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Operator: Hello, and welcome to the AutoNation Inc. First Quarter 2026 Earnings Call. My name is Rob, and I'll be your operator today. [Operator Instructions]. I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead. Derek Fiebig: Thanks, Rob, and good morning, everyone. Welcome to AutoNation's First Quarter 2026 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Solosec, our Chief Financial Officer. Following their remarks, we'll open up the call to questions. Before beginning, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward-looking statements within the meaning of the Federal Private Security Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and our website located at investors.autonation.com. With that, I'll turn the call over to Mike. Michael Manley: Thanks, Derek. Good morning, everyone. Thank you for joining us today. Now as usual, we're going to provide a fulsome discussion of our results. And in our materials, I think you're going to notice some updates that we hope you will find useful. Obviously, we're very pleased to report that despite a challenging Q1 for the industry, particularly with year-over-year comps, AutoNation delivered its fifth consecutive quarter of year-over-year growth in adjusted earnings per share. This represents a solid first quarter for AutoNation. Now we continue to deliver strong operating performance coupled with excellent consistent cash conversion which enables us to maintain our strategy of deploying capital in a disciplined way to deliver results to our shareholders on a consistent basis. For the quarter, we reported adjusted EPS of $4.69, up from a year ago and as I mentioned, our fifth consecutive quarter of year-over-year adjusted EPS growth. Operating cash flow was also strong. We generated $256 million of adjusted free cash flow, which represents substantial cash flow conversion of adjusted earnings. Now starting on Page 3, where we cover gross profit for each of our businesses. Results were led by after sales, which once again delivered solid mid-single-digit growth despite some year-over-year impact from adverse weather. Same-store gross profit increased 3%, and total store gross profit increased 5% to $593 million, which was a first quarter record for the company. The story underneath this solid total growth in growth gets even more interesting as you tease out the dynamics of the different sources of growth. Underneath that total growth of 5%, internal pay actually declined by 6%. And somewhat expected, I think, due to lower industry volumes. This contraction in internal pay was more than offset from 2 important segments. Customer pay, which grew 8% and warranty-related gross profit, which grew at 7%. Now as always, there is still more for us to do in aftersales, where we believe there is more growth to come, but clearly, this revenue and net income stream is durable, as a recurring nature and is high margin. It's also an important driver of customer engagement and retention. Now moving on, I want to turn to Customer Financial Services. The team delivered another outstanding quarter, posting a first quarter record per unit profit up 6% from a year ago. The team continues to run a value-driven customer-focused process that provides our customers with valuable products and services. Customers purchased on average more than 2 products per vehicle with extended service contracts, again, leading the mix clearly supporting future aftersales revenue and customer retention. Finance penetration also continues to grow with roughly 3/4 of units sold with a finance contract. Now this performance should be read with the added context of the growth in our own finance company originations, which, as you know, deliver a superior return over time, but in the short term, represent a headwind to the record per unit value we just delivered. And Tom, I know you're going to give everyone on the call more details of this dynamic literature. So let's look at new vehicle industry in our results. New vehicle unit sales were down in line with the market. As you'll remember, last year, there was a significant acceleration in demand following tariff-related announcements, which clearly set up a very challenging year-over-year comp. As in the fourth quarter, following the elimination of the BEV incentives, sales declined -- BEV sales declined more than 50% year-over-year and the largest reduction of that was in our premium luxury segment. Now as a partial offset to industry volumes, we just discussed, new vehicle unit profitability improved sequentially, up 5% from the fourth quarter driven by higher per unit profit in both our import and premium luxury segments. Now moving on to used vehicles. I feel we delivered a solid performance in the quarter. We actually achieved our highest used to new ratio in 2 years. Our margins were much more stable, delivering a per unit profitability sequentially higher. Our wholesale performance was also strong. I would say that coming into the quarter, we had a couple of challenges that were hangovers from 2025. Inventory levels that were lower than I would prefer and aging that was slightly elevated. I think the team has made good progress with these challenges, and we now enter Q2 with improved inventory position at a younger average age. Now turning to Slide 4. I briefly touched on our customer financial services performance earlier, but let's turn to our own finance company. AutoNation Finance performed well, generating $9 million of profit in the quarter, which, by the way, nearly equaled the entire profit for 2025. AN Finance generated over $20 million of cash for the quarter, and the portfolio continues to scale and ended the quarter at $2.4 billion, up $1 billion year-over-year. Our funding profile also improved following our second ABS transaction, which closed in January. The operating momentum of AutoNation finance is obviously delivering attractive returns and we are also benefiting from the ongoing customer engagement and valuable consumer insights that come from the business. Now moving on to cash. Adjusted free cash flow was strong again at $256 million. This reflects excellent cash conversion, which Tom will talk through in more detail. Now during the quarter, we deployed approximately $350 million of capital, including $300 million in share repurchases. While we did not acquire any franchises in the first quarter, we do remain active in evaluating opportunities that can add scale and density in our existing markets. Our balance sheet remains strong. Our leverage ratio was in line with the first quarter of last year and remains comfortably within our targeted 2 to 3x range as we maintain our investment-grade rating. The strength of our balance sheet and robust cash flow generation give us significant flexibility to deploy capital, drive shareholder returns and grow earnings per share. Overall, it was a good quarter. strong results. And as I mentioned, the fifth consecutive quarter where we have delivered year-over-year increases in EPS. And now with that Tom, I'm going to hand it over to you. Thomas Szlosek: Okay. Thanks, Mike. Turning to Slide 5, I'll walk through our quarterly P&L. Total revenue for the quarter was $6.6 billion compared with $6.7 billion in the first quarter last year, which benefited from the tariff-related volumes, particularly in premium luxury to talk later. First quarter gross profit of $1.2 billion was essentially flat year-over-year, and gross margin improved 30 basis points to 18.5% of revenue. That was driven by continued mid-single-digit growth in our aftersales business and strong performance in customer financial services. Adjusted SG&A as a percentage of gross profit was 69.8% for the quarter, a bit higher than our targeted range of 66% to 67%. The increase reflects investments in marketing, including upper funnel spending to generate higher quality growth opportunities and build AutoNation brand awareness. We are also making structural investments targeting our customer experience. Lastly, we had unfavorable self-insurance experience in the quarter, including damage related to weather events. We expect SG&A to moderate in subsequent quarters as a percentage of gross profit, but remain above our targeted range, reflecting continued investment, as I mentioned earlier, of the aforementioned strategic initiatives. Adjusted operating income was $312 million for the quarter and was down 7% from a year ago. At 4.8% of revenue, it remains nearly 100 basis points above prepandemic levels. Below the operating line, floor plan interest expense decreased $5 million or 10% year-over-year as borrowing rates moderated and we remain disciplined in our inventory management. Non-vehicle interest expense increased $6 million year-over-year, reflecting higher average balances and a slightly higher blended borrowing rate, reflecting maturities of lower-cost debt. Excluded from our adjusted results, our net after-tax gain of approximately $40 million related to our valuable strategic equity investments in Waymo and TrueCar. Weighted average shares outstanding decreased 2% year-over-year, reflecting $1.1 billion of share repurchases since the end of 2024. Adjusted earnings per share was $4.69 for the quarter. Through strong operating execution and disciplined capital allocation, we've now delivered 5 consecutive quarters of year-over-year growth in adjusted earnings per share, as Mike mentioned. Moving to Slide 6, after sales, representing nearly half of our gross profit, continued its impressive momentum. Gross profit was $593 million, and AutoNation first quarter record. And as Mike mentioned, we saw a modest impact from adverse weather, but still delivered mid-single-digit growth. Our results reflect higher repair order count, higher value per repair order and improved labor productivity. Same-store revenue increased 4% and same-store gross profit increased 3%, while total store revenue and gross profit both increased 5%. Growth was led by customer pay gross profit up 8% and warranty gross profit, up 7%. Internal reconditioning gross profit declined 6% due to lower used vehicle volume. Wholesale and retail parts increased 10%. After sales gross margin was 48.6% for the quarter, roughly in line with the first quarter of 2025. We remain focused on deploying technology to drive additional volume and productivity and on hiring, developing and retaining technicians. These efforts increased same-store franchise technician headcount by more than 3% year-over-year, reflecting improved retention. Growing our technician workforce is key to consistently delivering mid-single-digit growth in after sales gross profit. I'm now on Slide 7, Customer Financial Services. The momentum in CFS continues. After growing 6% for the full year last year, per unit profitability increased another 6% in the first quarter, driven by improved vehicle service contract margins, consistent product attachment and higher finance product penetration. This per unit growth offset the year-over-year decline in unit volume. This performance is even more impressive considering the growth of AutoNation Finance. While AutoNation France is attractive in long-term profitability, it diluted CFS per unit results in the first quarter by approximately $160 million -- $160 per unit, which is a little over 5%. Slide 8 provides an update on AutoNation Finance, our captive finance company and its continued strong performance. As expected, profitability is gaining meaningful traction as the portfolio matures and as we leverage our fixed cost structure across a much larger book. First quarter profit improved to $9 million, up from $0.1 million in the first quarter of 2025 and up sequentially from $6 million in the fourth quarter 2025. During the quarter, we originated approximately $460 million in loans and received approximately $213 million in customer repayments. Our penetration continues to improve AutoNation finance originations were approximately 17% of all deals financed in the first quarter, up from 14% in the fourth quarter. The AutoNation portfolio ended the quarter at $2.45 billion, up about $1 billion year-over-year. The portfolio quality continues to improve. Credit performance metrics strengthened and average FICO scores on originations were 700 in the first quarter. Delinquency rates, 30-day delinquency rates were 2.1% at quarter end, stable as a percentage of the portfolio and in line with our expectations. As we've discussed, we do expect delinquencies to continue to normalize as the portfolio matures, migrating towards the 3% range over time, and our loss reserving methodology incorporates this expectation. Nonrecourse debt funding also improved, reflecting better advanced rates in our warehouse facilities and the benefits of our second ABS issuance for approximately $750 million completed in January. Debt funding as a percentage of the total portfolio at quarter end was 90%, now that's up from 74% a year ago, reflecting lender and market confidence in our portfolio. To close on AutoNation Finance, our compelling offerings are driving strong customer takeup, and we continue to expect attractive returns on equity, as profitability grows and equity investment requirements moderating. Slide 9 provides some color for new vehicle performance. Our unit sales declines were in line with the industry down 9% on a same-store basis and down 8% on a total store basis. Battery electric vehicle unit sales declined more than 50% year-over-year and when combined with tariff-related pull-ins in the first quarter last year, created a disproportionate impact on our premium luxury unit sales, which decreased 16% from a year ago. Domestic and import sales were down mid-single digits. New vehicle profitability again increased sequentially in the first quarter, averaging more than $2,500 per unit, up more than $100 or about 5% versus the fourth quarter. The improvement was driven by higher per-unit profits in our import and premium luxury segment. New vehicle inventory amounted to 46 days of supply, up 8 days from the first quarter of last year and 1 day from the end of December. Turning to Slide 10. As Mike mentioned, used vehicle supply remains constrained, and the team did a great job balancing sourcing, unit volumes and overall profitability. Our used to new ratio increased to 1 in the first quarter, the highest in 2 years. Used retail unit sales decreased 5% on a same-store basis and 3% on a total store basis. Now unit sales in the sub-$20,000 category declined 9%, while vehicles priced above 40,000 increased 7%. This mix shift contributed to a 5% increase in average selling prices year-over-year. Our used vehicle unit profitability increased by more than $150 sequentially to just under 1,600 per unit, reflecting a more optimal vehicle acquisition and reconditioning inventory velocity and usage of enhanced technologies. We had over 25,000 units ready for sale and 32,600 total units in our used inventory at month end, and the aging is in terrific shape. To Slide 11. Adjusted free cash flow for the quarter was $256 million or 155% of adjusted net income. Both of those metrics were improved from the first quarter last year as we continue to demonstrate stronger operational performance, a relentless focus on working capital and cycle times and CapEx discipline and prioritization. Our capital expenditures to depreciation ratio was 0.9x compared to 1.2x a year ago. CapEx was a little light in the quarter, mostly due to timing, and we expect full year spending to be $300 million to $325 million. We continue to focus on driving free cash flow to improve maximum capital deployment capacity. On Slide 12, our strong cash conversion gives us flexibility to invest in growth and drive shareholder value. In the quarter, we deployed more than $350 million of capital, including $300 million of share repurchases. The remaining was spent on CapEx, which is largely maintenance and compulsory spending. Since the end of March, we have made additional share repurchases, bringing our year-to-date deployment to approximately $400 million or around $100 million per month. We have repurchased nearly 2 million shares or 6% of the shares outstanding at the beginning of the year. In our capital allocation decisioning, we also consider our investment-grade balance sheet and the associated leverage level. At quarter end, our leverage was 2.57x EBITDA, almost identical with a 2.56x EBITDA at the end of the first quarter last year and well within our 2 to 3x EBITDA long-term target, giving us additional dry powder for capital allocation going forward. Now I'll turn the call back to Mike before we open the line for questions. Michael Manley: Yes. Thank you, Tom. Just a quick closing from me, reflecting on a strong quarter and what I expect moving forward. I am very pleased about our EPS growth. I think that's something that the team and I were very, very focused on, and I was pleased we were able to deliver it, notwithstanding some of the dynamics in the industry that we've just discussed. Our aftersales business is well positioned. And I think that the market will facilitate growth in that, and we're obviously going to stay focused on our technician recruitment, retention and development. Customer Financial Services continues to deliver strongly for us, very consistent performance. Its profitability is also very consistent. And we know that particularly with AN Finance, it builds strong relationships with our customers for us. And that portfolio continues to scale, improving productivity and profitability and funding. I do expect improvements in our used business over the course of the year as lease returns increase, and the execution continues to improve. New vehicle sales continue to track in line with the broader retail market and as you've seen, unit profitability continues to show signs of stabilization. And during the Q&A, we may get into discussions about forecast for margin. That's fine. We can take questions on that. But I think all of the factors that we've talked about position us from -- particularly from a cash flow perspective, to continue to generate strong cash flow, which will enable us to deploy meaningful levels of capital always with our shareholders in mind. So with that, Tom, if you're ready, let's open up for questions. Derek Fiebig: Rob, if you could please remind participants how to get in queue for the question-and-answer period. Operator: [Operator Instructions]. Your first question comes from the line of Rajat Gupta from JPMorgan. Rajat Gupta: Great. The first one was just that you removed your previous 2026 outlook slide. I'm curious, is that something to do with just what's going on geopolitically and just creating more uncertainty, just trying to understand the reason behind it. And maybe as you offered any guardrails around new vehicle GPU, used vehicle GPU trajectory from here on? I have a quick follow-up. Michael Manley: Rajat, it's Mike. I'll start the answer and then Tom, you jump in. So when we came into 2026, I think we all would agree that we knew that the structural demand, particularly in new and used was certainly there all of the inputs to demand, I think, continued scrappage rates, household formation have continued. But I think we knew that there would be some affordability headwinds coming into the year based upon the developments of last year. And we were forecasting at that time, maybe up to a 5% impact on new vehicle industry. And obviously, that has been compounded from a headwind perspective with the ongoing inflation that we've seen as well as the fuel price movements that we've seen of late. And I think that is going to continue for the foreseeable future. So the way I'm thinking about the industry now is notwithstanding the fact that we're going to see quarter-over-quarter comparisons that are may be uneven this year because of the industry shocks we saw last year. I think the industry will be below that 5% forecast that we originally had coming in until some of those impacts get dissipated. Now whether that is the Iran war is over, fuel prices begin to return, whether that is transaction price movements that may happen or change over the years, interest rate movements. Regardless of what causes it, I think we need to see some movements in those areas for that unmet demand now in the marketplace to start to get released. But sitting underneath that, I think the industry is still large as we saw the volumes that we delivered in Q1, albeit down year-over-year, we're still very, very credible. And any deferred demand usually ends up relatively quickly in the vehicle Parker, and we managed to capture that with our aftersales business as well. And that's why aftersales is typically anticyclical because I expect our aftersales business to benefit now because there's certainly some deferred purchases in new. There's certainly some segments shifting from new to used and the deferred purchases and used as well, and that will find its way into aftersales. And then finally, because your question was quite detailed along and you have to tell me if I've actually answered it. When I think about margins for the year, you may see some margin compression. From our point of view, what's important is that, that drives an improvement in volume because some margin compressions as long as it feeds its way through into average transaction price should stimulate volume. And I'll be very comfortable with that balance, by the way, because I think driving new car volume is important for us over the long term. Tom, do you want to add something? Thomas Szlosek: Yes, quickly. Rajat, just relative to that -- the original thought process, I think Mike said it well in terms of we're facing a different macro environment for very obvious reasons, won't get into us. But if you look at the main tenants in our outlook. I mean, apart from the market, I think all of them are intact in terms of what we're committing to deliver, whether it's customer financial services, sustained performance, the AutoNation portfolio growth after sales, continued mid-single-digit growth, good conversion on cash and just shareholder focused capital allocation, I mean, all those things are still intact and we're committed to. Rajat Gupta: Got it. That's helpful color. And just on the investments, the strategic investments, could you double click on that a little bit? what areas are you looking to go into? How should we think about as a return on that for the business? Any specific areas those are targeted would be helpful. Michael Manley: I'll start and then Tom can finish up. I think there's probably 2 main areas that I would call out as part of this call. When I look back at -- I think one of the benefits that automation has is that we have a national brand. And I think the benefit of that is not truly unlocked yet. And what that means is that we continue to invest with high-quality, but good third-party partners to generate opportunities for us. We're very focused on changing that dynamic. And to change that dynamic, we need to make some more upper funnel investments to be able to grow our brand recognition higher in certain areas than it is today because we will reap the benefits of that over time. Now they will not be immediate. So what you get is you get a dislocation between our investment and our return, and that's what you're seeing to some extent in our financial performance. Obviously, the investments being made. Our expectation is, over time, you will progressively see that return. Now what you won't immediately see is a reversal of that because upper funnel investment is obviously going to continue, but it is measured, it is well thought through, and I think it has a very, very clear end in mind. The second area that we're investing in is obviously in technology. It is an ongoing daily topic of conversation across every business. I think we've made some good investments in technology. Some of it is in an exploratory way at this moment in time. So what we're trying to do is understand do we truly get a long-term sustainable return on investment from those investments. That means you have to make some speculative investments and some of which will pay off hands on million, some of which were not. So you're seeing some elevated costs from that. And again, that will continue throughout the year, but we're very cognizant of the fact that we want to maintain our forecast in terms of our underlying SG&A. And I think the finance teams and our operators really do have that in mind. And in fact, there's an increased emphasis on that because it frees up some headroom for us to make some of these exploratory investments that we're making. But overall, I think, and you can see it in our Q1, we're creating still a very, very credible balance of SG&A to gross. Tom, do you want to add anything? Thomas Szlosek: No, you did well. Operator: Your next question comes from the line of Mike Ward from Citigroup. Michael Ward: It seems like there's a I don't know if it's concerned effort or just a shift towards the more profitable parts of the businesses, F&I after sales financing, and it's almost like the new and used retail is just a feeder to enhance those businesses? Is that the way you're strategically thinking about it? How do you view that trend? Michael Manley: I think you answered your own question there. I like that answer very much. I've got nothing to add to it. Michael Ward: Okay. So that is a concern of effort. And Mike, when you look at the industry, it seems to me when we came out of Covet everybody was set that inventory going forward to be about 20% lower than it had been in the past. It seems to me the industry has gotten even more efficient. How much does that contribute? We've kind of seen a stabilization of the new and used variable grosses. And how much does inventory discipline contribute to that? And do you expect that to continue? Michael Manley: Well, it's a bit of a -- I'm going to give you a bit of a broader answer. So apologies upfront for this because if I want to lean into this kind of discussion on affordability a little bit more because I think that it is what is going to shape the overall industry volume for the foreseeable quarters that are coming at us. We know that if I just take new, for example, average transaction prices are up roughly 40% on us since 2019. But the dynamics in that are quite interesting when you tease it apart. The vast majority of that was covered off by real wage inflation. And in fact, the pass-on effects of average transaction prices have been speculated between 8% and 10%. And I think that, that was what was well, it's creating some of that affordability headwind when we came into this year. Obviously, it was compounded by tariffs, some of that pricing in some form or another being passed on. but we no longer had supply constraint on new vehicles driving up ATPs. That is largely with the exception maybe of 1 or 2 manufacturers completely dissipated now. But you're left with that affordability headwind, which initially was driven by transaction prices and then more recently, a combination of rate and transaction prices. And that's what stays in the market today, and it really has been compounded by what I'm hoping is a relatively short-term shock to the economic environment that we're in at the moment. But notwithstanding that, the industry level, as I mentioned, I think, is still relatively large. So as we go forward, I think for us to release as an industry that pent-up demand, some of those dynamics have got to change. And I think part of that will be this affordability question, whether it's content, or whether it is supply chain changes or whether it is some margin mitigation with the OEMs or us. I'm comfortable with margin mitigation because I think it will translate into volume because I do think that there is a large amount of pent-up demand now in new. It's also translated into us to some extent. I think used will supplier will still be constrained for a period to come as that hole that was created in COVID works its way through the system. But I do think that when some of those input dynamics begin to get released, which some of them hopefully will be happening sooner rather than later, you'll progressively see a release of volume and may see some accompanying margin compression as a result. But as I said, that's a trade we'd be comfortable to make so long as it's done in a disciplined way, and we actually see the volume growth. Does that answer your question? Michael Ward: Yes, it does. And it just seems like the industry becomes more profitable if we stay in this million, $16.5 million range instead of like getting these big peaks and valleys, so lower highs and higher loads. And it seems like it feeds into the more profitable part of the business for AutoNation. Michael Manley: Yes, absolutely. I mean we like very, very much our aftersales capacity because as you said, it is -- it is anticyclical to some extent, but it's stable, it's durable, and it's much, much more predictable. Because the other thing that's happening, of course, is the vehicle park is still continuing to age and an aging vehicle park particularly when new and used vehicle volumes deferred an aging vehicle park just represents an opportunity for us that we are constantly looking to try and try and unlock. So that dynamic is 1 of the great things about a balanced business that we run. Operator: Your next question comes from the line of Alex Perry from Bank of America Unknown Analyst: Congrats on all the progress. I wanted to drill in a bit more on the used vehicle side. How should we be thinking about sort of used vehicle comps and GPUs as we move forward? Inventory seems pretty lean -- how should we think about your ability to sort of drive an improvement in GPUs and same-store sales on the used side? Michael Manley: I think we've got upside on our volume side. I was pleased with our GPUs for Q1. I talked in the past that I think -- and our internal view is that we should be moving towards $2,000 a unit. That to me is something that we've set as a goal for our teams and to understand the different drivers of achieving that. The very first driver is obviously how you source your vehicles. So we're very focused on trying to make sure we source, obviously, from lower cost channels first, but to build up an inventory volume that is sufficient to drive incremental sales for us. As Tom mentioned, we made some progress in Q1, the real forecast for us. The real initiative for us is to keep our progress moving -- and we think that will translate into higher volumes. I do not want that to come with a compression necessarily on the margin because I still think there's some inefficiencies in the used car business that will enable us, even if we reduce ATPs to maintain the margin, whether that is through cycle times, whether that is through a much, much more focused reconditioning or whether that is through hold times. So even if you do see some mitigation in ATPs, I think some of that can be offset and mitigated by improved productivity as part of that value chain. Unknown Analyst: Really helpful. And then just my second one, I wanted to go back to sort of the state of the union right now and how you're sort of thinking about things with all the uncertainty. Are you seeing any sort of change in trend line, any impact through April on consumer confidence related to the war? Just talk to us about how you're sort of seeing the demand trend as we move forward here? Michael Manley: Yes. Well, there's no doubt that we are seeing an impact on it. I mentioned before that the affordability was a a key industry issue for us right now. But I said that wage growth, to a large extent, increased has offset most of the -- well, a large portion really of the increases that we've seen. But there are other effects that sit underneath that. The first one is total cost of ownership is also being impacted by increased insurance costs, which were up roughly 50%. After sales maintenance costs are up as well. But that the issue that I think we're going to face in the short term, that really is driving my outlook of the industry over the, say, coming 1 or 2 quarters is the fact that, that wage inflation that partially offset increases in transaction prices wasn't distributed evenly. I mean, if you were at the top and at the bottom, you got real wage increases. If you were set in the middle, you were largely stagnant treading water. And that middle cohort of of the population really is the engine for us. So the impact that we're seeing in the short term in terms of their household income and the dynamics there in terms of the needs, the must-haves, the staples actually taking a higher level of their disposable income. It will impact our industry and give us some headwind. We've seen that in Q1. It will continue, in my view, into Q2. But those deferred purchases will feed into our aftersales. But that's the dynamic really that we're seeing and where the impact is, in my view, is going to be felt. I do think that some of this. I'm hoping that some of this obviously is short term and can get relieved quickly. But I'm still optimistic that when we look back on this year, the industry is still going to be a healthy one. Unknown Analyst: Incredibly helpful. Best of luck going forward. Operator: Your next question comes from the line of Jeff Lick from Stephens Inc. Jeffrey Lick: I was wondering if you maybe drill down a little deeper on the used and Alex earlier question, Mike. Just in terms of your guys' strategy maybe looking at late model versus 6- to 8-year-old plus your cluster strategy, use of internal auctions. Obviously, one of the largest competitors is going through a little bit of a change and Carvana continues to ramp up. Just curious how you see the used car -- or used car business playing out, especially as it relates to sourcing and whatnot. Michael Manley: Yes. Well, obviously, you saw in our results that are above $40,000 used car business improved, I think it was up over 7%. Tom, correct me if I'm wrong, but it was up over 7% and then our 20% to 40% and below $20 a drop. Some of that was inventory related. There's no doubt about that. But I do think that some of the drivers of that above 40,000 were maybe those marginal new car buyers that from affordability did, in fact, drop into the used car scene. So sourcing vehicles across all of those price band is important for us. And by the way, even if those marginal new car buyers dropped into the used car industry, you can tell from the total used car industry even more deferred their purchases from used cars anyway. So the way that we think about sourcing is it is -- everyone talks about how competitive it is. I think it's been competitive really for the last 5 years and will continue to be competitive. But you've got to be focused on every single channel. The very first channel that we're very focused on is clearly, those vehicles that come to us and trade new or used trade that we can with the right and appropriate amount of reconditioning generate a really excellent used car inventory piece. And that's what our focus is. I mentioned before brand. Brand is super important when you're sourcing vehicles directly from the market it helps cut through all of the noise out there. We have done well in many of our markets with our sourcing through our Web or car activities. I think we can do better, but I do think we need to continue to reposition our brand to more of a top of mind perspective rather than a searched outcome, and that's some of the investment that we're making, but very comfortable also to dip into the auction market. They come at some people think an inflated price. But the reality is if you price them right, you can still get a good turn. So fundamentally, you've got to have the inventory because you can't sell fresh air. You've got to be able to buy it competitively hopefully with a mix that suits the business that you're trying to achieve. But the industry is so broad, we want a balanced portfolio of vehicles between all of those 3 price bands. But as you've seen in our end with this, which is a repetition of how I started, our plus $40,000 sales benefited in the quarter, probably from some of that migration from new. Operator: Your next question comes from the line of John Saager from Evercore. John Saager: On you're annualizing ANS at $36 million a year. The penetration increased from 14% to 7%, [indiscernible] scores are in a good place. Can you just reframe sort of the steady state and where do you think that heads -- if we look out to 2027, do you think that we can continue improving that penetration to higher and higher levels, is something like $50 million an achievable goal? Thomas Szlosek: Yes. Thanks, John. Great question. When you look at where we have been on penetrations -- sorry, when you look at overall originations for AutoNation Finance. Going back to 2024, we're -- we underwrote about $1 billion in sort of our first full year of $1.1 billion, and that went up to $1.8 billion in 2025. We're on a run rate that we think is going to get us north of $2 billion to $2.1 billion in '26, which would be close to 20% growth. So we keep the key is the originations. And that would -- right now, as you said, penetration is 17%. That's of all units that are financed -- if we get to the numbers I mentioned for 2026, I think we'll be pushing 20%. And I don't think we're really calling a limit on what the penetration can be. I mean it's been a steady climb following the originations. But at some point, there's some elasticity there. But right now, I think it's slow and steady growth for us in both penetration and originations. John Saager: Okay. Great. And then on the SG&A efficiency, can you just quantify the impact of stock-based comp in the quarter? Michael Manley: Over probably less than $1 million of incremental expense. Operator: Our next question comes from the line of John Babcock from Barclays. John Babcock: Just first of all, did you guys quantify the impact of the weather on the quarter? Apologies if I missed Michael Manley: Well, we both can answer this one. I don't -- I'm not really -- I don't really entertain discussions about the impact of weather on the business, in the business. I think it's something that tends to happen relatively frequently. So from a -- I know that Tom will have a much more well thought-through answer. I tend to believe that much of it may be just deferred for a short period of time. Some of it you lose as people say. But no doubt, Tom will be able to give you a better flavor than that. I'll try and focus on doing as much business as possible regardless of whether it's raining or windy. Thomas Szlosek: I think Mike is saying that he doesn't allow us to make any excuses for our SG&A performance. When you look at the onetime events that we referred to, they were self-insured type claims activity, more than half of which was weather-related. I'd say the total, including those weather-related impact was roughly $5 million year-over-year, John. John Babcock: Yes. Okay. That's Perfectly fine. And then just on the SG&A side. Obviously, there's been a fair bit of discussion on the call so far about the uncertainty in the market, affordability challenges, the other broader macro headwinds. In light of all that, how are you thinking about your SG&A spending levels? And part of the reason I ask is because over time, the dealers have generally tended to be pretty good about adjusting spending up and down based on how the market is looking. So I want to get your thoughts on that and whether you're comfortable with current spending levels or if you think there might be a time at which maybe you decide to pull back in certain areas. Thomas Szlosek: Yes. Great question. Thanks, John. I'll start it out and then let Mike jump in. The thing that's hidden inside those SG&A numbers that we talked about is some of the productivity that we are generating either through AI or other technology. And if you look, for example, at our compensation for sales personnel, we're up at close to 10 sales per associate in the first quarter of 2026. That number was probably 9 or so a year earlier. And we're doing that with better training better technology emphasis on performance-based incentives. So -- and there are a number of other initiatives when it comes to AI and productivity that we think will continue to allow us to drive down our SG&A. We're deploying AI at scale in our servicing contact centers. and in our back office, we've generated meaningful savings in 2025, close to $5 million, and I expect that to continue into 2026 through digital applications and AI-type applications. So I don't want you to think that we're not focused on it. We do have to make some investments, some incremental investments. I do think they'll start to generate additional growth over time. I also think those investments, some of them dissipate as we get through 2026, particularly the investments on some of the digital enhancements that Mike referred to. I don't -- at this point, we feel like we're on a good trajectory to bring our SG&A at a run rate it starts to approximate our targeted range. towards the first quarter of next year. I think in second quarter through the fourth quarter, we should probably expect us to bring it down 150 basis points from what we saw in the first quarter. If we can avoid some of the calamities that we don't necessarily control. So that's the way I would look at it. Michael Manley: John, I just want to add a piece as well. Obviously, we see a much more detailed breakdown of our SG&A performance than others on the outside of the company are. So if we look at the underlying core SG&A performance of our dealerships, our collision centers and our auctions, and we take out or we give an allowance for the investments that we see as being incremental that will benefit us that's that dislocation between the investment and the revenue that you get that I discussed earlier. I'm comfortable with our SG&A levels. And I see a trajectory that I'm actually pleased with. It's not so apparent for me outside. So the question is, are the investments that we are making that are incremental, truly going to give us a revenue stream in a reasonable time frame to have made them worth the trip. That's something that we are very, very careful to look at that we're really looking to see what benefits we see as a result of those investments. And if we believe they are, we continue to do it. And if we believe that they're not, for whatever reason, we're quick to shut them off. So I think underneath the headline number that you're looking at, there is a good trend in our SG&A in line with discussions that Tom has had with all of you in recent quarters. And I do think that there is a mechanism for us to make sure that we're looking very closely at any incremental investment that we make that it will yield a benefit for the company at some point in the future. Operator: And your final question comes from the line of David Whiston from Morningstar. David Whiston: Just curious if you could give any kind of update on the status and mobile repair adoption? And what are the challenges in getting more consumers to use that service. Michael Manley: Yes. Actually, what we've now done is we have been able to integrate our mobile repair service into our big markets. So we've now we moved their bases into our existing AN USA businesses, which gives them a base, which you need a hub. We found out that having a hub actually helps with our productivity quite significantly because it gives us a start and return point that's much, much more consistent. We slimmed down the number of technicians that we had in that area because the levels of productivity were very, very low because you have to build quite a large consistent base. The integration of those into that business have helped tremendously with that. because there is a residual amount of business that enables us to layer in those more variable trips, those more unexpected trips in a good way, I'd expected to customers outside of the physical locations. We have learned a huge amount about dynamic booking and still learning about dynamic booking and now that I think we have a much more solid base. Our productivity has increased, I think, well. We're now beginning to build layers of business on top of that, so that we can extend the products and services that are remote in a way that doesn't bring our utilization and productivity down to such a level that we're actually not covering our costs. So it is a much more complex business than we anticipated a few years ago when we acquired the business and began building it. I think our skill set has improved tremendously. And I think it now begins to add value, not just to customers who want remote work, but also add value to a number of our business partners as well. Still a lot of work to do in that area, but I'm pleased with what I've seen so far. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to management for closing remarks. Michael Manley: Yes, thank you, everybody. Thanks very much for your time on this call, and we look forward to talking to you more about the quarter and also next quarter, Q2. Thank you very much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to MasTec, Inc.'s First Quarter 2026 Financial Results Conference Call. I want to remind participants that today's call is being recorded. I will now turn the call over to Marc Lewis for some opening comments. Marc Lewis: Thank you, Lisa, and good morning, everyone. Thanks for joining us for MasTec, Inc.'s first quarter conference call. Joining me today are Jose Mas, Chief Executive Officer, and Paul DiMarco, our CFO. We prepared slides to supplement our remarks today; they are posted on MasTec, Inc.'s website on the investors tab and through the webcast link this morning. There is also a companion document with information analytics on the quarter and a guide summary to assist in financial modeling. Please read the forward-looking statement disclaimer contained in the slides accompanying this call. During this call, we will make certain forward-looking statements regarding our plans and expectations about the future as of the date of this call. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports and filings, includes a detailed discussion of risks and uncertainties that may cause such differences. Additionally, in today's remarks, we will be discussing adjusted financial metrics reconciling yesterday's press release and supporting schedules. We may also use certain non-GAAP financial measures on this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings press release, slides, or companion documents. We had another great quarter to start the year, and let's get into it. I will now turn the call over to Jose. Jose Mas: Thanks, Marc. Good morning, and welcome to MasTec, Inc.'s February call. Today, I will be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first quarter highlights. Revenue for the quarter was $3.83 billion, up 34% year over year. Adjusted EBITDA was $284 million, a 73% year over year increase. Adjusted earnings per share was $1.39, a 174% year over year increase. And backlog at quarter end was $20.3 billion, a $1.4 billion sequential increase and a new record level. In summary, we delivered a great quarter, in fact, the strongest first quarter in our history, setting new highs across virtually every key metric. Revenue, EBITDA, and EPS were all above guidance with strong year over year double-digit growth. EBITDA margins improved 170 basis points versus last year's first quarter and total company book-to-bill was 1.4x, setting yet another backlog record. 2026 should be a great year and I am excited about the momentum we are building as we look ahead to 2027 and beyond. Maybe more importantly, when you step back from the quarter, what we are seeing across our end markets continues to reinforce our confidence in the longer-term opportunity in front of us. The amount of investment going into critical infrastructure right now is significant and is being driven by some very durable trends. Whether that is AI and data centers, grid reliability, energy demands, critical infrastructure, or connectivity, and the way we are positioned at MasTec, Inc., we are right in the middle of all that. On the telecom side, we feel really good about where we are. The fundamentals continue to improve, driven by strong growth in total data usage. Aggregate U.S. data consumption is estimated to almost double by 2030. This growth is fueled by increasing demand for streaming video, cloud computing, gaming, and connected devices. The rapid expansion in total network traffic underscores durable demand and significant long-term growth potential. At the same time, you have the next wave of investment coming from BEAD funding, which will support rural broadband and middle mile builds over the next several years. But the biggest shift we are seeing is around data center interconnectivity. AI is driving a level of demand for fiber capacity, redundancy, and low latency that we have not seen before. Connecting data centers, both long haul and metro, is becoming a major driver of spend, and we think that creates a multi-year opportunity measured in the tens of billions of dollars. In Power Delivery, the visibility remains strong. We are in the middle of a multiyear investment cycle in the grid. Utilities are spending heavily on transmission, system hardening, and reliability, and that is being driven by both aging infrastructure and increasing demands. A big part of that demand is coming from AI and data centers, which could drive up to 12% of total U.S. electricity consumption by the end of the decade. That kind of growth requires significant expansion of the grid—new transmission lines, substations, and upgrades across the system. So when you combine load growth, resilience, and energy transition, it creates a long-duration, highly visible opportunity set and we think we are really well positioned there. Power Delivery revenue for the quarter was up 16% and EBITDA was up 40%. And book-to-bill was 1.6x, with backlog increasing over $600 million sequentially. In Clean Energy and Infrastructure, what is really making a difference is the platform we built across renewables, civil, industrial, general building. Our renewable revenue was up over 60% year over year, and margins improved 70 basis points. In our industrial and infrastructure markets, we are seeing significant opportunities tied to critical infrastructure including gas-fired generation, civil construction, and general building for mission-critical projects. Data center development is a big part of that. Each one of those projects requires significant site work, power infrastructure, and ongoing expansion. And that plays directly into our capabilities. Our recent turnkey data center award is progressing very well. The demand for both the skill set that MasTec, Inc. has developed in construction management coupled with the capabilities we have in civil, power, telecom, and maintenance provides us the opportunity to exponentially grow this part of our business. As the opportunity for full turnkey services matures, we continue to look for ways to increase our self-perform capabilities and improve margins. Clean Energy and Infrastructure segment revenues increased 45% year over year, EBITDA was up 56%, and segment backlog increased sequentially by over $770 million, representing a book-to-bill of 1.6x. On the pipeline side, the fundamentals are also very solid. For the quarter, Pipeline segment revenue was up 92% year over year and EBITDA more than tripled. There is a growing need for natural gas infrastructure, particularly to support gas-fired generation, which remains critical for reliability as power demand increases. And at the same time, global LNG demand continues to grow, driving investment in export infrastructure and related pipelines both domestically and internationally. So we see this as a business with good visibility and steady demand going forward. Our reported backlog is not fully representative of the potential as it only includes signed contracts. Based on current negotiations and verbal awards, our visibility in this segment is as strong as it has ever been and we expect strong long-term growth. In closing, we delivered an exceptional start to 2026, with record performance across revenue, profitability, and backlog. These results reflect strong execution across the business and the strength of our diversified platform. More importantly, the long-term fundamentals across all of our end markets remain highly compelling. From AI-driven data center growth and telecom demand, to grid modernization, energy infrastructure, and pipeline opportunities, the scale and durability of investment continue to grow. We believe MasTec, Inc. is uniquely positioned at the center of these critical infrastructure trends with the capabilities, customer relationships, and backlog to drive sustained growth. Given our strong performance and momentum, we are increasing our full year guidance. We now expect revenue of $17.5 billion, adjusted EBITDA of $1.5 billion, and earnings per share of $8.79, representing year over year growth of 223034% respectively. With strong visibility, accelerating demand, and meaningful momentum across our segments, we are confident in our outlook for 2026 and increasingly optimistic about the opportunities ahead in 2027 and beyond. I would like to take a moment to thank the men and women of MasTec, Inc. It is both an honor and a privilege to lead such an outstanding team. Our people are deeply committed to the values that define us: safety, environmental stewardship, integrity, and honesty, while consistently delivering high-quality projects at the best possible value for our customers. These principles have not gone unnoticed. Our customers recognize and appreciate the dedication and excellence our team brings to every project. It is through the hard work and commitment of our people that we have positioned ourselves for continued growth and long-term success. Thank you for your continued support, and I will now turn the call over to Paul for our financial review. Paul DiMarco: Thank you, Jose, and good morning. We are pleased with the momentum built by our first quarter results and the continued trend of improved first quarter performance. This has been a focused effort in recent years, and 2026 marks the best first quarter in MasTec, Inc.'s history. Off of our strong start, we now expect to generate almost 45% of our full year EBITDA in 2026, implying markedly lower seasonality than our business has experienced historically. Our Q1 results represent record levels of first quarter revenue, adjusted EBITDA, EPS, and backlog. Year over year, we drove meaningful growth—revenue up 34%, adjusted EBITDA up 73%, EPS 174%, and backlog by 28%. We continue to see strong customer demand for MasTec, Inc.'s broad service offerings and expertise to meet their infrastructure development goals. Our customers continue to show high confidence in MasTec, Inc., seeking deeper integration and partnership through alliance agreements, sole-sourced contracts, and a desire for MasTec, Inc. to provide turnkey services on strategic infrastructure builds. This is particularly apparent when speed and execution certainty are critical. Our scale, expertise, and focus on mutually beneficial outcomes are key components driving this confidence. Now I will share some further details on our first quarter segment performance and our outlook. Communications segment had a good start to the year, generating revenue of $[inaudible], growing 18% year over year and 7% ahead of expectations. EBITDA margins were about 100 basis points below last year's first quarter, negatively impacted by costs to exit certain markets in our DIRECTV fulfillment business. Communications backlog in the first quarter was up slightly from year end and 12% year over year to another record level. We continue to see strong broad-based demand for wireline services, with customers engaging for multiyear turnkey opportunities. Our second quarter Communications outlook calls for $875 million of revenue with EBITDA margins slightly higher than 2025 in the low double digits. We also expect to achieve double-digit EBITDA margins for the remainder of the year, resulting in approximately 70 basis points of margin expansion versus 2025. First quarter Power Delivery results exceeded our guidance by 10% on revenue and 21% on EBITDA, with solid execution to start the year resulting in 120 basis points of EBITDA margin expansion year over year. Most notable in the quarter was the continued backlog strength, with a 1.6x book-to-bill driving backlog to a new record of $6.2 billion. We saw a number of new contracts executed in Q1, as well as expanded scope on some existing projects. Regarding Greenlink, our client resolved the transmission permitting review earlier than anticipated; we are now operating across the full contractual scope. This is one of the factors driving our revenue guidance higher to approximately $4.8 billion, or 14% year over year growth. Full year EBITDA margins remain on track to approach double digits and are trending higher than our prior guidance. We continue to expect year over year margin expansion in each quarter for Power Delivery, with 60 to 70 basis points of margin expansion for Q2 specifically. Our Pipeline segment had a terrific first quarter, generating $682 million of revenue, almost doubling year over year, with EBITDA margins of 21%. Margins exceeded our guidance by 165 basis points and increased 270 basis points sequentially. It is important to note that broader pipeline and construction demand is still developing; we are generating these margin results in a competitive environment. Unquestionably, we are executing at a high level, delivering high-quality projects ahead of schedule for our clients. These positive outcomes further illustrate MasTec, Inc.'s position as the leader in this space and will continue to be a differentiating factor as the cycle develops. For the second quarter, we expect revenue of $600 million with EBITDA margins in the high teens, slightly below the first quarter result. Full year margins are still forecasted in the mid-teens, but trending higher with the first half performance. We are currently taking a conservative view around second project timing and productivity while we firm up specific resource allocations. Longer term, we continue to see an unprecedented level of project activity and remain very bullish on the opportunity set for this segment in the years ahead. Clean Energy and Infrastructure also started the year off strong, delivering over $1.3 billion of revenue, up 45% year over year and almost 10% ahead of our guidance. EBITDA margins of 6.7% expanded 50 basis points from 2025, and we generated 56% EBITDA growth. Renewables and General Buildings both contributed to the revenue beat, with year over year growth of 63166%, respectively. While our recent acquisitions were solid contributors to the quarter, organically, we still generated over 30% year over year growth. Backlog continued to develop nicely, reaching another record level of $7.3 billion. This represents a total book-to-bill of 1.6x inclusive of 1.3x organically. Infrastructure led the backlog development, but Renewables also extended its streak to 11 consecutive quarters of backlog growth. Demand continues to be robust across the business verticals, leading us to increase our full year revenue guidance to approximately $6.7 billion, up $325 million or 5% higher than previous forecasts. EBITDA margins are still forecasted in the high single digits, comparable year over year, largely due to the higher mix of General Buildings activity in 2026. Q2 revenue is expected to increase almost 50% year over year to $1.7 billion, with EBITDA margins also comparable to 2025’s second quarter. We generated cash flow from operations of $99 million in the first quarter, with higher revenue levels versus guidance driving additional working capital investment. We also saw DSOs increase to 72 days versus 65 days at year end, resulting in lower cash conversion than anticipated. We expect DSOs to trend back to the mid-60s over the course of the year. Our liquidity stands at approximately $1.8 billion and net leverage of 1.8x is well within the terms of our financial policy and criteria to maintain our investment grade ratings. Our improved Q1 performance coupled with continued capital efficiency led to further growth of return on invested capital, expanding almost 100 basis points from year end to over 10%. We expect this trend to continue; we will share more thoughts regarding ROIC targets at our upcoming Investor Day. Moving to our consolidated 2026 guidance, we are raising our full year guidance to reflect the first quarter beat and our improving outlook for the remainder of 2026. We now expect revenue of $17.5 billion, or 22% growth year over year and 3% higher than our prior forecast. For adjusted EBITDA, we are now forecasting $1.5 billion, or an 8.6% margin, with a $50 million increase representing a 10% margin flow-through on the increased revenue outlook. Adjusted EPS is forecasted to be $8.79, an increase of almost 35% year over year and 5% ahead of our prior guidance. Our cash flow from operations outlook remains unchanged, expecting to exceed $1 billion for 2026. We are increasing our net cash capital expenditure forecast to about $220 million to support the additional revenue growth. Our second quarter outlook reflects another strong quarter of year over year growth across all of our major financial metrics, with revenue, adjusted EBITDA, and EPS growing 213847%, respectively. Adjusted EBITDA margins are expected to expand by over 100 basis points compared to 2025. Lastly, I want to remind you that MasTec, Inc. will be hosting Investor Day on May 12, which will also be webcast live via a link on MasTec, Inc.'s investor site. We are excited to introduce additional members of our operational management team to the investment community and provide a medium-term financial outlook. This concludes our prepared remarks. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press 11 on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, press 1 again. We also ask that you please limit yourself to one question and one follow-up on the same subject. If you have more questions, you can always return to the queue by pressing 11 again. Wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today will be coming from the line of Alex Riegel of Texas Capital Securities. Your line is open. Alex Riegel: Jose, congratulations to you and your team on another outstanding quarter. Jose Mas: Thank you, Alex. Good morning. Alex Riegel: In the context of profit margins, growth at MasTec, Inc. has been very impressive. And now with backlog up 28% year over year, can you talk about how pricing and/or contract terms are changing? And is there a point where pricing/contract terms become more important to the company rather than volume? Jose Mas: Alex, I think it is a great question. I think we have been talking about the momentum of the business over the course of the last year. We have obviously seen it in our backlog growth. If you think about it, backlog in 2025 was up about $4.5 billion. We are up another $1.4 billion this quarter. In the last two quarters alone, we are up around $3.5 billion. So I would argue that a lot of the improvements that we have seen in the business from a pricing perspective, and obviously from a growth perspective, have not really even started hitting our financials yet. I think we are just at the beginning of seeing some of the improvements that we saw in 2025 relative to backlog and repricing, and I think that will play through the balance of 2026 and into 2027. So I definitely think it is something to pay attention to. We feel really good about what we have in backlog. We have been really good about our ability to not just grow our revenue, but I think we have talked about margins a lot and our intentions to improve them on a segment-by-segment level. We know we have a lot of opportunity there, and we are looking forward to delivering on that. Alex Riegel: Excellent. And then as it relates to the pipeline market, which appears poised for notable upside, can you comment on the competitive environment there and how you are positioned? And it sounds like it is a little bit more of a 2027 opportunity from a P&L standpoint, but maybe talk about the timeline here over the next few years. Jose Mas: Sure. So nothing has changed. Going into this year, we said we expected to do about $2.5 billion. We knew we would be somewhat constrained because a lot of projects were going to be pending materials that were going to take a long time to come online. So we have always said we thought 2027 was a significant growth year for us. We are really happy with the way we started 2026. We do think there is some potential at the back end of 2026 to maybe bring in some projects and hopefully be a little bit different than what we have been saying. But right now, we are very bullish on 2027 and beyond. We have talked about getting to historical highs in revenue, so we feel great about all of that. To the beginning of the question, which was the competitive landscape in the business, there is no question that post-pandemic we saw some companies fail, some disappear completely, and others de-emphasize the pipeline business. So I think the competitive landscape today really benefits MasTec, Inc. We continued to invest in the business. We kept our strongest people. We have rebuilt. So I think we are in a great position to not just win the market share of the past, but to actually increase our market share throughout the cycle. Alex Riegel: Very helpful. Thank you. Jose Mas: Thanks, Alex. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Andrew Alec Kaplowitz of Citigroup. Your line is open. Andrew Alec Kaplowitz: Good morning, everyone. Jose Mas: Good morning, Andy. Andrew Alec Kaplowitz: I would be curious about your thoughts on this cycle versus others. Your backlog, as you know, is up almost 30% year over year, that is pipeline backlog being down. We know you think pipeline earnings will be stronger going forward. I think you expect to grow EPS now mid-30s this year. Are you starting to think about that kind of growth being sustainable in 2027? And do you think it will be pipeline leading earnings growth or actually one of your other segments such as Clean Energy? Jose Mas: Lots of questions in there, Andy. I would start by saying the momentum of our business is incredible. Comparing it to past cycles, I have been CEO since 2007. I cannot remember a time where every business was just humming—where everything had great opportunities in front of it, where we see backlog growing across the board, and we see momentum actually increasing. From a total business perspective, it is as good as I have ever seen. And quite frankly, I would only expect it to get better. We are going to have a great year across the board on every financial metric. We have our Investor Day on May 12 where we are going to lay out some longer-term targets. We are really bullish about what we think we can accomplish in the mid to long term, and we are excited. We spend so much time whether it is on these conference calls or at investor conferences talking about either the previous quarter or the next quarter or the current year, and we are looking forward to having a day where we can lay out a little bit of longer-term vision and really give you some long-term targets that I think everybody is going to feel good about. Andrew Alec Kaplowitz: Okay. Then a quick follow-up. You have positively surprised pretty much every quarter in Communications over the last few quarters. But I think you raised 2026 Communications revenue guidance by even less than you beat in Q1. Is it just conservatism? Or do you continue to see the momentum moving forward across most of your Communications businesses? Jose Mas: A couple things. As Paul laid out in his script, we took some one-time charges there that impacted margins by about 100 basis points; it kind of went a bit flat with last year. When we look at the balance of the year, we are guided to a $17.5 billion number. It was a nice round figure. I do not think you should read anything into the back half Communications guidance. We have plenty of opportunity there, and hopefully we will continue with our goal of at least meeting, if not beating, expectations on a quarter-by-quarter basis. Andrew Alec Kaplowitz: Appreciate all the color, Jose. Jose Mas: Thanks, Andy. Operator: Thank you. One moment for the next question, please. Our next question is coming from the line of Steven Fisher of UBS. Please go ahead. Steven Fisher: Thanks. Good morning, and congratulations. Jose, you mentioned that you are seeing potential for exponential growth in the data center piece of Clean Energy and Infrastructure. To what extent do you think this is going to be the main narrative for the Clean Energy segment going forward? And how much will natural gas plants be part of that? Jose Mas: I would say a couple of things. We look at our Clean Energy and Infrastructure business in roughly four buckets: renewables; our industrial business, which would include any new power generation, conventional power generation; our infrastructure business, which is a lot of what we are doing on the civil side; and our General Buildings group, which has really been focused on critical infrastructure and the data center subset. If you look at backlog, every one of those had a backlog increase in the first quarter relative to sequential backlog growth. We are feeling good about all four of them. Obviously, the data center opportunity subset is massive and it will play a big role in MasTec, Inc.’s future. We are on one job currently. We have found it is an incredible opportunity for us. We bring a really unique skill set that many are interested in. We have an incredible number of opportunities we are going through right now that I think will develop. We feel good about that part, but we feel good about the whole business. We have been really adamant about our position on power generation on the conventional side. Historically, a lot of simple cycle work—we have not done a lot of CCGT work—and we feel good about that. There is a tremendous amount of opportunity and demand. It will be a part of our growth story. It will not be the leading part of our growth story, but it will definitely be a part of our growth story. And I think we are well exposed to all of it. Steven Fisher: That is great. And then on the Power Delivery side, can you talk about transmission opportunities for bookings? To what extent are customers coming to you looking for skill sets and capacity versus putting out a more competitive process? And what is the timing of the next major bookings for you? Thank you. Jose Mas: We are really excited about the growth in backlog in our Power Delivery this quarter—1.6x book-to-bill, over a $600 million backlog increase. It was broad-based; no major projects pushed that way. From a major project perspective, we are seeing more activity than we ever have. I think we are in a great position. I think the fact that we are working Greenlink and our success on Greenlink has really positioned us differently across the industry. We could not be more excited about the opportunities that are on the way and think we are really well positioned. That will be a big part of our story on a go-forward basis. Steven Fisher: Thank you. Paul DiMarco: Thanks, Steve. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Brian Daniel Brophy of Stifel. Your line is open. Brian Daniel Brophy: Congrats on the nice quarter. Just wanted to ask on CE&I. Obviously, awards there were pretty healthy. Any color on where the source of strength is coming from across your clean energy, civil, street and highway businesses? Were there any additional GC awards in the quarter? And you talked about having about $4 billion of projects under LNTP in that segment. Did that come down with the backlog build here, or does that remain elevated still? Thanks. Jose Mas: To reiterate on the last question, because it was similar, in our Clean Energy and Infrastructure business, in all four buckets, backlog increased. Maybe in General Buildings we were flat. So to the point of it being data center driven, it was not; it was really made up from the other three parts of the business. I would say that our LNTP work is either at the same number or it has actually increased. We feel really good about our potential to continue building backlog in Renewables through the balance of the year, and for sure for the segment. I would expect Clean Energy and Infrastructure backlog to be a lot higher by the end of the year than it is today. It may not be every single quarter, but we feel really good about where we are on the year. Momentum is really strong today. Brian Daniel Brophy: That is great. Appreciate the color there. And big picture on the GC business: When you think about the opportunity in terms of size and scale, how are you thinking about it in terms of number of projects you can take on and size of project ranges you are looking at? Thanks. Jose Mas: It is a great question, and it is the beauty of the business that we are in. We will elaborate a lot on this at our Investor Day, but the beauty of a turnkey data center site is the number of people that it actually takes on the construction management side is relatively limited. So we can stand up groups relatively quickly to meet our customers' needs. On the self-perform side, it is a little different because you need a lot of craft. In some cases, we are really well positioned and in some geographies we are not. But from a pure construction management perspective, with a relatively small group of people, you can actually do some incredible work on behalf of the customer. That is what we have been working on—building our resources there. We are super well positioned. I think we can take a significant number of projects on concurrently. We are working toward that, and at our Investor Day we will get into a lot more details. Brian Daniel Brophy: Appreciate it. Jose Mas: I will pass it on. Thank you, Brian. Operator: Thank you. One moment for the next question. Next question is coming from the line of Ati Modak of Goldman Sachs. Your line is open. Ati Modak: Hey, Jose. Can you talk about what you are seeing on the long-haul transmission line opportunities through the next few years? You have previously talked about M&A to add capability for a third simultaneous line there. How is that thought process progressing? What are you seeing in the market, and what should we expect? Jose Mas: Good morning, Ati. A couple of things. I think we have done a great job of organically growing that side of the business. We have really focused on it in the last four or five years. Obviously, Greenlink was a solid culmination of that to prove to ourselves and to the industry that we had made significant inroads in that market. The opportunity subset there is incredible right now. I think the industry is going to substantially grow. We are super well positioned there. We do not feel that we need to make an M&A transaction in that market to reach the goals that we have internally. But it is definitely an area where, if the right opportunity arose, we would pay attention and consider it. Right now, we feel good about where we are, how we are positioned, and our ability to win. Ati Modak: Thanks for that. And then maybe one for Paul. You mentioned lower seasonality than previous years. Can you give us more color on structural elements driving that going forward? Paul DiMarco: A lot of it is around project timing and working with our customers to promote higher productivity and access to projects that are executing through the end of the year. That was a big focus. The weather helped out a little bit; it was a little bit mild in most areas we operate. But overall, it is just being proactive and really working with our clients to promote opportunities for us to keep our crews and our equipment productive. It balances out; it makes the peak—summer months—more efficient. We are excited about how it will benefit the business this year and in the years ahead. Ati Modak: Awesome. Thank you. Operator: One moment for the next question. Our next question is coming from the line of Jamie Lyn Cook of Truist Securities. Please go ahead. Jamie Lyn Cook: Hi. Good morning. Congrats on the quarter and excited about May 12. Jose, a couple of questions. As we are thinking about the opportunity that you are going to lay out, how much do you want to differentiate—i.e., MasTec, Inc. is largely an organic growth story versus relying on M&A or joint venture? Maybe you need to do that to manage risk or get into adjacent markets in a proper way. And then, you have so much growth in front of you. To what degree are you prioritizing the type of growth that you want—for MasTec, Inc., not growth for the sake of growth, but growth where you can generate the best margin or return? Jose Mas: Thanks, Jamie. First, on organic growth versus M&A. MasTec, Inc. was in a unique position post-pandemic where we really tried to focus on certain core diversification into the energy markets. We did that in 2022–2023. Those were big acquisitions for us. At the time, we said very vocally that we were going to focus on organic growth, really making our balance sheet a lot healthier and putting ourselves in a position to do whatever we wanted. I think we have accomplished that. We had levered up a little bit on those acquisitions; we wanted to bring leverage back down, fully integrate those acquisitions, and make sure they were performing at a high level. Today, we can check the box. We have done that. You are seeing the beginning of those results. I do not think we have seen all of those results flow through our financials yet. We are excited about that. We are also excited about what M&A has meant to our business over a long period of time. We have had a lot of growth via M&A since my term as CEO since 2007. We have bought some incredible companies. You saw us be more active at the end of 2025—we bought two incredible companies in two market segments that we think have tremendous long-term potential and growth opportunities. They are both here just over a quarter. We are excited to have them; they have been fantastic additions to MasTec, Inc. There is a lot more, and we have said we are going to do more on M&A. There are a ton of opportunities out there, a lot of which we really like. They are very strategic. We are looking at our business to figure out where are the areas that we want to grow, where are the internal opportunities we have relative to the workforce, and where do we need to go outside to bolster a geography or an area of work. You are going to see us be a lot more active in M&A for sure than we have been in the last couple years. We started that in Q4 of 2025, and you will see that continue throughout 2026. With all that said, we feel good about the segments that we are in. All of the segments offer us solid growth potential. More importantly, we have the management teams within each of those businesses to handle the level of growth. Where I would be concerned on growth is not necessarily capital allocation—some of these frankly are not even that capital intensive; some are more. We feel good about the return profile of each. It is important that we have the leadership strength to be able to deliver on that growth and deliver the optimal margins on that growth. Today, we are more than equipped to take on multiple areas of growth, multiple businesses of growth, and I think we are just really starting to enjoy that. We have worked really hard over a long period to put ourselves in the position that we are today, and I think it is time to enjoy the fruits of our labor and take advantage of those growth opportunities and execute on them. I do not see us jumping into a lot of new businesses, but I see us trying to expand the ones that we are in and take advantage of the opportunities within those. Jamie Lyn Cook: Thanks and congrats. Marc Lewis: Thanks, Jamie. Operator: Thank you. One moment for the next question, please. The next question is coming from the line of Analyst of KeyBanc. Please go ahead. Analyst: Great. Thank you. Good morning. Jose, given how you said demand is inflecting so strongly in all your segments—last year, you were resourcing in Pipelines and Communications as the demand emerges—how do you feel right now about the ability to keep resourcing upwards to meet this demand, whether it is labor or other facilities that you need? Is that getting harder? Jose Mas: Good morning. At the end of the day, we are a people business. It is what differentiates us. It is an irreplaceable asset. Nobody can replicate the workforce that we built, especially trying to come in. It is one of our big moats. It is important to us. It is something that we keep building on. In pure numbers, we are up about 6 thousand people year over year and up just under 2 thousand sequentially. Quite frankly, it is a machine. We are constantly adding people, resources, and manning to the opportunities in front of us. It is critical to our long-term success, and we think we are good at it. We will continue to do that. There have been periods where hiring impacts margins as you go from a slower period to a busier period. The business is much more consistent today. It is part of the business. We will continue to grow into the demand and then hopefully benefit from the margin opportunities associated with that. Analyst: That is helpful. And then a quick follow-up on your Communications revenue guide. You referred to BEAD maybe emerging over time and being conservative in your second half outlook. Is there any BEAD factored into your back half, or is that still optionality? Jose Mas: I think we have some design built in, but we do not have a lot of construction built in. So there are some revenues, but I think it has a really meaningful impact to 2027. Analyst: Got it. Thank you. Paul DiMarco: Thank you. Operator: The next question, please. Our next question will be coming from the line of Liam Dalton Burke of B. Riley Securities. Liam Dalton Burke: Good morning, Jose. Jose Mas: Morning, Liam. Liam Dalton Burke: You talked in your prepared comments about the step-up in demand for telecom on data center interconnectivity. Are you seeing more of that activity on the long haul or on the local loop of the network? Jose Mas: I think both. You have different types of data centers. A lot of our customers are chasing that business. What makes some customers more competitive than others is the vastness of their infrastructure. Depending on the client, it will be more specific to one or the other, but both will have substantial growth over time and we are seeing opportunities to grow both. Liam Dalton Burke: Great. And on Power, you had a nice step up in margin. Is that just better terms of the negotiations, or are you seeing the advantages of your scale? Jose Mas: It starts with better execution, and then it gets into all of the opportunities that the business has today relative to size and growth. At the end of the day, a lot of it is our execution. We made significant investments in 2021–2022 to really grow that business, and now the fruits of those efforts over many years of hard work are starting to pay off. Liam Dalton Burke: Great. Thank you, Jose. Marc Lewis: Thanks, Liam. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Maheep Mandloi of Mizuho. Please go ahead. Maheep Mandloi: Hey. Thanks for the questions, and hi, Jose. Just a quick one on the gas pipeline. You talked about demand. When are you expecting the orders to flow in on those—next year or after that? Thanks. Jose Mas: Good morning, Maheep. It has not really changed. We have an enormous amount of confidence relative to the conversations we are having with our customers—whether they are verbal awards that we have or the expectations our customers have laid out to us on what we are going to build. For us, when we look at 2027, we think our plate is pretty full as it is. When those turn into contracts and when they can be reported in backlog is a different story. That is why we keep talking about backlog not being fully representative in that market today. It will be at some point. It is coming. It is close. It will probably be towards the end of 2026. Our visibility into 2027 and beyond is fantastic. Maheep Mandloi: Appreciate it. Thank you. Marc Lewis: Thank you. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Justin P. Hauke of Baird. Go ahead. Justin P. Hauke: Great. Thank you. I wanted to get a little more clarity on the guidance. Clearly, first quarter came in much better than what you were expecting. You beat revenue by 10% and earnings by like 40%. But in the full year, it looks like you are flowing through a lot less than that. I know 1Q is seasonally the lightest, but you are also having a lot less seasonality than you had historically. What is underpinning the conservatism as you look at the balance of the year versus what you did in the first quarter? Jose Mas: Good morning. A couple of things. That is what we did—we pushed the beat in Q1 through the guide for the year. We did not necessarily reforecast the balance of the year. There is a lot of conservatism built into that. We have not taken into account that acceleration in the business continuing throughout the three quarters. Hopefully, we can deliver on that, and that will be the source of our beats throughout the balance of the year. We have our Investor Day coming up on May 12 where we will lay out a much longer-term vision. We are excited about how the rest of the year can play out. I would not read too much into it. We are pretty excited. We took each of the areas where we beat and pushed it through the year. If the opportunities continue to exist across all those segments, then we will do better than what we are saying. Justin P. Hauke: That makes sense. Second, on the Communications side, from the install-to-the-home market—was that something you were expecting? And are the costs you took contained in the quarter, or will that continue throughout the year? Jose Mas: We do not expect any more to continue throughout the year. We are still in that business; we are not out of the business. To be clear: We have had a relationship with DIRECTV as far back as I can remember. When I became CEO in 2007, DIRECTV was almost 50% of revenues. Last year, DIRECTV was less than 1%. At its peak, it reached almost $700 million in revenue, and again it was less than 1% of revenues last year. We see challenges in our business at times. We had a customer that was all pay television service, satellite-driven. The internet took off, streaming video took off, the business changed. That is part of the beauty of MasTec, Inc. We took a business that was such a major part of our financial performance a long time ago, and we were able to adapt. We helped our customers with other technologies, like everything that happened relative to fiber and internet, and we were able to offset that decline over a period of time. We have done an amazing job growing our telecom business over many years, especially over the last few years, in an environment where that business massively declined from $700 million to a negligible number. This year, we exited a number of markets in a small business and took some charges in Q1 that represented about 100 basis points. We probably could have reaged them; we decided not to. We are thankful for that relationship. We are still going to work for them and support them. It is a great reflection of the way that MasTec, Inc. has matured and our ability to overcome something like that with a ton of success. Justin P. Hauke: For sure. Thank you for that perspective. Jose Mas: Thanks, Justin. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Manish Samaya of Cantor. Please go ahead. Manish Samaya: Jose, can you remind us what is the mix between maintenance and new projects for your Pipeline business? I am trying to figure out the incremental upside to backlog. Obviously, the backlog right now is about $1.3 billion out of the $20.3 billion. I am trying to get a sense for that as well. Jose Mas: I do not have an exact number, but a few years back when the business looked doom-and-gloom post-pandemic, we said that we thought the bottom run rate would be $1.5 billion to $1.8 billion. We did that based on predominantly a maintenance-driven business, so I would still argue that is the range, and the balance is project-driven. I do not have an exact breakout today, but that is pretty close. As you think about future projects, it will be the growth off of that base. Manish Samaya: Right. Q1 did exceptionally well. Favorable outlook for 2026. How should I think about 2027 in terms of reaching or exceeding your prior peak margins in that business? Jose Mas: The opportunity is there. If I was guiding 2027 today, I would say we will do $2.5 billion this year. I would feel super comfortable that we are going to do $3 billion or better, and I think we have an outside chance to get to historical levels—which are $3.5 billion—as early as 2027. That is what we have been saying over the last couple of quarters. Manish Samaya: And then on capital allocation, with leverage approaching low ones, how are you thinking between deleveraging even further, bolt-on acquisitions, repurchases? Jose Mas: Based on the growth opportunities in front of us, you are going to see us be more active in M&A. That is where you will see deployment of capital. Manish Samaya: Okay. Great. Thank you so much. Jose Mas: Thank you. Appreciate it. Operator: Thank you. One moment for the next question, please. Our next question is coming from the line of Analyst of Jefferies. Please go ahead. Analyst: Hi. Good morning. Marc Lewis: Good morning. How are you? Analyst: Assuming Greenlink North commences construction next year, combined with the smaller project that I believe is supposed to commence midyear this year, do you have the capacity to handle more than those projects combined in 2027—to tie into your comments that you do not need to grow that side of the business inorganically to competitively bid on new projects? Paul DiMarco: Absolutely. Analyst: Okay, great. And then to follow up on M&A, could you be any more specific on target markets, assuming nothing in Power Delivery? Target markets where you see the most opportunity for MasTec, Inc. in particular? And would you be interested in MEP at all to round out that solution for the data centers? Jose Mas: I do not want to get ahead of myself. At our Investor Day, we are going to walk through strategy a lot more than we normally do. From that, you will be able to ascertain the types of things that we are looking at. It is broad-based. At the end of the day, we are still opportunistic-driven. We are not chasing revenue; it is strategic. We have some really good opportunities in front of us. I do not want to tip my hand, but we are in a good spot. The two acquisitions that we made at the end of last year have been really beneficial to MasTec, Inc., and we have a number more that we can make that would really help our company. Analyst: Okay. Great. Thank you very much. Marc Lewis: Thank you. Appreciate it. Operator: Thank you. One moment, please, for the next question. Our next question is coming from the line of Marc Bianchi of TD Cowen. Please go ahead. Marc Bianchi: Hey. Thank you. First on the Communications progression from here—you are quite precise on what the margin improvement is going to be for the year. I do not know if you want to put any precision on second quarter, but the way it looks to me, the margin improvement year over year may accelerate in the back half. Could you walk us through that? Is that just absorbing some of those earlier costs that you have, or is there something else going on? Jose Mas: Good morning, Marc. That is exactly right. In 2025, we had phenomenal organic growth—34% year over year. We entered a lot of new markets and opened a lot of new offices. Those offices are beginning to mature. We will see the significant impact of that maturity in the second half of the year. That is why we are so comfortable calling for a higher profile margin in the second half of the year, and that is how we expect it to play out. If you normalize Q1 for our charges and look at what is happening in Q2, we feel really good that the progression is taking shape and we are very confident in being able to say that. Marc Bianchi: Great. Last one is for Paul. The CapEx number ticked up just a little bit. Could you talk about what is going on there and more broadly how we should be thinking about capital intensity for the business going forward? Paul DiMarco: As I said in the comments, it is really just about the additional growth we see not just in 2026 but in the years ahead. Our primary objective around capital allocation is supporting organic growth, and fixed assets are a big piece of that. It is still relatively low, particularly compared to where we have been historically. We are comfortable with that level of capital intensity, but we are focusing on supporting the demand we see and the needs of our customers. Marc Bianchi: Great. Thank you very much. I will turn it back. Jose Mas: Thank you. Appreciate it. Operator: One moment. Our next question is coming from the line of Philip Shen of Roth Capital Partners. Please go ahead. Philip Shen: Hey, Paul. Thanks for taking my questions. Congrats on the great quarter. Paul DiMarco: Thank you, Phil. Philip Shen: Wanted to check in on the renewables comments you made. Visibility, you said, is as strong as it has ever been. Momentum is strong, you said, as well. I wanted to check in with you also on this tax equity pause by four major banks. We are four months into the year, and this has become a bit of a topic. I know 2026 is not impacted because it is a Section 48 year. But for 2027, I think more projects might depend on 48E. Could you give us a little more color on that really strong outlook vis-à-vis this tax equity pause, and to what degree you have gone through your portfolio and checked in with customers to make sure the exposure here is modest, if any? Jose Mas: I think that is the big change in our business over the longer period. We have done a great job aligning ourselves with key customers, understanding their business and their risks. We have managed that really well. We feel really comfortable about our book of business for 2027. Generally for the market, I would add: we are in the middle of an unbelievable opportunity of growth as a country relative to so much of this critical infrastructure. Power is the cog in the wheel. Everybody knows it. The administration knows it. The president knows it. While we are going to get a lot of noise, at the end of the day, issues like this have to be fixed because if not, it has much greater implications. I have a high level of confidence that the things that need to be done to fix issues like this will happen. Irrespective of that general comment for the industry, I feel good about our portfolio. Seeing what is happening in Washington and how they are reacting to certain things, I promise you that renewables are an incredibly important part of the story in the near to mid-term. They understand that, and they will do what they have to do to make sure that does not delay meaningful investment in this country. Philip Shen: Great. Thanks, Jose. As a follow-up on that topic, one thing I have been trying to track is this LNTP-to-NTP timeframe in solar and renewables. For you guys, what is that typical timeline with customers? When they sign LNTP, is it typically six to seven months before you go to NTP, or maybe nine months? Jose Mas: It depends on the customer. Some customers you have alliance agreements with; others you are doing specific projects. That is vastly different between the two. We do not go to back until financial close on the project, which a lot of times is late in the cycle of that project. Some could be open longer than others. It is an important metric for us because it gives us visibility into what we are going to book into new work over time. I would say the majority of it, if not all of it, is less than a year. Philip Shen: Great. Thanks very much. I will pass it on. Jose Mas: Thanks, Phil. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Adam Thalhimer of Thomas Davis. Please go ahead. Adam Thalhimer: Morning, guys. Marc Lewis: Morning, Adam. How are you? Adam Thalhimer: Good. Data center connectivity—you said that was tens of billions of dollars. Is that the labor component, therefore the opportunity for MasTec, Inc.? And has that started, or is that more 2027? Jose Mas: I think it has started. We announced back in 2024 our first award relative to a customer that had gone after that work and specifically won a project around it. This is a really long cycle. There is going to be an enormous amount of work across the country. Data center construction is a cycle that is just starting. We feel good about it. We think that is a MasTec, Inc. TAM number. It is a massive opportunity. Adam Thalhimer: And then quickly on Pipeline, are you seeing book-and-burn projects that could come in for the back half of 2026, but you are just not putting that into guidance until you have them in hand? Jose Mas: We have a portion of our business that is book-and-burn. We would expect to have that. There is some book-and-burn built into our guidance; our backlog levels do not fully support the full year anyway. We need some book-and-burn. That is a normal part of the business. We feel good about that. To the broader question—is there opportunity for more book-and-burn to improve even what we are saying? The short answer is yes. Jose Mas: Thanks, Adam. Operator: Thank you. One moment. Our next question is from the line of Analyst of Wolfe Research. Please go ahead. Analyst: Hey. Thank you. Good morning, Jose and Paul. With President Trump approving Bridger Pipeline yesterday, beyond a specific project, do you see this approval improving project activity or just more de-risking of the project pipeline that is already in your funnel? Jose Mas: I think this president has been very vocal about his desire to see infrastructure built, especially pipelines. If any project is brought to him that he has the potential to influence, he will. That is a good thing for the industry. Analyst: Thanks. As a follow-up, can you provide any color on the type of pipeline work that has been driving the margins? Is it pricing, execution, project mix? And how does that evolve as you return to peak pipeline revenues? Jose Mas: I do not think there was anything abnormal about our execution in Q1. We have had plenty of quarters where we have done as well. It is a moment in time where you had good utilization, a lot of work, and you were able to perform at a high level. We are not guiding to that for the balance of the year, but we would hope that we can continue to deliver on that. Utilization is a key driver. We had a good quarter, and hopefully it will continue. Analyst: Thanks. Congrats on the results. Jose Mas: Thanks, Chris. Operator: This concludes today's Q&A session. I would like to turn the call back over to Jose for closing remarks. Please go ahead. Jose Mas: Thank you. I would like to thank everybody for participating today. Again, to remind everybody, we have our Investor Day on May 12 in New York. We hope you can make it. We look forward to updating you on our second quarter call in a few months. Thank you. Operator: Thank you all for participating in today's program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will open the call for questions. To ask a question during the session, you need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Be advised that today’s call is being recorded. I would now like to hand it over to our first speaker, Briony R. Quinn. Please go ahead. Briony R. Quinn: Good morning, everyone, and welcome to DiamondRock Hospitality Company’s first quarter 2026 earnings call and webcast. With me on the call today is Jeffrey John Donnelly, our Chief Executive Officer, and Justin L. Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discuss today. In addition, on today’s call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. We are pleased to report that first quarter results exceeded our expectations. This was a tough quarter as we comped over our strongest revenue growth from last year, particularly in the group segment, and faced disruptive weather challenges in several markets. Despite those headwinds, the portfolio performed better than anticipated. Comparable RevPAR increased 2% and total RevPAR increased 2.5%. With hotel operating expense growth of less than 1%, we delivered corporate adjusted EBITDA of $60.6 million and adjusted FFO per share of $0.22. Our FFO margin increased an impressive 225 basis points this quarter. On a trailing twelve-month basis, our free cash flow per share was $0.75, increasing 19% year over year. Starting with the top line, the comparable RevPAR growth of 2% exceeded our outlook of a flat quarter and improved sequentially in each month. Occupancy in the quarter declined 30 basis points while ADR increased 2.6%. As expected, our resorts outperformed our urban hotels; however, the magnitude of that outperformance was wider than we had anticipated. By customer segment, transient outperformed with revenues up 2.1% on improving demand and rate. Group revenues were down 0.8% driven by softer demand early in the quarter. For the fourth quarter in a row, our guests continued to spend once on property across our restaurants, spas, and other retail outlets. Total RevPAR grew 2.5%, outpacing RevPAR growth by 50 basis points, and out-of-room revenue per occupied room climbed 4%, right in line with the trend we saw through most of 2025. That tells us two things: our guests have the spending power, and our out-of-room offerings are giving them good reasons to use it. For further context, out-of-room spend per occupied room at our resorts averaged $320 per night, more than three times what we saw across our urban portfolio. RevPAR at our resorts increased 3.6%, with total RevPAR growth modestly higher, outperforming the urban portfolio on both measures. We have been saying that our resort portfolio was due for an inflection in 2026 after three years of trailing the urban portfolio’s accelerating growth. If you think back, our resorts were actually the first to bounce back from the pandemic but then lost momentum as international outbound travel picked up and domestic leisure trends normalized through 2024 and 2025. Even so, RevPAR at our comparable resorts is up more than 20% from 2019 levels, compared to high single-digit growth at our urban hotels. We remain constructive on the trajectory of our resort portfolio this year. In Sedona, the completed renovation and full integration are translating to both top line and profit. The property was under renovation in the first quarter of last year, but if you compare the most recent quarter against 2024, total RevPAR is up over 23% and hotel EBITDA is up 67%. The property generated a 37% EBITDA margin, the highest first-quarter margin in its history, driven by diversified revenue streams, rates matching their views, and the execution of creative cost efficiency. In our urban portfolio, RevPAR increased 0.9%, and total RevPAR increased 1.6% in the first quarter. January and February were modestly negative, while results in March meaningfully accelerated. The strongest urban RevPAR growth came from Hotel Emblem in San Francisco, the recently renovated Hilton Garden Inn Times Square, the Denver Courtyard, and Hotel Clio in Denver, all of which posted double-digit gains. We have been tracking how our hotels with average daily rates above $300 stack up against the rest of the portfolio over the last several quarters, and the story is pretty compelling. When you consider that our guest average total bill runs about $450 per night, with several properties averaging over $1.5 thousand, it is clear we are serving a predominantly higher-earning customer base. That strength at the higher end is showing up in the numbers. Over the past three quarters, our $300-plus hotels have outpaced the rest of the portfolio by 290 basis points in total RevPAR and 1.2 thousand basis points in EBITDA growth. Simply put, robust spending from this segment and our ability to turn it into earnings has been a real engine for DiamondRock Hospitality Company’s growth. Turning to expenses, rightsizing expenses for the demand environment remained a key focus for our team. During the quarter, total hotel operating expenses increased 0.8% on total revenue growth of 2.5%, resulting in a 127 basis point improvement in hotel EBITDA margin. This is our portfolio’s largest quarterly margin improvement since 2024 and is 275 basis points higher than the margin achieved in 2019. Wages and benefits, which represent nearly half of our total expenses, increased just 0.7% during the first quarter, reflecting continued productivity gains. Looking back to 2025, total operating expenses on a per occupied room basis increased 2% during the year. This quarter, our expenses were up less than 1.5% on a per occupied room basis, a very disciplined start to the year. Before I turn to the balance sheet and capital allocation, a quick update on our group results in the first quarter and how our pace is shaping up for the rest of 2026. Group room revenues declined 0.8% in the quarter, with rates up 3.5% but room nights down 4.2%. Winter storms in the Eastern U.S. and limited snow in our ski market negatively impacted group travel in January and February. We are encouraged by our hotels’ group pickup for the remainder of 2026, particularly in Vail, Greater San Francisco, Chicago, and Fort Lauderdale. Since our last call, our group revenue pace for the year has improved more than 100 points with pickup in each quarter. Following a hard-earned new peak in group revenues in 2025, we are trending toward another record year for this portfolio. Turning to the balance sheet, our capital structure remains simple and conservative. We have no debt maturities until 2029, no secured or convertible debt, no preferred equity, and no off-balance sheet encumbrances. All of our debt is fully prepayable. Our leverage sits on the lower end compared to peers, and that is by design. In a cyclical business, we think having the optionality and flexibility to pursue growth when the right opportunities come along is key. We paid a common dividend of $0.09 per share for the first quarter and expect to declare quarterly dividends of $0.90 per share for the remainder of the year, with the potential for a fourth quarter sub-dividend based on full-year results. Our payout ratio remains below historical levels as we continue to utilize net operating losses to offset our taxable income. As those net operating losses are utilized over the next few years, we expect our payout ratio to increase. We are currently under contract to sell one hotel and anticipate the closing to occur during the second quarter. Proceeds are expected to be used for general corporate purposes, which could include opportunistic share repurchases. Jeffrey John Donnelly will provide additional context on this transaction in his remarks. I will conclude today with our updated outlook for 2026. We are raising our 2026 RevPAR guidance by 50 basis points to 1.5% to 3.5%, with total RevPAR 25 basis points higher, which is unchanged from our prior outlook. Our adjusted EBITDA guidance is now $296 million to $308 million, a 2.5% increase at the midpoint, and our adjusted FFO per share guidance is now $1.12 to $1.18. The increase to our guidance reflects the stronger-than-expected first quarter operating performance as well as the benefit of a more favorable renewal of our insurance program on April 1 than we had anticipated. This is the third consecutive year we have achieved meaningful year-over-year reductions in our premiums. In aggregate, over the three years, we have reduced premiums by just under 40%. With anticipated capital expenditures of $80 million to $90 million this year, our raised guidance implies 7% growth in free cash flow per share. With that, I will turn the call over to Jeff. Jeffrey John Donnelly: Thanks, Briony, and thank you for joining us this morning. Earlier this week, we celebrated Bill McCartney as he retired from the board and his role as chairman after more than two decades of leadership. Justin L. Leonard: Bill’s integrity and commitment to doing what is right will have an enduring impact on DiamondRock Hospitality Company. We also welcomed Bruce Wardinski to his first board meeting as our new chairman. We look forward to the perspective and leadership he will bring as we execute our strategy. Nearly two years ago, we launched DiamondRock Hospitality Company 2.0, and since that time, our shares have delivered the strongest returns in the lodging REIT sector, outperforming peers by roughly 2.7 thousand basis points and broad equity REIT indices by more than 500 basis points. We believe we are just getting started. DiamondRock Hospitality Company’s ability to drive the financial results behind our outperformance stems from deliberate and foundational decisions we have made in the past two years. First, culture. We have worked to build a culture of excellence where teams are encouraged to challenge assumptions and work collaboratively toward superior outcomes. We also strengthened the organization with added expertise across IT, legal, capital markets, design and construction, and accounting. Second, we align compensation with total shareholder returns, not just at the executive level, but across the entire organization. The goal is straightforward: our team benefits only when the shareholders benefit. This alignment and empowerment has slashed turnover and improved execution. Third, we invested in our infrastructure, implemented new accounting and enterprise analytics platforms to amplify the strength of our asset management and accounting teams, and accelerated the use of AI-enabled tools across the organization. We took a comprehensive approach to simplifying the organization, modernizing corporate policies, shrinking the board, relocating our offices, and moving our listing to Nasdaq. The outcome is a leaner G&A structure with a headcount-per-hotel ratio that remains about 50% below the peer average. Taken together, these actions help make DiamondRock Hospitality Company more efficient, more disciplined, and more focused on how we allocate capital. We are proud of the progress the team has made, and we are committed to earning your confidence through consistent execution. Last quarter, I walked through our five-year capital expenditure plan and our intent to recycle capital within the portfolio. Today, I will build on that discussion with an update on the Westin Boston Seaport District and then close with our outlook for 2026. The existing franchise agreement for the Westin Seaport expires on 12/31/2026. We view this as a meaningful value creation opportunity, and beginning in 2025, we ran a comprehensive process to evaluate brand interest in representing Boston’s premier convention hotel. We appreciated the level of interest and the creativity and flexibility we saw from brands throughout the process. After evaluating the proposals, we concluded reinforcing the Westin brand’s superior position in the Seaport would minimize disruption and create the greatest near-, medium-, and long-term value for shareholders. While we cannot disclose the specific economic terms, given the strength of our balance sheet, we elected not to pursue a T Money loan. The decision to avoid that expensive capital helped us stay focused on the fundamentals that matter most to shareholder value creation: the fee structure, the renovation scope and timing, and contract duration, assignments, and terminability. Value creation begins with the commencement of the new agreement on 01/01/2027, and as with all major capital decisions, we approached this with a focus on cash flow, flexibility, and risk-adjusted returns. With respect to the five-year capital plan we shared last quarter, importantly, our guidance remains unchanged. We continue to forecast investing 7% to 9% of annual revenue across the portfolio, or about $80 million to $100 million per year, in each of the next five years. The renovation of the Westin Boston Seaport District was already contemplated in our prior guidance as an internally funded project. The key takeaway here is we are working to provide greater transparency and consistency. Generating attractive risk-adjusted returns is essential to our capital allocation philosophy. We deploy capital across both ROI-driven initiatives and more traditional cycle renovations. Each plays an important role, but they sustain and create value in different ways. In that vein, I want to provide an update on two recent ROI projects. The first is The Dagny in Boston. With the franchise agreement for the Hilton Boston Downtown Faneuil Hall approaching expiration in 2022, we began evaluating long-term alternatives in 2020. We narrowed our options to remaining within Hilton, or for an incremental $5 million, deflag and reposition the hotel as an independent property. We chose independent positioning because we were confident that even if we initially ceded ground on the top line, we could still drive higher profits through operating cost savings. We underwrote EBITDA to exceed $16 million in 2027 versus the $10 million earned in 2023. So how are we doing? We delivered $15.5 million in 2025, and we are not finished yet, so we are comfortable this ROI project will be ahead of underwriting. The icing on the cake is unencumbered hotels regularly achieve a 15% to 20% valuation premium to comparable brand-encumbered product; our repositioning has created value through earnings and asset value. The second example is L’Auberge de Sedona. In 2025, we completed the renovation of the Orchard Inn and fully integrated its operations within our adjacent luxury resort, L’Auberge. While Orchard’s enjoyed some of the best views in Sedona, it was operating as a midscale product with a premium location in a luxury resort market. Our strategy was to unlock that untapped value. By upgrading the room product and creating more connectivity between the two hotels, we were able to transform the properties into a cohesive luxury destination in a supply-constrained, highly rated market. We invested approximately $25 million and underwrote stabilization at a 10% EBITDA yield. Early results have exceeded our expectations. In the first two quarters following integration, revenues increased nearly 25% and EBITDA increased 55%. This project exemplifies our discipline. We right-sized the investment, focused on operational excellence throughout the project, and conservatively underwrote its potential returns with upside reserved for our shareholders. Let me remind you, 2026 was not underwritten as L’Auberge’s year of stabilization. We prefer to consistently hit singles and doubles rather than hope for a home run on a complex, capital-intensive, and disruptive multiyear project. That said, when we look back, I expect we will call L’Auberge DiamondRock Hospitality Company’s version of a home run. Our ability to execute consistent, cost-efficient, and impactful CapEx spending is a result of several unique portfolio traits, including a strong competitive position, unsecured capital structure, young portfolio age, and a high percentage of independent and third-party managed hotels. This gives us control over scope and timing. While we highlight four or five larger projects each year, our in-house design and construction team is actually on more than 400 individual projects this year alone, from elevator modernizations that reduce service calls to reconfiguring outlets to add seating and drive revenue, and room renovations to enhance guest appeal and housekeeper productivity. The effectiveness of our capital spending will ultimately be reflected in our long-term free cash flow per share growth. We view our capital program as a core differentiator that originates from our portfolio construction and is a key reason DiamondRock Hospitality Company is a free cash flow per share growth story. Turning to capital recycling, as we noted last quarter, we expect to be a net seller of hotels in 2026. We are under no pressure to sell, but we believe we can accretively recycle capital within the portfolio. Transaction markets are stronger than a year ago, and though recent geopolitical events have slowed the pace of some discussions, ongoing engagement has continued. We are currently under contract to sell one hotel. We have a nonrefundable deposit and expect the transaction to close in the second quarter. At that time, we will be able to discuss the factors that informed our sale decision. We continue to place more lines in the water than in past years. Not every process will result in a transaction. We will only sell assets when, all else equal, recycling reduces risk or drives free cash flow per share growth over the medium to long term. ROI projects and share repurchases remain compelling uses of proceeds, but we have underwritten a few external opportunities that could be nearly as additive. These range from modern urban hotels with brand availability to experiential assets in supply-constrained resort markets. We have nothing to announce today, but trust that our focus is on accelerating our free cash flow per share growth and reducing risks to long-term performance. Turning to our outlook for 2026, we entered the year knowing the first quarter would be our toughest comp of the year. Despite that hurdle and the incremental headwind created by poor weather conditions, the portfolio was able to rebound in the second half of the quarter and delivered stronger-than-expected revenue growth and expense efficiency. As we look ahead to the remainder of the year, we benefit from easy comps created by Liberation Day and the longest federal government shutdown, a favorable holiday calendar, outsized exposure to FIFA World Cup host markets, America 250 celebrations, and successful renovations. While it is early, we are not seeing a reticence for guests to take to the road this summer. For example, portfolio revenues on Memorial Day weekend are pacing up in the mid-single digits. Our FIFA World Cup host market hotels have experienced increased demand at elevated rates, but we do not expect to see activity accelerate until we are much closer to the event. As a reminder, our hotels have budgeted for 20 basis points of annual RevPAR growth in the veins. We are seeing a similar booking pattern emerge around America 250 celebrations. Rates for early bookings have been strong, up double digits, but the pace at our urban hotels has been tepid. As citywide July 4 programming comes into focus, we expect the pace of bookings to improve. Our resorts, however, are currently seeing more activity than our urban hotels over the July 4 weekend. We are excited to reap the benefit from the hard work our team put into renovations last year. Among these renovations, the returns generated by L’Auberge de Sedona are expected to be the most material, driving at least a 50 basis point tailwind to DiamondRock Hospitality Company’s RevPAR growth rate in 2026. All in, we now expect our 2026 RevPAR to increase 1.5% to 3.5%, a 50 basis point improvement from last quarter, with total RevPAR growth outpacing RevPAR growth by 25 basis points. By rightsizing expenses for demand and maintaining a disciplined capital expenditure program, that 2.5% RevPAR growth at the midpoint should again drive DiamondRock Hospitality Company to a new peak FFO in 2026. We also expect to generate 7% in free cash flow per share growth for our shareholders this year. This would mark over a 30% cumulative increase in the past three years. We appreciate the trust you place in us, and we look forward to building on each successive peak. Thank you for your time this morning, and we are happy to answer your questions. Operator: We will now open the call for questions. To ask a question during the session, you will need to press 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. One moment for our first question. Our first question will come from the line of Jack Armstrong from Wells Fargo. Your line is open. Jack Armstrong: Hey. Good morning. Thanks for taking the question. How are you thinking about the best uses of incremental capital at this stage given the recent performance of your shares? Are we nearing a point where you should shift away from repurchases and into more ROI projects or potentially some value-add acquisitions? Jeffrey John Donnelly: We always have shovel-ready projects all the time. I would say that share repurchases are really the most appealing use. I think at the margin you are starting to see some acquisition opportunities get there, but I think you need a healthier spread to justify that. So to reiterate, share repurchases would be the most appealing. Jack Armstrong: That makes sense. And then on the expense side, can you take us through some of the building blocks for the full year across wages and benefits, insurance, and utilities, and what is giving you confidence in your expense growth, particularly for labor, significantly below where we are seeing national averages come in? Justin L. Leonard: I think we have had some very good recent history leaning into productivity. Candidly, we are not necessarily seeing it on the wage rate side. We have been able to keep our labor rates relatively low because we have been finding fewer hours worked throughout the portfolio through productivity, and that has been in a myriad of different places both in housekeeping productivity, focusing on hours of operations within our food and beverage outlets, and then, like every other company, some small administrative efficiencies that we found through the implementation of AI tools. Briony R. Quinn: I will add, Jack, that we actually had savings on our insurance renewal that starts on April 1, and that will be about a $1 million benefit to the full year. That was one of the other areas where we had some cost savings. Operator: One moment for our next question. Our next question will come from the line of Smedes Rose from Citi. Your line is open. Smedes Rose: Hi. Thanks. I wanted to ask you a little more. You said you have a contract for sale. Could you give some updated thoughts on the overall transaction market in terms of pricing and the overall level of activity? Jeffrey John Donnelly: I think the transaction market today certainly feels a lot better than it did about a year ago. When you go back twelve months, remember it was post–Liberation Day. We ended up having several consecutive quarters of flat RevPAR, and shortly after Liberation Day, interest rates for more of a PE buyer, who tends to use leverage, were all-in around 7% to 8%. Now, RevPAR has certainly been much better this first quarter. I think there is a more positive outlook with more demand drivers in 2026, and interest rates are maybe 150 basis points lower. So I think you have a better setup, and it has definitely brought more interest to the market. You have seen many more assets come to market. There are maybe two dozen assets out there and two large portfolios, and I would say each of them are probably nine-figure-plus assets, but there are certainly properties beyond. You are starting to see a little bit of loosening. Pricing is still robust. Resorts continue to be the priciest assets, with urban maybe trading at a discount to that, largely because urban assets, speaking in broad strokes, have not quite recovered as consistently as resorts have. Smedes Rose: Thanks. And then I just wanted to go back. You mentioned the dividend payout ratio will go up, and I think you said that is because the NOLs will be exhausted. Could you talk about that a little bit more, the timing and when you would expect the payout ratio to move up? Briony R. Quinn: Sure. We generated significant net operating losses during the pandemic that built up over two to three years. We have a significant balance left, and we have worked through about 50% of it. Our intention is to use those ratably over the next few years to gradually increase our dividend payout ratio. Smedes Rose: Thank you. Operator: Your next question will come from the line of Michael Bellisario from Baird. Your line is open. Michael Bellisario: Thanks. Good morning, everyone. Jeff, can you give us an update on 2Q and how April performed? And then taking a step back, how would you broadly characterize the recent change in trajectory for each of the customer segments: group, BT, and leisure? Jeffrey John Donnelly: So far, the momentum that we saw into April continued to be healthy. Some of the acceleration we saw in March effectively continued into that month, more on the leisure side. Looking at Q1, BT was strong for us, and our leisure or resort markets were pretty healthy. I feel like this will be the first year—still early, but a very good probability—where all three channels, BT, leisure, and group, will be delivering positive growth for the industry, which has been lacking for the last five years. That is going to be pretty impactful for the lodging sector. It is great when you have two working, but it is a seven-day-a-week business, and you cannot always get to where you want when you only have two legs of the stool. I am encouraged by the way the year is setting up. Michael Bellisario: Got it. That is helpful. And then just a follow-up on the group side. The pace improvement that was mentioned in a few markets—anything you can point to in terms of reasons why, customer types, industry types that experienced that group pickup in those markets? Jeffrey John Donnelly: I am not sure there is necessarily a great read just in terms of customer base, but we continue to be optimistic about the group outlook for the remainder of the year, particularly given where the calendar sits around a couple of the major holidays with things like Juneteenth and July 4 shifting toward the weekend. It really gives us a larger number of potential pattern weeks that we can sell into where we have some availability. That has been more indicative of our short-term pickup—we have just had a bit more availability given how the calendar has shifted, and we have been able to sell into that. Operator: Thank you. One moment for our next question. Our next question comes from the line of Austin Todd Wurschmidt from KeyBanc Capital. Your line is open. Austin Todd Wurschmidt: Hey. Good morning. It is Josh on for Austin. You discussed some additional group pickup you might need due to some tough comps in 3Q. How much additional business do you need to backfill at this point in time? And what are some of the different strategies you can implement to fill that demand if need be? Jeffrey John Donnelly: Part of our pace has to do with our World Cup exposure. We have World Cup availability in one of our biggest hotels in Boston, so we have displaced some group, hoping that transient pickup will fill in some of those gaps. Generally speaking, as we get closer to Q3, we move out of the group booking window, so we are really focused on transient strategy to drive incremental transient business. We are optimistic that given some of the demand generators going on, particularly in July, we will be able to backfill a fair amount with transient business. Jeffrey John Donnelly: Just to give people some context, in some ways this emanates back from the Democratic National Convention. We had a very good year out of Chicago at that time in the third quarter, and then last year in 2025, that was the hole we thought we had to climb over, and we successfully climbed over it. In some ways, we were a victim of our own success—we continue to comp there—but the actual magnitude of the hole we referred to is just a few million dollars on group business. It is not an insurmountable task; it is single-digit millions of dollars on the group side. Austin Todd Wurschmidt: I appreciate that additional color, Jeff. And then on the asset sale, should we view this as you testing the waters a little bit in the transaction market before you would bring additional and potentially larger assets to the market? Jeffrey John Donnelly: I would not call it testing the waters in advance of larger assets. We are always trying to find opportunities where we can monetize assets at attractive prices, and you do not always hit it out of the park on that. It is more important to have more lines in the water and be exploring. In the last year or so, we have had a handful of properties we have explored—some one-off or privately and some with listed situations. It is not necessarily a precursor. Every asset has its own unique setup, buyers, and market conditions, so I would not assume one has to precede the other. Operator: Thank you. One moment for our next question. Our next question will come from the line of Duane Thomas Pfennigwerth from Evercore ISI. Your line is open. Duane Thomas Pfennigwerth: Hi. This is Peter on for Duane. Thanks for taking the questions. Could you unpack a little bit of your expectations for New York this year? I know you probably have assumptions on the upcoming contract renewal, but more curious how you see top-line growth in that market following a few strong years. Justin L. Leonard: We continue to be optimistic about New York. It has the FIFA final game, so in particular over the summer, we are expecting to see some compression in the market. As you mentioned, there is going to be some margin pressure given the contract renewal, which we have factored in, and that accounts for some of the forecasted uptick in our operating expenses as we progress through the year. Generally speaking, while maybe we saw a bit of a falloff in short-term booking patterns right at the beginning of the war, we have seen that level off and continue to see demand in New York as strong as it has been for the last two years. Duane Thomas Pfennigwerth: Thanks. And then just on CapEx, you mentioned $80 million to $100 million per year for the next five years as a range. It seems like from your comments, maybe you are not considering or do not see another opportunity of something larger like L’Auberge. Is that correct? And then on L’Auberge, when is peak season in that market, and just remind us when the renovation finished last year? Jeffrey John Donnelly: That is already incorporated into that $80 million to $100 million per year. To the extent that we see opportunities for ROI projects, that is effectively embedded within that figure. It is not that we do not see those opportunities down the road. Justin L. Leonard: Sedona is an interesting market in that you really have a couple of different peak seasons that shoulder between the winter and the heat of the summer. Part of the success of that asset is that given how hot it was in Phoenix—record heat earlier in the year—we got a lot more drive-to business earlier in the season. Typically, we see peak season in March to May and then again on the back end of the summer, September to October. Candidly, the market does quite well year-round. Briony R. Quinn: The hotel was under renovation for all of 2025 up until about September 1. That is when the hotel reopened and launched as an integrated property. Operator: And our next question will come from the line of Rich Hightower from Barclays. Your line is open. Rich Hightower: Hey. Good morning, guys. I want to go back to Briony’s comment earlier about how the over-$300 ADR hotels are outperforming pretty materially versus the rest of the portfolio. Thinking more broadly, how does a statistic like that inform things like portfolio construction or how you think about CapEx on certain hotels and the buy/sell/hold decision? Walk us through how that informs the framework. Jeffrey John Donnelly: We are not the only ones looking toward the very top end of the U.S. consumer base as being more resilient than the rest of the population. That is a trend we have seen over the last 18 months, and it is definitely something we factor into acquisition decisions. Candidly, this is not a revelation that other market participants do not also see, so the assets that cater to that part of the market are being bid up to significant premiums. We are excited that we have a number of those already in the existing portfolio and continue to look for ways to enhance them—like a L’Auberge-type project—where we can take more of our portfolio and shift it toward targeting that consumer. We also look at potential opportunities where we can add to the portfolio, but those are quite often very premiumly priced. Rich Hightower: Thanks. The middle part of my question cut out. It was also a follow-on about CapEx within that same context. How do you think about the returns? You spend the same dollars on a given hotel, but if it carries a higher rate, arguably the returns are higher simply because of that. How does it inform the CapEx program as well? Jeffrey John Donnelly: Unfortunately, you do not always spend the same amount of capital on a true luxury hotel. Some of the properties we have that are very highly rated I would not necessarily describe as five-star hotels—more like four-and-a-half. It is a subtle but important distinction because you do not spend the same amount of CapEx on luxury hotels. Some of the brands folks are familiar with, when you look at their operating margins and what their CapEx is, historically have very low returns on investment. You are trying to find situations—and this is where being independent in some of those hotels is more critical—where you can direct the CapEx to what is most critical to driving rate and profitability, rather than trying to maintain someone else’s standard. When you look at the margins on our higher-rated, more luxury resorts, they are quite high relative to what you might see from some peers who have branded luxury hotels. Rich Hightower: If you do not mind, second question: back to the Westin Seaport franchise renewal. If we were having the same situation five or ten years ago, would the outcome have been equivalent to what you achieved here, or does something imply a change in the balance of power between the brands and owners or more sophisticated owners? Walk us through the evolution. Jeffrey John Donnelly: Today’s management team probably thinks about that a little differently than in the past. We look at how we are creating flexibility at the asset level and where we can create value, whether that shows up in cash flows or in future asset value. Having one particular structure—franchise or managed—or accepting key money, what have you, may have been viewed differently in the past. We were looking more for flexibility and did not see the need for key money. Justin L. Leonard: To your question, given the brands’ focus on net unit growth and the difficulty they are having prompting incremental development, it has definitely gotten a bit friendlier on the owner side. We had a very large audience of potential brands interested in the hotel, and the inducements, compared to ten years ago, are definitely better from an owner perspective. It is not double, but is it 15% or 20% better? That is probably a fair assessment. Operator: And our next question comes from the line of Chris Darling from Green Street. Your line is open. Chris Darling: Thanks. Good morning. Circling back to the CapEx discussion and the remaining value-creation opportunity across the portfolio—whether it be franchise expirations or ROI projects—is anything more actionable in the near term, assuming continued fundamental strength? How flexible do you intend to be as it relates to the five-year CapEx plan? Jeffrey John Donnelly: There are projects that are actionable. We continue to look at timing and scope to ensure the returns we want. There are also very small projects within properties—back-of-house work or energy savings—that are not necessarily advertised but can be small projects with good returns. There is a lot of that already embedded in spending. Do not expect that CapEx number to swing around a lot. We have spent a lot of time diagramming every potential project over the next five years for all of our hotels and phasing them to make that a consistent figure and have things done on time at a level that is impactful to the property. The intent is to de-risk our future earnings volatility at the margin, and we are going to try hard to stick to that. Chris Darling: Helpful to hear. As a follow-up to the discussion around the consumer, can you elaborate on what you are seeing in out-of-room spend and how things have trended relative to expectations? Any other insights on the health of the consumer—broad-based or high-end strength relative to mid or lower end? Justin L. Leonard: In the first quarter, out-of-room spend continued to accelerate at a faster rate than hotel RevPAR. We continue to see the ability, once we get the customer on property, to get them to spend in different ways—across a number of spas throughout the portfolio and in food and beverage. We were encouraged by what we were able to do in food and beverage given it was a down group quarter. From both a revenue and profitability perspective, we saw nice lift in the outlets throughout the portfolio that drove increased food and beverage profit even when banqueting and catering were slightly down. We continue to see a customer, once on property, that continues to spend freely across ADR tiers—not just at the high end. Operator: And our next question will come from the line of Kenneth G. Billingsley from Compass Point Research. Your line is open. Kenneth G. Billingsley: Hi. Good morning. I just wanted to follow up on the World Cup. I believe you said it was 20 basis points that you have in RevPAR. Is that correct? Given the shift going on, are you seeing this becoming less of an international event and shifting to more domestic? It also seems like it is becoming more of a luxury event. In the past, have you seen last-minute booking being successful when there is an opportunity for people to go to these kinds of higher-ticket experiences? Jeffrey John Donnelly: There is not much precedent for this occurring in the U.S. I understand the initial ticket prices have been high. I personally wonder whether that has given some pause to people’s desire to attend. Ultimately, I do not think we will be seeing empty stadiums. I think they will get filled, which leads me to believe that maybe folks who were speculating on the tickets early on will end up having to capitulate and find a market-clearing price. As far as demand, from anecdotes we have had from various cities that meet with hotel councils and share data, it has been about a third, a third, a third between international demand for the tickets, domestic demand, and local demand. My takeaway is about two-thirds of the tickets are being consumed by people who will ultimately require a hotel room, but time will tell as we get closer. Operator: Thank you. And as a reminder, to ask a question, that is star 11. One moment for our next question. Our next question will come from the line of Floris van Dijkum from Ladenburg Thalmann. Your line is open. Floris van Dijkum: Hi. Good morning. This is Eduardo on for Floris. Thank you for taking the question. Can you talk about how you reserve for potential bonus payments to third-party operators this year? Justin L. Leonard: Generally, bonus thresholds are multi-tiered throughout our properties, and a lot of them have a gatekeeper around financial performance and financial performance relative to budget. That was one of the upticks we saw in labor costs in the first quarter because we have a number of properties that are exceeding their operating budget for the year and expect to exceed operating budget for the year. It is something we track actively to make sure we are accruing the appropriate amount of incentive compensation for performers that are outperforming expectations. Jeffrey John Donnelly: It is an important distinction because accruing for it mitigates risk. Compared to hotels that do not accrue for it, there can be a year-end surprise on the labor expense side with a true-up on bonuses owed at year end. We accrue throughout the year. Operator: I am not showing any further questions in the queue. I would like to turn it back over to Jeff for any closing remarks. Jeffrey John Donnelly: Thank you, folks, for dialing in. I know it has been a busy week, but we look forward to seeing you soon. Have a good summer. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde plc First Quarter 2026 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir. Abby, thank you. Juan Pelaez: Good morning, everyone, and thanks for attending our 2026 First Quarter Earnings Call and Webcast. I'm Bob Bedaez, Head of Investor Relations, and I'm joined this morning by Matt White, Chief Financial Officer. Today's presentation materials are available on our website at littie.com in the Investors section. Please read the forward-looking statement disclosure on Page 2 of the slides and note that it applies to all statements made during this teleconference. Reconciliations of the adjusted numbers are in the appendix to this presentation. Matt will provide some opening remarks. I'll give an update on Linde plc's first quarter financial performance, and then Matt will finish the updated outlook, after which we will wrap up with Q&A. Now turn the call over to Matt. Matthew White: Thanks, Juan. Good morning, everyone. The Linde plc team delivered another solid quarter against a challenging economic backdrop. EPS of $4.33 grew 10%. Operating margins reached 30%. And return on capital remained at a healthy level of 24%. The high-quality compounding growth of our company no matter what the environment is a testament to the unwavering commitment of all 65 employees to create shareholder value. And given the recent geopolitical volatility, it may be helpful to provide a brief update by end market, which you can find on Slide 3. As a reminder, the top half shows consumer-related end markets, at approximately one third of sales, while the bottom half represents industrial-related markets for the remaining two thirds. The growth rates reflect price and volume but exclude FX or M&A. Starting at the top, health care at 16% of global sales grew 1% year-over-year. We provide gases, equipment, and services to medical institutions such as hospitals, and direct to the home. Normally, a resilient market like this should grow in line with demographic trends, or low- to mid-single-digit percent. And while we are experiencing those growth rates in most countries, the US home care business has been relatively flat. In late 2025, a new US health care policy resulted in less services for a specific piece of equipment which is reflected in the current run rate and will continue for the next several quarters. Aside from this particular issue, the rest of health care is performing as anticipated while providing a resilient balance to the more cyclical markets. At 9% of sales, food and beverage grew 5% from broad-based strength. The largest contributor is the US beverage business, where we continue to see increased customer need for new services and applications. In addition, traditional bottling and food freezing growth remain quite strong, especially in North and South America. Overall, food and beverage has grown mid- to high-single digits over the last several years, and is expected to remain a steady contributor. Electronics increased the most at 10%, primarily driven by continued investments in advanced chips to support AI. The growth is heavily weighted toward the US, China, and Korea, since our substantial electronic sales in Taiwan are excluded as a nonconsolidated 50% joint venture. As both the scale and industrial gas intensity continue to expand in this sector, Linde plc remains well positioned. We are currently investing more than $1 billion of the project backlog for ultra-high-purity plants, which will support the most advanced fabs in the world. And there is more to come, as we have a high degree of confidence in adding substantial new projects to the backlog this year. Moving to industrial end markets, you can see growth across the board, which supports the notion we are starting to lap more difficult comps after years of stagnant industrial activity. Chemicals and energy, representing 22% of sales, increased 3% as growth in Americas and APAC more than offset contractions in EMEA. Americas was driven by higher activity hydrogen and nitrogen in US Gold Coast refining, and Latin American upstream energy. While APAC increases primarily came from our recent investments in the Jurong Island integrated complex. EMEA continues to experience negative volumes primarily from on-site customers shifting production to more competitive assets outside Continental Europe. It remains to be seen what the longer-term effects could be for the Middle East conflict. But so far, it appears activity is relocating to more feedstock-advantaged assets in Americas and, to a lesser extent, APAC. And while we are on this topic, think it is worth providing a brief update on our helium business. Helium was in oversupply for a few years, 2025. But recent events have created acute global shortages. Linde plc sources from a very broad based since supply chain constraints are a recurring challenge. Therefore, we are currently well positioned despite some of the recent outages. Given our business is largely contracted, the priority is to meet existing customer commitments. After that, we still anticipate excess molecules allowing us to pursue new, multiyear contracts with high-quality customers. Therefore, I do not anticipate significant spot sales this year since we are focused on securing long-term agreements. Returning to the end market slide, metals and mining grew 3%. Similar to chemicals and energy, the entire growth is coming from Americas, as both APAC and EMEA are relatively flat. A combination of better industrial activity and protectionist policies from US to Latin America have supported local metals production over imports. Furthermore, we are seeing renewed competitiveness from customers of more gas-intensive integrated blast furnaces when compared to EAS, primarily from constraints associated with cost-effective SCRAM, and electrical infrastructure. The last industrial end market of manufacturing grew 5%. Half of the increase came from aerospace activity in the United States, primarily supporting space vehicle production, testing, and launch. As this venues continues to see strong double-digit percent growth, we will isolate aerospace as a separate end market when it consistently exceeds 5% or more of global sales, which will be a function of the frequencies, size, and propellant type of future space launch. Excluding aerospace, the remaining end market grew low single-digit percent, as strength across the Americas, especially in the US, was partially offset by continued weakness in EMEA, while APAC slightly improved over last year. Within the US, packaged gases grew mid-single digit and hard goods double-digit percent, which aligns with the recent favorable US production statistics. In Hargus, growth was balanced between consumables and equipment, and driven by energy, construction, and general metal fabrication. EMEA activity was softer, from continued weak industrial activity including direct and indirect impacts from the Middle East conflict. And in APAC, we experienced moderate volume growth driven by China and Southeast Asia. In summary, the portfolio is doing what one would expect. As geopolitical events shift production around the world and secular growth trends drive concentrated investments, our business units continue to adapt and capture their fair share. And while no one can predict how the next few months will play out, let alone the next few years, I am confident the lending team can navigate the volatility and continue to deliver high-quality compounding growth. And I will turn the call over to Juan to walk through the financial results. Juan Pelaez: Matt, thank you. Please turn to Slide 4 for our consolidated results. Sales of $8.8 billion were up 8% year-over-year, and flat sequentially. Versus prior year, foreign currency was a 5% tailwind driven primarily by the strengthening of the euro. Net acquisitions contributed 1% from attractive roll-ups we have been executing globally. This quarter alone, we signed nine more bolt-on acquisitions. Primarily in the Americas. Which will continue adding to future EPS growth. Underlying sales increased 3% versus last year, 2% higher pricing, and 1% higher volumes. Volume increase was driven by the project start-ups, primarily in APAC. Both Americas and APAC continue to see base volume growth but it was mostly offset by EMEA, due to the weaker economic activity in the region. Sequentially, underlying sales were flat as higher pricing was offset by lower volumes, mainly in APAC and EMEA. The lower volumes were driven by seasonal factors, especially in APAC, followed by EMEA where we continue experiencing weaker trends in the industrial end markets. Price continues to drive underlying sales growth, highly correlated to local inflation levels. Recall that actual price increases are higher for the combined packaged and merchant gases, which represent roughly two thirds of total sales. Operating profit of $2.6 billion increased 8% year-over-year and resulted in a margin of 30%, similar to prior year. Sequentially, margins improved 50 basis points, driven by management actions and pricing and cost productivity that more than compensated for seasonal volume declines. We expect management actions to continue to support profit growth and margin expansion for 2026. EPS of $4.33 was 10% over prior year, or 5% when excluding the effects of currency translation. We finished the quarter slightly above the top end of the guidance range due to better effects as the business performed as anticipated, considering the many challenges globally. Operating cash flow was $2.2 billion, 4% higher than prior year. Capital expenditures were $1.3 billion, and as a result, our free cash flow was $900 million, which we used primarily to pay dividends and repurchase shares. The CapEx of $1.3 billion was roughly split between base CapEx and project backlog. Have in mind that base CapEx is primarily maintenance and all other growth investments not meeting our stringent backlog definition, for example, current investments to serve commercial space. In this quarter, we started up 10 projects from the sale-of-gas backlog, mostly in Americas and APAC, with investments of approximately $300 million. Furthermore, we signed five new projects that added $100 million to the sale-of-gas backlog, which ended the quarter at $7.1 billion. Industry-leading return on capital ended the quarter at 23.8%, a reflection of capital discipline, consistent earnings growth, and good backlog execution. Slide 5 provides further details on quarterly management. The operating cash flow trend can be seen to the left, with the most recent quarter of $2.2 billion. Note, the first half of the year is weaker due to the seasonality of cash payment timing for interest, taxes, and incentives. For 2026, we anticipate a similar trend as last year. To the right of the slide, you will find a pie chart that demonstrates the balance across investing into the business and returning capital to shareholders. Disciplined capital allocation is a hallmark at Linde plc and is something that differentiates us from others. During the quarter, we raised the annual dividend by 7%, making it 33 consecutive years of dividend growth with an average growth rate of 13%. We also repurchased $800 million of stock during the quarter, while reinvesting almost $1.5 billion into the business. Our cap allocation model remains consistent across all environments. In periods of uncertainty and volatility like today, a fortress balance sheet is critical, not only to maintain stability, but also to capitalize on growth and share repurchase opportunities as they arise. Thank you. I'll now turn the call over to Matt, who will wrap up with the guidance update. Matthew White: Slide 6 provides the updated 2026 guidance. Starting with the second quarter, we anticipate EPS in the range of $4.40 to $4.50, or 8% to 10% growth. This includes a 1% currency benefit but, consistent with prior quarters, assumes no economic improvement at the midpoint. For the full year, we are updating to a new range of $17.60 to $17.90, or 7% to 9% growth. Like the second quarter, this includes a 1% currency tailwind, and assumes no economic improvement at the midpoint. Also note, both ranges do not include any improvements in the helium business versus the February guidance. So any incremental volumes or price would be upside. And when compared to the prior guidance, we raised the bottom by $0.20 from increased confidence in the overall business resiliency. However, we left the top at $17.90 because it is still early to signal increased optimism. There are a lot of things happening in the world right now. And I would like a few more months before considering a top-end raise. Overall, we had a decent start to the year, but remain guarded until we see more clarity on current geopolitical events. We will now open the call for questions. Operator: Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is 1 to join the queue. And our first question comes from the line of Laurent Favre with BNP Paribas. Your line is open. Laurent Favre: Yes. Good morning, guys. Thank you. My first question is on margins. You mentioned a strong improvement in the Americas, and I was wondering if you could talk about, I guess, the big moving parts of why, while Europe was flat, Asia down. Is it helium? Is it the rapid cost inflation in March which created the temporary squeeze? Any help there would be very helpful. And as a follow-up, you mentioned that you would disclose spaces when you get to 5% of the group, which is about $1.7 billion. And I think recently or on the prior call, you mentioned that you thought sales in commercial space would get to about $1 billion by the end of the decade. So I am just wondering, I mean, are you now thinking that we may get to $1.7 billion by the end of the decade? It is a big change. Matthew White: Sure, Laurent. I'll start with, and we said this last time, but I just want to reiterate it again this time. On a full-year basis, we feel pretty confident we are not only going to raise margins for the full year 2026, but probably at the upper end or even above our traditional range that we tend to talk about of 40 to 60 basis points. Now stating that on the full year, you are always going to have some moving parts within the quarters. I think when you think about Europe, clearly, the volume is a bit of a drag. You know, I think within EMEA as a whole, we mentioned on the call between a combination of the overall weaker industrial environment, weaker chemicals environment, add to it both direct and indirect impacts from the current Middle East conflict, you know, we are just not seeing the volume recovery there. But I could tell you we are not happy with the performance. The business team is taking actions to improve that. They know that. So I expect to see some improvements there in Europe. With APAC, you know, we did mention on the backup slides, we had about half of the sales growth was a sale of equipment. But, actually, it is equipment that is connected to long-term merchant contracts and electronics. So that does come with future contracted merchant sales. But that will tend to be a little bit lower margin on average. It is a kind of a one-off. But also, as you know, Q1 is traditionally weaker in APAC just given some of the seasonality effects. So I expect APAC to kind of get back up to the 29-type percent margins we saw year as the team there continues to work towards improving that. So some of it is timing. Some of it is just a little bit of some effects on the volume. But, on the full year, we fully expect to not only raise margins, but probably the top end or above. And, again, this is all ex pass-through, up or down, as you know, which is just more optics on the margin and no real effect of profit dollars. So, Laurent, I mean, I'll start with look. We feel very good about our positioning to support the space economy as that develops. Clearly, in the US, you are seeing that much more rapidly with the private commercial space sector. But even across outside the US, we are definitely seeing acceleration in those efforts. Controlling the customer, that is going to be their determination on launch. But it is like I mentioned on the call, it is going to be a function of frequency, size, and propellant type. And what that means, you know, I think frequency is self-evident, how many launches occur. With size, it could be dramatically different. Much larger rockets and much larger booster systems can use orders of magnitude higher of propellant. As you can imagine, something, for example, the largest rockets out there versus smaller ones, you could see 10x difference on fuel and propellant. And then the fuel or propellant type is important because while we supply oxygen for the oxidizer and nitrogen for densification, there are really three types today you will see, which is either kerosene, methane, or hydrogen. Obviously, we supply hydrogen. We do not supply the other two. We would do only sale of equipment for things like LNG. And so if you do see more hydrogen-based rockets, that could also accelerate the growth for us depending on the fuel type used. So we feel pretty good about it. You look at the ambition on getting satellites and constellations in space today. You look at the existing population and what needs to be replaced in low Earth orbit roughly every five years. I think it continues to bode well for launch. And not only the major players, but there is more room for maybe some new players that can be supporting the demand out there to get more constellations in space. So we will see where it ends up. I think it will all be a function of the launch cadence. But we feel quite good about our positioning to supply that when it happens. Operator: And our next question comes from the line of Patrick Cunningham with Citi. Your line is open. Patrick Cunningham: Hi, good morning. Thanks for taking my question. I guess, first, as you think of maybe the longer-term implications of this crisis, it seems like there is probably a heightened focus on energy security, deglobalization. So I am curious as to how you are thinking about the potential for how potential conventional energy and energy transition projects should trend as a result? Got it. And just on European, you know, sort of outlook, how should we think about on-site volumes and potential earnings upside for the balance of the year? I think despite some of the feedstock and energy challenges, we have heard some more advantaged or flexible refining and pet chem assets running a bit harder sort of month-to-date. So how do you square that with sort of the outlook? What are sort of the puts and takes in terms of mix there as well? Matthew White: Yes. Thanks, Patrick. I mean, the natural reaction is exactly like you stated. Right? Energy independence will be more accelerated. You know, one can argue we have already been deglobalizing as a global economy and this may have accelerated some of that. But energy security continues to get a lot of highlight and spotlight when you see these supply-type shocks that occur. But my opinion, ultimately, it still comes down to economics and ability. So while renewable energy will continue to be an area of high interest, it is still going to require government intervention. It will require some support, sponsorship, potentially some kind of subsidies as we have seen in certain geographies. And so I think without that, it is hard to see that happen on its own as we have seen. But, time will tell. I think as far as other hydrocarbons, I absolutely believe you will see more of that. You know, clearly, with other LNG and areas that are probably less of concern, countries, you could see areas like oil sands of Canada become more interesting. Again, just given that the exploration risk is almost nonexistent. They know the product is there. It is just more of a logistics challenge to get it seaborne or to get it, you know, piped to where it is needed. So I just think that some of the more traditional areas will get another hard look given the uncertainties in the hydrocarbon space. I do think you will get renewed interest in renewables, but, again, without the support of government to help that on everything from right of ways to land to permitting to bridging some of the economics, it will be hard to see that accelerate at a clip that people want it to. I think we do have some on-site that are running well that you could argue are state champions or regional champions. But on the flip side, we have definitely seen some shift production. Right? And they are shifting into some of the assets we supply in other geographies, primarily in Americas. You know, I do think part of it also in Europe right now, in my opinion, you have a bit of a challenge with some of the uncertainties, right, around energy policy, around some of the environmental policy. Clearly, there is a lot of imports and not just on the base material sides, but on the finished goods sides as well. And so at this point, it is hard to see how all of those factors will create any significant change without some catalyst. You know? And whether that catalyst is some type of restrictive import policy or more clarity on the environmental policy, clearly, with the IAA, that could help. I think it just needs that that money needs to find its way on the ground. If it does, that could help turn some of that around. So that is, to me, what we just need to see. If we see a catalyst there of some significant type, it should help. And it could be anywhere from maybe some import restrictions to the IAA hitting the ground. But aside from that, it is hard to see a major shift. Operator: And our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Vincent Andrews: Thank you, good morning. Matt, circling back on the space side of the equation and the idea of getting to that 5% of sales. Do you have the capacity you need to get there, or should we be anticipating some type of capacity increase, maybe it is in different geographies? And would you do that in concert with customers, or would you do that on your own and make it more of a merchant business? How should we be thinking about it? Matthew White: Yeah. Sure. I think it is really in concert with customers. My opinion, you have several launch providers that are doing a variety of different engine testing, you know, that could do static testing, gimbal testing, whatever they are doing. And the locations they want to do that could very well be different than where their pad is where they will launch. Once they start migrating to more frequent launches, which can migrate from, you know, wet dress rehearsals all the way to full launch, you are going to want to make sure logistically you are as close to the pad as you can be. So from my perspective, you know, we are working with the major launch providers and also a lot of the up-and-coming providers to make sure that we have the capacity and the contractual relationships to support them and their ambition. And the way it kind of works is, you know, in the early stages, you are probably going to do longer logistics hauls when it is more infrequent and intermittent. And then as they get on to a better cadence, then you start talking about new requirements contracts in supporting a more stable launch cycle that you put closer. And so you eliminate the logistics costs, which obviously makes their costs lower on the propellant. So it is a combination. It will be sale of gas. It also could be some sale of plant. We do both. We support. It is very similar to what you would see in the large on-site where at times we have sold plants and sell a gas, and we would literally run the system of all the plants. So I think that is what you are seeing. And as you can imagine, there are some very specific areas where the launch sites are concentrated, given FAA regs and what you need to do around that for the airspace. And so that is where we have a very strong capacity today, and we are working to secure more contracts with our customers for the future launch needs. Operator: And our next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open. Duffy Fischer: Yes. Good morning, guys. By far, the most incoming questions I am getting on you guys is around helium. And I know you guys talk about it being kind of a small part of your business, but in the last supply shock we had with Russia, you did see pricing start to roll into some of the contractual business. I guess, how do you see this supply shock playing out differently than what the Russian supply shock did? And how long would the strait have to be closed before you would start to see some of that pricing roll through your contractual business? Matthew White: Sure, Duffy. Yeah. Maybe I can level set it with, you know, what are we seeing in helium in the first quarter? So I'll start with our helium business depending on the time, we are anywhere from 85% to 90% contracted on our customer base. So that is kind of a starting point. And when I look at Q1 year-over-year, our global helium sales for the most part were roughly flat. And what we saw was a couple percentage decline in pricing year-on-year and a couple percentage increase on volumes year-on-year. Now as you know, with the Iranian conflict, it sort of happened two thirds into the quarter. So one can roughly argue you had kind of two months before and one month after, based on the date. And what we saw, we have been seeing the pricing rise on the average pricing. So even though we are a few percent below, pre and post that, there is a difference. And likely, that price will continue to go up and roll its way through. I fully would anticipate that to happen throughout the year. Separately, our volumes are up, and we have actually already secured some long-term agreements. I fully expect we will secure more long-term agreements. That is our priority. And that is how I would see that play out. Now when you think about the helium situation, you have two sort of distinct issues happening at once. You obviously have the strayed over moose with Cutter and their inability to get product out and also the question of how much capacity is out for multi years based on damage. Separate and distinct, you have this Russian issue going on, which is probably a little more political in nature. We do not take Russian supplies, as you can imagine, but that is having an effect primarily on the Chinese market. That one could fix itself much quicker, as you could imagine. And so that one, we will see how long that lasts. But I think, either way, you know, the way we build the guidance just did not want to take a view either way. We just left it as we had it. But when opportunity presents itself both on pricing and volume, that will be incremental. And that is something we will get above how this is guided today. Operator: And our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open. David Begleiter: Matt, on electronics, I know you are expecting a couple of large contracts this year. Are they still in progress for 2026? And just on Woodside, there has been some confusion, some conflicting news stories. Can you level set us as to where you stand on that project and what is embedded in 2026 guidance? Matthew White: Yeah, David. So consistent with how the prepared remarks, we have a pretty high degree of confidence that we will be announcing some here shortly. And when I think about the project backlog itself for sale of gas, we are sitting a little over $7 billion right now. And I would look to these being added. And based on some timing of some other projects, I would fully expect us to have a higher backlog by end of year based on this. Higher than the $7 billion and could potentially have an eight handle on it, based on this. So we feel pretty good about that. And that is something I expect in a few months we will be able to lay out there. Sure. Yeah. I think, David, you may recall in prior conversations, we described this project and other very, very large projects like it. They tend to phase in how they start up. You will start up pieces and phases. And, originally, our expectations were that we would be bringing nitrogen on mid this year, and then the ATR and what is called the TNS for the sequestration back end of this year. And the reason was so they could make gray hydrogen as soon as possible, and then convert it to blue by end of year. And on the nitrogen, we still fully expect that. So that would be a pro rata, so to speak, startup on the backlog this quarter. But on the ATR and the TNS, that has slipped a few months into essentially Q1 of next year. You know, the construction and subcontractor environment in the US Gold Coast remains challenging. So and we have had some delays there. But I rest assured the team is 100% focused on this to get this up as fast, as safe, and as reliably as possible. So that is our focus, but this slip has caused a little bit of that. So my expectation in that project is you will have a small portion contributing to the startup this year through the atmospheric side of it. And then the hydrogen and TNS side will kick into probably Q1 of next year. Operator: And our next question comes from the line of Josh Spector with UBS. Your line is open. Josh Spector: Yes. Hi. Good morning. I was wondering if you could talk about the overall volume landscape across kind of the two major areas here between Asia and then Europe and the Americas. I mean, understanding your guidance is kind of no economic improvement, but just the geographic location of your assets relative to where there is disruption, it would seem like there is probably some volume benefits on the Americas and Europe side versus Asia. I would be curious, one, is that right, or is there more disruption in Asia that makes it kind of even? Then also, if you can comment just in your North America specifically, are you seeing any kind of benefits from what we have seen from positive PMIs the last few months? Thanks. If I could just also quickly clarify a prior question. Is that when you have talked about commercial space getting to $1 billion, my understanding is that was more commercial space launch. You have another $600 million plus in commercial aero that is more of the coatings business. So your prior comments were more that maybe you get to that 5% in 2030 time frame maybe. And then maybe your comments today about some of the disclosures, maybe you can get there sooner than expected. Is that the right interpretation, or do I have it wrong? Matthew White: Yeah, Josh. So let me start with the first part. Definitely, we are seeing improvements in Americas. On the dislocation or shifting of product, we are seeing some contraction in EMEA. And both Continental Europe. Now we have a very, very small Middle East business, but as you can imagine, that is most impacted as a percentage basis. But Continental Europe itself, we also saw some drag there. And then APAC for us is relatively neutral to slightly positive. So when you kind of break those three down, in Americas, as I mentioned on the prepared remarks, we are seeing not only benefits in the US Gulf Coast refining. I mean, you think about refining in the US Gulf Coast, you tend to have very high Nelson complexity. You have ability to use a variety of slates of crude. And so given where the three one spreads have gone, given their ability to manage some of the crude spread, I think they are in a very, very strong position. And a lot of their product is supplied via the continent, and so they can take advantage of that, and we have seen that. We have also seen Latin American upstream improvements, given the price of seaborne Brent. It just makes it more attractive for them to produce. So we have clearly seen that. In EMEA, you have seen, as we mentioned, some of the chemicals was one of our weaker performing chemicals and energy, as we have seen some reduced volumes on that front. APAC, you know, I think with APAC, there is probably it is a tale of two stories in the sense that, you know, certain countries are very negatively impacted, but we really do not supply them. When you think about Japan or certain industrial markets maybe in Korea, where they rely on seaborne delivery for some of their hydrocarbon chains, that is very negatively affected. Right? Whether it is NASA or LNG or oil. But we are really not supplying many of those. We have no presence in Japan. On the flip side, coal-to-x, you know, coal to chemicals or coal to something, in China is actually performing better. And we are seeing that. We have several customers that are c-to-x customers within China. They do have an advantage in this scenario. So the simple way I think about it is, you know, if your feedstock is coming on a ship, it is probably a tough scenario for you. But if it is land-based, right, either a pipeline or maybe even a rail car, you are probably in a little bit better position. And that is kind of how I would say we are seeing it play out today. As far as the PMI, yeah. That was kind of per the prepared remarks. You know, our hard goods business is up double-digit percent right now. The US package business. Our packaged gases are up mid-single digit. And, really, where we are seeing that strength is on some of the construction energy side, which you can imagine plays a little bit to some of the hyperscaler constructions and things you are seeing on that front. And so I think that continues to be good. Metal fabrication continues to be strong. So we have really seen that pickup across. And then on the hard goods, it is really split between consumables and equipment, which is a healthy split. I think you are absolutely seeing that positive benefit from the US PMI prints. No. I think you are right, Josh. I mean, look. I have used the word aviation within aerospace. And, yes, aviation is a very different animal. That is for primarily jet engines. That business is doing quite well. Addition. But you know, the one that is always the same, never give a number in a year. Right? But I think we put something out there to give us enough room to do it. But we feel quite good on not just our propellant launch infrastructure and capability, but even when you get to things like electric propulsion, for positioning of space vehicles on things like xenon, krypton, argon. And so when you add all the opportunities together, yeah, I think feel pretty good about our ability to grow this business quite well. And, really, like I said, it will just be a function of the space line. But you are right that any of those numbers fully exclude aviation or anything to do with land-based pieces around jets or jet engines. Operator: And our next question comes from the line of Matthew DeYoe with Bank of America. Your line is open. Matthew DeYoe: Morning. European energy prices clearly up from pre-conflict levels, and I know it gets passed through on on-site. But how are you managing market, merchant and package pricing? Is this going to be something where you go out with structural price or you surcharge? Is it not enough inflation yet to be pushing price more in Europe than normal? And if you are, what should we think about as being kind of the year-over-year price traction for the EMEA market come, like, April? Matthew White: So, Matt, the way to think about it is, is it a sustained increase in energy, or is it a volatile up and down? Right now, so far, it has been volatile up and down. When it is volatile up and down, it is surcharging. That goes up. That goes down. And that is what we are seeing. When you see a sustained long range, it eventually then it becomes price. And it starts to work its way into the overall inflation of the market. You know, 2021 was an example—2022, I should say. In early 2022, as that evolved throughout the year, you saw a more sustained impact to inflation that worked its way through the entire economy. It started as surcharges. It eventually became price. Right now, it is just surcharges. But if it does stay sustained and you start to see it show up in a lot of the major basic inflation metrics, then it does find its way in the price. That is the way I would characterize it today, and time will tell how that plays out. Operator: And our next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Michael Sison: Hey, guys. Good morning. You know, this, I guess it is going to be, what, the third or fourth year of no economic improvement for industrial demand. I cannot imagine the Iran conflict is going to help that move in the right direction. So just curious, what do you think this sort of needs to happen as it seems like overall, there has been some impairment for industrials? And what do you think needs to happen to get that overall globally to improve over time? And then a quick follow-up for chemicals and energy. You know, sales were up 3% in the first quarter on Slide 3. What do you think the run rate of that is heading into 2Q? I would imagine March was much stronger than the other two months, given the conflict. Just curious where that segment is sort of moving into this quarter. Matthew White: Well, Mike, I think some level of stability always helps. Right? When you think about industrial demand, at least in my opinion, it tends to be large items, nondurable or durable goods. Nonresi infrastructure. And to embark on those kinds of projects, they usually require financing. They usually require a long-range view on a return profile. They usually require some form of government engagement support. And so right now, it has been a little volatile. It has been volatile in the macro. One can argue in certain micropolitics and microeconomics it has been volatile in certain countries. And so I think that has been part of the challenge. Additionally, you know, the service economy, the consumer has been pretty resilient over the last few years, which has held GDP up. If that changes, I think that could actually ironically bode well for industrials. Because then there could be more call to action to support injections into economies. You could argue that IAA to some extent is that. Right? You have seen continued lagging in Europe. And they have made determination they need to inject capital into the economy. And that capital tends to be more industrial intensive. Now it has to reach the ground. It has to have clarity around its use and its ability to be deployed. But that is kind of the type of catalyst. And, look. I think the Americas and the US especially has been a little bit of an indicator that to some extent, certain placed protectionist policies can work. I mean, we have seen it in the metals. We have seen it in some other areas. Yes. It brings some confusion initially, but the US has seemed to bounce back. And so we all know there is excess capacity in certain markets in the world. We kind of know where it is coming from. And so I think it is really a function of who is making the capacity for what. So we will see. I think right now, though, the Americas, we continue to feel pretty bullish on and the trajectory it is on. And as I mentioned, I think with EMEA, it really is going to come down at some catalysts to try and change that trajectory. And APAC is fine right now. I think APAC is—we are seeing certain geographies do better than others, clearly. But our Chinese business is very stable. India is growing. And we will just have to see how the rest play out. It is led by the Americas, as mentioned. And really have not seen any reason that that should decline or abate. I think the strength is still there and is still anticipated. And the comps, as I mentioned, definitely get a little easier here on out. It starts to lap, as we mentioned, a couple years of some industrial stagnant conditions. We will see, but I feel pretty good it will remain positive throughout the year, and we will have to see how much it remains positive. Operator: And our next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: Thanks very much. In your commentary on the Americas for the first quarter, you talked about weakness in chemicals and energy end markets, and, you know, I assume that that will strengthen. So as a base case, should volume of, you know, 2% year-over-year move up to, I do not know, three or more in second quarter? And, you know, are there also pricing opportunities because energy and chemicals are better? And then secondly, your other income in the quarter was $63 million versus $26 million a year ago. What happened there? And was the currency benefit in the quarter about 3% on EPS or maybe $80 million pretax? Or do you have a different number? Matthew White: So, Jim, I think with chemicals and energy, yeah, we are better in Americas but weaker in EMEA, as mentioned. I think this is mostly on-site. So the pricing will just be a function of the annual escalation, which the contract would state. That being said, we are seeing some more merchant activity for upstream oil, primarily Latin America, which offers an opportunity for further volume expansion. So I feel pretty good about the Americas' position, competitiveness, and capability in chemicals and energy. You know, as mentioned before, it has been on a good trend, and I would expect that to continue. And, recall, there were a little bit of some normal weather aspects that happened in Q1, which could always dampen it a little bit. And you get through that Q2. So we feel pretty good about what we could see in Q2 on those trends. And, again, it always comes down to my mind to the same basic situation, which is the lowest-cost suppliers in this environment tend to win in these times of supply shock stress. And when you think about a lot of the assets in Americas, with their advantaged feedstock, their infrastructure, their capabilities, the complexity they can handle, they tend to be some of the lowest cost and best producers in these environments. And so I feel pretty good about how they will perform looking forward and especially in the near term. Okay. So let us just take the second question first. On FX, the simple way to think about it is just take whatever we put in the sales variance. So in this case, we had the 5% globally, and that pretty much drops all the way down. That is sales, that is SG&A, that is operating income, that is EPS. Because of the way our business is structured, it is very localized. And so our exposure to sales on translation is quite similar to our exposure to costs. So 5% would be that impact. As far as other income, yeah. You know, in the last few years, other income has been anywhere from $100 million to $200 million. I would expect this year for the full year, we will be on the lower end of that range. And to sort of characterize what is there. Right? It is operating income. It is part of operations. But we tend to put things there that usually are settlements, could be time lags, could be gains, losses on sales of things. So we put it there generally to isolate it so it does not get embedded into the sales and cost of goods sold from a trending perspective. So in this particular quarter, we had a gain on a sale. It was a cash gain. It was a real gain. But that basically created that. I do not expect very much in the next couple quarters. Hence, why I think the full year will probably be in the lower end of the range from the last couple years. Operator: And our next question comes from the line of John Roberts with Mizuho. Your line is open. John Roberts: Thank you. Could I ask if Sanjeev is not available today? Or is this the new format for the earnings calls? I am a little confused about EMEA. I thought the shortages from the Persian Gulf conflict were so severe that Europe was actually going to have to run at higher rates. Even though it is higher cost, we are going to need most of the latent capacity in the world to run higher. And so it sounds like you are still expecting it to be soft in June in EMEA. Matthew White: So, John, yeah, if you may recall in the past, we have always kind of alternated, and sometimes Sanjeev would be on or Steve would be on or not, and Sanjeev would kind of evolve to that. So now he is not on today, but he will definitely be on in a future call. Well, let us start with, as you know, the guidance of what we said is no economic improvement at midpoint. So that is just the baseline based on the guidance. So if you take that and extend it out, what it is implying is what we are seeing in Q1 just continues going forward. Whether or not it improves, we will see. But from what we experienced in our EMEA in Q1 on the on-site chemicals and energy on a year-over-year basis, we saw a decline based on the effects from those operating assets of the— John Roberts: Okay. Thank you. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open. Kevin McCarthy: Yes. Thank you, and good morning. Matt, just to follow up on the volume discussion. If I look at your Americas number of plus two, I think that is the best that you have posted since 2022, which is coincidentally when we tend to think of the onset of the industrial recession, certainly in the chemicals industry anyway. So, you know, I am listening to you today talk about hard goods up double digits, energy and chemicals trending for the better. Do you have enough confidence to say we are now on the cyclical upswing, or do you think there is too much war-related uncertainty and potential for an oil shock to start playing offense, if you will, in the Americas? And then, wanted to follow up on helium as well. I guess my simple question would be how much incremental volume opportunity do you think may be available again, through long-term contracts that you are pursuing? Maybe you could speak to your flexibility on sourcing and how much of an inventory cushion you may be able to take advantage of here. Matthew White: So, Kevin, I always remain a little guarded. Right? I think I need to. But I sort of think about it as, you know, we have an engine here with a few cylinders. Right? And one cylinder is Americas, one is APAC, and one is EMEA. And we are not running on all three cylinders. So while the Americas both results and trend, I think, are positive, we are just not seeing that in EMEA, for example, today. So I think to see a true, what I view, global recovery, I would like to see all three running in the same direction. But time will tell how that ends up. But I feel in the Americas and, like you mentioned, the packaged gases, what we are seeing on some of the competitiveness in the US Gulf Coast, that does include commercial space, as you know. We expect that to continue to post some pretty good numbers. As far as are there offsets to that or not elsewhere in the world, that is the challenge that we need to see to kind of break out of this and start to see global positive buy. So I will say, you know, the global basis, while we showed 1% global volume, which is mostly our project backlog contribution, we did turn positive on base volumes. It is just not positive enough to round to 1% but it has started to turn positive. So we will see if that trend continues and actually breaks out and rounds to a positive base volume. But right now, you are seeing puts and takes around the world. And we will see if the comps lap to where that could be positive. Well, I mean, we feel good about our source. And we feel good about our capability to not only meet our current customer contractual commitments, but that we would have some excess molecules and assets to be able to deliver to future, new customers. As far as how much, it is really just going to be a function of the extension of this situation and where it goes. But we will be, you know, selective. We want to make sure we get the right kind of contracts that make sense with the right kind of customers that we know will make that commitment to supply. So time will tell. I mean, we have already been able to sign a few new long-term commitments. And we will just have to see how it plays out over the next several quarters. Operator: And our next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Laurence Alexander: So good morning. Two quick ones. Just first, are you seeing in any regions or significant delays in projects where you are seeing kind of the CapEx decisions at least get delayed, even if the underlying production rates are fairly stable? And secondly, if customers have to shut down capacity because of outages because of feedstock supply issues, whether government-mandated or just they cannot get the molecules, your contracts do not give them any adjustment for that. I mean, they still need to pay you the same rate or pay the full exit penalty. Is that correct? Matthew White: Okay. So first on the delays. Just to segregate now, in our backlog, no. No concern. Right? What is in our project backlog right now is moving forward as expected. No concerns on that front. As far as potential new projects to be signed with customers' willingness to go to FID, essentially sign a contract, it depends on the end market. You know, I would say, as you imagine, electronics, commercial space, you are seeing a continued very strong push to move forward with projects and investments. I think when you get to the more traditional industrial markets, it is really geographic specific right now. I think in the US, there are a lot of interest for future investments. I think places like India, you are seeing some good positive views, but in other parts of the world, not so much. So that is more of a geographic specific. You know, as far as contracts, I mean, what it gets to is force majeure language. You know, this has been something you focus on heavily in any contractual business. We have worked and tested our force majeure language over many, many decades. Economic is not a force majeure as you can imagine. And so this is something that we always will work with our customers in these scenarios. But when we build these assets, you know, we do not benefit when things go great. And in the same token, we do not take the downside when they do not. So from that perspective, we are well protected against any type of economic force majeure or other aspects of that. But it is really, you know, something that is going to be a contract-by-contract review. Operator: And our final question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open. Arun Viswanathan: Great. Thanks for taking my question. Congrats on the results. Just a quick question on the earnings algorithm. So if I heard you correctly, it sounded FX was maybe 5% contribution to Q1 of that 10% that you saw. You are guiding to 7% to 9% for the year. So do you expect FX would continue to play that contribution for the year's EPS? And if you do fall short of your 10% goal, at what point is there other actions you would consider getting up there? Maybe increased buybacks or, you know, management actions or anything else that we should consider? Thanks. Matthew White: Arun, I think with the algo, as you well know, we have the management actions. We have the capital allocation. We have the macro. If you just take the macro in isolation, yes, we put a 1% FX tailwind in the assumption. I will say, and as you probably well know, you know, we base this number on sort of the first-of-month forwards, which is about a month old. Right now, spots are better. The foreign currency strengthened since that time. So that would provide FX upside if these spots remained. But we can set that aside. You know, as far as the management actions and the capital allocation, look. We know we need to get back to that 8% to 12% range excluding macro. I think we had a little bit of a drag, as you know, with helium for a period of time. We have about percent or so drag just on the engineering business from its timing of projects, which is really more just a function of what is done as internal projects that is capitalized versus external projects for a profit. And so we have got to get through those two, and I think that can get us back into that 8% to 12% range. So we will see. You know, right now, it is 7% to 9%, kind of range we have out there. And we have got to work through to get higher than that. Right? And we know that. And so that is how I would think about it. But the algo is still intact. And we will take incremental actions if we need to bridge this further to help get us back to that double-digit EPS growth. Operator: And that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Juan Pelaez for any additional or closing remarks. Juan Pelaez: Abby, once again, nice job. Thank you, everyone, for participating in today's call. If you have any further questions, please feel free to reach out to me directly. Matthew White: Have a great day. Operator: And, ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Quarter 2026 Brookfield Renewable Corporation Earnings Results and Webcast. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Connor Teskey. Please go ahead, sir. Connor Teskey: Thank you, operator. Good morning, everyone, and thank you for joining us for our first quarter 2026 conference call. Before we begin, I would like to remind you that a copy of our news release and investor supplement can be found on our website. We also want to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks, and our future results may differ materially. For more information, you are encouraged to review our regulatory filings available on SEDAR+, EDGAR, and on our website. On today's call, we will review our first quarter 2026 performance and discuss what we are seeing today in the broader energy market and what this means for our business. We will then turn the call over to our Chief Investment Officer to discuss our approach to growth through M&A and our recently announced agreement to acquire Boralex. Patrick will then conclude the call with a discussion of our operating results, financial position, and funding activities, along with the potential simplification of our structure to a single listed corporate entity. Following our comments, we look forward to taking your questions. We had a very strong start to the year, delivering record financial results, advancing key strategic initiatives, and further strengthening our balance sheet. We generated FFO of $375 million, up 19% year-over-year and 15% on a per-unit basis, equating to $0.55 per unit. We deployed or committed $2.2 billion into growth, or $550 million net to BEP, highlighted by the privatization of Boralex, a leading global renewable platform with a significant operating base and a large and de-risked development pipeline. From a development perspective, we brought online 1.8 gigawatts of new capacity in the quarter and contracted 1.7 gigawatts of development projects from our advanced development pipeline. In addition, we continue to scale our capital recycling program, selling assets that will generate nearly $3 billion of proceeds, or over $800 million net to BEP, at returns in line with our targets. This includes the launch of Northview Energy, which represents a new and recurring way we are monetizing our de-risked assets in North America to some of the world's largest and most sophisticated private investors. We did all of this while continuing to strengthen our balance sheet, opportunistically executing almost $4 billion of financings and ending the quarter with over $4.7 billion of available liquidity. Now taking a step back and looking at the global energy market today, this past quarter we saw disruption with the outbreak of the conflict in the Middle East. First and foremost, the safety and well-being of our employees and our customers in the region remains our highest priority. We are happy to report that our teams are safe, our limited investments in the region today have not been directly impacted, and are all continuing to perform. While some markets are experiencing higher energy prices as a result of the conflict, our business is largely contracted, and therefore, we do not expect a material impact on our cash flows in the near term. What the conflict has done is put a renewed spotlight on the importance of energy security. Reliable power is the essential foundation for economic growth; without a secure, consistent, affordable supply, corporations and governments cannot confidently commit to large-scale capital investments that underpin broader economic development. This is leading governments and corporates to increasingly prioritize energy security and domestic supply, reinforcing investments in renewables, which are the lowest-cost form of generation to meet demand today and do not rely on an imported fuel, and nuclear, which can meet the growing need for large-scale baseload generation while offering a high degree of energy security with the ability to store significant amounts of fuel on-site. Against this backdrop of accelerating energy demand and an increased focus on energy security, we are bringing on more new renewable generation capacity than ever before. In the last 12 months alone, we commissioned over 9 gigawatts of new capacity, which is nearly double the capacity we delivered just two years ago, and we remain on track to increase our annual commissioning run rate to approximately 10 gigawatts per year in 2027. Another great example of how accelerating energy demand is helping drive growth in our business is with our recently announced partnership with the U.S. government to accelerate the build-out of new Westinghouse large-scale nuclear reactors in the United States. During the quarter, we made good progress advancing the development of new utility-scale reactors in the U.S., with a focus on progressing key workstreams including the ordering of long lead-time equipment for Westinghouse's proprietary AP1000 technology. In summary, the current environment is defined by the convergence of accelerating energy demand, driven by electrification, reindustrialization, and digitalization, and an increased focus on energy security. Together, these dynamics are driving the need for an any-and-all approach to energy supply and creating one of the strongest backdrops we have seen for the sector and, in turn, our business. Those with operating assets and scaled development capabilities stand to benefit the most, and we believe we are a leader on both fronts. Importantly, capturing this opportunity also requires significant access to capital, which has always been a key differentiator for our business, and in this regard, we believe we are stronger today than at any point in our history. As a result, we remain well positioned to deliver outsized earnings growth in the near term and, more importantly, we are better positioned than ever to generate significant value for our investors over the long term. With that, we will turn the call over to our Chief Investment Officer to discuss our approach to growth and our recently announced agreement to acquire Boralex. Thank you, and good morning, everyone. Unknown Speaker: In the current environment characterized by accelerating power demand and an increased focus on energy security, we are seeing some of the most compelling investment opportunities for our franchise to date, both to continue the execution of our 80-gigawatt advanced-stage development pipeline and M&A. And while the opportunity set is better than ever, our proven M&A playbook and disciplined approach to investing has not changed. Our competitive advantage from an M&A perspective stems from the fact that we are able to invest at scale globally across both public and private markets, acquire or invest in assets and businesses spanning the development life cycle, and have deep commercial and operational know-how to drive value that others cannot, broadening our opportunity set and allowing us to be highly selective in when and where we deploy capital. Our first step in identifying potential opportunities is focusing on scale platforms and businesses in attractive markets with strong and growing demand for power. We look for businesses led by experienced management teams with large portfolios of assets and expertise in mature, proven technologies. Once we have identified a potential investment opportunity, we then evaluate the quality and durability of the business's cash flows, ensuring highly contracted revenues with high credit quality counterparties that can underpin our investment returns. Lastly, we assess how we can enhance the value of the platform by leveraging our access to scale capital and differentiated capabilities through the value chain, with clearly defined initiatives in our business plan to drive sustainable growth and strong long-term returns. Some of the key initiatives we can usually execute on to help drive our returns include leveraging our commercial relationships with the largest buyers of power, including integrating newly acquired platforms into our existing frameworks such as our Microsoft and Google agreements. We are also able to leverage our global supplier relationships to enhance procurement and deliver economies of scale, as well as optimize the capital structure and provide financing for growth, supported by our strong relationships with financial institutions, significant liquidity, and robust funding sources. Taken together, these initiatives and capabilities enable us to accelerate growth across our business and support the delivery of stronger returns than others can deliver over the long term. Our recently announced privatization of Boralex, alongside Lacace, is a great example of our disciplined, repeatable, and consistent approach to value creation through M&A. Similar to our recent successful acquisitions in France and Australia, OnPath in the U.K., and acquisitions in the U.S. of Geronimo, Dureva, Scout, and OpenGrid, where we were able to acquire excellent businesses that meet our investment criteria and execute on our value-enhancing initiatives, we are now adding a leading Canadian-based platform where we can execute our proven playbook. Boralex has a strong base in its core markets, including Canada, complementing our current business and giving us an opportunity to do more in this highly attractive and growing market. Under the terms of the transaction, Lacace will increase its ownership from 15% to 30%, while BEP, alongside institutional partners, will acquire the remaining 70% of the business at an implied enterprise value of $6.5 billion. The transaction is subject to shareholder and normal course regulatory approvals and is expected to close later this year. The acquisition of Boralex is expected to contribute positively to our results on close, and we see significant opportunity to enhance value over time by accelerating growth and through the execution of our business plan to deliver outsized returns. We expect to add value following acquisition by leveraging our access to capital and commercial and supplier relationships to accelerate development across the platform. We also see an opportunity to enhance Boralex's leading position in its core markets by expanding its capabilities across technologies and delivering differentiated energy solutions, including incorporating battery storage. We expect to be able to drive efficiencies within Boralex through the sharing of best practices across Brookfield's global businesses and create value by establishing an asset recycling program within the platform, drawing on Brookfield's experience to scale asset recycling alongside development, supporting a growth model of recycling capital into higher returning opportunities. Boralex has a strong and experienced management team, and we are looking forward to supporting them with the additional resources and flexibility that come from being part of Brookfield Renewable as we work together to grow and enhance the value of the business. Going forward, we will continue to employ our disciplined approach to capital deployment. In a market where we are seeing more attractive opportunities than ever, players such as ourselves have the capabilities and capital to unlock value through M&A and execute development of our large project pipeline. With that, I will pass it on to Patrick to discuss our operating results in more detail, our financial position and funding activities, and the potential simplification of our structure to a single listed corporate entity. Thanks, and good morning to everyone on the call. Patrick Taylor: We delivered record financial results this quarter, generating FFO of $375 million, or $0.55 per unit, up 19% or 15% per unit year-over-year. In the last 12 months, we delivered $1.394 billion of FFO, or $2.08 per unit, up 13% or 12% on a per-unit basis compared to the prior-year period. Our results reflect the strength of our diversified global platform and the continued execution of our strategy. Our hydroelectric segment generated $210 million of FFO, up almost 30% year-over-year, supported by strong generation across our Canadian and Colombian fleets and a realized gain on the sale of our 25% interest in the non-core hydro portfolio in the U.S., all of which offset weaker hydrology in our U.S. operations. Our wind and solar segments delivered a combined $245 million of FFO, up over 60% year-over-year, benefiting from contributions from development, acquisitions, and accretive capital recycling across several of our platforms. Lastly, our distributed energy, storage, and sustainable solutions businesses contributed $58 million of FFO, reflecting strong development activity and continued growth at Westinghouse, driven by new reactor design and engineering work and organic growth within its core fuel and maintenance services business. Turning to our balance sheet, we continue to strengthen our financial position, completing almost $4 billion of financings across the platform in the first three months of the year alone, extending maturities, and optimizing our capital structure while ending the quarter with over $4.7 billion of available liquidity. The quarter was highlighted by the issuance of C$500 million of 30-year notes, priced at the tightest spread we have ever achieved. With this issuance, we now have an average maturity on our corporate-level debt of approximately 14 years, representing the longest average corporate maturity in our history. Put simply, during a period of significant growth and value creation, our business has the most durable and stable capital structure in its history. In addition to recent successful financings, we are also progressing recontracting initiatives on a scale portfolio of hydro assets in Ontario during the quarter, which, once signed, will support significant up-financings that we plan to execute over the course of the year, providing additional capital to deploy into growth. We also had a very strong start to the year from a capital recycling perspective, closing or agreeing to sell assets expected to generate approximately $2.8 billion, or $820 million net to BEP. Recently, we agreed to sell our remaining 50% interest in a portfolio of non-core U.S. hydro assets, crystallizing significant value we created under our ownership. We also completed the IPO of CleanMax in India, selling approximately half of our interest. With the IPO, we have returned all of our original invested capital while continuing to maintain exposure to the platform's long-term growth trajectory and generated a 25% IRR to date. We also closed a previously announced sale of a portfolio of operating solar assets in the U.S. from our Dureva platform. Our asset recycling in the quarter was also highlighted by the creation of a new private renewable vehicle focused on operating renewable assets in North America, Northview Energy, which is a partnership between BCI, Norges Bank Investment Management, and a Brookfield fund. The creation of Northview Energy is in response to the strong demand we are seeing from our institutional partners for high-quality, de-risked, infrastructure-like assets with long-term contracted and durable cash flows. We seeded the vehicle through the sale of 22 operating onshore wind and utility-scale solar assets, generating total proceeds of $1.3 billion, or $315 million net to BEP. Beyond the initial seed assets sold into the platform, the arrangement with BCI and Norges also established a framework to sell additional newly developed assets from our pipeline into the vehicle, with a framework to acquire assets generating up to an additional $1.5 billion of incremental gross proceeds over time. While Northview is the first vehicle of its kind we have launched, we continue to progress similar initiatives of meaningful scale across our global platform. During the quarter, we also launched our at-the-market equity issuance program for BEPC, which we paired with the buying of BEP units under our normal course issuer bid. In the first quarter, we issued 2.8 million BEPC shares, with proceeds from the issuance used to repurchase the same number of BEP units, resulting in approximately $27 million of realized cash gains. Lastly, as our business and the broader market continue to evolve, we remain focused on ensuring that our structure is aligned with the best interests of our shareholders. We are currently exploring whether a single combined corporate structure would better serve our investors going forward, with the goal to determine if, on a tax-free basis, we can create a single corporate security to enhance liquidity, increase index inclusion, and create value for our investors. We expect to have more details to provide later in the year as we begin our work and look forward to updating you on our progress. In closing, we remain focused on delivering 12% to 15% long-term total returns for our investors, supported by our strong operating platform, disciplined capital allocation, and our growing capital recycling program. On behalf of the board and management, we thank all our unitholders and shareholders for their ongoing support. We are excited about Brookfield Renewable Corporation's future and look forward to sharing further updates on our progress over the course of the year. That concludes our formal remarks for today's call. Connor Teskey: Thank you for joining us this morning. Patrick Taylor: And with that, I will pass it back to our operator for questions. Operator: Certainly. We will now open the call for questions. Our first question comes from the line of Sean Stewart from TD Cowen. Your question, please. Sean Stewart: Thanks. Good morning, everyone. I want to start with asset recycling. You have a lot on the go there. The magnitude is accelerating, I guess, in tandem with an expanding organic pipeline as well. Can you give us updated perspective on the cadence and magnitude of overall asset recycling plans over the next year? And you referenced the CleanMax IRR, but broader perspective on returns you are crystallizing through those initiatives. Connor Teskey: Good morning. Thanks for the question, Sean. Three things perhaps it is worth saying about capital recycling. First, the growth in our asset recycling activities is a very natural expansion of our business that is tied on a slightly lagged basis to the growth in our organic and development activities. As we have been building more and more wind, solar, and other assets in-house, we increasingly are looking to sell those down to lower-cost-of-capital buyers, capture our development margin, and redeploy that capital into accretive growth. While it has been growing incrementally in recent years, we do expect it to grow on a similar trajectory going forward, and it is increasingly becoming a very normal course and core part of our business. In terms of targets for size and scale and amount of capital recycling, we are going to continue to be entirely driven by the values we see in the market. If we see opportunities to sell assets at values above where we think they will produce within our portfolio, we will sell them for cash and redeploy that cash. Therefore, we are not working to a consistent target. But perhaps to give you some direction, at our Investor Day last year, we spoke about a $9 to $10 billion deployment of equity into growth over a five-year period, and we would expect at least a third of that capital over a five-year period to come from asset recycling—and perhaps more if we see strong values in the market. This likely brings us to the last point: we do have a fairly robust capital recycling program ahead of us in 2026, and this is purely a result of the strong bids we are seeing for both platforms as well as stabilized assets in the current market. Therefore, I would say, on balance, the returns that we are generating through this capital recycling program we are consistently seeing at the high end, or maybe even above the high end, of our target range. Sean Stewart: Thanks for that, Connor. Second question is with respect to the M&A opportunity set. The previous quarter's commentary was public equities offered a more compelling opportunity than private M&A opportunities, and that is consistent with the Boralex deal. Do you still see that gap in place and, post Boralex, can you qualify your continued M&A appetite? Connor Teskey: We continue to see both. Undoubtedly, for all the same reasons we mentioned last quarter, we continue to see opportunities in the public market. Those opportunities did not stop and end with Boralex; they continue to exist. Similar to last quarter, it is because some companies in the public market are more constrained for capital and therefore not able to capture the tremendous demand environment that we are currently operating in. We continue to see an environment where public companies with access to capital that they can use to capitalize on the really attractive demand environment are performing well, and companies that do not have the right access to capital are struggling in the public markets. Therefore, we do continue to see opportunities in the public markets, but I would highlight we are seeing a pretty robust pipeline across both private and public for the remainder of the year. Operator: Thank you. And our next question comes from the line of Mark Jarvi from CIBC. Your question, please. Mark Jarvi: Yes. Thanks. Good morning, everyone. Could you just clarify the comments you made about progress with the U.S. government with Westinghouse in terms of long-lead items? Are those long-lead items actually signed right now, and are you starting to get the support from the U.S. government at this point? If not, when does that come? Connor Teskey: Hi, Mark. This is a very live discussion, and we hope to be in a position to announce some significant progress not only in 2026 but in the near term. Since our announcement in Q4 of last year, we continue to see tremendous demand from nuclear both around the world, but particularly in the United States from both the government as well as the utilities. That demand is coming from, I would say, all stakeholders across the environment. It is coming from offtakers, it is coming from the utilities, it is coming from the government. We continue to make significant progress on establishing frameworks under which initial orders can be made, and we hope to make some announcements in that regard as soon as possible. Did that answer your question? Mark Jarvi: Yes. Sorry, my connection broke for a second there. Next question: I think there was commentary earlier in the call—you said something about outsized ability to drive growth in the near term. Is the expectation then that you can exceed 10% FFO per unit growth in the next couple of years and, if so, primary drivers of that right now? Connor Teskey: In the current environment, we do feel that we are well positioned to exceed our long-term target of 10%. This is driven by a number of things—obviously M&A in our business, the significant addition of new capacity that is coming online from organic growth, and then lastly, our ability to recycle assets at very attractive values in the current environment. There could obviously be some timing variables on each of those things, but based on the underlying fundamentals of those three drivers, we feel that for both the short and short-to-medium term, we are well positioned to exceed that 10% per year target. Mark Jarvi: And so just to follow up on that—asset sale gains would be a component. But if you put those aside, would you say the ability to drive FFO growth from the organic development and M&A side is stronger today, ex-asset selling? Connor Teskey: Yes. We would absolutely say that the operating fundamentals of our business and the organic growth profile of our business is as strong as it has ever been, and the ability to generate gains on sale above and beyond that and to recycle that capital accretively into even further growth would be upside. Operator: Thank you. And our next question comes from the line of an analyst from National Bank of Canada. Your question, please. Analyst: Hey. Good morning. Just on Northview Energy, how should we think about the cadence of future dropdowns and the potential mix of assets into this vehicle? And should we think about this as more of a steady-state annual funding lever or something that could scale more opportunistically depending on market conditions? Connor Teskey: Thank you. From BEP's perspective, it is important to recognize that we have the option but not the obligation to sell assets into Northview Energy, and the assets that fit that pool of capital are high-credit, contracted, long-duration wind and solar assets in North America at prices and go-forward returns that are very consistent with what we have seen and expect to achieve in our asset sales to third parties outside of this vehicle. This is critical, and we think immensely additive to our business because the structure helps us in de-risking our development and enabling us to fund further high-margin growth. In terms of the dropdowns and the cadence of them, we will really make two comments. One, the additional capital for future dropdowns—we expect that to be utilized, we would say, over a two-to-three, two-to-four year period, among asset sales to third parties outside of Northview. At the end of the consumption of that initial allotment of capital, we will consider what to do next. We could potentially expand this vehicle or create new vehicles, but for now we are just focused on consuming that initial commitment, which we expect will take two to four years. Analyst: Very good. Thanks, Connor. And just one more for me. On the prevailing hyperscaler agreements that you have in place, could you provide an update on how those agreements are progressing and what the potential pipeline looks like, and how conversations with such parties are evolving? Connor Teskey: There are probably two things that characterize our activity with the hyperscalers in the context of those agreements and more broadly. One is the demand—and we apologize for sounding like a broken record call after call. Demand continues to go up. It is higher today than it was last quarter, it is higher today than it was last year, and we expect it to be higher next year than it is today. The demands for energy, particularly from the hyperscalers, particularly in their core markets, continue to increase at paces we would say are significantly above previous market expectations. The other thing we are seeing in terms of our activities with the hyperscalers within those frameworks is our activities continue to broaden and evolve. I will give the example of the first framework agreement we did, which was with Microsoft, and it was really focused on wind and solar assets. We continue to contract more and more wind and solar assets with Microsoft under that arrangement, but last quarter we also contracted some hydros under a long-term contract with them, and we are now, to meet their evolving demands, increasingly looking at including battery storage either with the projects that we are contracting with them or as part of the broader arrangement with them. So the two points we would make are: the demand and the activity continues to grow and accelerate, but it also continues to broaden. We feel it is this second point where our scale and diversity continues to differentiate us in our ability to serve the largest corporate consumers of electricity. Analyst: Great. Thank you. Operator: Thank you. Our next question comes from the line of Christine Cho from Barclays. Your question, please. Christine Cho: Good morning. I just wanted to ask about this single combined corporate structure. You have been trying to increase the liquidity of BEPC for a while, so this seems like a natural progression. But can you walk through what led you to evaluate this and what is on the table other than the tax-free part of this? Could you talk about other things that need to be considered in trying to do this? And would this change how you view your distribution policy? Patrick Taylor: Hi, Christine. There is not much more that we can say other than what we have already said in our opening remarks as well as in our press release. What I will say is our focus in beginning our work is really looking at whether we can achieve a simplified structure while achieving a rollover on a tax-free basis for our investors and also try to capture some of the potential benefits around broader index inclusion and enhanced trading liquidity that we are observing among corporate securities relative to partnerships. And then lastly, just focusing on whether this can broadly create value for the entire investor base. But we cannot really say much more than what we have already said in our opening remarks, Christine. Christine Cho: Okay. Appreciate that. And then, are there any regions or technologies where execution risk has increased a little more than you would have thought, especially with the current administration, the surge in demand for power from hyperscalers, and general pushback in communities that we are seeing—whether it is on permitting, interconnection, or supply chain—that we should be more mindful of? Connor Teskey: Christine, I will take the second one. Maybe just so it does not get missed on your previous question: we would not expect any change to the corporate structure to adjust our dividend policy. I will just make sure we did not gloss over that point. In terms of what we are seeing in terms of opportunity and dynamics around different types of projects and different types of development, there are probably two or three things worth noting across our business. One is this is—pick your tagline—any-and-all or all-of-the-above type solutions. The demand for energy is going to require all types of sources. We are seeing the greatest growth in renewables because they are quick to deploy and they are cheap, but we are going to see demand across all types of energy additions to meet the demand forecast going forward. The second thing that is worth noting is, undoubtedly, the fastest growing technology across Brookfield Renewable today is batteries and energy storage. We are seeing that within all of our development platforms. We are increasingly looking at standalone energy storage opportunities. The rationale is very simple: they remove grid congestion—they do not add to it—so they solve that problem, and they are very quick to deploy. Further, this opportunity has been driven by the fact that capex for batteries and energy storage has come down 65% to 70% over the last 24 months, making these investments very economic and financially attractive. The third point—and this is probably the most insightful in terms of hitting your question head on—we are seeing a dramatic increase in interest and growth in behind-the-meter solutions. The reality is the demand trajectory ahead of us is greater than the pace at which grids can expand. Therefore, we are going to see significant expansion of electricity demand on grids, but we are increasingly seeing demand for behind-the-meter solutions. It is important to recognize that while behind-the-meter solutions are perhaps growing faster on a relative basis, they are coming off a very low base, and the vast majority of demand growth is still going to go through grids the way it has in the past, but we are seeing increasing demand for behind-the-meter solutions. Operator: Thank you. And our next question comes from the line of Nelson Ng from RBC Capital Markets. Your question, please. Nelson Ng: Great. Thanks. Connor, you previously talked about how battery storage is a pretty big opportunity. When you look at your current solar and wind portfolio, is it economic to add batteries to existing sites? And I know many of those assets are contracted, so are you seeing offtakers willing to pay that extra amount to firm up their power? Connor Teskey: Absolutely. In no uncertain terms, yes. The value proposition for batteries in today's market is very compelling for offtakers in terms of giving them a load profile that better matches their 24/7 demand curve, and we are seeing it therefore alongside existing projects, in new developments, and on a standalone basis. Nelson Ng: And then switching gears a bit. In South America, I know the environment is not great for renewable development and interest rates are really high, and you are not that active on the development front. But on the M&A side, you recently increased your stake in Isagen. Could you just talk about whether there are M&A opportunities you are seeing in South America? Connor Teskey: Certainly. In South America, we will invest when we can do so at telling risk-adjusted returns. Our more modest activity in South America over the last two or three years outside of the Isagen transaction is simply episodic. A lot of it was driven by very high hydrology and rapid build-out in Brazil that pushed prices down and made new build in that country a little less compelling for a period of time. We are seeing demand recover, we are seeing hydrology normalize in that market and strengthen again. We continue to do significant growth in Colombia, but we do it within the Isagen platform, so it does not show up as a new discrete M&A transaction. We have continued to do smaller transactions in other countries in the region, whether it be Chile or Central America. It is a compelling market. It is one where the value of waiting is not a problem. It continues to be a market we focus on and will continue to be a portion of our business going forward, albeit smaller than our core markets in North America and Western Europe. Nelson Ng: Great. Thanks, Connor. I will leave it there. Operator: Thank you. And our next question comes from the line of Anthony Crowdell from Mizuho. Your question, please. Anthony Crowdell: Hey, thanks so much. Just two quick ones if I could squeeze in. One is a follow-up from Christine's question earlier. Is there a timeline of when you hope to have a decision made on the corporate consolidation? Is it a quarter or by year-end? And then I have a follow-up on nuclear. Patrick Taylor: Hi, Anthony. We have just begun our assessment, and so we cannot really give any indicative timeline at this moment or add much more at this time. Anthony Crowdell: Great. And then on the nuclear—you talk about the success and the momentum going on with the AP1000 and the U.S. government. I am just curious, where do you see the bottleneck right now before we get an announcement? Is it on the utility side? Is it on the government side, regulatory side? What is the bottleneck before we get an announcement? Connor Teskey: Perhaps this is putting a positive spin on this, but I would not look at it as a bottleneck. The potential for new-build nuclear reactors in the United States is an immense step-change to what has been done over the past 10 or 20 years. We are talking about announcing additions in one shot that exceed 10 times what has been done over the last 15 years. Therefore, this simply requires obtaining alignment from all the stakeholders for that scale of a build-out. That includes the government, the nuclear-eligible utility operators, the offtakers, and the financing parties. We would candidly suggest that the momentum and the traction that has been made over the last six or nine months is incredibly significant and reflective of the demand for growth in the asset class, because what we are looking to do in the course of six or 12 months far exceeds what has been done in the last 10 to 15 years. So, I would not say it is a bottleneck; it is just getting alignment from all the appropriate groups, and at this point, the interest and support for getting this done is pretty overwhelming. Operator: Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to Connor Teskey for any further remarks. Connor Teskey: Thank you, everyone, for joining our earnings call this quarter. We deeply appreciate your continued support and interest in Brookfield Renewable Corporation, and we look forward to updating you following our Q2 results. Thank you, and have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Hello, everyone. Thank you for joining us, and welcome to iRhythm Holdings Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Lisa Pecora, Senior Vice President of Finance and Investor Relations, for opening remarks. Lisa Pecora: Thank you, operator, and thank you all for joining iRhythm's First Quarter 2026 Earnings Call. With me today are Quentin Blackford, iRhythm's President and Chief Executive Officer; and Dan Wilson, our Chief Financial Officer. Before we begin, please note that management will make forward-looking statements within the meaning of federal securities laws under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding our intentions, beliefs and expectations about future events, strategy, competition, products, operating plans and performance. Forward-looking statements on this call are based on current estimates and assumptions involve risks and uncertainties, and actual results may differ materially. These statements are made as of today, April 30, 2026, and are time sensitive. We undertake no obligation to update or revise them, except as required by law. Accordingly, you should not place undue reliance on these statements. For a discussion of risks and uncertainties, please refer to our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the SEC. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. These non-GAAP measures should not be considered in isolation or as a substitute for or superior to GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and the slides accompanying today's call. With that, I'll turn the call over to Quentin. Quentin Blackford: Good afternoon, everyone, and thank you for joining us. I'm pleased to be here to discuss our first quarter 2026 performance and outlook for the balance of the year. I will begin with an overview of the quarter, our strategic progress and our outlook for 2026 and beyond. Dan will then talk about our financial performance and guidance in more detail. We delivered a strong first quarter, exceeding expectations on both the top and bottom line. Revenue grew 26% year-over-year, driven by volume, and we continue to execute on our profitability improvement commitments as we expanded margins. Importantly, our performance was broad-based across Zio Monitor and Zio AT and across each of our key growth pillars, including cardiology, primary care, innovative channels and international. Our results reflect both strong execution in the core business and continued progress against the strategic priorities we believe will support durable growth over time. At the center of that strategy is our effort to expand the long-term continuous monitoring market by redefining arrhythmias are diagnosed once patients enter the diagnostic pathway. A growing body of clinical evidence now spanning more than 140 publications consistently shows that nearly 2/3 of arrhythmias are often detected only after 48 hours of monitoring, reinforcing the limitations of short duration monitoring. Yet nearly 2 million short-duration Holter and event monitors are still prescribed annually in the U.S., representing a significant opportunity to upgrade care. By continuing to shift clinical practice towards longer duration monitoring, we believe iRhythm is not only gaining share, but actively growing the market by increasing diagnostic yield and improving patient outcomes. Zio Monitor remains the foundation of our platform, supported by consistent prescribing trends, broad clinical adoption and continued growth across new channels and international markets. Zio AT also continued to advance this quarter, taking share with new account wins and expanding utilization within existing accounts. That progress came despite a challenging prior year comparison and reinforces our view of the MCT category as a durable and increasingly important contributor to the platform. One of the most important drivers of our long-term opportunity is our continued move upstream in the patient pathway. We estimate that more than 27 million people in the U.S. are at risk for arrhythmias, many of whom are first evaluated in primary care settings. As a result, primary care is becoming an increasingly important entry point for earlier detection and more proactive management. We continue to expand our reach and engagement within primary care, helping clinicians rule arrhythmias in or out while enabling cardiology to focus more efficiently on the highest acuity patients. This is not a shift away from cardiology. Rather, it expands the overall market and improves patient flow, diagnostic efficiency and care coordination across settings. A key enabler of this strategy is workflow integration. Approximately 53% of our volume now flows through EHR integrated accounts and more than 3/4 of our top 100 customers are now integrated. This level of integration is particularly valuable in primary care, where once embedded, we partner closely with our customers to help them develop best-in-class clinical pathways rather than just a transactional tool. We continue to see traction across innovative care channels with growth supported by a broad and expanding set of value-based primary care and population health partners. Activity remains consistent and repeatable, driven by both new account wins and expanding utilization within existing relationships. Importantly, as certain programs mature, we're seeing adoption broaden across both symptomatic and asymptomatic populations, reinforcing the relevance and durability of the Zio platform as care delivery continues to shift upstream and toward value-based models. International remains another emerging source of opportunity. In the U.K., we had our best quarter in company history, reflecting growing traction and validation of our model in a cost-constrained health system. In Japan, we recently received an update to the reimbursement framework that introduces a modest supplemental payment for longer duration monitoring. While the economics remain early and are not a meaningful contributor today, we view this as a positive signal that reflects growing recognition of the long-term continuous monitoring and reinforces the pathway to more favorable reimbursement as we generate local head-to-head clinical evidence. We are also making progress in adjacent markets. In sleep, our pilots continue to produce encouraging early feedback and reinforce the meaningful opportunity ahead in a U.S. market of nearly 40 million sleep apnea patients, of which there is significant overlap with arrhythmia populations. Sleep is another good example of why workflow integration matters. Sleep diagnostics today remain highly fragmented across primary care, cardiology, sleep specialists, sleep labs, home testing, interpretation and follow-up and often across disconnected systems. Our focus is not simply on introducing a new device or algorithm, but on building a streamlined end-to-end clinical workflow that simplifies how sleep diagnostics are ordered, interpreted and acted upon. As we have done in cardiac monitoring, we believe workflow simplification can create meaningful value for both providers and the healthcare system, particularly as care continues to shift upstream. From a clinical perspective, recent evidence continues to support our position and reinforces the significant opportunity ahead of us. At ACC, we shared new real-world evidence showing Zio's high diagnostic yield for clinically actionable arrhythmias across cardiometabolic risk populations, including increased risk in chronic kidney disease and rising atrial fibrillation detection with obesity. We also launched iRhythm Academy, which scales high-quality on-demand education to help clinicians adopt best practices and new advances more efficiently. At HRS, we presented new data reinforcing the superiority of Zio after AF ablation and in pregnancy. In addition, we published 2 peer-reviewed studies highlighting the clinical and utilization advantages of long-term continuous monitoring using Zio. The data show that traditional short-term monitoring often misses actionable arrhythmias and that Zio enables earlier diagnosis with fewer repeat tests across both Medicare and commercially insured patients. Taken together, these efforts reinforce 3 points. Zio long-term monitoring improves diagnostic yield. It expands relevance across broader patient populations, and it can reduce inefficiency and downstream cost, all of which are critical as we continue to expand beyond traditional symptomatic populations and move further upstream into earlier detection with the potential to lower downstream costs for the healthcare system. Consistent with that clinical expansion, recent CMS policy developments continue to emphasize objective diagnosis, quality and measurable outcomes over documentation-driven strategies. The final 2027 Medicare Advantage rate announcement reflects funding stability alongside continued tightening around risk adjustment and coding practices. This policy trajectory reinforces the importance of confirmatory diagnostics that drive accurate diagnosis and appropriate care and positions Zio well as healthcare continues to shift towards value-based models. With our vision to scale beyond traditional arhythmia monitoring, our ability to execute is supported by an integrated AI-enabled platform. We now have more than 3 billion hours of curated ECG data, and we continue to build on that foundation by combining internal and external data sets, including claims and EHR data to improve detection, identify at-risk patients earlier and enhance clinical workflows. As we continue to advance our AI predictive capabilities, we are now in our first health system deployment of predictive identification workflows integrated with iRhythm monitoring solutions, and we have an active pipeline for additional health systems to follow. Early pilots show more than 85% accuracy in pre-identifying patients with clinically relevant arrhythmias, reinforcing our conviction that iRhythm is positioned not just to detect disease, but also help predict risk earlier and ultimately prevent it. Our initial programs focus on high-risk populations, including patients with diabetes, CKD, CAD, COPD, sleep disorders and heart failure, where arrhythmias are both common and costly. These initiatives are designed to improve efficiency, quality and reduce cost of care delivery, and we look forward to real-world data being published later this year. More broadly, iRhythm's durability in an AI-driven environment is grounded in the fact that healthcare value is not created by algorithms alone. It is created by operating an end-to-end AI-embedded FDA-regulated, clinically integrated and reimbursed service at scale. Our platform is deeply embedded across leading health systems and supported by deep workflow integration, broad reimbursement, extensive clinical evidence and a proprietary ECG data set that continues to grow significantly. Coupled with the operational complexity of device programs, specialized clinical support and high regulatory scrutiny, our platform will continue to compound in value over time, particularly as we expand beyond cardiovascular into a multi-specialty intelligence platform. I'm pleased to share that same foundation is helping drive progress as we expand our AI capabilities with our new next-generation AI algorithm. Leveraging our large proprietary multibillion-hour data set, we believe this next-generation algorithm, which will be used across our entire platform of Zio Monitor, Zio AT and our future Zio MCT can reduce clinical technician review time by as much as half over time, which would improve efficiency, support future margin expansion and further strengthen our competitive position as we increase the clinical value to our patients and physicians. We submitted the 510(k) for this next-generation AI algorithm to the FDA last year alongside, albeit separate from our Zio MCT 510(k) submission. Next, I'd like to provide an update on our regulatory progress. As you know, we remain subject to an FDA warning letter. As part of our remediation efforts, we committed to address all of the agency's concerns. We also elected to go beyond the specific actions requested by the FDA, which included conducting a comprehensive review of our entire quality management system to identify and implement further improvements, which we have now completed. Consistent with our commitments to the agency, we also engaged an independent third-party to conduct a comprehensive review of our quality management system. That review was completed in the first quarter and did not identify any material observations. We believe this outcome reflects both the seriousness with which we have approached this work and the substantial progress we have made. While the timing of any action by the FDA remains with the agency, we believe the work completed to-date positions us well as the agency continues its review. With respect to our next-generation MCT program, we've made a lot of progress over the past few months and are happy to reaffirm our first half 2027 release time line. As we noted on our last earnings call, we identified a clear path to our next-generation MCT clearance, including the determination that it was in our best long-term interest to move to a new mobile gateway sooner, which would require some additional work and data to be submitted to the FDA. As we continue to work collaboratively with the FDA, they have clarified that rather than submit additional data on a rolling basis, the preferred path is to provide a complete package once all elements are finalized later this year. We had anticipated this might be one outcome for how we might update our submission, so it falls within our previously communicated clearance and launch time frame. We believe this collaborative approach, enabling us to stay on track with our approval and launch time lines while also advancing an enhanced next-generation AI algorithm for clearance at a potentially earlier time point is a clear sign that all of our hard work over the past few years to improve our relationship with the FDA has been paying off. Looking ahead, our priorities remain clear: to drive durable volume-led growth across cardiology, primary care and innovative channels, continue expanding margins through operating discipline, efficiency and scale, advance our innovation road map, including next-generation MCT and predictive AI build international and adjacent markets with discipline and maintain high standards of operational excellence and compliance in a rapidly evolving healthcare environment. With that, I'll turn the call over to Dan. Daniel Wilson: Thank you, Quentin. iRhythm delivered continued strong financial performance in the first quarter of 2026, reflecting durable demand for iRhythm's ambulatory cardiac monitoring services and disciplined execution across the organization. Our results demonstrate once again our focus on profitable growth as we recorded another quarter of strong year-over-year revenue growth, while driving 880 basis points of improvement to adjusted EBITDA margin. We are encouraged to see the continued growth in the business while driving strong operating leverage. We delivered revenue of $199.4 million, representing 25.7% year-over-year growth. Performance was driven primarily by sustained volume demand across our customer base, reflecting continued strength in our core business and contributions from newer growth channels. Volume remained the primary driver of year-over-year revenue growth, while we also benefited from improvements with our estimated collections reserves related to our market access, contracting and collection efforts. These results were supported by continued engagement across a broad and expanding prescriber base, reinforcing the durability of volume demand. New store growth, with new store defined as accounts that have been opened for less than 12 months, accounted for approximately 64% of our year-over-year volume growth. Home enrollment for Zio Services in the U.S. remained consistent from prior quarters at approximately 23% of volume in the first quarter. Moving down the P&L. Gross margin in the first quarter was 70.9%, an increase of 210 basis points year-over-year. This sustainable improvement was driven by continued operational efficiencies, including manufacturing automation and workflow optimization as well as scale benefits from higher volumes. First quarter 2026 adjusted operating expenses were $153.5 million compared to $140.4 million in the prior year period, an increase of 9.3% year-over-year, primarily driven by an increase in volume-related costs to serve, litigation-related expenses and investments to drive future revenue growth. We invested purposefully in the business to fuel near, mid- and long-term growth while delivering strong operating leverage with revenue growing meaningfully faster than operating expenses. On the bottom line, GAAP net loss for the first quarter was $13.9 million or a net loss of $0.43 per diluted share compared to a GAAP net loss of $30.7 million or a net loss of $0.97 per diluted share in the first quarter of 2025. Adjusted net loss for the first quarter was $11.3 million or a net loss of $0.35 per diluted share compared to an adjusted net loss of $30.3 million or a net loss of $0.95 per diluted share in the first quarter of 2025. Adjusted EBITDA for the first quarter was $14.1 million or 7.1% of revenue, representing an 880 basis point improvement year-over-year and a significant improvement in profitability, demonstrative of the operating leverage inherent in our business. Free cash flow during the first quarter was negative $33 million, in line with normal seasonality attributable to annual compensation payments and working capital seasonality. We ended the quarter with $549.6 million in cash, cash equivalents and marketable securities, a strong cash position that provides us with substantial flexibility to support future growth initiatives. Looking ahead, we are raising full-year 2026 revenue guidance to $875 million to $885 million, representing 17% to 18% year-over-year growth. This outlook reflects sustained demand across our core business, while maintaining a disciplined approach to forecasting newer and emerging channels. On a full-year basis, we continue to expect pricing to be approximately flat overall to 2025, with revenue growth driven by continued volume growth across core Zio Monitor, Zio AT, innovative channels and international. In the second quarter of 2026, we anticipate revenue to be in the range of $218 million to $220 million, consistent with typical revenue seasonality. For gross margin, we expect the clinical operations and manufacturing efficiencies we've driven will continue to incrementally improve our gross margin profile for the full-year 2026. We believe that these sustainable improvements will continue to lower our cost to serve as we leverage our fixed cost infrastructure over a higher volume of patients over time and introduce new artificial intelligence and workflow tools. Regarding the current geopolitical situation, we have cost containment initiatives in place and do not expect a material impact to gross margin. From a profitability standpoint, we are raising our full-year 2026 adjusted EBITDA margin guidance to 12% to 13%, reflecting increased operating leverage and a balanced approach to investing in our key priorities, including product innovation, commercial initiatives, international expansion and platform capabilities. For the second quarter 2026, we anticipate adjusted EBITDA margin to be between 11.5% and 12.5%. We continue to expect full-year free cash flow in 2026 to grow versus 2025 with free cash flow more heavily weighted in the second half of the year due to normal operating seasonality. In summary, our first quarter results demonstrate the resilience of our business model and the progress we are making in scaling our platform with disciplined investment. We are seeing increasing validation of the value our services deliver, particularly in their ability to help lower downstream healthcare utilization. This dynamic reinforces demand for our solutions, especially as healthcare systems remain focused on efficiency and cost-effective care delivery. We similarly remain focused on growing the number of patients we serve while operating efficiently and investing in the opportunities we believe will drive sustainable growth in our business. I will now turn the call back to Quentin for closing remarks. Quentin Blackford: In the first quarter, we were pleased with our start to the year with strong top line growth, continued margin expansion and ongoing investments in the capabilities that support durable long-term value creation. As we enter iRhythm's 20th year, our performance reflects the strength of our platform, the discipline of our execution and the relevance of the problem we are solving. Arrhythmias remain a significant clinical and economic challenge. They are often episodic, asymptomatic or misattributed to other conditions and are often missed by short-duration diagnostics. Delayed or misdiagnosis can lead to worse patient outcomes and avoidable costs across the healthcare system. iRhythm sits at the intersection of several powerful trends, an aging population, increasing prevalence of arrhythmias, growing cost pressure, cardiology capacity constraints and the shift towards value-based proactive care. We believe the market opportunity ahead is significantly larger than it has historically been recognized and that our platform positions us well to lead that expansion to create long-term value for patients, physicians, providers, payers and shareholders. Our focus remains on disciplined execution. We are driving volume-led growth by expanding access through primary care and integrated networks, advancing our platform through AI and workflow innovation and investing selectively where we see clear clinical and economic return. Looking ahead, the opportunity is not only about expanding the market, it's about strengthening our platform advantage. Our growing clinical data set, AI capabilities and deep body of clinical validation increasingly differentiate iRhythm. As healthcare increasingly prioritizes accuracy, evidence and efficiency, we believe validated data-driven diagnostics will be increasingly important in improving outcomes and lowering system cost, attractively positioning iRhythm to create long-term value for all stakeholders. Before we move to Q&A, I want to briefly touch on a couple of items that are often top of mind. With respect to the DOJ, we have not received any request for additional information since the CID issued in December and continue to cooperate fully. Separately, regarding finalization of the local coverage determination, we have not yet heard back from the MACs. As expected, timing remains uncertain given the current official silent period. With that, we're now happy to take your questions. Operator: [Operator Instructions]. Your first question is from Allen Gong with JPMorgan. Allen Gong: Just the first one is going to be on the guide. You're coming off of a quarter where I think you came in $5 million or so above consensus. You raised the full-year by that amount, but then the rest of the year implies a bit of a deceleration from there. Help me understand how much of that is conservatism? How much of that is informed by what you're seeing so far in April? Daniel Wilson: Yes. Thanks, Allen, for the question. I guess maybe to start, as always, we don't like to get ahead of ourselves. It is early in the year, and we want to be thoughtful around how we set up the year. Certainly, a great start to the year in the quarter. We talked about momentum kind of across the different business. Really encouraged about what we're seeing and the trends that we expect to see for the remainder of the year. I would point the back part of the year, in particular, starts to have some pretty difficult comps given the performance that we had in 2025. Again, feel really good about what we're seeing in the business. There's certainly potential upside that we're not going to bake into the guide given the early part of the year, and that's a similar approach that we've taken previously. If those play through, that's great, but there's a reason we leave them outside the guide to start. Like what we're seeing in the business, a lot of good contribution across the different growth drivers in the business. Quentin Blackford: Allen, I'll just jump in. This is Quentin. In terms of what we're seeing in April, we're encouraged by what we're seeing there, good results. We feel good about that. Obviously, we can contemplate that in the reiteration of the guide and the increase in the guide as well. One last point I'd just make with respect to what Dan had commented on and your point on the slower growth rates in Q2, Q3 and Q4. When you look at things on a stacked growth comp basis, the momentum is very, very strong, and so despite the tougher comps we're running into year-over-year in the next few quarters here, which we contemplate, the overall momentum in the business continues to be really strong. Allen Gong: Then just as a follow-up, I think one of the pressures on the broader medtech space recently has been a fear around AI. Looking at your business, it does seem as though you might be a little bit more exposed to that even more so than other medtech companies. You're talking about this new algorithm that you're planning to launch. But when we think about potential competition from outside of the traditional medtech sphere, how concerned are you about that? How do you position yourself to better compete against those kinds of entrants? Quentin Blackford: Yes, it's a fair question. It's one that we get a lot. It's one that I feel very good about in terms of our defensibility and the moat that we've built in the business. I think you have to keep in mind, we're not simply just offering a software capability or an algorithm. It's much more than that. It's running an end-to-end program for these customers of ours around cardiac monitoring and ultimately arrhythmia diagnosis, which includes, for sure, AI capabilities that we've now got 20 years of experience behind us, a 3 billion hour data set that's curated ECG data that we can build off of. Frankly, that's been part of what's enabled us to move into spaces like predictive capabilities, and we're excited to be launching our first commercial predictive AI collaboration that I mentioned in prepared remarks. It's also what's enabled us to advance our next-gen algorithm that will reduce our technician review time by nearly half over the next several years, which is going to be a meaningful financial contributor. It's the power of that data that allows us to move quickly in those spaces but also the broader end-to-end program that we enable these customers to be able to run without worry, whether that's a hardware device on the front end, like our patch that has incredible patient compliance. 98% of our folks will wear the patch up to 14 days. We know duration of monitoring is important. Getting a longer duration wear period is important, which is more than just an algorithm. That's a form factor in a hardware component. There's the intake process of receiving these things, downgrading the data or -- downloading the data, sorry, coupling it with the patient context that's provided with it. There's many times that you look at feedback and there might not be any arrhythmia in the ECG data, but the patient feedback in the diary or the electronic digital-facing app is meaningful. The physician wants to know that. You're not going to capture all that in just an algorithm alone. Then on top of that, it's got to be clinically validated and upheld to the FDA scrutiny from a quality perspective or you could go on to reimbursement. There's a massive market access component to ensuring that your solution is reimbursed, and that takes tremendous effort. I think we're up to 93% of all lives in the U.S. are now covered with respect to access to Zio. That takes time and effort with other solutions. There's a lot that goes into it. It's not just simply an AI capability. It's an end-to-end program that's being run that we have mastered over the years, and we have a market-leading position for a reason, and we will continue to defend that well. I think the platform we've built ultimately gives us the ability to drop incremental AI capabilities on and through the large integration platform that we have with the vast majority of our customers enable them to have access to some of these capabilities seamlessly on their side. They're not having to integrate multiple times over. They have a single point of integration with iRhythm. We can bring to them several of these solutions and give them very quick, easy access. I'm excited by the position we have. We'll continue to move quickly, and we're bullish on the position we have here. Operator: Your next question is from Stephanie Elghazi with BofA. Stephanie Piazzola: I wanted to ask on the EBITDA margin in the quarter was pretty strong at 7% and better than your guide of 3% to 4%. Just curious what drove that outperformance? Then you raised the guide slightly to 12% to 13%. Just curious why not raise more. Maybe it's just early in the year, but yes, curious your thinking on that. Daniel Wilson: Yes. Thanks, Stephanie, for the question. Maybe the second part of your question first there. Yes, we are raising the guide essentially by the magnitude of the beat in the quarter. Again, early in the year, I don't want to get ahead of ourselves, but certainly seeing the profitability flow through nicely in the business and saw a nice result there in the quarter. I would just comment really continued strong execution across our teams. We've seen gross margin continue to step up nicely. A lot of efficiencies being driven within our clinical operations team, our manufacturing teams and the automation that we've implemented. Certainly, continued opportunity there as we leverage our scale, leverage technology, our next-generation algorithm, as we mentioned, and have a nice road map there to continue to drive efficiencies and operating leverage. Below gross margin, I'd say similar efficiencies and automation. Then maybe we'll just call out some of the maybe more underappreciated aspects of our business that can drive nice operating leverage. That we've talked about innovative channel, the one-to-many selling model that is present in that channel, and that has real operating leverage that's playing through. You think about our land and expand model as we open an account and then expand in the primary care and other prescriber bases, and we can do that really, really efficiently. Related to that, EHR integration, integration drives operating leverage on an account level basis and really allows us to expand prescribers in a really efficient way. Then certainly, within G&A, we've been hard at work there, very disciplined and a lot of opportunities to continue to drive leverage there. Really excited about what we've driven to over the last couple of years, but see a lot of opportunity in front of us to continue to drive profitability expansion. Stephanie Piazzola: Then just wanted to follow-up on the next-gen algorithm. I think that was a new positive update, and you mentioned some of the efficiency benefits it can bring. I was wondering if anything else you can share on the features of this next-gen algo? Then just to confirm, you said it's a separate filing from MCT, but submitted at a similar time. Could we be expecting FDA approval in the coming months? Then what's the plan for rolling that out once you get approval? Quentin Blackford: Yes, Stephanie, this is Quentin. In terms of the financial lever, there's probably not a larger financial lever that we have in the business, quite honestly, than this next-generation algorithm when it gets implemented. We're excited by what that will bring. Our view is it has the opportunity to cut review time by nearly half, if not more, over time, which is going to allow us to scale very, very efficiently into the future, and so as we do some of the math around it over the next 5 years or so, it's well north of $100 million of value on a cumulative basis that we expect to be delivered from this. This is a meaningful lever for us that we're excited to get into the company and start to realize the benefit from it. To your point, we did submit it last year alongside MCT. It continues to run independent and on its own time line. We would expect approval later this year. We'll be sure to keep you updated when that approval comes. In terms of implementing it, we will implement it alongside MCT, when MCT is approved and implemented in the first half of '27. There's some work from the development teams to integrate that algorithm onto the production side. We will team that up with the MCT launch as well and keep those coupled. That's how we're thinking about it. Operator: Your next question is from Vijay Kumar with Evercore ISI. Your next question will be from Brandon Vazquez with William Blair. Unknown Analyst: It's Max on for Brandon. You guys have a handful of innovative channel partners that have been with you for a few quarters now. Can you guys just touch on what you've learned from the more tenured relationships and how that's helping you guys as you approach some of the newer accounts? Quentin Blackford: Yes. One of the things that's most encouraging with our innovative channel partners is that every single one of these partners who patched with us in 2025 is up and patching consistently in 2026. We're starting to see more consistency in that channel. Quite honestly, there will continue to be lumpiness at that customer level, but overall, we're seeing more consistency in it. We're encouraged by that. We continue to sign up some new partners over the course of Q1. The pipeline is incredibly healthy as we head into Q2, same with Q3. We're excited by what innovative channel partners will bring to us. We're starting to see a bit more consistency around it. We want to see that continue to play out into the future before we start to get ahead of ourselves, but we're starting to see what we anticipated we might in those areas. The other thing that's really encouraging is what we're seeing in that channel partner business is most of these customers start with us on the asymptomatic side or maybe better described as undiagnosed, unaware arrhythmia patients. These are folks who generally have symptoms in their medical records. They're just not aware of them or they're being confused with other disease states like type 2 diabetes or COPD, CKD, sleep, you go down the list. What's encouraging in what we're seeing with our innovative channel partners is that folks who started on the asymptomatic side are actually starting to use the device much more on the symptomatic side of their business as well. I think part of that comes back to the attributes of the Zio product itself. These folks are learning through their own real-world data that longer duration monitoring produces a higher diagnostic yield. It doesn't miss the arrhythmias. Where in the past, maybe their symptomatic patients were using a traditional Holter short duration sort of monitor, they're missing them, and they're realizing that and they're starting to patch with longer duration. A lot of really interesting, encouraging trends coming out of that part of the business. We're very bullish on what that means for the future and opening up the 27 million patient TAM that we think is out there. It's still early, but we've been encouraged by what we're seeing. Unknown Analyst: Then, Quentin, you previously talked about how MCT can eventually drive share closer towards that 40% to 50% range over time. How should we think about that market share ramp once MCT launches in first half of '27? I understand AT continues to take share. Should we see that MCT launch as a continuation of that trend? Then how does the next-gen algorithm with MCT play into that? Quentin Blackford: Yes. Look, I think the right way to think about it is a continuation of the trend. We know that the new MCT product closes a lot of the competitive gaps that our current ZAT product has, but I think we're going to want to see that product play in the market before we're going to guide to something different. I think the right way to think about it right now is a continuation of the trend that we see with Zio AT with a lot of excitement that it has the potential to do even better than that. That's probably not how we're going to set expectations out of the gate. I would say with Zio AT's performance, we continue to demonstrate the ability to take share with an inferior product. We're just all the more excited by the ability to get MCT into the product -- or sorry, into the market. With respect to getting the algorithm into the product, it's going to drive meaningful gross margin benefit. One of the nice things about Zio MCT is it's coming on the same form factor that our Zio Monitor is already on, which is going to enable us to leverage a lot of the automation from a manufacturing perspective that we already have. We were already going to see a nice benefit from AT into MCT. Now that we are able to drop the next-gen algorithm onto that platform as well, it's going to really enhance the gross margin profile. We're excited by that. I would note, though, that next-gen algorithm, while we'll bring it to market alongside Zio MCT, it will apply across our entire platform. It's going to be immediately applied against Zio Monitor and the large presence that we have there. We'll continue to run on the Zio AT product as we work through those inventory levels and migrate towards Zio MCT and we'll also be on the MCT product. It's a complete platform application of that new algorithm that we're excited by. Operator: Your next question is from Vijay Kumar with Evercore ISI. Unknown Analyst: This is Kevin on for Vijay. Just the one on the DOJ CID request. I know you mentioned there has not been any request for additional information. Can you just update us on what exactly asked for so far? Looking forward, do you have maybe a preliminary view on what the range of outcomes might be here from this request? Quentin Blackford: Yes. No, the request for information in that CID was very consistent with the original subpoena that dates back to 2023. It seems very clear that they're focused in and around the AT product line and really specific to dates back in the '17 to '21, '22 time frame. That's what we can infer from the line of questions and the information request. To go beyond that, it would be hard for us to do. There's not much more clarity we can give. It just seems like for the breadth of their review and investigation has been focused in that area and tied into those time frames. As we have more clarity, we'd be happy to share it with you. Obviously, Zio AT was not a big part of our portfolio back in those early days. It was newly launched and was growing over time. It's hard to size up anything along those lines though, and that's not something we would speculate on. Operator: Our next question will be from Nathan Treybeck with Wells Fargo. Nathan Treybeck: Are you beginning to see any benefits flow through from reconfirmations for chart-derived diagnoses? Are you anticipating any benefit in your guidance? Quentin Blackford: We haven't contemplated anything in the guide, Nathan, in particular. We continue to believe that we're in a very good position relative to the focus around the chart-derived mention that has been made out there and the increased scrutiny around it. From our perspective, our partners consistently use Zio to get to a confirmed diagnosis, which is exactly what CMS is trying to get to is ensure that there's a real confirmed diagnosis versus just speculation of the chart-derive nodes, and so we like the position. We haven't seen a change in behavior necessarily. To be honest with you, most all of our channel partners are using the product to get to that confirmatory diagnosis, and that's what they've been using from the beginning of the relationship. We'll continue to monitor it and watch it. We think this is a nice tailwind in the business and I expect that's how it will play out, but we haven't adjusted anything in guidance at this point for. Operator: Your next question is from David Rescott with R.W. Baird. David Rescott: Congrats on a good start to the year here. I wanted to ask about the sleep market. It sounds like there's some pilots that are ongoing, but would be curious to hear maybe from our perspective, when we should expect to maybe hear something more on sleep, when we should be thinking about this potentially becoming some type of opportunity that you're more meaningfully moving into. Then when you think about the competitive offerings that are out there, what value do you think iRhythm can bring to that market with not only a hardware component, but also just the broader service offering longer term? Quentin Blackford: Yes. Look, I think you're going to hear us continue to talk about sleep over the course of the year, David. It's an important strategic opportunity for us and one that our pilots are validating to us is real. In terms of meaningful contribution, we'll talk about that as we get out into '27. I don't see it as being something that's going to move the needle in a significant way just yet, but as we get more confidence in it and lean into it, we'll keep you apprised of that, and we'll speak to it when that time comes. I do think that we have a real opportunity to disrupt this space. It's more than about simply a home sleep device, and it's more about an algorithm that can identify and detect sleep disease. This is very similar to what we did with cardiac arrhythmias. We disrupted an entire marketplace by providing an easier end-to-end solution to identify, monitor and diagnose these patients. Right now, sleep patients are being lost in their journey, whether it's getting referred from primary care on to cardiology, on to a sleep practice to a sleep lab to a home sleep test that they never receive or don't send back, like the entire system is just very fractured and one that we believe we can bring a lot of organization to and make it as simple as when that physician wants to order a sleep test. It's as easy as hitting a button in our digital tools, Zio Suite, we get a device to that patient, could either be in the clinician's office. It could be through home enrollment just like we do today with cardiac arrhythmias. The they wear the device. We get the information back. We can provide a report right through an IDTF capability and provide that report right back through the digital tool to that physician where it ends up being incredibly seamless and all that back-end effort is invisible to the physician. We think that is a real opportunity to disrupt in this space. We know from our market channel checks that our customers are prescribing home sleep tests already or would be more than willing to prescribe home sleep test. I think that as we continue to move further up the care pathway, as you see the proliferation of even GLP-1s into the marketplace to treat sleep disease, you're going to see more prescribing in primary care. We can make this very seamless and very easy for the physician. We're excited by that. I think it's much more than just a home sleep test itself. It's about the workflow efficiencies that we can create and I don't think there is a single competitor out there who's able to disrupt and provide an offering in the market like we can. There's nobody else who brings that end-to-end solution like we do today. There's a lot of mom-and-pop one-off sleep practices or sleep IDTFs, but nobody is integrated seamlessly in a workflow like we can be, particularly through the large presence of system integrations that we already have, I think there's a real opportunity to disrupt this. Operator: Your next question is from Marie Thibault with BTIG. Unknown Analyst: This is Alex on for Marie. Congrats on a nice quarter. I just wanted to ask some questions on the international business. You guys mentioned in the prepared remarks that you recently got an update to the reimbursement framework with a supplemental payment. I was just curious on if you could provide any more detail on that? Is there any more ongoing work to try to continue getting the reimbursement rate further up there? Daniel Wilson: Yes. Thanks, Alex, for the question. We did see -- and that's specifically in Japan, we did see a small increase in the reimbursement rate there. It is still below what we think is ultimately the value that we are bringing to the market, and we are still running the head-to-head study and collecting that data to ultimately secure more favorable reimbursement in that market. We will continue to work towards that -- that's likely a 2027 event, but we're looking to collect that data and ultimately get to more favorable reimbursement. Encouraging that we saw a bit of a step-up here recently, but again, I don't believe that reflects the value that we're bringing into that market, and we're going to continue to pursue that premium reimbursement. Operator: Your next question is from Richard Newitter with Truist Securities. Unknown Analyst: This is Filipe on for Rich. Just on the proposed LCD for ACM, if you could just help us understand if that was finalized today in its current state, what are your expectations for just potential impact or implications? Just second question upfront. Just on the electrophysiology opportunity, I guess, can you help us understand like what inning of penetration you are in there? Maybe how does the MCT approval unlock patients you're maybe not getting to? Quentin Blackford: I'll address the first one on the LCD. I'm not sure I exactly follow the second question there, but I'll give it a shot. With respect to the LCD, to your, I guess, specific question of it's implemented as written today, what would that impact be or what we would see. The reality is, as it's written today, it would move just about everything into an MCT category because it's requiring continuous monitoring with 24-hour monitoring, I think, is exactly what the language is in the LCD has currently awarded. If that were the case, you're going to be moving a significant amount of LTCM monitoring business into the MCT category, which would have a significant uplift from a revenue perspective on the company, which I don't believe is probably the intention of what the 3 MACs who are putting that proposed language forward. Now we have engaged directly with the MACs. Nearly all of industry has engaged with the MAC. I think we're all pretty consistent in our recommendation with respect on how to clarify that language, and we expect that we'll see that get revised in some sort in the final language that they put into that LCD. I think if you look at the LCD as it's currently written, it would start to really confuse or even contradict some of what's in the national coverage decision that is out there, which that is not the intent of the LCDs. I think they're trying to provide more clarity around what they want to see within the MCT category, but as currently written, it starts to restrict the ability to provide the other modalities of monitoring, and I just don't believe that that's what they're after. We'll continue to engage with them on the opportunities where they present themselves. They're in a quiet period as we speak, and so we're waiting to see what comes out of that. I think there are other LCDs that are out there who have -- that have been written to sort of clarify around ambulatory cardiac monitoring. Novitas is one of those. I think they did a pretty nice job of providing that clarity. You might end up seeing the 3 MAC here end up with something closer to that. That's speculation. I don't know exactly. As currently written, it would move the majority of the market into an MCT style monitor, and that cannot be what the intent is of the cost of monitoring for the overall healthcare system would be increased dramatically. Operator: Your next question is from Suraj Kalia with Oppenheimer. Suraj Kalia: Quentin and Dan, congrats on a nice start to the year. Quentin, a number of calls going on. Forgive me if you've already talked about this. 2-part question. I'll pose it right upfront, Quentin. Where do you think the current monitoring market stands? I know there are numbers of 5 million, 6 million that historically we have used, but you guys continue on this solid growth trajectory, which means the overall pie is shifting. Can you quantify just in terms of where currently the long-term monitoring is versus the MCT, at least in terms of the U.S. patient, that would be great. Quentin, the second part of my question, if I could pose, there has been a lot of chatter about EP slowdown. I know this is derivative, but are you also picking it up in Zio scripts in post-ablation hospital monitoring? Quentin Blackford: Yes. Good question. With respect to the monitoring market, our view is that monitoring market is somewhere around 6.5 million to 7 million tests today in the U.S., of which probably 3.5 million of those tests are long-term cardiac monitoring or patch-based longer duration monitors, of which we have probably 72% of that market is sort of what our market share estimate is based upon the last data points that we had. There's also about 1 million MCT tests that are being performed in the U.S. market. That's a rough estimate, but that's what our data is telling us. Just in terms of framing up the market, that's how we think about those 2 modalities. I do think that we are expanding the market, though. We're very excited by the fact that we think the market is much larger than anywhere close to the 6.5 million tests being performed today. There's 27 million folks at least in the U.S., who most likely have arrhythmias just have been undiagnosed and unfortunately, are confusing the symptoms of those arrhythmias with other comorbid disease states. It's our intent to go open the market and find those folks, and that's a big part of why the predictive algorithm capabilities that we've built and are now implementing in our first commercial relationship are so important to us. We know we can find these patients. Importantly, we find them and get them monitored because when you diagnose early, the downstream reduction in cost is proving to be very clear and very significant, and we know we can bend that cost curve. In terms of your point on the EP slowdown, I would say there's nothing in our data that would give us that indication at this point. We'll pay close attention to it. It's a little bit of an interesting dynamic. The data continues to sort of coalesce around the fact that longer duration monitoring even post-ablation is quite important. The current guidelines today, I believe, for post-monitoring of a PFA procedure is somewhere around 2 to 3 months out, you're generally monitoring with a short duration monitor and then you're monitoring on an annual basis as well with a short duration monitor. The data would tell us that I think we're missing 25% to 30% of arrhythmias that are present as a result of not using longer duration monitoring in those particular procedures. That becomes quite important, even dangerous because if you're starting to change anticoagulation prescribing off of a short-duration monitoring and you're missing the arrhythmias, you may be stopping too soon on this, which puts the patient at risk, and so that data continues to build. We had some interesting data that was put out at HRS. What I suspect you could see and we might be seeing, I don't know, Suraj, is if there is a slowdown, we might -- maybe we end up seeing an offsetting mix switch towards longer duration monitoring at mask that. I don't have anything to indicate a slowdown at this point in time. Our data wouldn't tell us that either, but I do think we're in a nice position here to increase the amount of monitoring post PFA procedures. Operator: Your next question is from Gene Mannheimer With Freedom Capital Markets. Gene Mannheimer: Congrats on a good quarter and outlook. Along some of the lines that were discussed, kind of running ahead of guidance and raising it, have you contemplated any change to your long-term financial targets? Follow-up would be, could you just remind us the percent of registrations coming from primary care lately? Daniel Wilson: Yes. Gene, thanks for the questions. We have not updated the -- our long-term guidance that's out there for 2027 revenue, gross margin and adjusted EBITDA margin. Certainly, the guidance that we have for 2026 puts us on pace to deliver those targets as we get a bit closer we'll think about potentially updating those, but continue to feel really good about ultimately delivering on that long-range guidance that we set back in 2022. On the second part of your question, we continue to see primary care increase as a percent of volume. That is a big part of the growth that we're driving and moving upstream into primary care. Last quarter, we mentioned over 40,000 primary care prescribers. We see that number continue to increase. We gave a metric at one point, call it, roughly 1/3 or a little bit over 30% of our volume coming from primary care, and that has been steadily upticking as well. That will remain a growth driver for the business, and we're excited about what that means. Operator: Your next question is from Bill Plovanic with Canaccord Genuity. Zachary Day: It's Zachary on for Bill. What you were just speaking about with longer-term monitoring showing that arrhythmias can be missed even after ablation because of shorter-term monitoring. I understand that you're generating data around it, but is there any interaction with societies about switching the protocols for these studies? Or I think someone asked before about interaction with EPs, but in those post-ablation patients, is there any penetration you guys can pick up from there? Quentin Blackford: I think it's certainly an approach and one that we would be very interested in pursuing and certainly be moving down that pathway. Clearly, you need data and you need real data. I think that data is just coming together. This was the first study that was published here recently, and we'll continue to add to that and accrue the data behind it to make it even more powerful. Ultimately, you would love to see those guidelines change. I mean the guidelines today just frankly, leads to a situation where you may be putting patients at greater risk than what you could be if you were using a better modality of monitoring. We know that, that monitoring is there. We know that Zio is it. If we can change guidelines, we will certainly lean in to try to do that. Operator: Your next question is from David Roman with Goldman Sachs. Unknown Analyst: This is David on for David, all by myself this afternoon. I wanted just to ask about the profitability here, maybe as I look at the $5 million raise in revenue for the year, you're also putting through roughly a $5 million raise on EBITDA. The incremental gross margin continues to go up, I think, now approaching something like 80% if you look at Q1. Maybe you could help us just think through some of the factors contributing to the improved P&L here, the drop-through rate you're seeing? Then as you reflect on the margin upside, where are some of the biggest opportunities for incremental investment here? Daniel Wilson: Yes. Thanks, David. I appreciate the question, and we are really excited about what we're seeing in the business in terms of profitability. It does start with gross margin, and we've seen nice leverage there and continued gross margin expansion and see a good kind of road map to continue to drive that. We've talked about manufacturing automation and subsequent phases there continuing to drive efficiencies on, call it, the device side of our cost of service. Within the clinical operations, opportunities there to continue to drive efficiencies with our next-generation algorithm and clinical kind of workflow tools, and we're making those investments now, have been making those investments, and we'll look to implement those to continue to drive gross margin leverage. Then on the rest of the P&L from an OpEx standpoint, we do feel really good that we have a balanced approach here, where as we drive upside in revenue and grow revenue year-over-year, we are letting some of that play through and land at the bottom line while reinvesting back into the business. There isn't a shortage of things that get us excited about in terms of investing into the business. Zio MCT, certainly, the next-generation algorithm, as I mentioned. Clinical evidence has always been something we want to invest in. We'll continue to invest in. We have a nice road map there as we look at the back part of this year. There's a lot we can do from a marketing standpoint. Opportunities there to invest into programs there. International is an opportunity we're investing in to open up as is innovative channel, as is sleep. A lot of opportunities for -- and I don't think I named them all. A lot of opportunities to make investments in the business, and that's what gets us excited and drives us to be as disciplined and as efficient as we can in the spend that we control. We afford ourselves the opportunity to invest in those items that I mentioned. Operator: There are no further questions at this time. I will now turn the call back over to Quentin Blackford, President and CEO, for closing remarks. Quentin Blackford: Well, thank you. As we close another strong quarter, I want to once again thank our iRhythm employees around the world. Their execution has been very good, and our results are a direct reflection of their hard work. Our future has never been brighter, and our market continues to expand around us with many meaningful drivers. As we enter our 20th year, I couldn't be more proud of the team, and I couldn't be more confident in the future that we will achieve together. Thanks for your time. I'll see you guys all soon. Take care. Operator: This concludes today's call. Thank you for attending. You may now disconnect.