybe we've been able to pick up some spot volumes in Europe as a result of that. Operator: Your next question comes from the line of Kirk Ludtke of Imperial Capital LLC. Kirk Ludtke: Just a couple of follow-ups. With respect to the -- you provided a rule of thumb pricing to liquidity. I think it was $100 a metric ton to $12 million of liquidity. What would be -- is there a -- can you put that in terms of EBITDA instead of liquidity? Rory O'Donnell: Yes, I consider that EBITDA impact. It would flow through. So if you're talking -- with our volume growth that we've guided to, it puts you kind of in that $115 million, $120 million range for the year. So that's where the $12 million comes from, $100 times $120, it's $12 million of EBITDA. Kirk Ludtke: Okay, great. And then you mentioned some steelmakers are shortening supply lines. Can you maybe elaborate on that? Is that in anticipation of higher pricing due to some of these trade actions or is that actually concerns about the ability to deliver? Timothy Flanagan: Yes. I think there's a few things going on in the market. First and foremost, transit times, again, have extended by a couple of weeks out of Asia into Europe, and that's providing some opportunity. I think the uncertainty of the market, the markets as a whole have maybe started to have some steelmakers thinking more regionally and trying to buy closer and managing less complex or less involved supply chains. I think both of those are having an impact. But I also think we're seeing a little bit of maybe a wait-and-see game from some steel producers trying to defer purchases. So they're consuming down some of their inventory, thinking that they'll have an opportunity to buy in a more favorable market condition later in the year, which, again, I think becomes a bit of a dangerous game just given the lead time that's needed to build electrodes and some of the demand we're seeing in other regions. So overall, I think market conditions, we're seeing some demand pick up and pretty pleased with where we're sitting right now. Kirk Ludtke: Great. And then lastly, the trade action in front of the ITC seems to be moving in the right direction. Can you maybe talk about the potential timing of that and if it will -- do you think it will come in time for the 2027 price negotiations? Timothy Flanagan: Yes. So the -- that large diameter, so again, it covers imports into the U.S. against the Chinese and the Indians and anything greater than 425 millimeters or 16.5 inches. It's through the initial ITC. It's on the Commerce. Commerce will do their investigation. We would expect that the Countervailing duties ruling could be implied or applied no later than the end of July. And then as we look at the antidumping, which is certainly the larger of the 2 would come in mid-September. And both of those would be in advance of kind of the bulk of the negotiations that will take place in the back half of the year and certainly will have an impact on those negotiations. And just for reference, I think the preliminary margin impact or ask on those was 74% against Indian imports and then 147% against Chinese imports. Kirk Ludtke: Got it. And those 2 are, what, 20% of the U.S. market? Timothy Flanagan: Roughly, yes. Operator: Our next question is a follow-up from Bennett Moore of JPMorgan. Bennett Moore: I wanted to stick with the theme of the trade policy here. And I guess I'm wondering kind of the scenarios you think could play out for negotiations later this year, assuming success on the trade case. Do you view this more as like a market share gain opportunity from the India imports or really more of a price action opportunity? And then maybe if you could also just touch on opportunities in other markets. I think you guys have initiated something down in Brazil, but what about Mexico and elsewhere? Timothy Flanagan: Yes. Thanks. And I think let's start in the U.S. Certainly, it's both a volume opportunity because I think it does impact the desire and the willingness to import those tons. But more importantly, it's a price impact for the broader U.S. market, which certainly is supportive and I think it's just another thing that's changing the momentum and the trajectory of the market as we sit here today. And I think we've long advocated whether it's the U.S. or any of the jurisdictions that we have operations in for fair trade and supporting the operations that we have. So I think there's actions going on in Brazil that I think are taking shape that we'll see some output here on later this year. And yes, but continue to advocate for fair trade across the board as well as supporting the ECGA's efforts in terms of the campaign they have going on right now about supporting the domestic graphite industry in Europe as well as supporting the broader steel initiatives in Europe. One thing that's probably worth spending a second on is what's going on in the broader critical minerals front. So we're taking action on the trade front in the U.S. because that's closest to where we're at right now. But certainly, as the U.S. continues to develop and partners with the EU and the other trading block countries around critical minerals and thinking about how they kind of decouple or break the ties to China in particular, I think that can have a significant impact on the way people think about graphite electrode pricing and anode material pricing, again, both of which are supportive to our business, both as we think about the electrodes as well as the value of the needle coke operation we have now in Seadrift. So that's an area that we're spending a lot of time as well on ensuring that people understand the essential nature of electrodes and the role that electrodes play in the steel production process and how that translates into economic security and National Security. but the same on the anode side, right? And the only way you can start a new supply chain in this environment is to have some sort of price support. So I think as we look out, it seems to make a lot of sense from an overall governmental policy perspective to have a broader trade protection beyond even what's going on with the ITC. Operator: That concludes our Q&A session. I will now turn the conference back over to Tim Flanagan, CEO, for closing remarks. Timothy Flanagan: Thank you, JL. I'd like to thank everyone on this call for your interest in GrafTech, and we look forward to speaking with you next quarter. Have a great day. Operator: That concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome, everyone, to the Gates Industrial Corporation Corporation First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Rich Kwas, Senior Vice President, Investor Relations. Please go ahead. Richard Kwas: Greetings, and thank you for joining us on our first quarter 2026 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, iIvo Jurek; be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our annual report on Form 10-K that was filed in February 2026. We disclaim any obligation to update these forward-looking statements. We'll be attending several conferences over the coming weeks and look forward to meeting with many of you. And before we start, please note all comparisons are against the prior year period unless stated otherwise. Now I'll turn the call over to Ivo. Ivo Jurek: Thank you, Rich, and good morning, everyone. We appreciate your participation on our call today. I will start on Slide 3 with a brief recap of the first quarter. Our team executed well on our business priorities during the first quarter, navigating successfully through firm level of business transition. In particular, our Europe team successfully implemented a new ERP system and achieved higher efficiency rates as the quarter progressed. Exiting the quarter, our Europe business has stabilized, was delivering revenues on par with prior pre-ERP implementation periods, although with still somewhat above normal operating costs. We anticipate our operational efficiency in Europe to stabilize further during the second quarter. On a global basis, our sales dollars and margin rate were broadly consistent with expectations we have outlined in February. Excluding the impact of the anticipated headwinds from the ERP transition, and the 2 fewer working days that affected the first 2 months of the quarter. Overall demand trends improved during the quarter. Core sales growth approximated mid-single digits year-over-year in March. We finished the quarter with a book-to-bill solidly above 1. As we sit here today, and based on our present run rate. We feel good about our core sales growth prospects for the year, absent of any additional potential escalation of the conflict in the Middle East. In addition, we do not anticipate any material financial impact from the recent revisions in Section 232 tariffs. As such, we are reiterating our 2026 financial guidance. Please turn to Slide 4. Our first quarter sales were $851 million, representing a core sales decrease of 2.9%. Relative to our core sales guidance provided in February, we experienced some small incremental distribution inefficiencies associated with the ERP transition, which led to a build of past due backlog as we exited the quarter. We expect to recover these sales in the second quarter, and Brooks will go into more detail later on the call. The European ERP transition and working days relative to a prior year period combined represented approximately a 600 basis point headwind to our core sales. Entering 2026, we experienced a positive inflection in industrial OEM orders, and that trend has continued. Adjusted EBITDA was $177 million, in line with expectations, resulting in an adjusted EBITDA margin of 20.8%, down 130 basis points year-over-year. The decrease was primarily driven by inefficiencies related to the ERP transition and the impact of having 2 fewer working days compared to prior year period. Our adjusted gross margin was 40.5%, down approximately 20 basis points. Our adjusted earnings per share was $0.35 and down slightly. The fewer working days in the quarter, an ERP transition combined to represent a $0.07 headwind to adjusted EPS. Operational performance and a lower adjusted tax rate were modest benefits. On Slide 5, I will cover segment highlights. All year-over-year comparisons were substantially impacted by the ERP conversion as well as the fewer working days. Looking past these items, we saw a very solid trend across both of our segments with noted underperformance in commercial on-highway production, common to both. In the Power Transmission segment, we generated revenues of $533 million in the quarter, a decrease of approximately 2.5% on a core basis, primarily driven by the fewer working days and ERP transition in Europe. The Power Transmission segment realized accelerating order trends during March. Personal Mobility expanded 6%, and our growth rate was affected by project timing as well as the ERP transition in Europe, the region with the largest exposure to Personal Mobility. We anticipate a return to our normalized levels in Personal Mobility starting in Q2. Additionally, the construction end market continued to improve and the ag market is recovering. In the Fluid Power segment, our sales were $318 million, with a decrease in core sales of approximately 3.5%. Fewer working days and the year of ERP implementation, again, contributed to the decline. We realized strong double-digit growth in APAC during the quarter. Broadly, order intake was strong exiting the quarter. I would note that the commercial on-highway was relatively weak in the quarter. That said, North American orders have inflected positively to start 2026. Our data center business continues to perform in line with our expectations, and revenue grew approximately 700% from a low base in the prior year period. I'll now pass the call over to Brooks for some comments on our results. L. Mallard: Thank you, Ivo. I'll begin on Slide 6 and discuss our core sales performance by region. In the Americas, core sales declined approximately 2.6% in the first quarter. 2 fewer working days in our first quarter relative to the prior year period had an unfavorable impact on growth. North America core sales were down a little less than 2%. Excluding the working days impact, North America core sales would have increased compared to the prior year. In EMEA, core sales declined approximately 8.5% year-over-year, most of which was incurred in February. While production outpaced targets, finished goods shipping lag production output in February and through the first part of March. This led to slightly lower-than-expected revenues, of around $4 million, and higher pass-through backlog than normal as we exited Q1. Overall, we were pleased with our improvement through the quarter. We delivered positive core growth in EMEA in March, and that trend has continued through the early stages of Q2. We expect to further improve our distribution efficiencies through the second quarter and exit at normalized levels of shipping output and past due backlog. Our APAC region grew almost 4%, industrial OEM and auto aftermarket, both grew nicely and fueled the performance. Slide 7 shows the components of our year-over-year change to adjusted earnings per share. On a combined basis, the temporary headwinds of the ERP transition and fewer working days represented a $0.07 headwind to adjusted earnings per share. Underlying operating performance contributed $0.02 per share. Other items, including a lower tax rate and share count represented a $0.02 benefit. Slide 8 provides an overview of our free cash flow and balance sheet position. Over the last 12 months, we delivered free cash flow conversion of approximately 101%. Stronger operating cash flow drove positive free cash flow for the quarter. We continue to strengthen the balance sheet, exiting the quarter with net leverage at 1.9x, representing an improvement of approximately 0.4 turns compared to the first quarter of 2025. Our capital allocation approach remains balanced and we repurchased additional shares in the first quarter. In late February, we received a credit rating upgrade from Moody's to Ba2 from Ba3. Our return on invested capital remains strong while incurring margin headwinds associated with the ERP transition and continuing to make investments in our key process and growth initiatives. Turning to Slide 9, we have reiterated our full year 2026 financial guidance. We anticipate core growth to improve over the course of the year. For the second quarter, we are guiding revenue to a range of $905 million to $945 million. At the midpoint, core growth is estimated to be approximately 3.5% year-over-year. We project adjusted EBITDA margin to decline 30 basis points compared to the prior year period, influenced by temporary impacts from the ERP transition and our footprint optimization projects, which we expect to benefit adjusted EBITDA margin performance in the second half of this year. I'll now turn it back to Ivo for closing thoughts. Ivo Jurek: Thanks, Brooks. On Slide 10, let me summarize our key messages. First, our team executed well and showed a great degree of resilience during a period of significant business transition. We delivered slightly better adjusted EBITDA margin than expected and solid free cash flow on a seasonal basis. Our European business is operating as expected, post the ERP transition, and our team is highly focused on driving incremental efficiencies with the new system in place. We have shifted our operational focus to optimizing customer service fill rates to pre-ERP implementation levels, which were at world class. Second, we continue to see improving demand trends across most of our end markets. Industrial OEM orders are gaining momentum, and we experienced good demand trends in April. In EMEA, our revenue is trending nicely, above expectations to start the quarter. As such, we have good confidence in achieving our core revenue growth guidance with where we sit today. Third, we believe our business is in a strong position. We are executing on our footprint optimization projects and anticipate achieving an adjusted EBITDA margin approaching 23.5% in the second half of the year. In addition, our balance sheet is in a strong shape. We announced a small acquisition today, acquiring Timken's Industrial Belt business, which we expect to close in the third quarter. The acquisition augments our part transmission position in North America and should supplement growth moving forward. We intend to remain opportunistic deploying capital to enhance shareholder returns. Before taking your questions, I want to thank all of our global Gates associates for their diligence and efforts supporting our customers' needs and executing on our strategic goals. With that, I will now turn the call back to the operator for Q&A. Operator: [Operator Instructions] We'll take our first question from Michael Halloran at Baird. Michael Halloran: So maybe we just start where you were leaving off there a little bit, Ivo. So it sounds like growth -- core growth would have been positive in the quarter, excluding the ERP and some of the days issues, feels like the trajectory is what you're wanting to see exiting 1Q into 2Q holistically. Maybe just confidence in the sustainability as we sit here today, any areas of concern? What are your customers saying? Just kind of generically help us understand how you think this tracks in the year. Ivo Jurek: Yes, Mike, thank you for the question. Look, we actually had a terrific quarter, taking into account the quantified issues that we highlighted on our Q3 earnings call last year, outlining that we have a major ERP upgrade that we are going to do on basically 24% of the [indiscernible] Company's revenues in a big bang type event, and we have executed in an amazing way. I'm super proud of our Europe team. They have done a fantastic job and the business performed as we have anticipated. The business continues to behave in a very strong fashion. Net of the 2 less selling days than the ERP, we would have been basically up 300 basis points on core, which is right in line with what we have expected for the year and is basically trending towards the midpoint of our annual guidance. April, we have exited in a very strong position as well. The order flow is very solid. We have highlighted on last couple of calls that we have seen a very nice inflection in the industrial OEM order flow that remained throughout Q1 and into April. So as far as I see it today, I feel quite confidently that we are in a very good position to be able to achieve our annual guidance. And we've actually put the business in a position to be able to do really well as as the revenue generation capabilities and the end markets stabilize. So we're in a very good shape. Michael Halloran: Yes. That makes a lot of sense. And maybe just the Timken purchase. Why does it make sense now? What capabilities does it add that you lacked before? And then any sense of size, revenue, profitability, any of that? . Ivo Jurek: Yes. Look, it was very opportunistic. We were approached some time ago about the opportunity to acquire an asset that frankly -- when you talk about around the edges of what you do, this is right front and center of what we do, right? This is highly complementary in nature for us. The business has evolved. I think that there have been some highlights about what that business was about 10 years ago. I think the business has gone through some transitions. We are buying assets in a facility in Mexico that is going to be highly complementary for us. The size, we think that, that business can kind of add maybe $5 million a month in annualized revenue. And so it's highly complementary, and I believe that it will be very accretive to us as we embed it into our operations, and it has the opportunity to continue to accelerate our growth rate. Operator: we'll move to our next question from Jeff Hammond with KeyBanc. David Tarantino: This is David Tarantino on for Jeff. Maybe could you give us a little color on kind of the margin trends if you kind of back out the ERP transition? And maybe give us some color on price costs relative to the increased inputs, particularly around any oil derivative impacts or any tariff impacts you expect moving forward? It looks like the year is kind of playing out in line with expectations overall. L. Mallard: Okay. All right, David. That's a lot to unpack, so get ready. So first, let's start with the with the headwinds, the margin headwinds. As I look at Q1 conservatively, I would say we had at least 200 basis points of EBITDA margin headwinds. At least half of that was associated with the ERP transition in Europe. So that's a combination of lower sales, as we talked about, and then the impact of higher temporary SG&A cost as we move to the hypercare phase of that go-live. Those costs are temporary. They'll come out as we exit Q2. And then the other half is a combination of the footprint optimization kind of cost out that we talked about in the first half of the year as well as the impact of less days, right, just kind of the leverage part of the less days. And so you kind of take that into account we're kind of pushing up towards 23% EBITDA from a one-off perspective. And then I look at Q2, the midpoint, we're at 22.2%, I think -- 22.3% -- 22.2%. And I see we still have about 100 basis points of headwind. Again, about half of that coming from ERP, almost entirely coming from hypercare and increased SG&A. And then the rest really coming around the footprint and cost actions. That should be complete by the end of Q2. And so again, before we get -- start to get any of the savings or anything, we're approaching 23%. And so as I look at those 2 kind of data points and I looked at the 23.5%, that Ivo talked about, in the back half of the year, well, I mean, we feel pretty good. We feel pretty good, getting through the ERP transition, exiting the way we did, [indiscernible] a little core growth in EMEA and then kind of looking at the rest of the business and starting to get a little bit of growth there, we feel pretty good about things. From a tariff perspective, we don't really expect any impact from the 232 stuff. Most of ours was classified as automotive. And so that really doesn't impact us at all. We have a little bit of headwinds, maybe 20 bps of kind of dilution as we priced for tariffs. We're not even counting that though in any of our numbers. We're going to get to where we need to get irrespective of that. From a -- when you think about what's going on in the Middle East and the cost of oil and how that kind of impacts through the enterprise, obviously, that's going to impact things like resins and polymers and compounds. It's going to impact things that have high energy use, like aluminum and steel. You're seeing those go up. And then there's ripple effects to the rest of the P&L. When it comes to pricing for inflation, we're very confident on that, right? We've always been able to price for inflation. We're getting out ahead of that. And we learned some lessons as we think back post-COVID and the Russia-Ukraine conflict, and we're really focused on surety of supply for our customers. In addition, we've done a lot of work around our supply base. So supplier development, alternative materials, different things like that. And we feel like we're in a very solid position in terms of making sure we can take care of our customers, get surety of supply not have any kind of interruptions in the business. And then also, as I said, we know we can price for inflation, and we will make sure we take care of that. In addition, we're sticking by our guidance in the second half, and we feel pretty good about it, okay? David Tarantino: Great. That's really helpful. And then maybe following up on the demand trends. Could you just give us a little bit more color on the underlying demand trends relative to the strong order take you highlighted? How do the current customer conversations track with that initial end market framework provided last quarter? Ivo Jurek: Yes. Look, I mean, I don't think that anything really has fundamentally changed. I mean if there was a change, I would say, maybe the -- particularly in North America, on the highway, order flow has gotten better than where it was kind of exiting 2025. Outside of that, we see pretty solid demand trends across the portfolio. We see good behavior in automotive aftermarket. We feel well about industrial off-highway. I mean, obviously, commercial construction has been quite strong. Ag's been recovering very, very nicely. Energy and resources have stabilized, so that's kind of more still useful around the edges, but we anticipate that there may be an inflection taking into account what's happening in the Middle East. Diversified industrial is in a good place. Auto is soft. Auto is always soft, but it's such a small part of our business, and it is right where we anticipated. So when I take a look at where we sit, we feel the concurrently that the midpoint of our guide for the year is super achievable. Operator: We'll take our next question from Nigel Coe with Wolfe Research. Nigel Coe: And by the way, congratulations on the deal. I think this is your first deal as a public company, right, Ivo? Ivo Jurek: It is. Thank you, Nigel, and it's kind of -- it's a very nice tuck-in transaction that -- it's not even middle of the fairway, I mean, in the middle of your household. Nigel Coe: Yes, it does seem like [indiscernible] glove. Maybe just a bit more details on what you're seeing sort of through April. Number one, given the short cycle nature of your products, I'm just trying to understand why the push from the ERP transition. So I just want to understand how you're recovering those sales because I think we tend to think of a short sort of like won ne and done, it lost doesn't recover. So just want to understand that. And then it sounds like you're seeing recovery in industrial OEM. You mentioned on-highway as an area of cover as well. I'm just wondering if some of the strength you're seeing is really being driven by some of this heavy industry recovery. Ivo Jurek: Yes. A lot to [indiscernible]. So look, why do we feel that we're going to recover the sales in Europe? Because we really -- the way to think about it, Nigel, is that we were live basically in the first week of February. And you have to back flush the system. So no matter what you do, you kind of lose 1 week of activity, and then you fire back your assets, and you restart them. And. So everything was going the way that we've anticipated. We just -- it just took us -- think about it as 1 more day to undone our distribution centers. And we've just simply run out of calendar in March. Europe revenue in March was on par with prior year pre-ERP implementation, so they were fully recovered. And frankly, in the month of April, at the beginning of April, they've recovered the revenue from Q1. So actually, our year of business was up almost double digit in the month of April. So they've had full recovery. They are performing well. We are doing a really good job. The team is just executing in a world-class level. I feel quite well that we have recovered completely and not really lost any revenue. So again, 1 day, and that was nicely recovered. When it comes to these demand trends, I believe that what you see on the heavier industry is more in line with that underlying economy around the large projects that are coming out of ground around the data centers and power gen and power infrastructure and you need lots of construction equipment, earth moving equipment and so on and so forth. And we've anticipated that those businesses were quite weak.for an extended period of time. And I think that you and I discussed that on our Q3 earnings that the outlook has been stabilizing, and we are now starting to actually see the outlook turn nicely positive. And so PMI is above 50%, and that's good for kind of the overall underlying trend. And look, I'm not prepared to declare a victory in here, but I feel pretty positive about the demand trends. Nigel Coe: ISM 52.6%, I think, this morning. So fourth month above 50%, so it's a bit of a trend now. And then just going back to the previous question about the inflation recovery, is there more price coming into 2Q versus 1Q? And then Brooks, the [indiscernible] day headwind in 1Q, does that come back in 4Q to be have some tailwind in the back half of the year? L. Mallard: We have an extra day in Q4. So that's -- as we kind of move through the year, whenever we actually talk about Q4, you'll see it a little bit higher and because of that extra day. From a pricing perspective, you might see a little leak in to the end of Q2, but that's mostly going to be a second half event. So that will evolve over Q2, and we'll give more guidance as we see how things evolve and we start to roll out our Q3 guidance after this quarter. Operator: We'll take our next question from Julian Mitchell at Barclays. Julian Mitchell: Just trying to understand the sort of ERP catch up. So I think you had 3% sort of underlying growth ex-ERP in the first quarter. And then you're guiding for around that rate for Q2 and I think for the second half as well. But just wondered if you might have some ERP catch-up that would push up that underlying growth in the balance of the year from the 3% you did in Q1, particularly as your order trends seem pretty good, and you had a good book-to-bill. So I'm just trying to square those things. So I guess I'd say if you're running at 3% every quarter, underlying, but then you should get a catch-up from ERP, and the orders seem better. Why is it 3% every quarter through the year? Ivo Jurek: Yes. Look, Julien, a good question, right? So the ERP cut shop -- where I was talking about the ERP cut shop, you basically were about a day worse than what we've anticipated. We've lost 7 working days. And so the order returns are very, very solid. We are early in the year. I don't think that it is prudent to be making any adjustments to guidance this early in the year. Of course, when you take a look at the order trends, you would -- and I think that probably [indiscernible], we feel a lot more positively around where we sit for the year, but it's quite early in the year. And we will execute on within our control and manage our revenue generation to deliver on the guidance that we have put forward [indiscernible] done. Julian Mitchell: Got it. And then just my follow-up around price versus volumes in the revenue line. Maybe I missed it, but did you mention what price was in first quarter? And then I think for the year as a whole, you'd guided [ 1 ], [ 1.5 ] points of price. Is that still the case? Or there's a bit extra now because of the higher cost inflation? L. Mallard: Yes. As I said before, Julien, we're kind of seeing how things evolve. We've begun to roll out some price increases and then we're looking at the impact of some other things. And so there will definitely be an evolution of price versus volume as we work our way through the second quarter. But this is all relatively kind of late breaking, and we're still kind of working through some of the numbers. And so I would say stay tuned for the second half of the year, we reiterated our guide. We feel comfortable with our with our numbers, both from a top line and a profitability perspective. And we'll update you on the components of it as we work through how the -- how all this oil increase in cost impacts our numbers, okay? Julian Mitchell: Got it. But in the first quarter, sort of reported price was, what, [ 1.5 ] points or something? . Ivo Jurek: A little bit higher. L. Mallard: Yes, a little bit higher. I mean we have a little bit more tariff pricing in the first half of this year because we kicked that off in the third quarter of last year. And it's a little bit more -- in the original numbers, a little bit more probably see in the first half related to tariffs. Operator: We'll move to our next question from Andy Kaplowitz at Citigroup. Andrew Kaplowitz: One. I think you said Personal Mobility up 6% in Q1. I know affected by ERP I know you've talked about Personal Mobility growing sort of that high 20s to 30% over the next few years. I think you said Q2 returned to more normalized growth run rates in Personal Mobility. So maybe just update us. Is that the case? Can you get back to those rates? And do you still expect '26 to grow at that sort of normalized high growth rate in Personal Mobility? Ivo Jurek: Yes. Thank you, Andy. Absolutely. We've had some delays with a couple of projects that they were supposed to ramp up in Q1. They are ramping up in Q2, and the ERP was an outsized impact because a very significant amount of our revenue base is euro based. And so that drove a pretty meaningful impact to the Q1 growth rate. But as I indicated in the prepared remarks, we certainly believe that the business is going to grow and deliver that mid-20s growth rate as we have committed in our original guidance. Andrew Kaplowitz: Okay. And I think I have to ask you about that other big growth driver, data centers. I mean, I think you said up 700% off a low base. I don't know that probably puts you at, what, like $10 million for the quarter, maybe a little bit more, you tell me. But is there a way to more directly refine what '26 could look like? And then obviously, we're wondering how you fare versus that $100 million to $200 million rate by '28, like, so how's the progress versus that? Ivo Jurek: Yes. Look, we feel very good about where we sit today. I mean, our order intake and billings are strong in data centers and getting a really nice acceleration of penetration. I mean, obviously, it is from a small base last year, but we've started to accelerate our revenue gen and order intake in Q4. We continue to develop a much more wholesome understanding of the infrastructure partners and semiconductor partners, cooling technology and their needs. And look, we continue to drive and tailor our technology for those needs. We are launching new products, those products, we believe, put us at the forefront of the incremental improvements that are needed to facilitate much better liquid clean flow rates to improve the efficiency from the existing infrastructure and b, kind of a leading-edge supplier, kind of the next generation of the chips that -- they are now being developed. So we are kind of building kind of the traditional approach that I have probably demonstrated over the last 10 years. We we go after an application that is exciting and emerging. We've developed a highly specialized knowledge and we tailor our products that will offer differentiated performance, and we build a sustainable, durable revenue stream on a forward-going basis. And I think that our data continues to demonstrate beyond that trajectory and have committed to you all and to our shareholders kind of $100 million to $200 million of revenue by '28. And I believe that we're on the trajectory. Andrew Kaplowitz: So bottom line on track toward that goal in Q1, is how you characterize it? Ivo Jurek: That's correct. Operator: We'll go next to Deane Dray at with RBC Capital Markets. Deane Dray: I'd love to circle back on the Timken deal, and congrats. Ivo, can you just give us some color strategically what this brings to Gates. Is this a product line extension? Because if I look at the SKUs, they're awfully similar. Maybe it's some on the sports equipment side. And does it bring any new distribution partners maybe to the table? I'd like to see the manufacturing facility coming in, but maybe if we could start there. Ivo Jurek: Deane, yes, those are all very good questions. I mean, I would think about it more as kind of industry consolidation more than anything else. I mean, as you know, Gates is the global leading supplier of all types of belts in all sorts of different applications. And this was just another competitor for us that was small and I think the Timken can sell that was not at the front and center of what they wanted to focus on, on forward-going basis, and it is something that is additive to us more across the customer base. I think that the technologies and the type of applications that they participated in and that business participates in, is very, it's complementary, and it's not something that is super new. We will be switching a whole bunch of the portfolio into Gates Constructions, and factories nice to have. So I think that you should just think about it more as a kind of industry consolidation than anything else. They have some good folks there. That's all -- it's nice to bring into our family, and we welcome the employees to Gates organization with open arms. And we just think that it's a good transaction. It's right at the core of what we do, and we feel that we are the right owner and a good steward of that business on a forward-going basis. Deane Dray: Yes. That's really good to hear. And I know we don't have the terms. But based upon the sellers' previous comments about margins, it looks like this is coming in well below the power transmission margins for Gates. So that would suggest there's some nice accretion opportunity. Can you give any color or context there? Ivo Jurek: Yes. Look, I mean, I think that the business is certainly coming in kind of below what our North America or transmission fleet averages. A lot of that business is, frankly, OEM business. So in just a natural way, that's got a little bit lower margins. But for us, again, this is kind of core of what we do. So we believe that we have a significant opportunity to drive margins to be at a company fleet average and that's we just indicated, there's a very nice opportunity to improve profitability on that asset. And it should be a very good transaction for us once we have the opportunity to integrate it in and start running it under the Gates operating system and frankly drive the margins to where they should be. Operator: Our next question comes from Chris Snyder at Morgan Stanley. Christopher Snyder: I wanted to follow up on some of the commentary on the ERP disruption and potential catch up. And I guess, we assume the ERP was a 3-point headwind in the quarter, I guess it would imply about $25 million, $30 million impact. But then I think, Ivo, you said that Europe has fully caught up on the lost revenue in April. So I just want to make sure I'm understanding that right. Like, was Europe a subsegment of that $25 million to $30 million? Just trying to understand how much catch-up there really was there in April. Ivo Jurek: Yes, Chris, thanks for the question. Let me just clarify. We came about $5 million light to the midpoint that we have guided on Q1. So my comment has been more around the $5 million that we came a little bit light on in Q1, that we have fully recovered, not the incremental $25 million that you are stipulating. That is something that we anticipate we will recover as the year progresses. L. Mallard: And that was built into our original guidance, right? And so Ivo was bridging the gap on Q1 versus the balance of the year. Christopher Snyder: Got it. Yes, I felt like the $25 million to $30 million was a lot. So I appreciate that clarification. And then if I could just follow up on data center. It's very nascent for you guys now. And I guess my question is, is this just a nascent market since it's tied to liquid cooling, which is still in the very early stages? Or is there already an established player that's out there in the market that you guys have to go and take share from? Because I think it's understandable why you guys have a right to win there. But then also just the question is, if this market is already developing, why aren't you guys a meaningful share already? But correct me if you already are meaningful share. Ivo Jurek: Yes. Look, I think it is a nascent market, right? I mean I think that we all started to talk about liquid cooling much more profound in about 12 months ago. We have started to quantify our growth rates in that market pretty meaningfully in the second half of the year. I think that our order intake does indicate that we are taking a fair share of the revenue. They are well-established players just like Gates is an established player. That will be competing for the available infrastructure build-out. But there's so many projects that, in our view, there will be room for more players to come in and for everybody to have plenty of opportunity to build strong solid revenue stream as this business becomes mainstream. My sense is we didn't just kind of come up '28 as some random date. I mean we feel that by '28, this should become -- this should transition from emerging applications to mainstream where all data centers will be liquid. Operator: Next, we'll move to David Raso at Evercore ISI. David Raso: With the second half of the year implying organic around 4.5%. I'm curious, the order strength that you've mentioned multiple times for March and April. Can you give us a sense of what the order growth is trending right now year-over-year? L. Mallard: Yes. So look, we -- obviously, order growth is outpacing core growth certainly in Q1 as we saw backlog build kind of across the business. And that's -- I think it's an indication of the industrial OEM strength that Ivo talked about. And so when -- that's really -- as we've going through a little bit of a trough that we've seen on the industrial side, the strength in the industrial OEM business has given us pretty good confidence. And so we had backlog build in Q1. We continue to -- we saw strength in April, which is why we highlighted that. And so orders are on pace to support our core growth number right now. And I'd say also, remember that the second half of the year, there is some -- there's that extra day that we have in the second half of the year that kind of offsets the 2 days in the first quarter. And so that gives you a little bit higher growth rate in the second half. And then also, there's some catch up throughout the year on the EMEA side. And so when we look at it kind of from an overall perspective, we feel like it's pretty evenly paced throughout the year from a core growth perspective. Ivo Jurek: I'm sorry. What I would remind also everybody is that prior year comparisons are a little more difficult, right, because we had big step-up in AR business of the channel win that we had in the first half. So actually, the underlying performance in Q1 was quite good. David Raso: Well, that's -- I was just wondering, are we really seeing orders running above that second half organic growth rate? [indiscernible] bullet just trying to set that up. L. Mallard: I think when you look at the one-offs that I talked about in terms of the extra day, you look at the order rate right now and you look at the trend and kind of and what we've guided to for Q2, again, we feel pretty confident in our guide. And we feel good about where we stand from an orders perspective and a sales perspective. Ivo Jurek: It's really in the year, it's about right, David. L. Mallard: It's very early in the year. David Raso: Yes. Appreciate it. And I think if I heard you correctly about the second quarter, while the guide for the margin is around, I think, 22.2%, do you feel there's still about 100 bps in there of, I guess, ERP drag, if I heard correctly? Is that the right way to think about this? Yes, please go ahead. L. Mallard: Yes, it's about half ERP and half footprint optimization cost out. So it's kind of similar to what it was in Q1 but half. And you progress from 20.8% to 22.2%, you still have 100 bps of headwind. So you're kind of knocking on 23% from an EBITDA perspective when you adjust for the one-off. So again, we talked about the 23.5% target in the second half of the year. We feel pretty good about that. Operator: We'll move to our next question from Jerry Revich at Wells Fargo. Jerry Revich: Ivo, I'm wondering if you could just talk about the difference in demand cadence you're seeing on the replacement market by end market, if you have that type of visibility. We were surprised to hear from somebody else in the supply chain that parts demand and truck applications was really soft in the first quarter. I'm wondering if you're seeing that or if you have that level of granularity and visibility and any other replacement demand trends that you can talk about in terms of cadence would be helpful. Ivo Jurek: Yes. We don't really break out our replacement analysts by end market. What I will tell you is that the aftermarket in Q1 was quite healthy, absent of the 2 things that we have listed it was running at a trend line. So I wouldn't -- I would not be able to tell you that there was something out of ordinary that was not behaving well. Our aftermarket is actually quite okay. And when I take a look at the POS, the POS data was very healthy. So there wasn't any indication of somebody trying to pull demand forward. We didn't see that. I mean, the sales out kind of outpaced our sales in slightly. So everything is -- I see a normal operating conditions, I wouldn't call that as extraordinary, out of line or positive or that it is negative at all. I think it's behaving the way that we anticipated. Jerry Revich: Super. And separately, nice to see the transaction announced this morning. Can you talk about as you look at the M&A pipeline, are there additional opportunities that we should be thinking about over the next 12 to 18 months? What's the range of capital if you do have an active pipeline? What's the range of capital that you think you could deploy beyond the announcement today? Ivo Jurek: Yes. Look, we have a very healthy balance sheet. We spent -- I spent years on trying to get this balance sheet to be durable. We are right in line with what we have committed in our last CMD. We feel that we have a ton of capacity. I think that we are operating the business quite well. We're driving profitability forward. And we believe that there are many opportunities presently our pipeline is very robust. We are doing presently a ton of work on number of assets that would be highly accretive to what we do. Again, front end center to our portfolio, we're not -- we are really not looking anything that would be an extension or a third leg. We don't believe that. That is the most meaningful way to add to our scale. And so we will talk to you as these things develop further, but I would say, yes, there's a very good likelihood of more announcements coming certainly within this calendar year. Operator: And we'll take our next question from Tom Sano at JPMorgan. Tomohiko Sano: Could you share your perspective on business opportunities for Gates and robotics, especially humanoid applications? Based on your discussions with the customers,and your technology services, what is Gates' potential in this space? And are there any specific technology services you see as a key differentiator? Ivo Jurek: Yes. Look, yes, we do see opportunities. There are some nice opportunities that we already participate on today. We have a very nice small scale business in China, in particular, in Japan in robotics. I would not be in a position, frankly, to tell you today whether or not there is some humanoid immunize opportunities very specifically. But we do have a very nice robotics power transmission business with small belts that them perhaps more cost efficient than the alternative technologies. And we believe that it's going to be a small accretive end market as it develops on a forward-going basis. Tomohiko Sano: And just a follow up on the Timken acquisition. Could you talk about expected impact on net leverage following these acquisitions? And how should we think about the capital allocation strategies cleaning the balance sheet, please? Ivo Jurek: Yes, it's a material. I mean it was a super positive purchase price -- opportunistic purchase price that we've acquired this business. Will be not needful on our net leverage. Operator: And that concludes our Q&A session. I will now turn the conference back over to Rich for closing remarks. Richard Kwas: Thanks, everybody, for participating. If you have any further questions, feel free to reach out to me. Otherwise, have a great weekend. Take care. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, everyone, and thank you for joining the Xenia Hotels & Resorts, Inc. Q1 2026 Earnings Conference Call. My name is Regan, and I will be your moderator today. All lines will be muted during the presentation portion of the call, and if you would like to ask a question, you may do so by pressing star 1 on your telephone keypad. I would now like to pass the conference over to our host, Aldo Martinez, Director of Finance. Please proceed. Thank you, Regan. Aldo Martinez: Welcome to Xenia Hotels & Resorts, Inc.’s first quarter 2026 earnings call and webcast. I am here with Marcel Verbaas, our chair and chief executive officer, Barry Bloom, our president and chief operating officer, and Atish Shah, our executive vice president and chief financial officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects. And Atish will conclude today’s remarks on our balance sheet and outlook. We will then open up the call for Q&A. Before we get started, let me remind everyone that certain statements made on the call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued this morning, along with the comments on this call, are made only as of today, 05/01/2026, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our first quarter earnings release, which is available on the Investor Relations section of our website. The property-level information we will be speaking about today is on a same-property basis for all 30 hotels, unless specified otherwise. An archive of this call will be available on our website for ninety days. I will now turn it over to Marcel Verbaas to get started. Marcel Verbaas: Thanks, Aldo Martinez, and good afternoon, everyone. We are pleased to report strong first quarter 2026 results. We exceeded our expectations across all key metrics. Our portfolio delivered exceptional first quarter performance, driven by strength in both the group and transient demand segments, especially in the month of March. We also saw highly encouraging results at Grand Hyatt Scottsdale Resort as it continues on its path towards stabilization following the completion of its transformative renovation. For the quarter, we reported net income of $19.8 million, Adjusted EBITDAre of $81.4 million, an increase of nearly 12% versus last year, and adjusted FFO per share of $0.63, which was 23.5% higher than 2025. For the first quarter, our same-property RevPAR grew 7.4%, with occupancy increasing 180 basis points and average daily rate increasing 4.8% compared to 2025. Additionally, we continue to benefit from strong growth in non-rooms revenues, as evidenced by our same-property total RevPAR for the quarter growing to $370.13, reflecting an increase of 7.2% as compared to the same quarter last year. Food and beverage revenues increased 6.2% on a same-property basis, reflecting continued growth in banquet and catering revenues as well as our ongoing focus on outlet optimization efforts, while other revenues were up nearly 11% for the quarter. Same-property hotel EBITDA for the quarter was $87.8 million, an increase of almost 18% compared to the same period last year. Significant growth in rooms revenues, a large portion of which consisted of rate growth, combined with disciplined expense management, drove an improvement in same-property hotel EBITDA margin from 27% in 2025 to 29.7% this year, an expansion of 270 basis points. At Grand Hyatt Scottsdale Resort, record revenues and hotel EBITDA were achieved for the first quarter as ramp-up of the overall resort continues. The resort has seen successful execution of occupancy-driven ramp-up that has produced significant transient business volumes to supplement the growing base of group demand. These improvements have translated throughout the operation into record food and beverage outlet, spa, recreation, parking, and miscellaneous revenues. Expenses have grown at a slower pace, as much of the occupancy gains have required relatively limited incremental cost. As a result, the resort’s hotel EBITDA margin improved significantly during the first quarter. While Grand Hyatt Scottsdale was a significant driver of our first quarter outperformance, we experienced broad-based strength across our portfolio of luxury and upper upscale hotels and resorts. Increased group and transient demand contributed to RevPAR and total RevPAR increases in 15 of our 22 markets. In addition to the Phoenix/Scottsdale markets, we experienced double-digit percentage total RevPAR growth in Salt Lake City, Birmingham, Portland, Santa Clara, Santa Barbara, and Houston, indicative of the range of markets and demand segments that contributed to our strong performance for the quarter. Our weakest performance for the quarter on a year-over-year basis was as anticipated, as these properties either benefited from one-time events last year such as the Super Bowl in New Orleans and the presidential inauguration in Washington, D.C., or experienced some disruption due to capital projects—specifically Fairmont Pittsburgh and W Nashville. W Nashville also was impacted by several weather events that negatively impacted performance for the quarter. We continue to benefit from our portfolio’s favorable positioning and diversification as it relates to the various demand segments. Group rooms revenues increased in excess of 7% for the quarter as compared to the same period last year, bolstering our performance. Transient room revenues also grew approximately 7% for the quarter, primarily driven by extremely strong performance in March, as the timing of Easter in early April appeared to compress high levels of corporate transient and leisure demand into the month of March. Now turning to capital expenditures, we continue to expect to spend between $70 million and $80 million on property improvements during the year. During the first quarter, we completed the renovation of the M Club at Marriott Dallas Downtown and the guestroom renovation at Fairmont Pittsburgh, which was completed as planned, with limited disruption, on budget, and in advance of the NFL Draft that took place in Pittsburgh last week with record attendance. On our last couple of earnings calls, we expressed our excitement about the reconcepting of the food and beverage outlets at W Nashville. We are pleased to report that all outlets have opened for business and were completed on time and within budget. The new outlets are tremendous new amenities for the hotel, and initial feedback from customers has been extremely positive. Barry Bloom will provide additional details on our capital, including the Nashville food and beverage reconcepting, during his remarks. Looking ahead to the second quarter, we are encouraged by the continuation of the positive momentum our operators are reporting for April. While calendar shifts related to Easter timing and spring breaks contributed to our outstanding results in the month of March, we estimate that April same-property RevPAR increased nearly 6% as compared to April 2025. The estimated RevPAR growth of over 10% that our portfolio experienced during the combined months of March and April is a reflection of strong demand in our markets when eliminating the impact of the timing of Easter compared to last year, with our largest resorts benefiting a bit due to safety concerns in Mexico and weather conditions in Hawaii. Turning to our outlook for the remainder of the year, given the stronger-than-projected first quarter results, we have raised our full-year 2026 Adjusted EBITDAre guidance by $6 million to $266 million at the midpoint. Our guidance for adjusted FFO per share for full-year 2026 is now $1.94 at the midpoint. This would represent an increase of approximately 10% over 2025. While we are encouraged by our first quarter performance as well as demand trends in April, a significant amount of overall market and geopolitical uncertainty continues to exist as we look ahead to the remainder of the year. As such, we have not changed our outlook for the balance of the year when compared to our previously issued guidance. Atish Shah will walk through all of our current 2026 guidance items in more detail, including our updated views of the anticipated demand lift from one-time events such as the FIFA World Cup and America 250. Although we have not completed any transactions since the sale of Fairmont Dallas last year, we have significantly improved our portfolio through robust acquisition and disposition activity since our listing in 2015. We continue to evaluate potential transactions with an eye towards further portfolio improvements and sustainable earnings growth in the years ahead. The transaction markets and opportunity set appear to be a bit more robust than they have been in the last couple of years, and we will continue to evaluate these opportunities while being mindful of our balance sheet and other capital allocation priorities. While the macroeconomic environment remains fluid and uncertain, we continue to believe our portfolio is very well positioned for continued earnings growth. The quality of our luxury and upper upscale hotels and resorts in top 25 and key leader markets, combined with our experienced operating partners and a favorable supply backdrop for the next several years, provide a solid platform for continued outperformance in 2026 and in the years ahead. I will now turn the call over to Barry Bloom to provide more details on our first quarter operating results and our capital projects. Barry Bloom: Thank you, Marcel Verbaas, and good afternoon, everyone. For the first quarter, our 30 same-property portfolio RevPAR was $205.93, an increase of 7.4% as compared to the first quarter in 2025, based on occupancy of 71.4% and an average daily rate of $288.62. Properties achieving double-digit RevPAR growth as compared to 2025 included Grand Hyatt Scottsdale, RevPAR up 46.2%; Kimpton Hotel Monaco Salt Lake City, up 27.2%; Andaz Savannah, up 16.4%; Hyatt Regency Santa Clara, up 14.7%; Grand Bohemian Hotel Mountain Brook, up 13.9%; and Kimpton Canary Hotel Santa Barbara, up 12%. Growth at these properties was due to a variety of factors, including increased citywide demand, stronger leisure demand in drive-to markets, and one-off major events. Properties with softer performance in Q1 this year included Loews New Orleans, which hosted the Super Bowl in 2025; The Westin Crystal City Reagan National Airport (formerly described as Pentagon City), which lapped last year’s presidential inauguration; and W Nashville, due to poor weather and anticipated disruption from the José Andrés food and beverage relaunch. Looking at each month of the quarter, January RevPAR was $163.59, up 1.4% versus January 2025, with occupancy flat and ADR up 1.4%. February RevPAR was $216.11, up 4.8% compared to February 2025, with occupancy down 40 basis points and ADR up 5.4%. March was the strongest month of the quarter across all three metrics, with RevPAR of $239.08, up 14.3% compared to March 2025, with occupancy up 540 basis points and ADR up 6.5%. Group business continued to maintain its recent strength during the quarter, with group rooms revenue up over 7%, reflecting strength in group business that is expected to continue to improve throughout the rest of the year. Overall for the quarter, group room nights were up 2.5%, with ADR up 4.4%. Business levels grew for each night of the week during the quarter compared to 2025. Occupancy grew by 210 basis points on weekdays and 110 basis points on weekends, with ADR growth of 4.5% on weekdays and 5.3% on weekends. RevPAR on Wednesday nights was up a notable 11% for the quarter. Leisure business during the quarter was consistent across the large resorts in the portfolio, with significant increases at Grand Hyatt Scottsdale and Hyatt Regency Grand Cypress, as well as strength at Park Hyatt Aviara, which lapped a difficult comparison in 2025. At our smaller leisure-focused hotels, leisure business grew significantly at Andaz Savannah, Royal Palms, and Kimpton Canary Hotel Santa Barbara. Now turning to expenses and profit, first quarter same-property hotel EBITDA was $87.8 million, an increase of 17.9%, driven by a total revenue increase of 7.3% compared to 2025, resulting in 270 basis points of margin improvement. Our operators are now able to better control expenses in a more stable occupancy and growing rate environment. For the 30 same-property portfolio, food and beverage revenues increased 6.2% in the quarter as a result of nearly 11% growth in banquets, while outlet revenues declined slightly, primarily as a result of outlet closures at W Nashville during the quarter. Other operating department income, including parking, spa, and golf revenues, grew by approximately 13%. Rooms expenses were well controlled, increasing 2.3% on a per occupied room basis, while F&B profit margin improved by approximately 150 basis points. A&G grew by approximately 4.5%. Sales and marketing expenses remained flat during the quarter, in line with recent trends, as strategies have been refined and focused across the portfolio. Property operations and maintenance expenses grew by just 1.3%, due primarily to lower general expenses, while energy expenses across the portfolio grew over 9% due to significant winter storms, which drove higher costs, especially for gas. Turning to CapEx, during the first quarter, we invested $15.2 million in portfolio improvements. We completed two projects during the first quarter, including the completion of a guestroom renovation at Fairmont Pittsburgh and renovation of the M Club at Marriott Dallas Downtown. More significantly, we reconcepted the food and beverage facilities at W Nashville pursuant to our previously announced agreements with José Andrés Group, which now operates and licenses potentially all of the hotel’s food and beverage outlets. These outlets include Zaytinya, an Eastern Mediterranean concept serving lunch and dinner; Bar Mar, a coastal seafood and premium meat dinner concept; Butterfly, a high-energy rooftop bar with a Mexican-inspired menu; and GloBird, a new pool deck concept with an expanded bar and upgraded food and beverage offerings. All reconcepted outlets opened in the first quarter, with the exception of GloBird, which opened in late April. These projects were completed on time and within budget. These outlets are truly beautiful and significantly upgrade the F&B offerings of the property, with menus ideally matched to the market. Each outlet is off to a great start, and we look forward to sharing future progress with you. Our in-house project management team continues work on two important guestroom-corridor renovations that are expected to begin in the fourth quarter at Andaz Napa and The Ritz-Carlton, Denver, as well as ongoing work upgrading our hotels’ infrastructure through physical plant and facade upgrades at 10 hotels this year. With that, I will turn the call over to Atish Shah. Atish Shah: Thank you, Barry. I will provide an update on our balance sheet and our current 2026 guidance. At quarter end, we had approximately $1.4 billion of outstanding debt, just over three quarters of which was at fixed rates inclusive of hedges. Our weighted average interest rate at quarter end was 5.5%. Additionally, at quarter end, our leverage ratio, as defined in our corporate credit facility, was approximately 4.8x trailing twelve months net debt to EBITDA. We expect our leverage ratio to further decline as Grand Hyatt Scottsdale stabilizes in the next couple of years. Our long-term leverage target is sub 4x net debt to EBITDA. As a reminder, we have no preferred equity or senior capital. During the quarter, we paid off the $52 million mortgage loan at the Grand Bohemian Orlando with cash on hand. We also resized the Andaz Napa mortgage loan with a $6.3 million principal payment in March, thereby bringing the loan back into covenant compliance. In total, 28 of our 30 hotels are free of property-level debt, representing a source of balance sheet strength. Our debt maturities are well laddered, with a weighted average duration of over three years. Our available cash at quarter end was over $100 million, and our $500 million line of credit remains undrawn. As such, total liquidity was over $600 million at quarter end. In April, we paid a first quarter dividend of $0.14 per share. If annualized, our current yield is over 3%, assuming this level of dividend is maintained. Turning next to our current 2026 guidance that we issued this morning, based on the first quarter outperformance, we have raised our full-year outlook. Our overall expectations for the second quarter through year end are roughly in line with where they were when we last issued guidance about two months ago. Specifically, our RevPAR is expected to grow between 2.75% and 5.25% for the full year. This is an increase of 100 basis points at the midpoint. Total RevPAR is expected to grow between 3.75% and 6.25% for the full year. This is an increase of 75 basis points at the midpoint from prior guidance. While total RevPAR growth was healthy in the first quarter, we saw more growth on the rooms side, particularly in the month of March, which is the reason for the larger increase in our RevPAR outlook. Our Adjusted EBITDAre guidance has increased by $6 million to $266 million at the midpoint. The $6 million increase is a combination of a $7 million increase to hotel EBITDA driven by the top line, offset by $1 million of higher G&A expense. As we look ahead, we are seeing strength in transient and group demand across the portfolio, including in many of our urban markets. As Marcel Verbaas and Barry Bloom each discussed, that strength has been broad, and we expect it to continue. Based on our preliminary estimate of April RevPAR, our March–April blended RevPAR increased in the teens percentage range at many of our business transient and group-oriented hotels, such as Hyatt Regency Santa Clara, Waldorf Astoria Atlanta Buckhead, Kimpton Palomar Philadelphia, The Ritz-Carlton, Denver, and The Westin Galleria & Westin Oaks in Houston. Offsetting this higher expectation—and the reason why our remainder-of-the-year outlook has not changed much—is that we are now expecting less of a boost from special events. Specifically, we are trimming our prior expectation of 75 basis points of RevPAR growth from special events to a range of between 25 and 50 basis points. While demand for the NFL Draft in Pittsburgh was strong and we expect America 250 demand to benefit D.C. and Philadelphia, our growth expectation for the FIFA World Cup has come in. Six of our hotels are expected to benefit from the FIFA World Cup, but the degree of benefit varies considerably. Our hotels in Atlanta Buckhead and Philadelphia should do well, but our hotels in Houston, Santa Clara/SFO, and Dallas are less likely to see a strong boost. Given that our assets in Atlanta Buckhead and Philadelphia are smaller than those in the other markets and represent about 5% of our total room base, the benefit is expected to be more limited than previously expected. To provide a bit more color by segment, on the group side there has been wash on the group blocks over the FIFA World Cup event period, such that about half the prior group business booked currently remains on the books. As such, these six properties will be more dependent on transient demand than expected. In terms of occupancy and rates on current definite business—and this is for both group and transient—on game days at the six hotels, less than half of our inventory is booked, with more than half remaining to be booked. Some hotels are loosening restrictions, including minimum length of stay requirements. ADR for the business that has booked is up about 50% versus last year; this is likely to come down as we get closer to the event but is obviously a good sign. In addition, our expectations regarding the days before and after game dates have also come in, as definite business on those dates is a bit softer. Moving ahead to our earnings cadence by quarter, we expect full-year Adjusted EBITDAre to be weighted across the remaining quarters as follows: second quarter in the high-20s percentage range, third quarter nearly 20%, and fourth quarter in the low-20s percentage range. On margins, we are now expecting margin expansion for the full year, which is up from our prior expectation for a margin decline. For the full year, we expect cost per occupied room to grow in the mid-2% range, which is below our prior estimate of 3%. Our operators are doing a better job at managing expenses than expected, and we have confidence that the rate of expense increase that we have experienced over the last several years will continue to decline as we look forward. Our AFFO per share forecast has increased by $0.06 to $1.94 at the midpoint. As projected, this would make for another year of double-digit percentage growth in FFO per share. Our estimates for capital expenditures, income taxes, and interest expense are unchanged. Turning ahead to group room revenue pace for our 30 hotels, our group room revenue pace continues to be healthy. As of the end of the first quarter, group revenue pace for May through year-end is up 6% compared to the same period in 2025. For the full year, group revenue pace is up 9%. Excluding Grand Hyatt Scottsdale, group pace would be about 100 basis points lower for each period, and that reflects several properties across the portfolio having strong pace growth. Group production was solid in the first quarter: first quarter group room revenue production for May through December increased about 5% compared to production for 2025 for that same May through December period. For the May to December period, over 80% of our projected group business for these months is definite. In summary, we are very pleased with the strong start to 2026. Our portfolio is performing well across both group and transient segments. Our balance sheet provides meaningful financial flexibility, and our team and operating partners are executing at a high level. We will now open the call for questions. Operator: Thank you. Our first question comes from the line of Michael Bellisario of Baird. Your line is open. Michael Bellisario: Afternoon. First, I just want to start on the demand front. Can you talk a little bit more about the urban improvement that you saw? Was that business or leisure picking up? Any specific markets or comments to add some color there would be helpful. And then just one more, probably for you here, Barry: the Hyatt loyalty program changes and the different tiering now—what is your take on how that might impact demand and RevPAR for several of your bigger Hyatt resorts that presumably get a lot of redemption business? Thanks. Barry Bloom: I think when we think about “urban,” a lot of that is more near-urban or suburban than truly downtown CBD, and it was across the portfolio. What we saw in the quarter—and we are continuing to see into the second quarter—is improvement in both corporate demand. Weeknights, I talked about Wednesday night RevPAR being up 11% for the quarter, which is very significant. We were pleasantly surprised to see across the portfolio a relatively even mix between what weekdays were up and what weekends were up as well. Those are the things we look at as the primary determinant of how much is being driven by business versus leisure. We have seen growth in both segments. Group, we always knew it would be strong. We had a lot of hope heading into Q1 that negotiated corporate demand would continue at the levels that had been growing in Q4. That certainly continued. We also had, as we all mentioned in our remarks, some higher-than-expected growth in leisure, in particular both in the resort-oriented properties and in our smaller drive-to, leisure-focused properties as well. On the Hyatt loyalty program changes, we are still looking through those, and obviously looking at that on a property-by-property basis. Some of these we had been aware of or anticipating for a while; some of them are changes that we actually had recommended as it relates to our portfolio. We have in our portfolio a couple of large assets that had very low redemption rates, and we would look to the increase in category to change that dynamic, but it is really too early for us to put anything definitive into our outlook. Overall, we view the change as positive for our larger resorts. Operator: Our next question comes from the line of Ari Klein of BMO Capital Markets. Your line is open. Ari Klein: Thank you. Maybe first, just a clarification on the special event changes. Does the 25 to 50 basis points assume any kind of uplift from the World Cup? And then related to that, where do you think the softness is coming from? Is it on the international side, or is it broader based? Atish Shah: Yes. To answer your first question, there is an assumption that we do have some lift from the World Cup. The three big events—the NFL Draft, America 250, and the World Cup—are all factored into the initial 75 basis point lift, and we have reduced that to 25 to 50, but we do still expect the World Cup to be beneficial in all of the markets we have talked about in the past, including those six hotels—just not as beneficial as previously expected. Digging a little bit deeper, the one thing we can see with more accuracy is the group sizing and the group blocks, and, as I mentioned, those have washed. We have about half the level of group on the books for that period than we did several months ago. That is the piece that has washed, so we are more dependent on transient, and that is just more uncertain. That is why we are giving a range, because we are not really going to know that number until we get much closer, and there is definitely going to be some variation in performance based on the actual teams and how that lines up. As regards domestic versus international, I am not sure we have enough data on that at this point. There is still a lot of confidence that these games are going to be big drivers of inbound activity, but we are not quite seeing that yet in the booking activity to date. As we get closer, we want to be very precise about what we are and are not seeing. The bigger story is that we have not adjusted our overall guidance downward. We are seeing business more broadly that is making up for the special events coming down, which frankly gives us a lot more confidence because that is business that is likely more durable and may continue into the fall and into next year, as opposed to one-time event-driven business. Ari Klein: Thanks for that. And then maybe shifting gears a little bit. Marcel, you talked about the transaction market opening up. It has been a few years since you have done an acquisition. When you think about potential acquisitions moving forward, is there any preference to follow a similar pattern of new markets and newly developed hotels, or is it really about the opportunity? Marcel Verbaas: It is really about the opportunity. If you look at some of the most successful acquisitions we did over a five-year time frame pre-COVID, they were branded hotels with good demand segmentation, a solid group component, and in many cases properties that required some initial CapEx—whether a room renovation or common spaces. That is probably where our preference would lie, but it will depend on the opportunity set, and we are not going to limit ourselves to specific markets. As long as it fits with our overall long-term strategy, we are open to adding hotels in markets where we already operate, and we would also be open to markets we are not in yet. Operator: Our next question comes from the line of Austin Wurschmidt of KeyBanc. Your line is open. Austin Wurschmidt: Great, thanks. Atish, just wanted to go back to your comment on the durability of some of the regular-way business and then the upward RevPAR growth guidance revision. So the guidance increase was simply flowing through 1Q, then partially offset by a tweak downward from World Cup contribution, but you did not flow through that regular-way strength of the midweek business you cited through the balance of the year. Is that correct? And then switching gears to the transaction market, as you think about potential opportunities to acquire or transact, how are you thinking about funding? Is there anything across the portfolio you are seeing to reshape the portfolio or sell assets with slower growth or CapEx needs? Anything you are looking to test the waters on to fund future acquisitions? Atish Shah: Not quite. The guidance increase reflects first quarter and a smidge more—that is the change to RevPAR and the change to EBITDA. Even though our expectation for the World Cup has come in, there is other business we are expecting over the course of the year that will make up for that. So the guidance increase was first quarter; any softness we are seeing on the World Cup, we are making up across the portfolio with BT and group. That is what gives us confidence as we look forward, even past this year, because BT and group are the biggest pieces of the pie. On funding and transactions, we have about $600 million of liquidity through cash on hand and our fully undrawn line of credit. That is available as a potential source. We could look at property-specific financing to the extent that is appealing. Marcel Verbaas: And on dispositions, we think about it as a continuation of what we have done throughout our history. We are looking at a few hotels where we may want to potentially sell over the near to medium term when there is significant CapEx coming up and we do not feel we will get the appropriate return. That will be around the margins; we have fine-tuned the portfolio quite a bit over the last several years. Operator: Our next question comes from the line of Analyst of Wolfe Research LLC. Your line is open. Analyst: Thanks for taking the question. Because you have the upcoming renovation at the Andaz Napa, maybe touch on that market and that hotel specifically—how it is performing and the outlook there, given broader Northern California has been performing pretty well so far this year. And a broader, big-picture follow-up: which markets in your portfolio are you expecting to benefit over the next three to five years from the low supply environment? And on the flip side, any markets like Nashville where new supply over the last years is impacting the portfolio? Barry Bloom: Andaz Napa has been a very good performer for us—this year will be our thirteenth year of ownership. It is well located within Downtown Napa, which has experienced tremendous growth over that period in terms of amenities and tasting rooms. The Napa market overall has been a little bit challenged. We think we are at the right price point, offering a high-end product below some of the more resort-oriented assets. The wine business has struggled this year, both on the commercial side—which we play in, serving the wine industry—and leisure. We are seeing renewed strength in leisure in part due to growth coming out of San Francisco. More people being in the city means more people adding pre- and post-San Francisco visits to the hotel. It is an asset we believe in, which is why we committed to this renovation. It was put on hold for a year due to tariff concerns, but it continues to perform well and we look forward to getting it in top shape post-renovation. On markets benefiting from a low supply environment over the next three to five years, we expect continued growth in Northern California—Andaz Napa, Marriott San Francisco Airport Waterfront, and Hyatt Regency Santa Clara. We continue to see growth and recovery in corporate transient demand through the Bay Area, particularly in Santa Clara, which has become one of the hubs given its Silicon Valley location and the AI activity; the hotel is showing remarkable year-over-year growth even excluding the Super Bowl benefit in Q1. Many of our assets are in markets with a lot of protection from supply. In Atlanta and, to a lesser extent, Houston, our quality assets in The Woodlands and Galleria submarkets are well positioned. We feel really good about growth and recovery in Phoenix and Scottsdale, both related to general market recovery and the continued ramp at Grand Hyatt Scottsdale. Marcel Verbaas: As it relates to Nashville, there has been very significant supply added over the past several years. It is not completely ended, but additions have slowed from the peak. That made it tougher in the early going because the market needed to absorb a lot of new luxury supply. We expect that absorption to continue over the next several years. There is still a lot of positive momentum in Nashville on the demand side as well. We feel we will be well positioned to deal with the remaining supply additions. Operator: Our next question comes from the line of Jack Armstrong of Wells Fargo. Your line is open. Jack Armstrong: Hey, good afternoon. Thanks for taking the question. You touched on it briefly, but could you walk us through how you are thinking about the uses of incremental capital right now given where your shares are trading? Are repurchases likely still at the top of the list, or is there more debt you would like to see paid down, or maybe another big ROI project you would like to pursue? And then on the W Nashville, can you talk about how the asset is positioned in that market and when we might see it return to RevPAR growth? Where do you think it will stabilize in terms of earnings and how long will it take to get there? Marcel Verbaas: We take a balanced approach—internal growth, external growth, share repurchases, and debt reduction. You have seen us do all of that over the last several years, and priorities vary based on outlook, opportunities, and share price. The portfolio is generally in really good condition. We have put capital behind the portfolio, completed big renovations, and CapEx is coming down toward a more normalized level. We have paid down some debt, and we feel like we will naturally deleverage over time as Grand Hyatt Scottsdale picks up, so there is not immediate pressure to pay down more, but having more dry powder would be good as we expect the acquisition market to loosen over the next several years. On share repurchases, we bought roughly 9% of the company last year and feel really good about those purchases given where the stock is trading now. We continue to trade below NAV, so it is not off the table. We will balance all of those to drive the strongest returns. On W Nashville positioning, the Gulch has become a more desirable destination even in the few years we have owned the asset. Leisure guests choose the Gulch over the Broadway area. It is an upscale residential-style neighborhood with strong amenities. On corporate, it is the top-tier Marriott choice within the submarket and has captured longer-term consulting-type business. It continues to be a strong leisure destination, and the hotel has figured out how to balance group. The new outlets give us great opportunities in private dining—small groups favor the José Andrés custom banquet menus within the hotel’s environment. Barry Bloom: On the financial side, through the outlets change, we expect incremental EBITDA of somewhere between $3 million and $5 million over time. It will not happen overnight. It is based on greater outlet revenues and profitability and on improving the appeal of the property and attracting the type of customers we discussed. Achieving that incremental EBITDA would get the hotel somewhere in the low $20 millions of EBITDA over time. It is hard to put an exact timeline on it because it needs to build as the property’s reputation grows. Operator: Our next question comes from the line of Analyst of Jefferies. Your line is open. Analyst: Great, thanks for taking the question. I am on for David. I wanted to dive into the state of the union for luxury and upper upscale. We have heard a lot about the K-shaped economy, and some recent commentary suggests some deceleration at the top end. What is your reaction there and any commentary you can provide? Marcel Verbaas: Luxury and upper upscale continue to perform really well, which you can see in our portfolio, which is 100% focused on those segments. We have seen very good growth in group demand over the last couple of years, and while that may level off at some point, we are simultaneously seeing good momentum on the transient side, with business transient continuing to build. The supply backdrop for luxury and upper upscale remains extremely benign for the next several years, which sets up nicely for the industry overall and particularly for our segments. We are seeing strength across demand segments, and currently the higher-end consumer does not seem to be pulling back. We are optimistic that will continue. Barry Bloom: I would add that these properties have a lot of levers to pull for food and beverage and ancillary revenues. We have been able to optimize them over the last couple of years, which speaks well to where the consumer is headed and our ability to keep driving cash flows. We saw a lot of strength in the quarter and subsequent to the quarter—the trajectory looks quite strong. Operator: Thank you so much. That will conclude our Q&A session. I will now pass it back over to Marcel Verbaas for any closing remarks. Marcel Verbaas: Thanks, Regan. Everyone, thank you for joining us today. We appreciate the interest and the questions. It was a great quarter for us, and we look forward to the rest of the year. We look forward to seeing many of you at various conferences coming up. Thank you for being as attentive as you were today after many hotel earnings calls over the last couple of days. We will conclude our call. Operator: That concludes today’s call. Thank you for your participation. You may now disconnect your line.
Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin. David Kinney: Thank you, operator, and welcome everyone to today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies the call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our first quarter results, while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until May 31 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746217. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Agustin Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins; Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you all for joining today's call as we discuss our first quarter results, and thank you, Dave. As some of you know, Dave Kinney is retiring after a decade leading Investor Relations and nearly 35 years with the company. I am sure you will all join me in congratulating Dave for his significant contributions to the company and wishing him well in retirement. Succeeding Dave is David Dennison, who brings nearly 30 years of industry experience to the role across planning, commercial and strategic functions, including most recently in the Circular & Low Carbon Solutions business. I am confident you will find David to be another great partner as our new Head of Investor Relations. Before we turn to our performance, I want to acknowledge the human impact of the tragic ongoing situation in the Middle East. The suffering and trauma of war is catastrophic for all involved, and our thoughts are with those affected. Our first priority is the continued safety of our people, and we have already executed on protocols to protect our employees and contractors in the region. This situation in the Middle East has materially disrupted global energy and petrochemicals markets. We expect the impacts will extend beyond the end of the year with much of the world's petrochemical capacity constrained or shut down. LYB's U.S. and European production capacity is a critical resource for filling the global gap in supply for our essential products. Supported by our operational excellence and the work from our value enhancement program, we are increasing production to meet this demand. At the same time, we remain focused on executing our strategy. Our portfolio transformation has reached another significant milestone with the sale of four European assets. While increased cash generation and profitability will improve our credit metrics, we are maintaining our discipline on capital expenditures. And we are undertaking deliberate actions to further streamline our fixed costs and underpin our ability to generate attractive value during both cyclical highs and lows. With that being said, let's take a moment to review LYB's safety performance with Slide #3. Safety remains foundational to how we operate. Our year-to-date total recordable incident rate of 0.13 is among the best in our sector and reflects the commitment of our employees and contractors. Turning to Slide 4. The Middle East conflict and its unprecedented effects on energy prices and global logistics has shifted the paradigm for petrochemicals. At the high end of the cost curve, naphtha-based producers in China and Southeast Asia have faced sharply higher costs driven by the compound impact of higher crude prices, the loss of sanctioned crude discounts and weak co-product values. In addition, pre-conflict, approximately half of Asia's imported crude came from the Middle East. The war has impacted security of supply for Asian crude and petrochemical feedstocks, leading to lower production and a substantial reduction of exports from the region. At the low end of the cost curve, U.S. ethane economics have improved, strengthening the cost advantage of LYB's U.S. Gulf Coast assets with low-cost raw materials and increased production to serve increased global demand. In Europe, higher prices are now offsetting higher energy and feedstock costs as imports from the Middle East and China decline. And while this chart focuses on ethylene, we find similar dynamics in play across nearly all LYB products. Clearly, we are operating in a dynamic environment where dramatic changes are possible within short time periods. Our global operational and marketing network has already yielded valuable insights, which have enabled us to rapidly adapt to the changing environment. These insights inform our position that the impacts from the war will be long-lasting. We believe the geopolitical risk premium for crude oil will persist even after a resolution to the current conflict, and discounts for sanctioned crude are unlikely to return. Both of these impacts should durably steepen the global cost curve relative to pre-war conditions. Across feedstocks and petrochemicals, physical damage from the war and accelerated shutdowns will require time and resources to repair. And some older, smaller and less economical plants under evaluation for potential rationalization may not restart at all. This could provide a lasting benefit to supply and demand balances. Of course, we are mindful of the potential for second order impacts like demand destruction for discretionary spending, especially if oil prices remain at recent highs. But we remain confident that our cost-advantaged asset base and deliberate execution will enable LYB to continue to generate value through the cycle. Now let's turn to Slide 5 as we discuss the tangible steps we are taking to execute on our strategy to build a more resilient LYB. Over the past 3 years, we have executed on significant portfolio transformation. This included ceasing refining operations, closing our Dutch PO joint venture, divesting our EO&D business and the ongoing transformation of our APS portfolio. And as we announced this morning, we reached another significant milestone in our portfolio transformation by completing the sale of four European assets. This transaction sharpens the focus of our capital allocation towards strategic assets that advance long-term value creation for LYB. We extend our gratitude to our friends and colleagues that helped accomplish this transaction. We are particularly thankful for those who are transferring to the new organization for their contributions, professionalism and resilience throughout the process. As they transition to a stand-alone business, we wish them and the new company success in the next chapter ahead. We continue to benefit from our team's vigorous work on the cash improvement plan. We are making progress toward our target of $500 million of incremental cash flow this year, which will bring the cumulative total since 2025 to $1.3 billion. We remain focused on disciplined management of trade working capital, which despite higher volumes and prices was $450 million lower on March 31 than a year prior. We are also continuing to streamline the organization, including our Executive Committee. The effects will flow through the organization over the coming months to create further efficiencies. First quarter fixed costs across the company are already under $50 million lower than first quarter of 2025, including closure costs. And since the end of 2024, we have reduced headcount by approximately 3,000 positions or 15% through the combination of fixed cost reductions and portfolio management, including the sale of our European assets announced earlier this morning. Our initiatives are yielding results and more improvement is underway. Even with our sharp focus on capital discipline, we remain poised to realize future value creation. We're operating our Channelview PO/TBA plant above benchmark rates and modest investment in Hyperzone reliability and acetyls debottlenecks will deliver incremental value. Construction on MoReTec-1 continues as planned and is expected to ramp up towards the end of 2027. Together, we expect these future growth projects will increase our EBITDA by approximately $400 million. In addition, VEP continues to drive down our costs and increase our reliability and productivity. Now let's turn to Slide 6 as we discuss our financial performance. During the first quarter, earnings were $0.49 per diluted share with EBITDA of $615 million. EBITDA improved by nearly 50%, supported by both typical seasonal trends and a significant improvement in market conditions during March. Cash and liquidity remained robust with balances of $2.6 billion and $7.3 billion, respectively, at quarter end. I will now hand over to Agustin to discuss our financial performance in more detail. Agustin? Agustin Izquierdo: Thank you, Peter, and good morning, everyone. Let me begin with Slide 7 as we outline our cash generation. Over the past 12 months, LyondellBasell converted EBITDA into cash at a rate of 111%, well above our long-term target of 80%. This performance reflects our laser focus on optimizing working capital and benefited from the timing of tax payments. In the second quarter, we expect higher prices and operating rates will result in an intentional build of working capital to capture market opportunities. As Peter mentioned, in the first quarter, our cash balance was $2.6 billion, and our available liquidity remains robust at $7.3 billion. Now let's turn to Slide 8 and review the details of our first quarter capital allocation. We consumed $269 million of cash in operating activities. This was expected and consistent with normal patterns for the first quarter. It also reflects the very low inventory levels we accomplished at the end of 2025 and our intentions to profitably capture higher prices and increase demand from the market in 2026. During the quarter, we funded $269 million of capital investments. We took proactive steps during the first quarter to protect our investment-grade balance sheet. Our Board approved a 50% reduction in our quarterly dividend to rebalance our capital allocation and improve financial flexibility. As a result, we returned $224 million to shareholders through dividends in the first quarter. With the change in outlook for 2026, we currently expect both our effective and cash tax rates for the year will range between 15% to 20%. Despite the highly fluid macro environment, our capital allocation priorities remain consistent. We are committed to our investment-grade balance sheet as the foundation of our disciplined capital allocation framework. With the sale of four European assets, we have reached a milestone in our portfolio transformation. And while we have several attractive projects ready for investment, we will only move forward when the balance sheet and outlook is more secure. Regardless of the more favorable outlook for 2026, our near-term focus will remain on continuing to invest in safe and reliable operations to execute our cash improvement plan, to strengthen our investment-grade balance sheet and repay the 2026 and 2027 debt maturities we prefunded in 2025. Now let's turn to Slide 9, and I'll provide a brief overview of our segment results. Our business portfolio generated $615 million of EBITDA during the first quarter. Profitability improved across most businesses, led by stronger polyolefin margins and volumes, partially offset by reduced technology licensing activity. With that, I will turn the call over to Kim. Kimberly Foley: Thank you, Agustin. Let's turn to Slide 10 to discuss the performance of Olefins and Polyolefins-Americas segment. During the first quarter, O&P-Americas EBITDA was $327 million, double the prior quarter. In polyethylene, integrated margins improved due to favorable feedstock costs and successful contract price increases for polyethylene in both January and March. In March, export prices for polyethylene significantly increased as global production was impacted by the Middle East conflict. These benefits were partially offset by the impacts of winter storm Fern and the higher gas prices earlier in the quarter. Our first quarter operating rate for the segment was approximately 85% with our crackers running at approximately 95%. During the first quarter, North American polyethylene sales for the industry increased by 6.5% year-over-year, while inventories fell by 7.6%. March domestic and overall sales volumes for North American polyethylene industry were the strongest since 2020. In the second quarter, we expect higher margins and volumes given the global supply tightness. Our order books are strong with April orders for polyethylene 20% above pre-war averages. We have announced substantial price increases to capture this momentum, including a cumulative $0.50 per pound in polyethylene across April and May in addition to the gains realized in the first quarter and $0.10 per pound polypropylene spread increases in both months. With ongoing supply constraints, North America is positioned to move from net importer to net exporter to meet stable global demand for polypropylene. We are focused on maximizing operating rates to meet the gap in global supply and expect 90% utilization of our nameplate capacity across the segment during the second quarter. The hard work in our value enhancement program and cash improvement plan is starting to add value through higher productivity and reliability at lower costs. Moving on to Slide 11. Earlier, Peter showed the dramatic impact of the ongoing war in Iran on the ethylene cost curve. And here, we outlined the direct and indirect effects of the war on the production of ethylene, polyethylene and polypropylene. In the Middle East, production has faced three principal challenges during the conflict. First, some plants have been hit directly, immediately impacting production with time to repair and restart unclear. Secondly, feedstock availability has been challenged, impacting plant operating rates or ability to operate at all. And thirdly, for plants where the normal route to market included passage through the Strait of Hormuz prior to the conflict, these plants have faced logistical bottlenecks resulting in the increased cost and time to market and in some cases, reduced operating rates. Production in Asia has been primarily impacted by reduced feedstock availability. In China, which sources as much as 50% of its crude and substantial share of its naphtha from the Middle East, we hear the government has instructed refiners to prioritize limited feedstock availability towards the production of transportation fuels instead of chemicals. Ethylene cracker operating rates have steadily declined over the course of the conflict. Overall, this has meant that more than 20% of the global capacity for ethylene, polyethylene and polypropylene is currently impacted by the ongoing conflict as shown in the red bars on the chart. This dwarfs the expected capacity additions this year and takes each of these markets from oversupplied to tight. These production impacts have led to higher prices to incentivize additional production from regions with stable supply, principally North America and Europe. LYB's portfolio is optimally positioned to take advantage of these commercial opportunities with 90% of our PE capacity and 70% of our PP capacity within North America and Europe. Lastly, I wanted to highlight that although the outlook is more positive than we expected earlier in the year, we remain mindful of the second order effects of higher prices. A structurally short market is usually resolved through demand destruction, which we see no evidence of currently or higher production. History has shown packaging demand remains robust in such scenarios. Demand for durable goods has already been consistently at a low level since 2022, and prices are still well below peak levels in 2021. We remain watchful and we will adapt to how the market develops. We are confident that our actions to grow and upgrade the core, which has driven significant portfolio transformation, will continue to generate value in a range of macroeconomic scenarios. With that, let's turn to Slide 12 as we review the results of the Olefins and Polyolefins-Europe, Asia, International segment. We reduced our first quarter EBITDA loss to $6 million, driven by higher volumes, improved reliability and lower fixed costs. While higher raw material prices pressured cracker margins during the first quarter, product pricing began to catch up during March and higher volumes and improved utilization rates are improving our fixed cost coverage. Our Middle East joint ventures operated largely as planned during the quarter. While the region represents a relatively small portion of our global capacity, these cost-advantaged assets remain an important part of our portfolio over the long term. After the end of the quarter, LYB reached an important milestone in our portfolio transformation with the completion of the sale of four European assets. We are now better positioned with increased resilience and greater flexibility to capture market upside by leveraging a greater proportion of low-cost capacity. Looking ahead to the second quarter, polymer margins are improving as our team passes through higher costs for energy and raw materials. Feedstock costs are likely to remain dynamic as the market adapts to the ongoing conflict. We are seeing improved regional demand in Europe due to lower imports from the Middle East and China. We are increasing our operating rates to approximately 80% across the segment during the second quarter. And with that, I'll turn the call over to Aaron. Aaron Ledet: Thank you, Kim. Please turn to Slide 13 as we look at the Intermediates and Derivatives segment. In the first quarter, segment EBITDA sequentially increased to $224 million, driven by stronger volumes supported by improving market conditions, partially offset by unplanned downtime at our La Porte and Bayport facilities in Houston. Margins strengthened in propylene oxide with improved adders and increased demand for glycols into deicers. In oxyfuels, results declined during the quarter to reflect typically low winter seasonal demand and margins. Margin pressures for oxyfuels were compounded by higher butane costs in Europe with improving oxyfuels prices amid Middle East tensions providing only a partial offset towards the end of the quarter. Unplanned downtime at our Bayport PO/TBA asset beginning in March reduced EBITDA by approximately $40 million in the quarter. Crude oil remains the single largest variable affecting oxyfuel margins. As a rule of thumb, a $1 change in crude oil prices translates to roughly a $20 million annualized impact on oxyfuel earnings, assuming full production and all other factors remain constant. Historically, oxyfuel margins in the U.S. and Europe have been comparable. However, this year, we are seeing a divergence. In the U.S., butane and methanol prices have increased far less than crude. In Europe, butane prices are near record highs relative to crude, compressing margins. Additionally, the outage at our Bayport PO/TBA facility has temporarily limited our ability to fully capture the favorable U.S. market environment. In acetyls, we saw improved seasonal demand as we move through the quarter. However, this improvement was more than offset by unplanned downtime due to a delayed restart of the La Porte acetyls assets following winter storm Fern. Despite this, the methanol business continued to run throughout the quarter, providing a stable earnings contribution that underscores our benefits from the integration across the I&D portfolio. Overall, underlying demand trends and market fundamentals continue to improve, positioning the segment for favorable performance during the second quarter. In oxyfuels, we expect meaningful margin improvement in the second quarter from stronger seasonal demand and reduced supply from the Middle East and China. The Bayport PO/TBA asset is expected to restart toward the end of the second quarter with an estimated earnings impact of approximately $25 million per week while down. Taken together, these elements position us well for improved oxyfuels margins in the coming quarters. In acetyls, volumes and margins are expected to improve following the La Porte asset restart, supported by seasonal demand recovery and tight global supply. Across the segment, we are targeting approximately 75% operating rates during the second quarter. I will now turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Please turn to Slide 14 as we review results for the Advanced Polymer Solutions segment. First quarter EBITDA was $58 million. APS volumes increased across most business, driven by typical seasonal demand. Our customer focus continues to deliver tangible results, contributing to volume momentum. Margins declined given rising raw material costs following the start of the Middle East conflict. Looking ahead, we expect soft near-term demand in automotive and other durable goods markets. We expect higher costs for raw materials, energy and logistics to persist, and we are proactively passing these higher costs along our value chain. Nonetheless, we expect contractual limits on pricing velocity will pressure margins over the near term. Despite the changes in macro environment, we continue to transform our APS segment to a customer-centric growth business. Our focus on customer centricity, cost, productivity and portfolio changes over the past couple of years has contributed to the continued earnings improvement as seen by the 55% increase in EBITDA in 2025 and now a 26% improvement year-over-year for the first quarter. We are confident the work we are doing will profitably transform the APS business and enable us to achieve our long-term goals. With that, I will return the call to Peter. Peter Z. Vanacker: Thank you, Torkel. Please turn to Slide 15, and I will discuss the results for the Technology segment. First quarter EBITDA of $18 million was lower than our prior guidance due to declining licensing activity with slower global polyolefins capacity growth and lower catalyst sales volumes following shipping constraints associated with the Middle East war. We expect improved results in the second quarter as revenue from timing of shipments are recognized and licensing revenue milestones increase. As a result, we estimate that the second quarter Technology segment results will be only slightly lower than our fourth quarter 2025 results. Let me share our views on our key regional and product markets on Slide 16. Ongoing supply disruptions across multiple value chains were tightening availability and supporting improved pricing and margins. These dynamics are favoring regions with stable access to energy, raw materials and logistics, where LYB and other producers are being called on to fill the gap in global supply. In North America, pricing initiatives are supported by improving seasonal demand, increased emphasis on security of supply and rapidly rising export prices with margins reinforced by the U.S. cost advantage. In Europe, higher costs are being offset by higher product prices, supported by increased demand for local production as imports from the Middle East and Asia decline. With fewer imports entering the region, profitability is improving. In Asia, feedstock disruptions continue to constrain supply, forcing lower operating rates. While capacity additions in China persist, prolonged shutdowns and technical issues with restarts could accelerate capacity rationalization across the region. Within packaging markets, demand remains resilient, supported by essential needs for food, health care and nondurable consumer goods. Demand in building and construction remains muted amid broader macro uncertainty. Inflationary pressures from the war are likely to delay potential benefits from lower interest rates and the inevitable recovery in durable goods demand. In automotive, global production is expected to decline slightly year-over-year with additional risk tied to the ongoing Middle East war only offset by modest growth in South Asia and South America. Finally, in oxyfuels, geopolitical volatility is driving price and margin upside in the U.S. As we conclude today's call, I would like to acknowledge that throughout the first quarter, our team continued to make smart decisions to successfully navigate a rapidly changing environment. We maximize commercial opportunities with discipline, agility and a clear vision to position LYB as the leader in our industry and deliver lasting value for all our stakeholders. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, the consultants have a pretty sharp erosion of polyethylene price increases in the back half of the year. I suspect you differ with that forecast. Can you talk to why that you think they were probably being too bearish on PE prices in the back half of the year? Peter Z. Vanacker: Thank you, David. Good question to start with. I think 4 weeks ago, nobody expected or predicted that we would get a $0.30 per pound price increase for polyethylene and a $0.07 per pound spread increase for polypropylene. Just I continue to be a bit skeptical, I mean, about those outlooks. Anyhow, if you look at our view, and we said it in the prepared remarks, we see that this disruption is not to be measured in quarters. It's probably going to be multiple quarters, definitely not months. It's a very large shock that we are experiencing. It's very global. It's driven by both asset impacts and logistics. And these things normalize very slowly. Preference as we hear, will be given, first of all, if you talk about the supply disruptions to crude oil, then after that, fertilizers, I mean, for food. And how fast will that actually move, I mean, to petrochemicals remain to be seen. So our view that we continue to have is that there will be a sustained geopolitical risk premium that will continue to steepen the cost curve. And even after a resolution, the market may retain a higher risk premium for crude. Steeper global cost curve can persist also versus the pre-war conditions. As you know, physical damage is not something that can be recovered very quickly. So from that perspective as well, I mean, restart timing is uncertain. Rerouting logistics, as I talked about, I mean, the common view that we currently have in the market is until that rerouting logistics will be somehow stable is probably going to be more like, I don't know, 9 months, 12 months. And then in addition to that, if you have all these outages, these outages can become permanent. They can eventually also accelerate, I mean, the rationalization. So with regards, I mean, to more specific polyethylene pricing, let me hand over to Kim. Kimberly Foley: So Peter, thanks for kind of sharing the view of the impacts of the shock effect. I think the other thing to remind everybody is we've got -- we yesterday got confirmation on the $0.30 in April. We've got $0.20 out there in May. If you think about history and you look back at kind of peak pricing in 2021, the pricing there was still $0.10 to $0.15 per pound higher. So in 2021, those pricing -- that pricing could clearly go through the economies. I think it can again, as we go forward. And without any correction to the supply-demand imbalance, I'm not sure why pricing would go down, as Peter alluded to in his opening remarks. So I politely disagree with the consultants. Operator: Our next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: Maybe just on I&D. I guess if you could walk through any of the structural changes you've seen from a cost curve and supply and demand standpoint given the conflict? And then just related, if the conflict persists and the Bayport turnaround does wrap up, where would you anticipate operating rates and margins to trend in the back half? Aaron Ledet: Yes. Thank you for the question. I would start by saying, generally, we have pricing power across the board in almost all of our products. We've seen, as examples in methanol pricing, it's doubled in the last 3 months from $300 a ton to $600 a ton really across all regions. And you take that through the acetyls chain. We've seen acid pricing up 50% over that same time frame. We've seen VAM pricing up 100% over that same time frame. So as I said, we've got pricing power really across the board from an acetyls perspective. Cost curve in acetyls, relatively flat in both acid and VAM. But when you look at our methanol cost curve, U.S. natural gas pricing is the lowest across all regions right now. So obviously, it's -- we're advantaged in that spot. When I shift over to the PO business, both of our technologies, we actually just ran the cost curve last month. Both of our technologies, PO/TBA and POSM are in the first quartile of the cost curve. So it obviously puts us in an advantaged position. As you heard in my planned remarks, we currently plan to run our capacities at 75% utilization in the second quarter. A lot of that is due to the unplanned downtime in Bayport. As that site gets back up and running towards the end of the quarter, we do expect to run closer to 95% to 100% full rates. Peter Z. Vanacker: And I think one may say, I've been there, I mean, at Bayport about 10 days ago. And what I witnessed is all hands on deck. People are working very diligently, different work streams so that we get the site back up and running latest by the end of Q2. Isn't it, Aaron? Aaron Ledet: That's correct. Yes. Operator: Our next question comes from the line of Duffy Fischer with Goldman Sachs. Patrick Fischer: Two questions maybe on OP Americas. So if the situation in the Middle East persists, it seems like we're consuming more molecules every day than we're producing today. What happens if we have to try to price polyethylene to destroy demand? I don't think we've ever done that. How high do you think that needs to go to balance supply/demand? And then the second one is, other than the starting point was lower for polypropylene versus polyethylene, how are you seeing those two chains play out relative to each other? Is one benefiting from this more than the other? Peter Z. Vanacker: Duffy, good question. And before I answer the question, I mean, on OPAM and how high does the polyethylene price actually have to go before you see demand destruction, let me remind everybody, I mean, that the vast majority of polyethylene is going into consumables. A lot of that, as you know, is going into packaging. So if you go in a market environment, just like we have seen, I mean, in the pandemic and during the financial crisis in 2008, 2009, behavior of people changes. So people don't go as much to restaurants, but they consume at home, which means more packaging. That's one element. So not necessarily because one goes into a recession, that leads, I mean to destruction of demand for polyethylene. Secondly, it continues to be, I mean, the lowest cost alternative and most efficient alternative compared, I mean, to other materials if you want to package or if you want to produce piping, et cetera. And let's not forget, these other alternatives also get more expensive in the current market environment. So with that, Kim? Kimberly Foley: Yes. I'd just make a couple of other comments. We've had at least 3 years, maybe 4 years of, I'd say, tempered durable demand. And so you've got pent-up demand for durables. You saw these pricing levels pull through for polyethylene for sure in 2021. And then when you talked about -- you asked the question about polypropylene. Polypropylene price today is $0.60-ish, call it, lower than it was in 2021. So you have a lot of pricing power there, and we are well positioned to capitalize on that. From a polypropylene perspective, between the Middle East production and then think of the LPG that feeds some of the PDH units in the Asia region, probably 70-plus percent of that market is impacted right now. So I think the sleeping giant will be polypropylene as this continues to progress. Peter Z. Vanacker: And talking to a lot of my friends, I mean, in Europe, I see already that their behavior is starting to change. So instead of taking a weekend trip somewhere or taking a long holiday, I see that they are thinking about, oh, so we not refurbish -- so we not stay at home, take a shorter holiday locally, a couple of day trips. We've seen that behavior in 2021 as well as we came out of the pandemic. So quite a lot of moving elements that we have here that I think one should consider. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: The export price of polyethylene is maybe $1,640 a ton and the price of polyethylene in Asia is maybe $1,285 a ton, so at least from our point of view. So maybe Asia is lower by $350 a ton. Why is that? And naphtha values in Asia have really jumped from about $600 a ton to $1,100 a ton, but we really haven't seen that kind of raw material inflation echoed or covered in the polyethylene prices. Can you give us an idea of what's going on? Kimberly Foley: Jeff, I'll take that question. I think there's a couple of different components to that. From a China perspective, they have a much bigger built-in pricing buffer than a lot of the other regions. They had significant crude inventories coming into pre-war. You've heard anything from 4 months to 6 months. So let's just generically call it 5. You also have different buying behaviors and you have different inventory positions throughout. So let's walk through some of that. Many of the sites are integrated refineries that are processing the crude, naphtha to naphtha crackers to polyethylene. So that inventory today, 2 months into this war is still crude that was bought at a discount to $60 pre-war. Then you've got coal to olefins production, which sets the floor for the pricing in China. Coal price hasn't changed significantly throughout this, similar to kind of North American ethane. So you've got the floor being set by the lowest cost production, which is CTO. You've got relatively low-priced crude flowing through those crackers. And then you've got inventory that they had in the system. When this -- when the war first broke out, you saw their pricing increase. And then recently, you've seen their pricing hold or decrease as they're depleting the inventory that they have on hand, selling it to other parts of Southeast Asia. So their buffer, the way they operate their system is slightly different than the rest of the world, but they are not exporting to regions that we are competing with in North America or in Europe. Peter Z. Vanacker: And maybe enhancing a little bit from a more conceptual point of view, Jeff, in especially what we are all waiting for on the outcome of the anti-involution measures. We continue to see that focus on replacement of old assets instead of newly developed projects. You saw the results in Q1 of our technology business. This is the lowest since, what, 15 years that we have seen in terms of demand, I mean, for licenses. We've also seen that some priorities are changing. So even projects that already have been approved by the NDRC for the previous 5-year plan, priorities are changing and targets for the replacement of the old assets is 2028, 2029. That's what we hear, I mean, on the ground. Which, as a consequence, of course, could also mean reducing availability of cash for new projects, which again explains why we don't see a lot of demand, I mean, for new licenses. So it has definitely not disappeared because at those price levels in China, you see that the operations are running in crackers and polyethylene at lowest technical capacity. And you see that players that are not integrated eventually have idled, have shut down their capacities. So that's the picture on polyethylene. On polypropylene, it's even more stringent because a lot of PDH/PP plants, it's about 50%, Kim, of the capacity? Kimberly Foley: Correct. Peter Z. Vanacker: Yes, that is currently not operating. Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: First of all, congratulations to Dave Kinney on a great run. Best wishes in your retirement. If I could ask you, Peter, on EAI. You're bringing operating rates up, which I assume means you're expecting profits. And then you've sold the assets and that's going to improve the cost structure. So what level of profitability and you can give us a wide range, would you expect for the second quarter as you see markets improve, your production levels come up, maybe you're selling out of some inventory as well? So how should we be thinking about EAI in 2Q and maybe 3Q to the extent you can comment that far? Peter Z. Vanacker: Yes. Thanks, Vincent. And of course, also thanks for your congratulations, I mean, to Dave. It has been quite a run in my 4 years working with him together. So on EAI, I mean, let me first, I mean, focus here then on Europe. Everybody saw that we closed during the night. So early morning, Houston time on Velogy, the sale of our four assets. If I put that a bit in context as well with regards, I mean, to the contribution that, that part of the business portfolio has made to the overall LYB. Well, pretty much the numbers. It was small or even negative in 2025 and even in Q1. The focus, of course, for us strategically has been that we really have the right portfolio moving forward, the portfolio in Europe that helps, let's say, on increasing our mid-cycle EBITDA margins. I remember once I have shown a slide in an earnings call with historic mid-cycle EBITDA margins globally for LYB of around 18%. And then with all the portfolio measures increasing that to 21-plus percent, which is quite attractive. Now this helps, of course, by doing so because we can pull our CapEx to the assets that really have mid-cycle margins, above mid-cycle margins, much more profitable assets. Which, as a consequence, means a reduction in the scope of Velogy for us, LyondellBasell of about EUR 110 million per year in CapEx. And what we have said in the past as well a reduction in fixed costs directly related to that scope of about EUR 400 million per year. And if margins -- what we wish, of course, also to the new owner of the business, if margins continue to go up in Europe, we have, remember the potential of an earn-out of about -- of EUR 100 million as well. Of course, we still will have a very interesting but more differentiated portfolio of products in Europe with an ethylene capacity, which is a bit more than 1 million tons, 1.5 million tons of polyethylene capacity and a bit more, I mean, on polypropylene capacity. And into that global concept, we also have the investments in Saudi Arabia at the West Coast in our polypropylene joint venture, where we continue to work on the second phase to expand and double the capacity of that joint venture. So moving forward, with a different portfolio, we should be able over time, including that, of course, our MoReTec investments, we should be able over time to again have very attractive mid-cycle margins in Europe and not having a business approach whereby margins are being diluted. Kimberly Foley: Maybe just to make a couple of quick comments. Europe typically sees 25% import on the polymer side. With the problem with the Strait of Hormuz, they're not seeing that. So the supply/demand is very tight, continues to give you pricing power on the polymer side. The wildcard, as everybody has alluded to, is the price of feedstocks. So for example, some people have asked us pre-call, why we're only operating 80% in Europe because we want to make sure the decisions that we make in Europe are based on sound integrated margin pull-through. And in some cases, we also face the same challenge that others do about the monomer availability at an affordable price point to run through some of our smaller assets that are nonintegrated at the moment. So we continue to see positive momentum. And just as a rule of thumb, $100 per ton increase on an annualized basis is about $280 million. Operator: Our next question comes from the line of John Roberts with Mizuho Securities. John Ezekiel Roberts: In the APS segment, how long do you think it will take to get your pricing to get spreads back with the underlying polyolefin cost increases that are being passed through there? And will the tightness in the polyolefins market at all tighten the engineered plastics industry as well? Torkel Rhenman: For the non-contracted business, we have aggressively moved and we see actually a pretty good acceptance of the price increases because the whole market is moving up. So it's really the contracted, and some of those are monthly and some of them are quarterly. And it's mostly the quarterly part where there is a delay. What we see in our segment is actually market demand is surprisingly strong and we see some movement in particularly packaging and durable goods where demand is strong in the Western world, so Americas region and Europe. From what we see is that basically, our customers demand is strong because there's less import of finished goods coming in from Asia as well as from plastics films, packaging films, that's helping our customers with actually pretty strong demand. And we'll see how long that lasts, but that's a positive sign in terms of the market for our business. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. I'd echo my congratulations to Mr. Kinney, very much appreciate your partnership over the years and best of luck to you. My question relates to O&P-Americas. If we look back at history, that business earned quarterly EBITDA between $1.5 billion and $1.6 billion at the last peak in the middle quarters of 2021. And so my question would be, is that sort of level in your mind, realistic or unrealistic in today's environment if the conflict were to persist? Maybe you could compare and contrast what you're seeing today versus what you saw back then. Peter Z. Vanacker: Let me start with a couple of comments on your very good question, Kevin, and then hand over also to Kim to give you a little bit more details on this. Well, Kim already said, I mean, that we have now a settlement of $0.30 per pound settlement into consideration. Then we're still in terms of margins, $0.10, $0.15 per pound in terms of pricing -- sorry in terms of pricing, we're still $0.10 to $0.15 per pound below what we have seen in 2021. But it's only $0.10 to $0.15 per pound. So that means as a consequence, with the price increase announcements that we continue to feel very strong about for the next month, we would get on that level or above that level of 2021. Now that is just the pricing element. If you look at it from a margin perspective, then, of course, we know that the margins are going up because ethane is currently much lower than it was at the end of last year, beginning of this year. Which, of course, also has to do with the fact, I mean, that there is such a huge demand, I mean, for natural gas. So you see that the spreads actually are going up. So as a consequence, I would say, sure. I mean nothing is impossible if you look at what is currently going on, and we alluded to the fact that polyethylene is very robust also in inflationary scenarios. Kim, anything you want to add? Kimberly Foley: I'll just go back to a couple of the comments that I made earlier to try to connect a few of the dots. I think as it relates to North American polyethylene margins, what we see is -- and CMA's forecast is similar. This is where we do agree with the consultants, that mid-cycle margins will be there in the second quarter. So if you go back and look at 2021 mid-cycle margins for PE, yes, I think we're going to be in a very similar situation. I also said earlier that in 2021 that we had a $0.60 higher price of polypropylene. So I think it really depends how much polypropylene runs up. I don't think it will run up as fast as polyethylene has, but I do think the spreads will continue to increase. So I would look at those two components differently when you're trying to look at how we performed in 2021 versus how we might perform in 2026. Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: And I need to come clean, Mr. Kinney. On the PPG call, I told Vince on the occasion of his retirement that he was the best IR ever. But to be frank, it was always you. So best wishes, my friend. I'm sure we'll stay in touch. Aaron, I want to come back on the I&D operating rates for the second quarter. You said 75% given the outages that you have. But you said that you're going to end it at 95% to 100% when you get everything back up and running. So is that sort of the run rate that we should be expecting in the third quarter as you see -- as you can look out into the future? And then also for the first quarter, I think you guys guided to 85% operating rate in I&D. And I was curious as to what that actually came in at given the outages. Aaron Ledet: Yes. Thanks for the question. And I guess I have to be careful about what I promised in these calls, 95% to 100%. Obviously, anything that we have available to us, we're going to be running full. We still have some limitations at our La Porte site in the acid unit that's limiting us to get to full rates. But obviously, once Bayport is back up and running, we will be running everything that we have at full capacity moving forward. So 95% to 100%, I wouldn't necessarily use that, but we will be running at benchmark rates across the board. Operator: Our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: Congrats to Dave as well. In terms of polypropylene, you've talked about it a couple of times. It's -- margins have been not a lot for the last couple of years. Is that business or can that product line turn positive? And you used to generate a good amount of EBITDA for polypropylene. How do you think that shapes up this year if the pricing outlook sort of holds? Peter Z. Vanacker: Yes. I mean, the possibility, of course, I mean, we -- Kim said it, I mean, we have the biggest upside. I mean, the sleeping giant. We have the biggest upside on the polypropylene side. And the market dynamic has completely changed. Normally, I mean, the cash cost curves in polypropylene are very flat, I mean, between the different regions. But of course, now that is changing the dynamic that we are having in the United States, where, as you know, we have a lot of our assets. Normally, polypropylene stayed in the markets where it was produced. But now, of course, there is a lot of demand because of the loss of propane to Asian polypropylene producers, a lot of demand, I mean, globally to export polypropylene, which, of course, uplifts, I mean the markets -- the margins, I mean, in the markets. Kim? Kimberly Foley: No, I would agree with you, Peter. I think we've been operating polypropylene in Europe and in the U.S., call it, 70% to 75% for the last 2 years. So you've got a 20% -- 15% to 20% operating rate improvement opportunity as well as spread. So the longer this goes on, the better. Peter Z. Vanacker: And I think approximately what, 70%? Kimberly Foley: From a polypropylene perspective. Peter Z. Vanacker: I think probably what, 70% of supply is impacted by the Strait of Hormuz closure? Kimberly Foley: Directly or indirectly, absolutely, yes. You've got the volume, you lose out of the Middle East plus the LPG feed to the PDH. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: I just wanted to ask a comment about licensing revenue and technology. I mean I know you've been at a low level for some time here, and you've kind of highlighted there's been little activity in terms of looking at new projects, but your near-term outlook comment says that you expect that to increase. So is that a lag of just some existing kind of maybe discussions coming to fruition? Or are you seeing actually more interest in certain of the product chains about adding more capacity now? Peter Z. Vanacker: Yes. Thank you, Josh. I mean it is a lag, yes. So it's simply because of some milestones that are being accomplished and therefore, on the licensing. So not the catalyst sale, but on the licensing. Q2 should be better than Q1, as I said in the prepared remarks. But it is definitely not related to having a higher demand. I said it before, demand is historically at the lowest level. We see projects that already were progressing, let's say, around a couple of milestones that are now, as they call it, I mean, in the reserved status. So they're not moving forward. They're being looked at again. And all that will delay, let's say, the investments from already, let's say, last year low licensing, the year before, we saw reduced licensing. So all that will come to fruition then in, let's say, 2, 3, 4 years from now. That means that there will not be a lot of investments that will come on stream. Operator: Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all the thoughtful questions. The events of the past 2 months have transformed the global cost curve for petrochemicals and created a massive gap in supply for LYB's essential products. While we all look forward to peace and the normalization of traffic through the Strait of Hormuz, the economic and logistical impacts of this conflict will persist many quarters beyond the eventual end of the disruption. And of course, at LYB, we're ramping up our cost advantaged U.S. capacity to address the global supply gap for both domestic and export customers. In Europe, we're passing through higher costs for energy and raw materials so that local production can once again profitably serve local customer needs. And our global polypropylene capacity, as we alluded to before, the sleeping giant within LYB is increasingly needed to serve global demand. You can be confident LYB will remain focused on our strategic priorities and long-term value creation in this dynamic environment. We hope you all have a great weekend. Stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to the Piedmont Realty Trust, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Laura Moon, Chief Accounting Officer with Piedmont Realty Trust. Ma'am, the floor is yours. Laura Moon: Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's First Quarter 2026 Earnings Conference Call. Last night, we filed our 10-Q and an 8-K that includes our earnings release and unaudited supplemental information for the first quarter of 2026. Both of these documents are available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will hear from senior officers at Piedmont. Their prepared remarks, followed by answers to your questions, will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements address matters which are subject to risks and uncertainties, and therefore, actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont's future revenues and operating income, dividends and financial guidance, future financing, leasing and investment activity and the impacts of this activity on the company's financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements are based upon the information and estimates we have reviewed as of the date the statements are made. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information, which was filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding first quarter 2026 operating results. Brent? Christopher Smith: Thanks, Laura. Good morning, and thank you for joining us today as we review our first quarter 2026 results. In addition to Laura, on the line with me this morning are George Wells and Alex Valente, our Chief Operating Officers; Chris Kollme, our EVP of Investments; and Sherry Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. From a macro perspective, the U.S. office market continued to recover in the first quarter of 2026 as supply-demand fundamentals began to stabilize across markets. JLL reports that leasing activity was up 7.6% year-over-year and net absorption positive for a third consecutive quarter, primarily driven by large occupiers. The demand for office space continues to be very resilient despite office using employment being down 2% from 2022 levels according to the Bureau of Labor Statistics. The phenomenon of strong leasing amid a stagnant workforce demonstrates what our customers are telling us. Large businesses are bringing their employees back to a compelling office environment that builds culture, collaboration and creativity, and we continue to believe that demand for the top quartile of the office market will remain resilient despite the prospect of limited growth in office-using jobs. On the flip side, supply growth remains extremely low compared to historical levels, with total inventory declining by 9 million square feet during the first quarter and the national development pipeline at its lowest level on record. These trends reinforce landlord leverage, particularly in high-quality assets, where rents continue to escalate. Vacancy is increasingly concentrated in aging, financially constrained buildings with 10% of office buildings now comprising more than 60% of national vacancy. Looking ahead, muted job growth and a higher for longer interest rate outlook remain headwinds for longer-term demand growth. However, structural supply contraction combined with limited new development are expected to underpin rate resilience and intensify competition for high-quality office space. Against that backdrop, Piedmont is well positioned for the next phase of the office cycle for several reasons. First, portfolio quality. We've renovated 90% of the portfolio since 2020 and our amenity-rich hospitality-driven Piedmont PLACEs are leasing at record high rental rates. Second, Piedmont has leased over 80% of the portfolio since the pandemic, meaning our customers have already rightsized their office space for the modern workforce. Third, our service model, recognized in the top 5 by Kingsley, is keeping our customers happy, generating 60% to 70% renewal rates from existing tenancy. More recently, the portfolio is approaching 90% leased and inclusive of our out-of-service assets has generated more than 480 basis points of absorption in the last 12 months, equating to almost 750,000 square feet of absorption during that time period. Finally, the average tenant size across the approximately 16 million square foot portfolio is 17,000 square feet, which speaks to our customer and industry diversification and provides a mitigant to large corporate downsizing. As a result of the leasing success in 2025, Piedmont has a signed, but not occupied pipeline of leases equating to over $42 million of annualized rent. The strategic repositioning of the Piedmont portfolio, along with the substantial leasing that we've accomplished over the past 12 months are translating into higher economic occupancy and mid-single-digit same-store cash NOI growth and meaningful earnings growth. The operational performance of the portfolio has led to an increase in our 2026 outlook. Core FFO by $0.01 and same-store NOI, cash and GAAP by 100 basis points, which Sherry will touch on more in a moment. Also fueling our growth are the leasing spreads we're achieving on second-generation space, regularly double digits on a cash basis and high teens on a GAAP basis, inherently driving cash flow and earnings higher as leases expire. And finally, our balance sheet continues to strengthen, driven by the aforementioned leasing uplift in cash flow and EBITDA, along with a unique opportunity to refinance our near-term debt maturities at accretive financing spreads relative to the expiring rates. We believe these factors position Piedmont for consistent annual core FFO per share growth over the next few years. Turning to our quarterly results. We witnessed a continuation of the elevated demand that we've experienced in the latter half of 2025 with tour and proposal activity at levels above historical averages. During the quarter, we executed over 430,000 square feet of leasing and most importantly, 2/3 was related to new tenancy. Our customer pipeline remains robust with over 700,000 square feet of leases, either already executed or in the legal stage, thus far in the second quarter. As I noted earlier, strong customer demand driven by the flight to quality is giving Piedmont the opportunity to push rents to record levels across our portfolio. In fact, more than half our portfolio experienced an asking rate increase of 15% or more in 2025. And even more exciting is that our rents still remain 35% to 40% below new construction pricing. So there's little impediment to pushing rental rates further. Despite strong fundamentals for the office sector, the headlines have been filled with the topic of AI and prognostications of what it will mean to the national workforce. We appreciate the concern that AI could impact office using employment growth over time. But what we're seeing today is that robust demand is concentrating in high-quality, well-located, amenitized space, and that's exactly where our portfolio is positioned. Even if some roles are redirected as AI adoption evolves over the coming years, companies will still need collaborative environments to build culture, serve clients and innovate. So we're simply not seeing any cracks in our customers' demand and our leasing pipeline remains incredibly robust. Lastly, before I turn it over to George, I wanted to mention that we're also particularly excited about several operational recognitions during the first quarter. Galleria Towers in Dallas won the CoStar Impact Award for Redevelopment of the Year in Dallas Fort-Worth market. And as I alluded to earlier, Piedmont was recognized as an Elite 5 participant in the annual Kingsley survey for the office sector, which rates landlords on their performance based on tenant feedback. These accolades serve as further evidence that our modern, redeveloped amenity-rich Piedmont PLACEs, combined with our hospitality-infused service model are recognized by our customers and peers as the premier office experience. With that, I'll hand it over to George for further details on first quarter operational performance. George? George Wells: Thanks, Brent. We've been experiencing persistent demand for several quarters now. And once again, the Piedmont platform delivered exceptional operating results for the first quarter. Leasing velocity continued at a strong pace with 50 transactions completed for over 430,000 square feet. Like last year, new deal activity was a dominant theme accounting for roughly 70% of total volume and a meaningful portion of that volume is expected to translate into 2026 GAAP rent recognition as commencements occur over the balance of the year. Average new lease size was approximately 11,000 square feet, reflecting a good mix of small, medium and large clients and the weighted average lease term for new transactions was approximately 9 years. Expansions exceeded contractions for the seventh straight quarter and largely to accommodate clients' organic growth. Our retention rate remained high at approximately 70%. The portfolio continues to post robust leasing economics, delivering 11% and 18% roll-ups this quarter on a cash and accrual basis, respectively. Our average accrual based roll-up over the last 8 quarters is an impressive 17%. Additionally, the portfolio generated an impressive 11% same-store NOI growth, driven primarily by the burn-off of free rent. As Sherry will discuss in a moment, the strong cash flow growth, along with recent leasing success has helped push earnings and same-store cash NOI outlook for the year higher. Leasing capital spend was $5.18 per square foot per year, materially lower than our trailing 12-month average of $6.20, driven from modest concessions associated with several renewal and sublet to direct deals. Additionally, leasing commissions were also lower than historical trend this quarter as a result of greater number of leases that were direct deals without a broker. Net effective rents increased to $22.03 per square foot, up almost 5% from the previous quarter, and we anticipate further rental rate growth supported by strong demand for high-quality space and little to no new development in our submarkets. These encouraging first quarter metrics signal that Piedmont is off to a strong start for 2026. Next, I'd like to highlight notable market activity and progress on our key expirations. Dallas led all markets during the first quarter, closing on 14 deals for 123,000 square feet with new transactions accounting for a majority of that amount. Also in Dallas, we've agreed to extension terms with Epsilon at our Las Colinas Connection project for roughly half of its current footprint and our pipeline for backfilling the balance of that space is deep and at improving rents. Atlanta was our second most active market with 12 deals for 88,000 square feet. Our local team signed an 11-year new deal with a global accounting firm to backfill another Eversheds floor at 999 Peachtree in Midtown. While our supplemental report shows Eversheds having 180,000 square feet expiring this quarter, we have already backfilled roughly half of that space at 40% cash roll-ups and have strong activity for the balance. At 60 Broad, we announced last quarter that we agreed to terms with the new administration of the City of New York at our 60 Broad Street project for substantially all of that space and that a lease of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed. The city is steadily progressing to conclude our lease. However, it's likely that the process will not conclude until later this year. Our redevelopment projects posted another strong quarter of deal flow with over 100,000 square feet of new transactions signed, increasing the lease percentage from 62% to 76% at quarter end. Including leases executed in the second quarter or in the legal stage, the out-of-service portfolio is greater than 80% leased. We anticipate placing 222 Orange Ave back into service in the second quarter, and we continue to be confident that the remainder of the out-of-service portfolio will reach stabilization around the end of the year. Looking ahead, our leasing pipeline remains robust and now has over 700,000 square feet in the legal stage for the second quarter. Outstanding proposals have jumped from 1.8 million square feet last quarter to 2.4 million. Our supplemental report shows 9% of leases expiring in 2026 with the vast majority of that occurring in the second quarter and relates to the Eversheds, Epsilon and New York City leases, each of which I just reviewed. Aside from those 3 leases, there are negligible expirations remaining for 2026. As a result, we remain comfortable projecting that we will end the year within our previously released year-end lease percentage guidance of 89.5% to 90.5% for our total portfolio, including both our operating and our out-of-service redevelopment portfolios. I'll now turn the call over to Chris Kollme for his comments on investment activity. Chris? Christopher Kollme: Thank you, George. Capital markets have shown improving liquidity so far this year as evidenced by the strongest first quarter office sales volume since 2020, and we continue to seek ways to optimize and elevate our portfolio. As I have previously stated, we have 2 land parcels under contract, one of which is in the Las Colinas submarket of Dallas, and that deal went hard this quarter. The buyer still has several extension options. However, we anticipate this transaction will ultimately close later in 2026 and will generate approximately $12 million in net sale proceeds. The other land parcel is still in the midst of a lengthy rezoning process. So the timing there is much less predictable, and we expect it to close in the first half of 2027. In addition to the obvious financial benefits of these 2 land sales, we are also excited about the additional retail amenities that these transactions will ultimately provide for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. But over the last couple of years, we have redirected and prioritized our capital towards other accretive uses such as funding our tremendous leasing volume, reinvesting in our core assets and reducing our debt. We are in the market with some of our other noncore assets. Although it is too early to comment on any specifics, we are optimistic that we will return to a more active capital recycling program later this year. With that, I'll pass it over to Sherry to cover our financial results. Sherry Rexroad: Thank you, Chris. We will be discussing some of this quarter's financial highlights today, but please review the earnings release and accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the first quarter of 2026 was $0.36, in line with consensus and consistent with the first quarter of 2025 as higher economic occupancy and rental rate growth were offset by the sale of 2 projects during the year ended December 31, 2025. AFFO generated during the first quarter of 2026 was approximately $23.8 million. From a balance sheet perspective, we had approximately $526 million of capacity on the revolver as of quarter end. And as we've highlighted previously, we currently have no final debt maturities until 2028. We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Our overall weighted average cost of debt continues to decrease. And based on the current forward yield curve, we expect that all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth. As Brent noted, we are narrowing and increasing our 2026 annual core FFO guidance by $0.01 to a range of $1.49 to $1.54 per diluted share, an increase of over $0.10 per share at the midpoint over 2025 results. We are also increasing our same-store NOI, cash and GAAP guidance range by a full percent from 3% to 6% to 4% to 7%. Please note that this guidance does not include any speculative acquisitions, dispositions or refinancing activity. We will adjust guidance if and when those types of transactions occur. With that, I will turn the call back over to Brent for closing comments. Christopher Smith: Thank you, George, Chris and Sherry. Despite the ongoing noise in the office sector, Piedmont remains focused on leasing our portfolio of recently renovated, well-located hospitality-inspired Piedmont places with the quality space becoming harder to find and the cost of new development at all-time highs, we believe our portfolio offers a cost-efficient alternative to new construction, and we will be able to continue to drive meaningful leasing volume, rental rate increases and same-store NOI growth as 2026 unfolds. With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator? Operator: [Operator Instructions] Our first question is coming from Anthony Paolone with JPMorgan. Anthony Paolone: My first question relates to your comment about half the portfolio seeing a -- I think it was a 15% increase or more in rents, and I think it was 2025. I'm just wondering how specific is that to assets versus markets? Like maybe if you can give us a little bit more depth on like where that all occurred or where it didn't perhaps. Christopher Smith: Sure, Tony, and thanks for joining us this morning. So as we talked about, we did move rate materially, particularly from an asset perspective over the course of 2025, driven by a lot of absorption that we talked about earlier in the call as well, about 750,000 square feet. So markets and assets, certainly from a market perspective, the assets around our projects are not necessarily achieving what we are. I'll take the Northwest submarket in Atlanta, for example, our Galleria project there crossed over $40 a foot. Today, we're asking over $50 a foot, and that all occurred over the course of '25, while the rest of the submarket relatively stayed flat. And I would say Midtown Atlanta, also an example of where we continue to push rates at those meaningful levels. Frankly, all of Dallas would also incorporate that. Some of our suburban assets in Minneapolis, where we've renovated would also incorporate a really meaningful uptick in rental rates over the course of the year. And then finally, our downtown Orlando projects as well, would all encompass that. And we're seeing continued activity now in our Northern Virginia submarket, not nearly to that degree, but we're starting to see the same effects in those markets I just mentioned occur there as well. And it's really related to, again, that high-quality space, that top quartile market, particularly in which we play in, has continued to have meaningful absorption and seeing large blocks of space continue to be pulled off the market, and that has allowed us to continue to meaningfully move rates across those assets, if you look at the supplemental that are 90% plus or more leased. Anthony Paolone: And then maybe second question, Chris, I think you mentioned being in the market with a few assets for sale. And I know you don't want to give too many specifics, but maybe any sense of order of magnitude dollar-wise that we could see on the disposition side this year? Christopher Smith: I'll take that. This is Brent again, Tony. So as you noted, we do -- as Chris noted earlier, we have about $30 million under contract, $12 million is hard and in the held-for-sale bucket, and we do expect those to close in third quarter and the rest will happen in early '27. As Chris noted, we're marketing one building and evaluating a few others at the moment. And we're looking really to harvest value from stabilized assets and improve the overall quality of our portfolio. So looking again to always cull that bottom 10% in an efficient manner. So we'd like to monetize and/or dispose of assets, particularly in the district of Houston are ones we've noted, but also looking a little bit to the future, as we've noted, we'd like to monetize our New York asset upon the conclusion of the New York City lease, although that's likely now in early 2027 event. And given the profile of the assets we do have in the market and what we would recycle, we think we could take those proceeds and put them in likely to initially pay down debt. But on a longer-term basis, we are seeing opportunities in our Sunbelt market that would stabilize would be redeployed on an earnings neutral to accretive basis. But obviously, anything at this point, transaction-wise is likely to occur late in the year, if at all. And there's going to be a limited impact to 2026 earnings if we were to dispose of an asset at this point given where we are in the year. Operator: Our next question is coming from Nick Thillman with Baird. Nicholas Thillman: Maybe, George, just appreciate the commentary on 2026 and the bulk of them discussing those. But as we look at '27, you alluded to 50% to 60% retention. You guys have highlighted the 2 move-outs in Atlanta, but just curious if there's any other notable ones that we should be highlighting. It looks like a decent amount of concentration in Orlando and Minneapolis. So any large tenants to monitor there as well and just expectations on that front? George Wells: Sure. Thanks for joining us. I think before I address that, it's really important to understand the momentum that we saw in 2025 continues to roll into 2026, right? I mean the record leasing that we completed was on the backs of early proposals around 2.4 million to almost 3 million square feet. And though it dropped in the fourth quarter to 1.8 million, we're excited of the fact that it came back to 2.4 million square feet, and that's just providing the tailwinds with these large expirations that are coming up in our submarkets. You mentioned 2027. Yes, it's true, Broadcom and Fiserv in Atlanta will be vacating in the third quarter of 2027. But what we've seen here is that we're going ahead and put into place the Piedmont strategy has worked so well over the past couple of years, right? I mean these properties are modern, they're well amenitized. And when those large users leave, we're going to have the opportunity to put up a building signage for the next prospect that comes along, right? These assets are located in Atlanta. We've had a tremendous amount of success here. Central Perimeter is one of those markets that's the most accessible in all of Atlanta. It's got a long track record of expanding large corporate relocations into the submarket. In fact, we had 3 last year with StubHub, TriNet and AIG, and we expect that to continue. Our pipeline right now is about 300,000 square feet to backfill, those 2 large prospects in Central Perimeter. I think one of the advantages here is that when you look at the supply of large block space for 150,000 square feet or larger, there's only 4 that really we would call the Tier 1, and we own 2 out of 4 those -- 2 of those 4 supply. So we feel pretty good about that. And if you look at our overall track record in terms of what we've accomplished in Atlanta, we're 94% leased today. And I think it gives us the confidence we can backfill that space in a pretty short order. Nicholas Thillman: Yes. I understood the Atlanta. I just wanted a little bit of clarity on maybe Orlando and Minneapolis, in particular, those are some of the more concentrated ones at 27. I was just curious if there's any other notable like 50,000 square foot tenants that we need to monitor on that side and if you've had discussions on that front? George Wells: Sure. We've got one in Minneapolis, a little over 100,000 square feet. It's in a suburb location. We've got some early looks right now. We have 2 or 3 prospects looking for full [ 4 ] more. We've got a great brand in Minneapolis. We've -- I mean what you've seen what we've done in Meridian Crossing right with [indiscernible] 400,000 square feet, and we've got to all of that over the next 15 months or so. So we're not overly concerned about it. And then going to Orlando, we've got one project that has about 100,000 square feet expiring. We actually have 2 prospects that can backfill all of that space right now. Proposals are outstanding. I think we're getting close to -- getting a handshake on the deal. So we're looking good there. Nicholas Thillman: That's helpful. And then just on the 700,000 square foot pipeline, 300,000 of that is the renewal with New York, but are there any other chunkier ones within that, that's late stage or signed to date? Christopher Smith: I'd say -- Nick, this is Brent, and thanks for joining today. I'd say it runs the gamut. It's consistently what we've seen in the past that small users have been there and large users continue to bring their people back and want great space. Obviously, we have less and less larger blocks. So we're going to continue to see less, probably 100,000 square footers, except for some of the noted backfills that George mentioned really aren't until '27 in the first place. And so I'd say it's kind of consistently in 50s and 60s and also the 5s to 15s as well across industries. And I think that is what investors should take away from the robust demand we see is not being impeded from an AI perspective at all. Nicholas Thillman: That's helpful. And then, Brent, just maybe conversations with the Board and status on the dividend. I know there's some talk of potentially starting again to declare dividends next year in '27, but is there any update on that front or sentiment there? Christopher Smith: Of course, the Board reviews the opportunity to pay dividend really every quarter. But as you noted, we said at this point with the dividend suspended, the Board would not really evaluate that again until 2027. I would say until we have the need, i.e., positive taxable net income and see our ability to continue to have excess cash flow. Right now, we're putting a lot in the leasing space, which is obviously generating great returns. But until we see both of those, which depends somewhat on leasing velocity and momentum, the Board is not likely to turn on the dividend. So we will continue to update. Again, probably the first quarter of 2027 will be that opportunity when capital does significantly right now start to wane off and we see excess cash flow. But again, that's up to the Board to evaluate at that point in time. Operator: [Operator Instructions] Our next question is coming from Dylan Burzinski with Green Street. Dylan Burzinski: Most of mine have been asked, but maybe just sort of looking at portfolio lease percentage and where you guys think that can head over time. Just sort of looking at where you guys -- where you guys were at pre-COVID, call it, in the 91%, low 91% range. Obviously, this year, you guys are guiding to sort of 90% at the midpoint. I mean, do you think the portfolio is just structurally different today in that not only in terms of the location and the quality but also benefiting from the flight to quality such that lease percentage can get beyond where it has been historically? Christopher Smith: Thanks, Dylan. This is Brent, and great question. As you point out, we were about 91% leased pre-pandemic. And of course, that had a shift in the marketplace that was pretty substantial. We've recovered almost all of that back, and we're guiding to 90% leased at the end of this year. As we look at our own portfolio, we have a substantial number of assets where we push lease percentages that are well into the 90s, sometimes approaching 100%. So I think to your point, we have seen those assets that perform are generating well in excess of historical 91%, 92% stabilization. And I do believe we can continue to generate roughly 50 to 100 basis points of absorption a year across the portfolio. And so that's reasonable to assume that we could be in the 91% to 92% leased range in a few years, and potentially drive that higher, particularly at the unique amenitized large-scale projects like both our Galleria project, but even those midsized projects like the Meridian and Minneapolis, which we leased up over about the course of 18 months from 0% leased. Those environments are proving out that we can take assets to, again, 95% plus, and that will have a meaningful impact on growth in the portfolio longer term. So I do see, particularly with no construction really coming online to the end of the decade, a good runway push further, but that's just a little too far out to prognosticate. But certainly feel comfortable saying 50 to 100 basis points of absorption over the next few years is achievable. Dylan Burzinski: Okay. Great. That's extremely helpful, Brent. And then I think you mentioned D.C. and Houston being geographies or assets that you guys were looking to monetize. Can we say the same for Minneapolis as some of those assets through stabilization? Christopher Smith: I'd say, Dylan, we continue to want to harvest assets that we've created value and are stabilized to redeploy that into accretive opportunities. So regardless of market, I think we take that lens through the portfolio. You know Minneapolis, we do have a couple of assets that have leased up really well there and have long WALTs, 12-year plus weighted lease through those buildings. We'll let those come online and evaluate the market at that time. Hopefully, it continues to improve. But we have, as you know, created a lot of value with those buildings, and we'll look for ways to either recapitalize or monetize and redeploy those proceeds accretively into another market where we see growth in a similar fashion. So a little too early to tell on Minneapolis, but it's likely that we would reduce our exposure there over time. Operator: As we have no further questions in queue at this time, I'd like to turn the call back over to Mr. Smith for any closing remarks. Christopher Smith: I appreciate everyone joining today. I want to take the opportunity to thank my colleagues and fellow Piedmont placemakers for their hard work and efforts over the past really few years that have resulted in the sector-leading growth that we're witnessing this year. I also want to invite investors to join us at the Wells Fargo Conference next week. If you happen to be attending that and/or in the June NAREIT meeting in New York City, if you want to sit down with management and hear more about the growth story and what's unfolding in the office sector. Thank you, everyone, [indiscernible]. Have a great day. Operator: Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning. My name is Didi, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners, Inc. Quarterly Conference Call. The slide presentation for this call is available in the Relations section of the Virtus website at investors.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke. Sean Rourke: Thanks, Didi, and good morning, everyone. Welcome to Virtus Investment Partners, Inc. discussion of our first quarter 2026 financial and operating results. Joining me today are George Robert Aylward, our President and CEO, and Michael Aaron Angerthal, our Chief Financial Officer. After their prepared remarks, we will open the call for questions. Before we begin, I will refer you to the disclosures on slide two. Today's comments may include forward-looking statements, which involve risks and uncertainties described in our news release and SEC filings. Actual results may differ materially. We will also reference certain non-GAAP financial measures. Reconciliations with the most directly comparable GAAP measures are available in today's news release and financial supplement on our website. Now I would like to turn the call over to George Robert Aylward. George? George Robert Aylward: Thank you, Sean, and good morning, everyone. I will start today with an overview of the results we reported this morning, then Michael Aaron Angerthal will provide more detail. Although the first quarter was challenging from a net flow perspective, reflecting our meaningful exposure to quality-oriented equity strategies, which have remained out of favor, we had several areas of strength during the quarter that were overshadowed, and we also advanced key growth initiatives. Key highlights of the quarter included an 8% increase in sales, with growth in U.S. retail funds, separate accounts, and global funds; positive net flows in several strategies, including high-conviction growth equity, multi-sector fixed income, listed real assets, and event-driven; positive net flows in ETFs and global funds; expansion into private markets with our investment in Keystone National Group; and continued return of capital, including $10 million of share repurchases. We remained active in broadening our product offerings to meet evolving client demand and expand our growth opportunities over time. The investment in Keystone on March 1 added a differentiated asset-centric private credit capability, and our sales teams are actively focused on expanding distribution of their compelling strategies to retail and institutional clients. Keystone focuses on senior secured amortizing fixed-rate financings backed by tangible assets. We believe their approach offers attractive stability and defensive characteristics to investors seeking a private credit allocation or a broader income-oriented solution with a different risk profile than many traditional direct lending vehicles. Keystone expands our private market capabilities, which also include those of Crescent Cove, as well as our overall alternatives offering, including managed futures and event-driven strategies. We continue to launch attractive actively managed ETFs, including an emerging markets dividend ETF from our systematic team, a real estate income ETF from Duff & Phelps, and a growth equity ETF from Silvant. We expect to continue to be active in developing and introducing new products over the upcoming quarters. Looking at our first quarter results, assets under management were $149 billion at March 31, down from $159 billion due to net outflows and market performance. Total sales increased 8% to $5.8 billion, with a 26% increase in sales of equity strategies, in large part from some of our strategies that do not have a quality orientation. By product, we had higher sales of U.S. retail funds, retail separate accounts, and global funds. Retail separate account sales increased 19%, with higher sales in each month of the quarter, and on April 1 we reopened the SMidCap Core strategy that had been soft closed in 2024. Total net outflows were $8.4 billion, and across products the outflows were almost entirely driven by equities. I would note that the majority—over 80%—of the net outflows were in the first two months of the quarter, as net outflows improved significantly in March. Looking at flows across asset classes, the equity net outflows largely reflected the continued style headwind for quality-oriented strategies, including a meaningful institutional global equity redemption and the previously disclosed rebalancing of a lower-fee retail separate account model-only mandate to a passive strategy. Fixed income net flows were essentially breakeven for the quarter, as positive net flows in multi-sector, convertibles, and preferreds were offset by net outflows in investment grade and leveraged finance. Multi-asset strategies were also essentially breakeven, while alternatives strategies had net outflows of $400 million, primarily driven by managed futures. In terms of what we saw in April, as previously mentioned, overall trends improved over the course of the first quarter, and April flows were more similar to March. For U.S. retail funds, both sales and flows improved in April over March, and ETF sales and net flows were at their highest levels since September. For retail separate accounts, while we do not have as much transparency given a large portion is model-only, we do anticipate better flows in the second quarter and are pleased to have recently reopened the SMidCap Core strategy. On the institutional side, known wins actually modestly exceeded known redemptions for the first time in a long time, though as always institutional flows can be very lumpy and hard to predict. Turning now to our financial results, the operating margin was 24% and reflected the impact of seasonally higher employment expenses. Excluding those items, the operating margin was 30.3%. Earnings per share as adjusted of $5.38 declined from the fourth quarter primarily due to $1.26 per share of seasonal employment expenses. Excluding those items, earnings per share as adjusted declined 6%. Turning to investment performance, as we have previously discussed, recent performance reflects our overweight to quality equity. However, we did see improving relative performance in the first quarter in our equity strategies. Fixed income and alternative strategies have consistently strong performance with 78% and 71%, respectively, beating benchmarks for the three-year period. Over the longer ten-year period, 54% of our equity, 73% of our fixed income, and 71% of alternative strategies beat their benchmarks. In terms of our balance sheet and capital, we ended the quarter with cash and equivalents of $137 million, other investments of $269 million, and $200 million of undrawn capacity on our revolving credit facility. Cash was lower sequentially, as the first quarter of each year is our highest period of cash utilization. In addition to first-quarter seasonal expenses, cash usage included the $200 million closing payment for the Keystone investment and $23 million representing the majority of our remaining revenue participation obligation. During the quarter, we repurchased approximately 73 thousand shares for $10 million and paid our quarterly dividend. We continue to have financial flexibility to balance capital priorities of investing in the business, returning capital to shareholders, and maintaining appropriate leverage. And with that, I will turn the call over to Michael Aaron Angerthal to provide more detail on the financial results. Mike? Michael Aaron Angerthal: Thank you, George. Good to be with you all this morning. Starting with our results on slide seven, assets under management: our total AUM at March 31 was $149 billion, and average assets declined 4% to $158.2 billion. Our AUM continues to be well diversified across products and asset classes. By product, institutional accounts were 33% of AUM, U.S. retail funds represented 27%, and retail separate accounts, including wealth management, represented 25%. The remaining 15% consisted of closed-end funds, global funds, and ETFs. Within open-end funds, ETF AUM increased to $5.4 billion, up $200 million sequentially on continued strong net flows and up 58% year-over-year. We are also well diversified by asset class with broad representation across domestic and international equities, including mid-, small-, and large-cap strategies, and fixed income offerings diversified across duration, credit quality, and geography. With the addition of Keystone during the quarter, which added $2.3 billion of AUM, alternatives now represent over 12% of assets, up from 9.7% last quarter and 9% a year ago. Turning to slide eight, asset flows: total sales increased 8% to $5.8 billion, up from $5.3 billion in the fourth quarter. The increase was led by sales of equity strategies, which increased 26%, with growth broadly across domestic, international, and global equity. Reviewing by product, institutional sales were $1.2 billion versus $1.4 billion last quarter, with higher equity and multi-asset sales offset by lower fixed income and alternatives. Retail separate account sales increased to $1.4 billion from $1.2 billion in the fourth quarter, primarily due to a 30% increase in sales in the intermediary-sold channel across strategies. Open-end fund sales increased 11% to $3.1 billion and included $600 million of ETF sales. Open-end fund sales were higher in equities, fixed income, and multi-asset strategies, with much of the increase in equity sales in style-agnostic and growth strategies. Total net outflows were $8.4 billion compared with $8.1 billion last quarter, and, as previously mentioned, the outflows improved meaningfully in the last month of the quarter. Reviewing by product, institutional net outflows of $3.2 billion were again primarily due to redemptions of quality-oriented global equity strategies. Retail separate accounts had net outflows of $3.9 billion, which included a $1.4 billion redemption of a lower-fee model-only account that we previously disclosed. Open-end fund net outflows of $1.3 billion improved from $2.5 billion last quarter and included positive net flows in fixed income and global equity. For closed-end funds, which include Keystone's tender offer fund, we reported modestly negative net flows. I would point out that while Keystone's fund had positive net flows for the quarter, our results reflect just one month of their sales but a full quarter of redemptions, given the fund's quarterly tenders take place in March. ETFs continued to deliver solid growth, generating $300 million of positive net flows and sustaining a strong double-digit organic growth rate. Turning to slide nine, investment management fees as adjusted were $163.5 million, down 3% due to lower average AUM, partially offset by a higher average fee rate. The average fee rate was 41.9 basis points, up from 40.6 basis points last quarter, and included approximately 0.6 basis points of incentive fees from one month of Keystone. We believe an average fee rate of 43 to 45 basis points is reasonable for the second quarter, reflecting a full quarter of Keystone. As always, the fee rate will vary with market levels and asset mix. Slide 10 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $116.2 million increased 11% sequentially, reflecting $11.4 million of seasonal employment expenses related to the timing of annual incentives, primarily incremental payroll taxes and benefits. On the more comparable year-over-year basis, employment expenses declined 3%. Excluding the seasonal items, employment expenses also decreased on a sequential basis. Employment expenses were 58.3% of revenues as adjusted, with a sequential increase primarily due to the seasonal expenses. Excluding those items, employment expenses were 52% of revenues, higher than the fourth quarter largely due to lower revenues. For modeling purposes, it is reasonable to assume employment expenses as adjusted will be in the 51% to 53% range as a percentage of revenues, and at the high end of that range in the second quarter, primarily due to the decline in equity assets under management. And as always, results will vary with flows and market performance. Turning to slide 11, other operating expenses as adjusted were $30.6 million, up modestly from $30.2 million, in part due to the addition of Keystone during the quarter. For modeling purposes, a quarterly range of $31 million to $33 million is reasonable going forward to reflect the full-quarter impact of Keystone. In addition, keep in mind that our annual Board of Directors’ equity grant occurs in the second quarter and is incremental to the outlook. Slide 12 illustrates the trend in earnings. Operating income as adjusted of $43.8 million decreased from $61.1 million in large part due to seasonal expenses. Excluding those items, operating income decreased 10%, primarily due to lower average assets under management. The operating margin as adjusted of 24% compared with 32.4% in the fourth quarter. Excluding the seasonal employment expenses, the operating margin was 30.3%. With respect to nonoperating items, interest and dividend income declined by $1.4 million due to a lower cash balance reflecting the timing of the Keystone investment and seasonal cash obligations. Noncontrolling interests of $1.4 million were modestly lower than the prior quarter. Looking ahead, for modeling purposes, we believe that a reasonable range for noncontrolling interests will be $4 million to $5 million, which factors in a full quarter of Keystone. Turning to income taxes, as we recently announced, beginning with this quarter’s results, we updated how we reflect income taxes in our non-GAAP presentation and have recast the relevant line items in prior quarters. Over time, through acquisitions, we have built a significant intangible tax asset that generates meaningful economic tax benefits. Given the size of this attribute and our expectation of realizing the benefit, we believe it is appropriate to reflect it in earnings. For context, the tax benefit represented about $2.64 per share of earnings in 2025. For the first quarter, our effective tax rate of 14% was lower sequentially by approximately 400 basis points due to the impact of the amortization tax benefit on a seasonally lower level of pretax income. Beginning with the second quarter, an effective tax rate of 14% to 15% would be reasonable to expect. Net income as adjusted was $5.38 per diluted share, which included $1.26 per share of seasonal expenses, compared with $7.16 in the fourth quarter, and declined 16% from the prior year primarily due to lower average AUM. Slide 13 shows the trend of our capital, liquidity, and select balance sheet items. On March 1, we completed the 56% investment in Keystone for $200 million. As a reminder, there is up to $170 million of additional consideration over two years, a meaningful portion of which is subject to achievement of revenue targets. The estimated fair value of the deferred payments is recorded on the balance sheet as contingent consideration. Contingent consideration at March 31 totaled $126 million, with a sequential increase reflecting the addition of the Keystone deferred payments, partially offset by the payment of the majority of our remaining revenue participation obligation, which was $23 million. As previously discussed, our transaction with Keystone includes increasing our ownership to 75%, with the equity purchases taking place during years three through six after closing. The estimated value of those purchases is recorded in redeemable noncontrolling interest, which increased to $131 million at March 31. The remaining 25% of Keystone is reflected in the manager noncontrolling interest liability, which totaled $152 million, the majority of which represents Keystone equity held by Keystone employees that will be recycled to future generations. Cash and equivalents at March 31 were $137 million, down from December 31 due to the payment for Keystone, seasonal employment expenses, and return of capital. In addition, we had $269 million of other investments, including seed capital to support future growth opportunities. Return of capital to shareholders in the first quarter included our quarterly dividend and the repurchase of 73 thousand 463 shares of common stock for $10 million. Gross debt at the end of the quarter was $448 million, up from $399 million at December 31 due to a $50 million draw on our revolving credit facility. Net debt was $311 million, or 1.1 times EBITDA. As a reminder, we typically prioritize repayments of amounts drawn on our credit facility over the short term. And with that, let me turn the call back over to George Robert Aylward. George? George Robert Aylward: Thank you, Mike. We will now open the call for questions. Didi, would you open up the lines, please? Operator: Thank you. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Our first question comes from Crispin Elliot Love of Piper Sandler. Crispin Elliot Love: Thank you. Good morning. I appreciate you taking my questions. First, in the release and also on the call, you called out the 26% increase in sales of equity strategies. Can you dig into that a little further? Was that partially buying the dip in the quarter, especially the March improvement in flows? And then any specific areas—value or growth—would be helpful. And has that continued in April? George Robert Aylward: Sure. While we have highlighted that the majority of our equity AUM and strategies have a quality orientation from the managers that have grown the business over the years, we have other strategies that do not have those same orientations. Many of them were a little smaller and had not previously been areas where we had seen significant growth. Those have been the strategies that we have continued to focus on and to find additional opportunities for. We were very pleased with some of our strategies, which include high-conviction strategies, more style-agnostic strategies, and other growth strategies. We have recently made these available in SMAs, increased our focus on other wrappers, and launched some ETFs that are not tied to our quality-oriented strategies. Those have been the big drivers of the increase in equity sales. We hope that will continue. We still fully believe that the quality-oriented strategies will come back into favor as well, but we have been focused on other strategies and capabilities that have been smaller and are now growing. Our hope is to continue to make them available, particularly in retail separate accounts, and, very recently, to make them more available in ETFs. Mike, anything you would add? Michael Aaron Angerthal: I think you hit on the key points. We are starting to see contribution on the top line from some of those managers, and they have experienced growth. Obviously, it has been overshadowed by some of the larger managers who have a quality orientation, but we are seeing that growth. We called it out in the intermediary-sponsored retail separate account platform. As George mentioned, we have seen expanded access at some of our key distribution partners, and that is benefiting the top line. We are pleased to see that. Crispin Elliot Love: Great. Thank you, Mike. The second question is on net outflows. They remain elevated, especially over the last few quarters. Curious on the longer-term trajectory—what needs to be done for that to improve, first on a macro level and then on a micro level? On the micro side, it looks like you are making some progress on strategies outside of the quality orientation, but how do you get closer to more neutral over time? And I appreciate the comments on the improvement in March and April—just thinking more on a longer-term broad basis on flows. George Robert Aylward: Sure. I will start by reiterating that the largest percentage of the outflows—and we highlighted two specific large mandates that drove that—were in the earlier part of the first quarter, and that March, and as we have indicated, April, have been at significantly lower levels than January, February, or the fourth quarter. We view that as positive. There are a couple of factors. For the quality-oriented strategies, as the cycle eventually turns, we see that as a good opportunity. We do believe that certain investors, particularly institutional investors, are cognizant of how out of favor growth equity and quality-oriented equity are, and may view this as an opportunity because, inevitably, at the turn of the cycle is usually when many managers, including ours, have generated some of their better performance. We see that as an opportunity. Separate from that, over the last year, we have spent considerable time creating wrappers and enhancing our sales efforts on those other strategies from the first question—for investors not interested in quality orientation in particular—by offering more of our style-agnostic, other growth, and other differentiated strategies. We have started to see traction. It is nice to see those levels of growth. Those managers have compelling investment performance, and we are increasingly making them more available. Separate from that, we recently completed the Keystone transaction, and as I indicated in our talking points, our wholesaler force is very excited about offering that very differentiated strategy. We think there is a great opportunity for that to be utilized in different portfolios. We definitely see that as another area of continued opportunity to raise additional assets, which would complement what should eventually be the return of higher demand for quality-oriented strategies. We also highlighted the strategy that had been closed; one of the reductions in our flows over the last few quarters since 2024 was the absence of having sales in that closed strategy. We are pleased to have that strategy reopened. Our quality-oriented strategies include some of our best-selling strategies; it is just that outflows are greater than inflows at this point. We want to increase inflows, and opening that strategy up will be helpful. Operator: Thank you. As a reminder, to ask a question, please press star-1-1. This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Aylward. George Robert Aylward: Thank you very much, and thank you everyone for joining us today. We certainly encourage you to reach out if you have any further questions, and have a great day. Thank you very much. Operator: That concludes today’s call. Thank you for participating, and you may now disconnect.
Operator: Please stand by. We are about to begin. Welcome to the Ryman Hospitality Properties, Inc. First Quarter 2026 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties, Inc. are Colin V. Reed, executive chairman; Mark Fioravanti, president and chief executive officer; Jennifer L. Hutcheson, chief financial officer; Patrick Chaffin, chief operating officer; and Patrick Q. Moore, chief executive officer, Opry Entertainment Group. This call will be available for digital replay. The number is 807-230-607, with no conference ID required. At this time, all participants have been placed on listen-only mode. It is now my pleasure to turn the floor over to Jennifer L. Hutcheson. Ma’am, you may begin. Jennifer L. Hutcheson: Good morning. Thank you for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company’s expected financial performance. Any statements we make today that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes” or “expects” are intended to identify these statements, which may be affected by many factors including those listed in the company’s SEC filings and in today’s release. The company’s actual results may differ from the results we discuss or project today. We will not update any forward-looking statements whether as a result of new information, future events, or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in an exhibit to today’s release. I will now turn the call over to Colin. Colin V. Reed: Thanks, Jen. Good morning, everyone, and thank you for joining us today. We delivered a strong start to the year with results that exceeded our expectations, despite the complex geopolitical backdrop. Our first quarter performance reinforces what we have long believed about this company. The quality of our assets, the durability of our business model, and the way we allocate capital delivers superior outcomes for our customers and attractive, sustainable returns for our shareholders. In our same-store hospitality business, we grew revenue and market share and expanded margin on slightly fewer room nights—a clear demonstration of pricing discipline, mix management toward higher-value customers, and enhanced monetization of on-site demand. Results were particularly strong for the assets that have recently benefited from capital investments. Gaylord Opryland delivered record first quarter revenue and Adjusted EBITDAre; Gaylord Rockies delivered record first quarter revenue; and Gaylord Palms delivered record revenue and Adjusted EBITDAre of any quarter in its history. The JW Marriott Desert Ridge also delivered a strong first quarter which, given the seasonality of that market, is especially meaningful for full-year profitability. Though we have owned this hotel for less than a year, the benefits of our ownership are already evident. A group-focused yield strategy resulted in meaningfully higher group volumes, which supported strong outside-the-room spending and margin outcomes. Together, this property and the JW Hill Country, which is now undergoing the capital investment that we identified at acquisition, create a tangible runway for growth over the medium term, and I could not be more excited about their role in our future. On the entertainment side, demand for live remains incredibly healthy. Our Ole Red brand continues to resonate in a meaningful way, particularly in markets like Nashville and Las Vegas, and soon, we believe, Indianapolis. Indianapolis has long been on our radar as a vibrant convention and leisure market with strong economic and demographic drivers, and a deep base of country music fans. To that end, we were excited to announce just this week a development partnership with the organization behind the NBA Pacers and the WNBA Fever. This Ole Red development will contribute to the broader revitalization of the downtown corridor between the convention center and the Pacers Arena. This announcement marks our third development update this year, and our team remains active in evaluating both organic and inorganic growth opportunities toward expanding our platform and enhancing the value proposition for artists and consumers alike. Looking ahead, the future looks very bright for both of our businesses. Over the last two years, we have meaningfully improved the growth profile and pipeline for each while continuing to build satisfaction and loyalty through consistent execution and focused capital investment. We remain on track to achieve the 2027 financial targets we set in early 2024, and we look forward to updating you on our continued progress. Now before I hand over to Mark, let me go off script and say just a couple of things about our team. Our asset management team led by Patrick Chaffin, I believe, is the best in the industry, and our team at OEG led by Patrick Q. Moore is firing on all cylinders. Mark, Jen, and Scott and their teams are showing tremendous leadership, and our company could not be in better hands. So, Mark, what have you got to tell us? Mark Fioravanti: Thanks, Colin, and good morning, everyone. I will provide more color on our operating performance and business momentum before discussing our updated outlook. From an expectation standpoint, we entered the quarter assuming relatively flattish revenue and some margin pressure in our same-store hospitality business, along with softer profitability trends in Entertainment due in part to mix-driven seasonality and a challenging year-over-year comparison. Entertainment performance finished in line with our expectations, while the hospitality business delivered meaningful outperformance. Same-store ADR increased just over 5% year over year, more than offsetting lower group occupancy. As you will recall, the timing of Easter last year resulted in unusually strong group demand in the first quarter, creating a challenging year-over-year comp. High-quality corporate group demand proved far more resilient than lower-contribution segments, resulting in higher ADR and higher levels of outside-the-room spending compared to both our expectations and last year. Banquet and AV revenue contribution per group room night increased more than 6% year over year with gains at nearly every property in the portfolio. Our leisure business, while a smaller contributor to first quarter results, also surprised to the upside. Both demand and rate increased compared to last year, supported by seasonal spring break travel with particular strength at the JW Marriott Hill Country and Gaylord Rockies. Higher flow-through from growth in room rate and catering business together with ongoing efficiency initiatives drove Adjusted EBITDAre margin expansion in the quarter. Looking forward, the leading indicators of group demand remain resilient. The elevated attrition and cancellation activity we experienced last year has largely normalized. Excluding January, which was impacted by winter storm Fern, attrition improved year over year and cancellations for the year were essentially flat. On the heels of record monthly production in December, group bookings activity continued at very strong levels in the first quarter. Gross group room nights booked in the first quarter for all periods increased nearly 27% year over year, representing the strongest first quarter production since 2018. Reflecting our continued focus on premium corporate groups, corporate bookings comprised approximately two-thirds of production. Association bookings were also strong, surpassing pre-COVID first quarter levels for the first time, setting aside pandemic-related rebooking activity. As a result, growth in same-store group rooms revenue on the books for all future periods compared to the same time last year accelerated sequentially from 6.5% as of December 31 to 7.6% as of March 31. Across the portfolio, and most notably at Gaylord Opryland, we have invested in food and beverage offerings and carpeted meeting space to attract and serve the premium corporate group segment. In support of our capital deployment strategy and the increasing corporate demand for our hotels, we have refined our inventory management approach to make more sellable inventory available through the entire 24-month corporate booking window. Enhancing the corporate mix of our hotels drives higher room rates, outside-the-room spending, and profitability. However, these changes in our inventory management approach create challenging year-over-year comparisons as we move into the prime corporate booking window for 2027 and 2028. For 2027, same-store group rooms revenue on the books is up over 3% compared to the same time last year and down 1% for 2028. Importantly, ADR growth for both periods is pacing up mid-single digits, and corporate meeting planner feedback and lead volumes are strong. Given this interest, we are confident that we are well positioned to achieve the booking goals required to enter 2027 and 2028 with our targeted 50 points of occupancy on the books and strong rate growth. Now I will turn to JW Marriott Desert Ridge, which also delivered a terrific first quarter. Prior to our ownership, the property prioritized higher-rated leisure demand during the peak first quarter period. Under our group-first sales and revenue management strategy, group mix increased by nearly 200 basis points and group demand grew more than 9% while maintaining ADR discipline. In fact, total ADR for the property increased nearly 8% year over year with growth across group and leisure segments, and banquet and AV revenue was up 25%. We expect these trends to build over the next several years as the property grows its share of the meetings market under our group strategy. Supporting this strategy, we completed the 5 thousand-square-foot meeting space conversion in April, which we believe will further enhance the hotel’s ability to attract high-quality corporate groups. Turning to Entertainment, first quarter results declined year over year due to a challenging comparison, seasonality associated with our new business line, and the impact of winter storm Fern. Overall, business performance was in line with our expectations, and we continue to be encouraged by the underlying trends. Both Ole Red and Category 10 exceeded our expectations, with particular strength in Nashville and Las Vegas. In the back half of the quarter, March represented a new high watermark for Ole Red Las Vegas, with the venue generating the highest monthly revenue and Adjusted EBITDAre in its operating history. Finally, I want to spend a few minutes on our outlook. As we noted in the press release, we are raising the midpoints of our guidance ranges to reflect the first quarter hospitality outperformance. Our outlook for the rest of the year is essentially unchanged from our prior expectations, reflecting measured confidence in our business. We continue to feel good about the areas of the business within our control—sales production, pricing discipline, margin initiatives, and execution of the capital projects we have underway. So far, meeting planner sentiment and the leisure guest’s willingness to visit our properties has remained resilient. What gets us to the high end of the range is continued strong near-term group business trends, including normalized levels of attrition and cancellations, healthy in-the-year-for-the-year production, and strong on-property spending, as well as continued momentum in leisure. The low end of the range assumes some hesitation in near-term meeting planner decision-making, a potential pullback in 2026 meeting budgets, and softer leisure demand, potentially in response to higher gas prices. At the midpoint for the rest of the year, we continue to assume mid-single-digit growth in group rooms revenue and flattish year-over-year leisure performance. Let me make a few comments on seasonality. For the same-store hospitality business, we continue to expect third quarter to show the strongest revenue and margin growth of the year, reflecting strong corporate group mix on the books and easier year-over-year comparisons, followed by the second quarter. We expect same-store RevPAR growth to accelerate as the year progresses, especially as the Gaylord Texan room renovation is completed in August. For JW Marriott Desert Ridge, we expect the second quarter to contribute slightly more than 25.5% of full-year Adjusted EBITDAre. And for the Entertainment business, we continue to expect the second and fourth quarters to be the largest contributors to full-year Adjusted EBITDAre. Looking beyond 2026, we remain confident in the 2027 Adjusted EBITDAre targets we outlined at our last Investor Day. Our forward book of business, the addition of the JW Marriott Desert Ridge, and the capital investments underway across the portfolio position us well to deliver those objectives. With that, I will turn it over to Jennifer to walk you through the balance sheet and capital allocation. Jennifer L. Hutcheson: Thanks, Mark. We ended the first quarter with $424 million of unrestricted cash on hand. In addition, we held $27 million of restricted cash available for FF&E and other maintenance projects. Both our corporate and OEG revolving credit facilities were undrawn, resulting in total availability of approximately $1.35 billion. At the end of the quarter, our pro forma net leverage ratio based on total consolidated net debt to Adjusted EBITDAre, assuming a full-year contribution of Adjusted EBITDAre from JW Marriott Desert Ridge, was 4.3 times. In March, we completed an opportunistic refinancing, issuing $700 million of senior unsecured notes due 2034 and, together with cash on hand, redeeming in full the prior 2027 notes. The transaction was well received and priced through our expectations, extending our weighted average maturity and eliminating near-term refinancing risk through 2028. With respect to capital expenditures, our full-year outlook is unchanged and we continue to expect total capital spending for the year in the range of $350 million to $450 million. In April, we completed the Foundry Fieldhouse Sports Bar development at Gaylord Opryland, and as Mark mentioned, the meeting space conversion at JW Marriott Desert Ridge. Also in April, we kicked off the JW Marriott Hill Country rooms renovation, which is expected to run through 2027. The Gaylord Opryland meeting space expansion, the Gaylord Texan rooms renovation, and Category 10 Las Vegas development remain underway. All major projects remain on time and on budget. Finally, regarding our dividend, it remains our intention to distribute [inaudible] of our taxable income through dividends over time. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. In the interest of time, we do ask that you please limit yourself to one question. Our first question today comes from Patrick Scholes with Truist. Your line is now open. Patrick Scholes: Hi. Good morning. Question for you. On your Dallas property and the World Cup—you know, it looks like it is about a half an hour away. Are you expecting to get much business from the World Cup on that? And if so, how has it been trending? There is a lot of media about FIFA cancellations. Did you have any of those FIFA bookings? Any color in that regard? Thank you. Mark Fioravanti: Good morning. The World Cup is going to be marginally impactful to our Dallas property. We already had a substantial level of group room nights on the books, and we are in a really strong position, but it will help us on transient rate, so we will see a little bit of lift there. Overall, World Cup, I think, has been a mixed bag in certain markets, but Dallas has seen a positive impact, and we should see some on ADR as well. Colin V. Reed: The fan base in Dallas is going to be pretty aggressive with the England team playing in Dallas. Operator: Our next question comes from Daniel Brian Politzer with JPMorgan. Your line is now open. Jennifer L. Hutcheson: There is no particular caution embedded in our full-year guidance. Our outlook for the remainder of the year, Dan, is unchanged from what we had at the beginning of the year. We are raising our full-year guidance in recognition of the strong trends we had in the first quarter, and as we noted throughout the prepared remarks, all of the leading indicators are continuing to remain very resilient. You saw attrition, for example, improve year over year when you look at the February and March trends. You see bookings continue to trend upwards on the group side meaningfully, and outside-the-room spending is good. Leisure performance from spring break was exceeding our expectations. So there are a lot of good reasons, and I think our approach to full-year guidance at this point is measured confidence. Colin V. Reed: Having said all of that, though, I am sure, Dan, you probably read that two of the four dissenting Fed governors this morning put out statements saying that we live in extremely volatile times, that there could be rate hikes going into the future simply because what is going on in Iran with oil prices could affect unemployment and could affect inflation. And so, here we sit. We have a wonderful business on our hands firing on all cylinders, but there are some storm clouds on the horizon, and we have to be cognizant of that. So there is a degree of caution in this, but as Jen said, our businesses are performing admirably. Operator: Our next question comes from Smedes Rose with Citi. Your line is now open. Smedes Rose: Hi, thank you. Mark, you sort of alluded to this in your opening remarks, but I did want to ask a little bit about the cancellation and attrition rates you saw during the quarter. It did look elevated at least to what you have reported over the past several quarters. Are you saying it was really all due to that terrible storm in January? Could you unpack that a little bit? Mark Fioravanti: If you look at the first quarter by month and you back out what occurred in January during the winter storm Fern, attrition was actually lower for the remaining two months year over year. And cancellations, as we said in the script, were essentially flat—I think it was about a 200 room-night difference. The trends we are seeing thus far in April would continue to support that. Operator: Our next question comes from Aryeh Klein with BMO Capital Markets. Your line is now open. Aryeh Klein: Thanks, and good morning. On the future group pace in 2027 and 2028, you mentioned some of the inventory management changes that are maybe having an impact on comps. Hoping you could just provide a little bit more color on how we should expect things to trend from here? Mark Fioravanti: What you are seeing in those 2027–2028 numbers is really a manifestation of the strategy we have implemented over the last couple of years as it relates to refining our group strategy to maximize hotel performance. We are making inventory available for premium corporate groups. We undertook primary research to understand customer needs for those premium corporate groups, we are deploying capital into the hotels to provide the food and beverage and meeting space, and we are modifying pricing and inventory management. We are making sure we have the right rate, dates, and space available when that premium business is ready to transact, which is typically a shorter window—about two to two and a half years—versus association and SMERF. As we have held more inventory available, that is what you see reflected in those year-over-year growth numbers. We have also worked with Marriott to modify our sales incentives to ensure the sales teams are focused on the right segments and have appropriate short- and long-term goals to hit our crossover targets for future years. In terms of getting to 50 points on the books and what gives us confidence, we have the best physical product we have ever had to serve the corporate customer, and it is getting better each year. Current corporate demand trends are very positive. Corporate leads are the highest they have ever been—about 27% above where we were in 2019. Pattern availability is good; we have been holding inventory. The shift is already happening: for the rest of 2026, we are up about three points in corporate mix; for 2027, up about three points; and for 2028, up about six points. We feel like we are in really good shape and have the pieces in place to execute this strategy. Operator: Our next question comes from Richard Hightower with Barclays. Your line is now open. Richard Hightower: Hi, good morning. Maybe just to follow up on the corporate booking question. Obviously, trends have been very strong. Is that surprising at all in the context of some macro headwinds—choppy jobs market, layoffs in different pockets of the economy—or is it a fundamentally different composition of the customer base that would be staying in your properties? Colin V. Reed: What you are saying about the jobs market raises questions about how much is being affected by the tremendous amount of capital pouring into artificial intelligence. But when you look at the underlying strength of corporate America today—where the markets are trading, with the S&P at all-time highs—the reason is corporate profits are in really good shape. You look at what is going on in the banking industry and our industry—it is in really good shape. The strategy that Mark just talked about, when Patrick came and sat down with Mark and me some months ago and talked about becoming a little bit more aggressive on cutting these blocks in 2028, made a lot of sense to us simply because of the underlying strength we are seeing in lead volume. Having more inventory to book into in these periods ahead of us at higher-rated business makes a ton of sense. So, putting aside the unfortunate noise of what is going on in the Middle East, our economy is in pretty good shape, and we are betting that for the rest of this year and next year, it is going to remain that way. Patrick Chaffin: If you look at on-property actualization of groups, we saw some hesitation back in the third quarter and even into October and November. As we entered December, we started to see that hesitation to spend abate, and that has continued through the first quarter. As we went into the first quarter, we were hesitant, but meeting planners have shown up in a major way and spent very well on property. That seems to be continuing, so we are growing in our confidence that the groups traveling to our hotels are comfortable proceeding with their programs at the levels they originally anticipated. Operator: Our next question comes from Cooper R. Clark with Wells Fargo. Your line is now open. Cooper R. Clark: Thanks for taking the question. On OEG, it seems like every quarter now you are talking about a new development or operating contract for the business. How are you thinking about EBITDA growth of that business over the next couple of years, and when will you consider making some of the additions to management structure that you discussed as being prerequisites for a potential spin? Patrick Q. Moore: In terms of growth, we have perhaps the most robust pipeline of confirmed growth that we have ever had as a business. We have continued to make additions from an organizational standpoint in terms of talent and capabilities, including a new COO and a CMO in the last 18 months. We have added great expertise in festivals and amphitheaters, and for the artist partnerships, we have added strength and capabilities there as well. We will continue to look at expansion in capacity and capability from an organizational standpoint. We are also working on technology and adding to our tech stack overall for the Entertainment business. We have put dedicated design and construction folks within the business to deal with this volume of growth. We are really excited about what the future holds over the next two or three years. Colin V. Reed: Good stuff. It is exciting. Operator: Our next question comes from David Katz with Jefferies. Your line is now open. David Katz: Thanks. I wanted to talk about Marriott Desert Ridge. I noticed in the guide you are pushing those numbers slightly higher for this year. Does that change your long-term underwriting view on it? And there has been some discussion about capital going in there—any update and perspective would help. Jennifer L. Hutcheson: We are very pleased with the outperformance from Desert Ridge in the first quarter. We outlined our group-forward strategy relative to the property’s prior, more leisure-focused strategy. Spring break there outperformed our expectations, and we are happy to be able to flow that through. Our expectations for the remainder of the year for Desert Ridge, compared to what we thought when we set our initial guidance, are essentially unchanged, with a little bit of flow-through from the strong first quarter. That first quarter is over 40% of the annual contribution for that property’s annual profitability. We acquired this property three quarters ago. We had talked about being able to buy down that multiple—what our expectations at that point were for our first full year of ownership—and we are right on track with those financial expectations. In terms of the longer-term outlook, we as a management team continue to be very confident about that. Patrick Chaffin: We are in our first year of owning and operating this hotel, and we are developing and refining what we want to do from a capital perspective. We do not see a massive need for capital. This hotel was in great shape, and it is about continuing to tweak and meet the needs of the meeting planner. We have converted some space into usable meeting space, and that has been received very well already. We will continue to tweak and refine what we are going to do there, but it is not going to be a massive strain on our capital needs. Operator: Our next question comes from Duane Thomas Pfennigwerth with Evercore ISI. Your line is now open. Duane Thomas Pfennigwerth: Thank you. Just wanted to come back to the strong bookings growth for the first quarter. How much of that would you say was higher conversion of existing leads—effectively planners getting off the sidelines—versus easy comps last year? And then could you speak to the underlying drivers of outperformance in Nashville? Thank you. Patrick Chaffin: A couple comments. Our first quarter is coming off an extremely strong December—the strongest December we have ever seen in terms of production. The fact that we are seeing that continue through the first quarter and into April is a strong indicator that group is on an upward trajectory. We are heavily focused on acquisition business; it is probably about 30% of what we book into the hotels in any given quarter. So we are bringing in a lot of new business as well as strong multiyear rotational business. I would not characterize it as an easy comp—really continued growth, both on the acquisition front as well as strengthening group dynamics. Nashville outperformance reflected strong local demand across our venues and continued momentum at Ole Red and Category 10. Operator: Our next question comes from Jay Kornreich with Cantor Fitzgerald. Your line is now open. Jay Kornreich: Thanks very much. You have a clear focus on improving the portfolio with many ongoing CapEx opportunities. What about incremental portfolio CapEx opportunities you can do? You have previously discussed adding rooms at Gaylord Rockies and the JW Hill Country as well. Any update on timing for those or similar projects? Patrick Chaffin: You hit it on the head. We are definitely interested in expanding Gaylord Rockies, and we are working through some opportunities at the local level there before we can proceed, but we are excited to add to that property at some point in the near future. Hill Country is something we are studying and working to refine, and there is definitely an expansion opportunity there. We are also continuing to look at Gaylord Texan as a potential expansion opportunity. Beyond that, we have multiple opportunities to make marginal tweaks—whether it is repositioning food and beverage or adding a little bit of space here and there. We have a target-rich environment for additional expansion and investment opportunities across the portfolio. Operator: Our next question comes from Stephen Grambling with Morgan Stanley. Your line is now open. Stephen Grambling: Thanks. You talked to confidence in hitting the 2027 targets you laid out in 2024. As we are at about the midpoint and look back at some of the drivers of that outlook, what are some of the biggest surprises—positive or negative—to consider in each segment? Any reason to believe those growth rates have evolved relative to when you outlined them? Mark Fioravanti: Relative to the assumptions we made in 2024, the biggest difference between our performance and what we planned is the acquisition of Desert Ridge and the expansion of Rockies. While we are still working through that expansion and are getting very close to actualizing it, we had assumed it would be completed prior to 2027 and it was in that 2027 number. As we look at how our same-store business has performed, it has performed admirably relative to our expectations, particularly as the corporate customer has responded to the activities and capital that we have deployed. You see the rate growth we have actualized as well as the rate growth on the books and the level of bookings we are achieving—it really all flows back to that focus on the corporate customer and has surprised us a bit to the upside. Colin V. Reed: Entertainment is tracking pretty much as we guided. Mark Fioravanti: In fact, Entertainment has more growth in the pipeline than I think we initially laid out. Operator: Our next question comes from Michael Herring with Green Street. Your line is now open. Michael Herring: Good morning. With the change in your group booking strategy, can you quantify the target mix shift in terms of corporate group relative to association and SMERF versus historic levels? And how are you thinking about the risk profile of your forward bookings from targeting more corporate groups, given the shorter booking windows? Mark Fioravanti: We are talking about a few points of occupancy—refining and turning the dial where we might settle three to five points higher in corporate versus association and SMERF. It is really about raising the level of customer across all segments. All groups are not created equal, and we are moving up the rate scale and driving premium customers across corporate, association, and SMERF. We do not think this creates significant incremental volatility in our performance. These are contracted room nights, and if you look back to the 2009 recession, where we had a high level of cancellations, we also had a high level of collection fees, which helps mitigate lost profitability. We feel very comfortable making this shift and driving yield without materially changing the volatility of our earnings or the risk. Patrick Chaffin: To accentuate that point, collection of cancellation fees on corporate is usually easier than association and SMERF because it does not create a financial risk for the overall organization. Corporate pays quickly and with very little negotiation. Colin V. Reed: Do we have any more folks in the queue, or is that it? Operator: We have no additional questions at this time. Colin V. Reed: We thank everyone for their participation this morning, and upward and onward. Thank you very much. And, Angela, thank you. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Unknown Speaker: [inaudible] Operator: And welcome to UMH Properties, 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. Please note this event is being recorded. It is now my pleasure to introduce your host, Mr. Craig Koster, executive vice president and general counsel. Thank you. Mr. Koster, you may begin. Craig Koster: Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, are available on the company's website at umh.reit. We would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's first quarter 2026 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics, as well as the explanatory and cautioning language, are included in our earnings release, our supplemental information, and our historical SEC filings. Having said that, I would like to introduce management with us today. Eugene Landy, founder and chairman, Samuel Landy, president and chief executive officer, Anna Chew, executive vice president and chief financial officer, Brett Taft, executive vice president and chief operating officer, James Lykins, vice president of capital markets, and Daniel Andy, executive vice president. It is now my pleasure to turn the call over to UMH Properties, Inc.’s President and Chief Executive Officer, Samuel Landy. Samuel Landy: Thank you, Craig, and good morning, everyone. We are pleased to report solid operational results for the quarter, which we expect to continue to grow throughout the year. Normalized FFO for the first quarter of 2026 was $0.23 per share, as compared to $0.23 per share last year. Our earnings per share were impacted by increased interest rates and increased investment in rental units and expansion lots that are not yet occupied. Additionally, we faced seasonal headwinds which impacted our sales volume and increased our community operating expenses. During the quarter, occupancy improved meaningfully, same property NOI grew by 7%, and home sales revenue was stable. These gains were partially offset by higher interest costs associated with refinancing debt, bringing expansion lots online, adding rental homes, and the seasonal impact on home sales and operating expenses which together moderated earnings per share growth. Normalized FFO per share came in essentially in line with last year's first quarter, reflecting the strength of our core rental business offset by those financing and seasonal pressures. As we continue to fill rental homes and generate increased sales profits, our earnings should increase in the quarters to come. We have invested in rental homes, expansions, and acquisitions for which we currently incur interest expense but which will later become accretive to earnings. The fundamentals of our business remain strong, with growing occupancy and improving community operating results. We are tightening our NFFO guidance range to $0.98 to $1.04 per share, or $1.01 per share at the midpoint, compared to our previous guidance of $0.97 to $1.05 per share. UMH Properties, Inc. continues to experience strong demand throughout our portfolio of quality manufactured housing communities. This demand is being translated into increased occupancy rates and improved community operating results. During the quarter, overall occupancy improved by 184 units to approximately 88%. This increase was the result of the conversion of 166 homes from inventory to revenue-producing rental homes and an increase in occupancy of our existing rental homes. Additionally, sales of manufactured homes increased by 6% to $7.1 million for the quarter. This increase in sales includes the sales at Honey Ridge which is owned through our joint venture with Nuveen. We continue to execute our long-term strategy of driving organic growth across our high-quality manufactured home communities. This organic growth translates to increased property values and, over time, increased earnings. Rental and related income grew to $59.5 million for the quarter, representing a 9% increase over last year. Sales for the quarter were $7.1 million, including the sales at Honey Ridge, representing a 6% increase over the first quarter of last year. Our same property results continue to demonstrate the effectiveness of our long-term business plan. We generally acquire underperforming communities with vacancies and in need of capital improvements. Our team and our platform have proven time and time again that we can preserve and increase the supply of affordable housing while delivering solid and sustainable operating results. In the first quarter of 2026, we delivered same property revenue growth of 7.6% or $4.1 million and same property NOI growth of 7.1% or $2.3 million. This growth in same property revenue and same property NOI was driven by site rent increases of 5% and the increase in occupancy of 412 units over last year. Our expenses elevated as a result of the bad winter as well as an increase in real estate taxes. This increase in community NOI substantially increases the value of our communities and our portfolio. We can realize this increase in value through our refinancing efforts, which generate additional capital to invest in our platform. Our occupancy gains continue to be driven by the successful implementation of our rental home program. During the quarter, we added and rented 166 new homes across our portfolio, including those in our joint venture communities, bringing our total rental home inventory to approximately 11,200 units with a 94.6% occupancy rate. Our home rental program continues to operate efficiently with a turnover rate of approximately 20%. Our expenses per unit per year are approximately $400. Our capitalized turnover costs vary, but we are generally able to increase rents to earn 10% on any additional investment in rental homes. We are well positioned to fill 800 or more new rental homes this year. We currently have 80 homes on-site and ready for occupancy, 400 homes being set up, and 160 homes on order. The 480 homes that are on-site have already been paid for and, once occupied, each home increases revenue and starts to earn our expected return on investment. Our home sales business also performed well, despite the challenging winter, generating a 6% increase from $6.7 million in gross sales in the first quarter of 2025 to $7.1 million for the current quarter, including contributions from our new Honey Ridge community, our joint venture with Nuveen Real Estate. During the quarter, we financed 63% of our home sales, including sales at Honey Ridge. Our notes receivable portfolio continues to perform well. We have acquired and developed communities in strong locations which should allow us to further increase our gross sales and sales profitability in the coming quarters. On the expansion and development front, we plan to develop 300 or more sites in 2026. Over the past four years, we have developed an average of approximately 200 sites per year. Expansions greatly increase the value of our existing communities. A larger asset generally operates with better margins as a result of economies of scale. We currently have $45 million invested in 600 vacant, well-located expansion sites that have been developed over the past few years. These sites will allow us to grow home sales revenue and community operating income. These sites have been paid for, so each site we occupy will increase revenue with limited additional investments. The interest is already being expensed. Additionally, these expansion sites are well located and have the potential to greatly increase our sales and sales profits. As we fill our recently developed sites, our earnings can grow substantially. Expansions and development require patient capital but lead to strong returns over time. We will continue to work on expanding our existing communities in addition to exploring the highest and best uses of our vacant land. UMH Properties, Inc. is well positioned to capitalize on the progress we have made on our investments over the past few years. We have well-located communities that are experiencing strong demand, which should result in increased occupancy, revenue, and sales. Our communities in the Marcellus and Utica Shale areas continue to experience strong tailwinds as a result of the additional investment in these areas. Additionally, we are starting to see more interest in the leasing of our oil and gas rights, which can result in additional revenue. We have built a best-in-class operating platform that continues to produce results year after year. The fundamentals of our business remain strong. There is pent-up demand for affordable housing, and our product serves that need in each market that we operate in. Our quality income stream is derived from our 24,000 families that have chosen to make UMH Properties, Inc. communities their home. This income stream has proven resilient through all economic cycles. As we move through the stronger spring and summer selling seasons, we remain confident in our ability to deliver full year normalized FFO per share growth in the mid-single-digit range which, if coupled with our current dividend yield, can easily drive a double-digit total return for our investors. Our communities are well positioned, our balance sheet is solid, and our team continues to perform at a high level. Overall, these accomplishments demonstrate the resilience and growth potential of our business model. I will now turn the call over to Anna Chew, our CFO, to review our financial results in more detail. Anna Chew: Thank you, Sam. Normalized FFO, which excludes amortization and nonrecurring items, was $19.4 million or $0.23 per diluted share for the first quarter of 2026 compared to $18.8 million or $0.23 per diluted share for the first quarter of 2025, resulting in a 3% increase on a dollar basis and remaining flat on a diluted per share basis. Rental and related income for the quarter was $59.5 million compared to $54.6 million a year ago, representing an increase of 9%. This increase was primarily due to acquisitions made in 2025, an increase in same property occupancy, the addition of rental homes, and an increase in rental rates. Community operating expenses increased 10% during the quarter. This increase was mainly due to the acquisitions made in 2025 and an increase in payroll and related costs, real estate taxes, and water and sewer expenses. Our community net operating income, or NOI, which is our rental and related income less our community operating expenses, increased 8%. Our same property results continue to meet our expectations. Same property income increased by 8% for the quarter, and despite the 8% increase in community operating expenses, community NOI increased by 7% for the quarter from $32.6 million in 2025 to $34.9 million in 2026. As we turn to our capital structure, at quarter end, we had approximately $760 million in debt, of which $554 million was community-level mortgage debt, $28 million was loans payable, $102 million was our 4.72% Series A bonds, and $76 million was our 5.85% Series B bonds. Total debt was 99% fixed rate at quarter end with a weighted average interest rate of 4.92%. The weighted average interest rate on our mortgage debt was 4.75% at quarter end, compared to 4.18% at quarter end last year. The weighted average maturity on our mortgage debt was 5.9 years at quarter end and 4.2 years at quarter end last year. In this volatile interest rate environment, the weighted average interest rate on our short-term borrowings was 15 basis points lower at 6.35% at the current quarter end as compared to 6.5% at quarter end last year. At quarter end, we had a total of $325 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of over $1.2 billion and our $760 million in debt, results in a total market capitalization of approximately $2.3 billion at quarter end. During the quarter, we issued and sold 66,000 shares of our Series D preferred stock under the 2025 preferred ATM program at a weighted average price of $22.51 per share, which generated gross and net proceeds after offering costs of $1.5 million. The company also received $2.4 million including dividends reinvested through our DRIP. During the quarter, we did not sell any shares of our common stock under the September 2024 common ATM program. From a credit standpoint, we ended the quarter with net debt to total market capitalization of 31.2%, net debt less securities to total market capitalization of 30.1%, net debt to adjusted EBITDA of 5.5 times, and net debt less securities to adjusted EBITDA of 5.3 times. Interest coverage was 3.1 times and fixed charge coverage was 2.1 times. From a liquidity standpoint, we ended the quarter with $37.4 million in cash and cash equivalents and $260 million available on our unsecured revolving credit facility, with a potential total availability of up to $500 million pursuant to an accordion feature. Our unsecured revolving credit facility expires in November, and we are currently working on a renewal of this facility. We also had $183 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Additionally, we had $26.4 million in our securities portfolio, all of which is unencumbered. This portfolio represents only approximately 1.2% of our undepreciated assets. We are committed to not increasing our investments in our REIT securities portfolio and have, in fact, continued to sell certain positions. We are tightening our NFFO guidance range to $0.98 to $1.04 per share, or $1.01 per share at the midpoint, compared to our previous guidance of $0.97 to $1.05 per share. We are well positioned to continue to grow the company internally and externally. And now let me turn it over to Gene before we open it up for questions. Eugene Landy: Thank you, Adam. UMH Properties, Inc. continues on our mission to provide the nation with high-quality affordable housing and doing so while generating strong and growing returns for our shareholders. We have made immense progress over the years building a great portfolio of manufactured housing communities that our existing tenants and our new tenants are proud to call home. We improve our communities by upgrading the collective communities through infrastructure projects, the addition of amenities, security best practices, and further through the expansion of our communities. We are proud to say that each asset we own is in better condition today than the day we bought it. Over the company's history, we have experienced several economic cycles across our portfolio, and the manufactured housing industry has performed well throughout all of them. Our communities have strong demand in times of economic prosperity and in times of recession. While interest rates have fluctuated over the past few years, our communities still experience strong demand, have experienced growing occupancy, and sales and collections have remained strong. Our earnings have been impacted by rising interest rates; completion of expansions and adding to the rental inventory triggers added interest expense and seasonal fluctuations in sales and operating expenses. We believe that we are poised for meaningful earnings growth this year, and as such, we have tightened our guidance. Housing is a bipartisan issue with bipartisan support. There is pending legislation that will strengthen the manufactured housing industry. The pending legislation has the potential to improve the availability of financing for our tenants through changes to the Title I program as well as remove the requirement that a manufactured home has to be on a permanent chassis. We have already made substantial progress through the innovation of single and multi-section duplex homes. Additionally, we are hopeful that as we develop more communities, local municipalities will see the benefits of manufactured housing and ease burdensome regulatory requirements that have made getting entitlements nearly impossible. Your major in the manufactured housing industry are in an exciting time with many possibilities. We have positioned the company to benefit from these changes and anticipate substantial growth of the company and our earnings in the near future. Thank you again for joining us today. Operator, we are now ready to take questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. Please press star and then two to withdraw your question. At this time, we will pause momentarily to assemble the roster. The first question will come from Gaurav Mehta with Alliance Global Partners. Please go ahead. Gaurav Mehta: Thank you. Good morning. I wanted to ask you on your same property NOI and some of the comments around the impact of winters on the same property expenses. So, on a normalized basis, do you still expect to deliver same store NOI in high-single-digit and low-double-digit range as you mentioned on the last earnings call? Brett Taft: Yeah. Sure. Brett here. As you mentioned, it was a tough winter. Pennsylvania, Ohio, Indiana, New York, even Tennessee had deep freezes and extended periods of below-freezing temperatures, which obviously impacts our water and sewer. It impacts our maintenance overtime dealing with freeze-ups. We had a lot of snow and a lot of snow removal-related charges. So, overall, community operating expenses were up 8.2%. I do want to point out that last year our community operating expenses in the first quarter were also elevated, about the 7.5% range. So this year was a little bit higher, but largely in line. We are very happy with the occupancy growth and the revenue growth we were able to produce in the first quarter. And as we go throughout the rest of the year, we expect that expense growth to moderate. We have always pointed out that we expect expenses to grow in the 5% to 7% range. Nothing changes there, and we are absolutely confident in our ability to deliver high-single-digit same property NOI growth. Samuel Landy: One of the things we think about, like, why is somebody short 3 million shares of UMH Properties, Inc.? And I do not know what they see or think they see that we see differently. Our 3,240 vacant sites represent incredible opportunity to increase sales and rental revenue, and that will come to the bottom line. And, to me, it is reasonable to believe, someday in the near future, we will sell 320 homes in a year at a $150,000 average price and gross $48 million in sales. So we remain incredibly optimistic, but, obviously, somebody else is pessimistic. Gaurav Mehta: Thanks for those details. As a follow-up, I want to ask you on the home sales. In the earnings press release, I think you talked about expectation of sales growth as we go into peak selling season. Just wondering if you could comment on the trends that you saw in April for home sales. Brett Taft: Yeah. The trends in the portfolio look very good. Including Honey Ridge for the first quarter, sales were up year over year. Again, we are absolutely impacted by the cold winter and everybody's ability to move. Our April sales were very strong. They are coming in at about $3.5 million, so we are very happy with that. Our pipeline remains in good shape. We have got a lot of inventory that is now ready for sale or just about ready for sale at a lot of the expansions that we have recently opened. And as Sam mentioned at the call, we have got several hundred expansion sites built over the past few years that should all generate increased sales in the second and third quarter. I do also want to point out that our New Jersey communities and some of our Eastern Pennsylvania communities were impacted by the winter, but we are expecting and we are seeing a very strong sales pipeline at those locations. Sales in the second quarter of last year were about $10.5 million. We are on track through April. Obviously, there is a long way to go, but we remain confident in our ability to grow sales in the second quarter and year over year. Operator: The next question will come from Craig Kucera with Lucid. Please go ahead. Craig Kucera: Good morning. There is a pretty significant swing in your marketable securities portfolio. Not much of an impact on a net basis, but can you give us some color on what was going on there? Anna Chew: Yes. Hi, Craig. It is Sarah. We had written off one security, and if you think about it, it was already written down in our unrealized gain and loss line. So we just physically wrote it down. We moved it from the unrealized to the realized. So that is all it was. Craig Kucera: Okay. That is helpful. Changing gears, are there any critical materials sourced from the Middle East that are a component for manufactured housing development? Or maybe aluminum or plastics, or are most of those materials sourced elsewhere? Samuel Landy: At this moment, I have heard about supply has, you know, remained no issues and no material increases. What do you think, Brett? Brett Taft: Yeah. Same point here. The main thing that I follow there is the backlog we are seeing from our manufacturers. While they have increased a little bit, I think generally we are still able to get homes in that six- to eight-week range, with limited price increases. I mean, there are some price increases, but overall, it is a pretty stable home ordering environment. We are comfortable with where we are. And if anything changes, we will get back to you. And we believe in the long-term efficiencies of factory-built houses, that the factory-built homes will, in comparison to all other forms of housing, reduce the cost per house based on efficiencies of manufacturing. Craig Kucera: Got it. And just one more for me. I mean, it was a quiet quarter from a capital raising perspective. You worked down your cash balance. Last year, you funded yourself primarily with debt. How are you thinking about funding the 2026 budget? I mean, is that mostly line of credit? I know you have got about $38 million in mortgages that are maturing, but just curious to get your thoughts on that. Anna Chew: Well, it all depends on our capital needs. As we always say, we always need about $120 million to $150 million on an annual basis to do our business plan. We do plan on refinancing about $38 million in mortgages. When we refinanced last year, we were able to take out $100 million in additional capital. Now that will not happen again this year because, again, there are fewer mortgages that are coming due. However, we do have approximately 60 communities that are free and clear. We have on hand about $40 million. We have an unsecured line of credit of $260 million, which with an accordion feature will go to $500 million. We have a rental home line. We have a notes receivable line. So, all in all, we believe that we will be able to obtain the capital necessary. And again, it all depends on our share price. It all depends on the market. What the interest rates will be when we need that capital. Eugene Landy: We have to understand that UMH Properties, Inc. is a unique company. We have a mission statement we really believe in. The nation needs housing. There is a shortage. The government's recent figures were 10 million units. We used to figure they need 6 million units. So 4 million units, whatever the number we have to reach to beat that shortage, we are not doing it. There will be fewer homes built in 2026 than there were in 2025. But that is not the case with UMH Properties, Inc. Our mission statement is to provide housing. We believe we have a definite advantage in the housing we have. We build houses in factories and ship them to communities. We have to create the communities. We have to have the capital to do it. And we are using every means we can to expand the company, and we plan— we have units that we want to build in Tennessee, in Florida, in New York. So we are constantly seeking ways to profitably grow this company. And it is important to the company because, in the long run, investing in housing is a good investment. And it is something the nation needs. Okay. Thank you. Operator: The next question will come from John Massocca with B. Riley. Please go ahead. John Massocca: Starting on the regulatory front, how does the removal of the chassis requirement rules impact UMH Properties, Inc., if at all? Samuel Landy: It is not complete yet, but as we have gone to duplex homes, there never used to be such a thing as a one-bedroom manufactured home. In apartments, you did one-bedroom, studio, two-bedroom, three-bedroom, four-bedroom. Manufactured housing was two-, three-, and four-bedroom. Now the duplexes give us one-bedrooms, which there is substantial demand for, and allows us to obtain two rents from one lot, which can increase revenue. The removal of the chassis will allow two-story homes. And those two-story homes will allow bigger families to occupy the same size lot, the 5,000 square foot lot. And there is additional potential that those two-story homes could be duplexed. So two-story is a really big deal. Manufactured home communities are built for HUD code houses, and the municipality has to allow whatever the HUD code allows. So this will allow two-story homes in the communities and can be a really big deal depending on location. Eugene Landy: You build 2,000 square feet of homes instead of 1,000 square feet on the same piece of land. It is a very, very important development. When you buy a community that is older, it gives us a means of taking out these older homes and putting in twice as much space, so the space is more valuable. This is a change that is going to help every manufactured home community in the country. And it is going to help the residents because we can provide new and improved housing in the spaces where we had older and obsolete housing and put a better product in. So it is really a major change for the industry. And I would really like to thank you for that question. John Massocca: Does it impact the cost if somebody is not on the ground? Does it impact the cost of installation of new homes and the pace at which you can add new homes to existing communities, or is the removal of the chassis not really changing that per se? Samuel Landy: Removing the chassis allows the house to be at ground level, which is very appealing to 55 and older who do not like walking up steps. So that helps there. Removing the chassis reduces the cost of each unit by $3,000 or more, but then there are increased setup costs which will be worked out over time. Efficiencies will develop in setting up the houses. We have always found setting up 10 homes as opposed to one home at a time, you can save money because you have all the crews ready to do everything, and you can reduce the cost per house. So I assume it will be the same thing when you get rid of the chassis. In the beginning, there will be inefficiencies. There will be added cost of setting up homes without chassis, but eventually that will get worked out. John Massocca: And then is there anything else you are seeing on the regulatory front that could change here near term, especially in terms of maybe financing for manufactured homes? Samuel Landy: Exactly. We have more than $100 million in loans outstanding. We have more than 11,000 rental homes. Many developments are occurring that could make it more favorable for people already renting homes or others to purchase our rental units or purchase additional houses, or for outside finance sources such as Fannie, Freddie. And then, you know, I am learning about in Pennsylvania there are government programs. People may want to do these loans, and if they do the loans, homes we already sold where we have the loan, somebody could refinance and pay us off. That would be cash to us. We could be selling the rentals under a Title I program or other programs, which would be cash to us. So everything you read about in The Wall Street Journal pertaining to improving credit scores, finding other ways to determine people's credit, that will increase loan approvals. That is beneficial to us. Title I is beneficial. It is 3% down. They are going to increase the loan limits. Fannie and Freddie are trying to do more on the affordable housing front. So all of these things factor in to help increase our sales, sell off existing loans, and sell rental homes. John Massocca: Maybe switching gears a little bit. As I think about some of your assets in the Southeast, they tend to be a little bit more value-add purchases, especially with some of those not being in the same store pool. How are you thinking about the pace or the potential pace of lease-up at those assets as we come into peak leasing/selling season? Unknown Speaker: Yeah. So for the OZ fund properties, one in Georgia and one in South Carolina. Both of them have really great demand. The one in Georgia right now, the leasing pace has been around four or five homes a month, so I think we will keep doing that. The one in South Carolina, we have an incredible waiting list. Every home we have set up there is full. Right now, there is a north section that we are trying to get expansions and approvals for. It looks like we will be getting that. So we will have info there, and we are going to come out with a video showcasing what we are doing in the current OZ fund and in the South, and it will really give you investors a really great view of the positive impact we have made there, the housing supply we have increased, and the level of demand in the Southeast. South Carolina, I think, is the fastest-growing state in the US, and we have done a really good job filling everything we can fill right now, and we are going to keep expanding there. John Massocca: That is it for me. Thank you very much. Operator: The next question will come from Richard Anderson with Cantor Fitzgerald. Please go ahead. Analyst: This is Jeffrey Carr on for Rich. Just wanted to ask about same property occupancy. It looks like it ticked up about 110 bps from last year to 89%. In your view, what is the kind of realistic ceiling or target that you might have for occupancy across the portfolio? And are there any markets that you feel like have the most room to run from this point? Brett Taft: Great question, first of all, and we are very happy with what we have been able to accomplish. I think, but I am not positive, this is a peak of same property NOI as long as I have been here. So it is nice to get there, and it is really a function of going out, purchasing properties, we know what the problem was when we purchased them, we made the improvements to the communities, we make them nicer and safer places to live, and then we start to implement the rental home program. Just to add some color there, we currently have 430 homes on-site. Some of them are ready for occupancy. Some of them we are working on getting ready for occupancy. That is all low-hanging fruit that should allow us to continue to grow occupancy into the second and third quarters. I do not see any reason why in the near term, call it the end of the year, we cannot get above 90%. I think that is a very realistic goal. You have always got some move-outs and some home removals that go along with some of these homes, so it does offset the occupancy growth a little bit, but by and large, we have done the majority of that work, and I do expect a lot of occupancy upside here going forward. As far as regions that are doing very well, Ohio has really led the company over the past few years in occupancy growth, and the good news is we still have quite a few vacant sites at some of our communities that are the best performers. We expect that to continue. Pennsylvania actually had a pretty slow first quarter, but I think that was largely impacted by the winter. And when we are out there working with our community managers and our regional managers, we are expecting a nice uptick in occupancy there. Indiana has always been solid, and we have got some nice expansion sites that we are filling at a pretty rapid clip. And then I just cannot leave Tennessee out because Tennessee, albeit a smaller portion of the portfolio, always has very strong demand and always fills quite a few sites. The issue in Tennessee is we ran out of sites, but the good news is we have been developing expansion sites. We have got about 50 sites left at our Holiday Village expansion. We are about to complete the next phase of our Duck River expansion, which in the short term will give us 40 new lots to fill. And then we just built 55 units at River Bluff, which is adjoining Allentown. On top of that, we have another 100 units that were just completed at Memphis Blues. So really, throughout the portfolio, demand is strong. I would just add that New York really does have a very seasonal impact of the weather up there. Our occupancy in New York right now has rebounded, and we are in very good shape up there. So, you know, I hate to say we are doing well everywhere—actually, I love to say we are doing well everywhere—but, really, across the board, we are seeing strong demand, and we are filling a lot of units. Eugene Landy: Just to give an example, when the mayor of Memphis has said that they need 10,000 affordable homes, and the only people building that there right now are UMH Properties, Inc., and we are expanding there rapidly. And we have a lot of extra land. We plan to buy some more land. I do not know when the third section is—we are going to the fourth section. Memphis is a sleeper. We did very well picking Nashville. Now I think Memphis is going to be an excellent area to develop affordable housing. Analyst: Great. Thank you. And just as a follow-up, can you walk us through the puts and takes on interest expense for the rest of the year? Just wondering if Q1 is the peak or if we should expect this level to persist throughout 2026. Anna Chew: I believe that it is pretty much the same that we will expect throughout the year. I do not believe that we will have any big increases in interest or big decreases at this point. Eugene Landy: Important to note, if I remember the numbers right, which I think I do, $600,000 of the increased interest expense is from refinancing at a higher rate. The rest of the interest expense is from adding rental units and building lots, which cannot possibly earn money until they are occupied, and they are now at this moment becoming occupied, and will become occupied throughout the year. So, to me, you have the maximum interest expense without revenue that you will have during the year. Brett Taft: Yeah. That is generally correct. I just want to point out that last year we had about $117 million in debt that was refinanced. It was at 4% at the time that it was being paid off. That increased to about 5.65% on average, which increased the interest cost on that batch by just over $2 million, if I remember correctly. On top of that, we did increase the mortgage debt, so that was another $4 million in interest, and then we did the Israeli bond. So that is why interest is elevated. Anna Chew: But we do not believe that there will be any large fluctuations throughout the rest of the year. Analyst: Okay. That is all for me. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks. Samuel Landy: Thank you, operator. I would like to thank the participants on the call for their continued support and interest in our company. As always, Eugene, Anna, Brett, and I are available for any follow-up questions. We look forward to reporting back to you in early August on our second quarter 2026 results. Thank you. Operator: The conference has now concluded. 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